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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 000-23677
NEWMARK HOMES CORP.
(Exact name of registrant as specified in its charter)
Delaware* 76-0460831
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1200 Soldiers Field Drive Sugar Land, TX 77479
(Address of principal executive offices) (Zip Code)
281-243-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, par value $.01
NASDAQ National Market
(name of each exchange on which registered)
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]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of March 19, 2001, Registrant had outstanding 11,500,000 shares of common
stock. Of the total shares outstanding, 2,204,700 shares of common stock were
held by non-affiliates of the Registrant, having an aggregate market value on
that date of $23,700,525 (based on the closing sales price on the NASDAQ
National Market).
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Documents incorporated by reference:
Related
Section Documents
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III Definitive Proxy Statement to be filed pursuant to Regulation 14A on
or before April 30, 2001.
*Subsequent to the fiscal year end, the Registrant completed a reincorporation
merger to change its domicile from Nevada to Delaware, such reincorporation
being completed March 22, 2001. The reincorporation was accomplished through a
merger of Newmark Homes Corp., a Nevada corporation, into a newly formed
Delaware subsidiary.
PART I
ITEM 1. BUSINESS
GENERAL
Newmark Homes Corp. (the "Company"), a Delaware corporation, is the
holding company whose subsidiaries operate in the home building industry under
the names Newmark Home Corporation ("Newmark"), Westbrooke Communities, Inc. and
affiliated entities (collectively, "Westbrooke") and The Adler Companies, Inc.
("Adler"). The Company also owns a lot development company, Pacific United
Development Corp. Through its operating subsidiaries, the Company designs,
builds and sells single-family detached homes in ten major markets within the
Southwest and Southeast United States, including Houston, Austin, Dallas/Fort
Worth and San Antonio, Texas; Ft. Lauderdale, Palm Beach and Miami, Florida
("South Florida"); Nashville, Tennessee; and Charlotte and Greensboro/
Winston-Salem, North Carolina. Each of these markets has experienced population
and job growth above the national average over the last several years. The
Company operated in 89 subdivisions in these metropolitan areas and had 824
homes under construction at December 31, 2000. In addition, the Company is
actively engaged in residential land acquisition and lot development and as of
December 31, 2000, owned or had under option contracts 4,280 lots available for
future growth.
In Texas, Tennessee and North Carolina, Newmark offers high-quality
homes, designed principally for the "move-up" and relocation market segments,
under the Newmark(R) trademark. Typically, Newmark(R) homes range in size from
1700 square feet to over 4500 square feet and range in price from $140,000 to
$400,000, with an average sales price of $254,000 for homes closed during 2000.
Newmark also offers custom homes under the Fedrick, Harris Estate Homes name
that range in size from 3500 square feet to over 7000 square feet and range in
price from $300,000 to over $1,000,000, with an average sales price of $475,000
for homes closed during 2000. Revenues generated from sales of Fedrick, Harris
Estate Homes were 16%, 16% and 14% of total homebuilding revenues of the Company
for 2000, 1999 and 1998, respectively. During 2000, Newmark established a new
division - Marksman Homes ("Marksman") to further penetrate home sales in its
more mature markets. Marksman's first models were constructed in Houston and are
designed to appeal to first-time buyers and married couples without children
living at home ("empty nesters"). The units are priced from $130,000 to
$160,000, and range in size from 1550 square feet to 2458 square feet with an
average sales price of $150,000 for homes closed during 2000.
In the South Florida market, Westbrooke (which includes Adler
operations) offers high-quality homes ranging from first-time buyers to
homebuyers desiring to buy more expensive residences ("move-up" homebuyers).
These homes range in size from approximately 1350 square feet to over 3500
square feet and are priced from $125,000 to $351,000, with an average sales
price of $205,000 for homes closed in 2000. The Company closed the last home
marketed under the Adler name in October 2000.
The Company's homebuilding operation is positioned to compete with
other high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. Homebuyers are given the ability to select various design features in
accordance with their personal preferences. Through a volume building approach,
the Company's custom homes generally offer more value than those offered by
local, lower-volume custom builders, primarily due to the Company's effective
purchasing, construction and marketing programs. While most design modifications
are significant to the homebuyer, they typically involve relatively minor
adjustments that allow the Company to maintain construction efficiencies and
result in greater
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profitability due to increased sales prices and margins. The Company believes
that its ability to meet the design tastes of prospective homebuyers at
competitive prices distinguishes the Company from many of its competitors.
The Company's predecessor was founded in Houston, Texas in 1983, and
was acquired by Pacific Realty Group, Inc. ("Pacific) in October 1993. Pacific's
interest in the predecessor was transferred to the Company in December 1994 when
the Company was formed. Westbrooke was acquired by the Company in January 1998
and has operated in the Miami, Florida area since 1976. Westbrooke's operations
were consolidated in 1998 with Adler, a company founded in Miami, Florida in
1990 and acquired by the Company in March 1995.
The Company's initial public offering of its common stock was
completed in March 1998. On December 15, 1999, Technical Olympic USA, Inc.
("TOUSA") purchased 9,200,000 shares of the Company's common stock from Pacific,
such stock representing 80% of the outstanding common stock of the Company.
TOUSA, a Delaware corporation, is a wholly-owned subsidiary of Technical Olympic
(UK) PLC, an English company, which is a wholly-owned subsidiary of Technical
Olympic S.A., a Greek company.
On March 6, 2001, the Company announced it is considering the
possible merger of the Company with Engle Holdings Corp. The Special Committee
of the Company's independent directors is reviewing and will make a
recommendation on the transaction to the Company's full board. The Special
Committee has engaged legal advisors and investment banks to assist in the
analysis and evaluation of the terms and fairness of the proposed merger. There
are no assurances that the Special Committee will recommend the merger or that
such a merger will be consummated. Any merger would also be subject to execution
of a definitive agreement and certain regulatory and other approvals as well as
the approval of various lenders of Engle Holdings Corp., the Company and TOUSA.
If the merger is consummated, it is contemplated that shares of Engle Holdings
Corp. would be exchanged for shares of the Company.
Newmark and Westbrooke have achieved annual profitability due to
both innovative and disciplined approaches to home construction, land
acquisition and development as well as lot purchases. The Company believes that
the tenure and experience of its officers and key employees and its disciplined
approach to business have been key factors to the Company's success. There has
been virtually no turnover among officers and key employees since the inception
of both Newmark and Westbrooke.
The Company's corporate offices are located in Houston. The
Company's divisions in Houston, Austin, Dallas/Ft. Worth, San Antonio,
Nashville, Charlotte and Greensboro/Winston-Salem are managed from the Houston
location. The Company's South Florida operations are primarily the
responsibility of Westbrooke management with support from, and oversight of, the
Company's corporate office.
STRATEGY
The Company's objective is to provide its customers with homes that
offer both quality and value, while seeking to maximize its return on invested
capital. Management believes that a balanced and disciplined approach to home
construction, land purchases and marketing is essential to the Company's
anticipated growth. To achieve this objective, the Company has developed a
strategy that focuses on the following elements:
GROWTH MARKETS. The Company's primary markets have each experienced
population and job growth in excess of the national average over the past
several years. The Company believes that growth opportunities remain in most of
these markets. The Company also continues to evaluate new markets that have
significant "move-up" and relocation segments that would satisfy the Company's
profitability, investment return and other criteria. While the Company
anticipates entering new markets primarily through start-up operations, it will
also consider the acquisition of homebuilding companies that have complementary
management styles as exemplified by the Company's acquisition of Westbrooke.
Entry into new markets is preceded by extensive due diligence and research
conducted by both management and third-party resources.
SOPHISTICATED MARKETING. The Company employs sophisticated and
comprehensive marketing programs to attract potential homebuyers. This marketing
program includes extensive telemarketing, an Internet web site, and an
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interactive software program. The Company retains a national marketing
consultant to develop its overall advertising strategy. The Company executes its
overall marketing strategy through advertising campaigns tailored to local
markets. Local marketing campaigns include coordination of realtor promotions,
subdivision grand openings, showcase presentations for custom homes, the
Company's newsletters, realtors' newsletters, product bulletins, billboards,
local newspaper advertisements and other direct sales activities. The Company's
web site, featuring a database of available inventory, allows a prospective
homebuyer to locate a home and view different floor plans, locate the various
subdivisions available in each market, and learn about neighborhood schools,
subdivision amenities and shopping as well as the Company's construction
process. The South Florida operation also utilizes an interactive software
program known as "Design Wizard" which enables a homebuyer to customize a home
that meets their needs and lifestyles. While sitting at a computer monitor
located in a sales center, the buyer responds to a series of general lifestyle
questions. Based on the buyer's responses, the interactive software program then
shows the buyer variations of a basic floor plan as well as the cost of the
proposed changes.
MARKET FOCUS. In markets with a significant number of relocation
buyers, such as Texas, Tennessee and North Carolina, the Company aggressively
competes with resales of existing homes, primarily by making available to
potential buyers completed or nearly completed homes. In these relocation
markets, the Company believes that maintaining an inventory of completed or
nearly completed homes provides distinct competitive advantages by (i) allowing
home buyers to physically inspect their future home, in many instances easing
their decision to buy, (ii) providing homes which can be moved into in or close
to the same time frame as purchases of previously owned homes and (iii) allowing
homebuyers to avoid the significant time and monetary costs typically associated
with updating previously owned homes. In the South Florida market, the Company
primarily focuses on "move-up" homebuyers, and to a lesser extent, first-time
homebuyers. In this market, substantially all homes are sold prior to commencing
construction.
MANAGEMENT TRAINING. The Company recruits and hires new management
trainees, typically with some construction experience, following graduation from
college and trains these new hires for increasing levels of responsibility
within the Company. Through continuous "on the job" experience and classroom
training, these associates become knowledgeable, experienced candidates for
middle management positions. The Company believes that one of its strengths is
its depth of middle management. This depth facilitates the Company's growth
strategy as more experienced management relocates to new markets to conduct
start-up operations while top performing middle managers are promoted to
increasing levels of responsibility for continuing expansion of existing
markets. The Company also actively seeks and employs qualified candidates for
sales and marketing positions and provides extensive training designed to
improve marketing skills and educate sales associates with respect to the
uniqueness of the Company's homes that allows them to emphasize product
differentiation in the sales process.
DECENTRALIZED OPERATIONS WITH EXPERIENCED MANAGEMENT. The Company
believes that the in-depth knowledge of its experienced management in local
markets enables the Company to better serve its customers. The Company is
organized into operating divisions, each relating to a local market area. Local
management of each operating division is responsible for preliminary site
selection and negotiation of option contracts in accordance with Company
policies. Additionally, each operating division plans its homebuilding schedule,
selects the building plans and architectural scheme for its subdivisions,
obtains all building approvals, and develops a marketing plan for its homes.
With the exception of the South Florida operation, the Company's corporate
office retains responsibility for purchasing, accounting/consolidation, and
certain other management and administrative matters, including ultimate approval
of all lot contracts, final product selection, securing all financing and
marketing plan approval. With respect to the South Florida operation, management
of Westbrooke makes the majority of the decisions related to the
responsibilities described above with support from, and oversight of, the
Company's corporate office.
CENTRALIZED PURCHASING. The Company utilizes centralized purchasing
to leverage its purchasing power into volume discounts, a practice that reduces
costs, ensures timely deliveries and reduces the risk of supply shortages due to
allocations of materials. The Company has negotiated favorable price
arrangements with high quality national and regional suppliers such as General
Electric, Rheem Manufacturing, Dupont Corian, Moen, Inc., Owens Corning, Mohawk
Industries, Dow Chemical, Royal Baths, Kwikset and Sherwin-Williams for
appliances, heating and air conditioning, counter tops, bathroom fixtures,
roofing and insulation products, floor coverings, and other housing
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components. Major materials, such as lumber, sheetrock, concrete and brick, are
also centrally purchased to obtain volume discounts. There are no minimum
purchase requirements for these arrangements.
COST MANAGEMENT. The Company controls construction costs through the
efficient design of its homes and by obtaining favorable pricing, where
possible, from subcontractors based on the high volume of work performed for the
Company. The Company controls its warranty costs through quality control that
ensures that the home has been totally finished prior to the buyer moving in,
thus enhancing customer satisfaction. The Company controls its advertising
expenses through sophisticated budgeting of expenses with extensive review of
all expenditures. Some of the Company's major suppliers and contractors also
contribute advertising dollars for special promotions of houses and products.
These campaigns feature the key suppliers' products and enhance the image of the
Company's homes through brand recognition. In addition, the Company seeks to
control its corporate overhead costs through efficiencies achieved through its
highly automated and integrated systems.
STRATEGY TO LIMIT REAL ESTATE EXPOSURE. The Company seeks to
maximize its return on invested capital and limit its exposure to changes in
land valuation by obtaining options to purchase lots whenever feasible. The
Company will also directly acquire, where appropriate, quality residential
properties that are in high demand for use in its homebuilding operations and
for sale to third-party builders. The Company's executive management establishes
targeted levels of lot options and land for development based on its strategic
plan for the overall growth of the Company. The Company targets properties for
acquisition that are both suitable for its homebuilding product and in locations
that are anticipated to maintain the homebuyers' property values. The Company
believes this strategy improves inventory turnover and enables the Company to
develop and sell or utilize the developed lots typically within two to three
years. The Company does not acquire land that is not suitable for lot
development and residential construction and does not speculate on land values
by acquiring and holding land for resale or for future development.
The Company seeks to limit its exposure to real estate inventory
risks by closely monitoring (i) its unsold inventory of new homes and the stage
of completion of homes under construction on an ongoing basis, (ii) the volume
of starts of new homes and (iii) local job market and demographic trends,
housing preferences and related economic developments, such as new job
opportunities, local growth initiatives and trends in work force median income
levels.
MARKETS
The Company conducts homebuilding activities in ten markets within
four states, including Houston, Austin, Dallas/Fort Worth and San Antonio,
Texas; Ft. Lauderdale, Palm Beach and Miami, Florida; Nashville, Tennessee; and
Charlotte and Greensboro/Winston-Salem, North Carolina. The Company's operations
in each of its markets differ based on a number of market specific factors.
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The following table presents selected lot inventory and homebuilding
data for the Company's current markets:
HOMEBUILDING/REVENUES/
LOT INVENTORY HOMES CLOSED
------------------------------------ ------------------------------------
DECEMBER 31, YEAR ENDED DECEMBER 31
------------------------------------ ------------------------------------
MARKET COMMENCED 2000 1999 1998 2000 1999 1998
------ --------- -------- -------- -------- -------- -------- --------
(Dollars in thousands/units)
Houston 1983 $163,706 $171,066 $126,138
1,328 800 632 616 631 482
Austin 1984 $170,176 $115,724 $ 82,970
518 571 697 611 511 386
Dallas/ $ 43,762 $ 45,794 $ 38,078
Fort Worth 1995 384 208 292 142 171 159
San Antonio 1998 $ 9,544
168 145 141 40 -- --
Fort Lauderdale, $193,918 $108,100 $144,780
Palm Beach, Miami 1976 1,475 1,864 2,401 946 581 814
Nashville 1997 $ 38,499 $ 33,444 $ 12,116
193 264 276 93 86 33
Charlotte 1998 $ 5,396 $ 940 --
32 42 16 20 3
Greensboro/Winston 1998 $ 9,486 $ 2,038 --
Salem 182 35 34 31 6
-------- -------- -------- -------- -------- --------
Total Lots/Revenue 4,280 3,929(1) 4,489(1) $634,487(2) 477,106(2) 404,082(2)
======== ========== ========== ======== ======== ========
Total Units Closed 2,499 1,989 1,874
======== ======== ========
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(1) Includes 2,343, 2,559 and 3,521 lots under option contracts as of
December 31, 2000, 1999 and 1998, respectively.
(2) Does not include revenues from land sales of $6.0 million, $14.6
million and $2.3 million in 2000, 1999 and 1998, respectively.
Based on the results of market research and analysis performed by
and for the Company, the Company plans to focus its development activity based
primarily on the following factors: regional economic conditions, projected job
growth, land availability, the local land development process, consumer tastes,
competition from other builders of new homes and secondary home sales activity.
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BACKLOG
The following table sets forth the Company's sales backlog by market
for the periods indicated below:
DECEMBER 31,
------------------------------------------------------------------------
2000 1999 1998
HOMES SALES VALUE HOMES SALES VALUE HOMES SALES VALUE
-------- ----------- -------- ----------- -------- -----------
(Dollars in thousands)
Houston 109 $ 31,098 121 $ 33,532 175 $ 44,915
Austin 194 56,497 295 72,396 184 40,712
Dallas/Fort Worth 51 15,773 32 9,865 57 14,952
San Antonio 13 3,349 1 250 -- --
Ft.Lauderdale, Palm Beach, Miami 453 95,411 531 106,636 315 61,733
Nashville 20 7,773 12 5,770 22 8,090
Charlotte -- -- 1 295 -- --
Greensboro/
Winston-Salem
5 1,958 5 1,650 -- --
-------- ----------- -------- ----------- -------- -----------
Total 845 $ 211,859 998 $ 230,394 753 $ 170,402
======== =========== ======== =========== ======== ===========
Backlog represents home purchase contracts which have been executed
and for which earnest money deposits have been received, but for which the sale
has not yet closed. Home sales are not recorded as revenues until the closings
occur. Sales value is calculated as the number of homes for which earnest money
contracts have been received multiplied by the average home sales price for the
specific city for the period indicated.
Consistent with historical experience, 96% and 100% of the homes in
backlog at December 31, 1999 and 1998, respectively, were closed in the
subsequent fiscal year. Based upon unit volume, contract cancellations were
approximately 15.4%, 15.0% and 12.5% of the home sales contracts signed during
the years ended December 31, 2000, 1999 and 1998, respectively. Although
cancellations can disrupt anticipated home closings, the Company believes that
cancellations have not had a material negative impact on operations or liquidity
of the Company during the last several years. The Company attempts to reduce
cancellations by reviewing each homebuyer's ability to obtain mortgage financing
early in the sales process and by closely monitoring the mortgage approval
process.
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IDENTIFICATION OF NEW MARKETS
The Company has developed a market expansion process designed to
identify and track growing homebuilding markets in the United States. The
Company's program is designed as an ongoing process and consists of three stages
which track economic and demographic activity in primary and secondary
metropolitan markets (Stage I), narrowing the focus on specific markets and
criteria (Stage II and Stage III) as they meet expansion objectives and timing.
As part of its screening process, the Company evaluates geographically diverse
markets because it believes that potential adverse economic conditions
associated with certain markets are often offset by more favorable economic
conditions in other operating areas. Consideration is also given to those
markets located near current operating markets, which could function as
satellite operations.
LAND POLICIES AND POSITION
The Company provides lot positions for its homebuilding operations
by both acquiring lot options and by purchasing land for the development of
lots. When appropriate, developed lots are sold to third-party builders to
increase inventory turnover and to enhance earnings for the Company.
Historically, the Company has been able to option a major portion of its lot
positions in the Houston market due to the brand awareness of the Newmark(R) and
Fedrick, Harris Estate Homes names among both consumers and developers, in
addition to the willingness of developers in those markets to option available
lots. The Company also acquires lot options in the Austin, Dallas/Fort Worth,
San Antonio, Nashville, Charlotte and Greensboro/Winston-Salem markets. With the
continuing strength in the housing sector, the Company has been required to
acquire some of its developed lots under specific performance purchase
contracts. The Company has developed residential lots in the South Florida,
Houston, Dallas/Fort Worth, Austin and Nashville markets and intends to continue
to do so in the future. Additionally, residential land developments may be
purchased when the Company enters new markets. Prior to any land acquisitions,
the Company conducts extensive due diligence utilizing regional expertise,
including on-site inspection and soil testing.
DESIGN
The Company's home designs and floor plans are prepared by outside
architects in each of the Company's markets to appeal to the local tastes and
preferences of the community. Using its design department and Design Wizard, the
Company has the capability to change its standard floor plans to accommodate the
individual homebuyer. While most design modifications are significant to the
homebuyer, they typically involve relatively minor adjustments that allow the
Company to maintain construction efficiencies and result in greater
profitability due to increased margins.
CONSTRUCTION
Substantially all of the Company's construction work is performed by
subcontractors. The Company's construction superintendents monitor the
construction of each home, coordinate the activities of subcontractors and
suppliers, subject the work of subcontractors to quality and cost controls and
monitor compliance with zoning and building codes. Subcontractors typically are
retained pursuant to a contract that obligates the subcontractor to complete
construction in a workmanlike manner and that provides standard indemnifications
and warranties. Typically, the Company works with the same subcontractors in
each city. The Company's subcontractors are not subject to any collective
bargaining agreements. While the Company competes with other homebuilders for
qualified subcontractors, it has established long-standing relationships with
many of its subcontractors. To date, by providing both timely payments and
steady work assignments, the Company has not experienced any inability to obtain
qualified subcontractors.
The Company's purchasing and cost accounting practices are designed
to facilitate construction flexibility. This process permits homebuyers to
modify their designs, while allowing the Company to monitor and maintain its
profitability. Construction time for the Company's homes depends on weather,
availability of labor, materials, supplies and other factors. The Company
typically completes the construction of a home within four to five months.
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The Company does not maintain significant inventories of
construction materials, except for work in process materials for homes under
construction. Typically, the construction materials used in the Company's
operations are readily available from numerous sources. The Company has
favorable price arrangements or contracts with suppliers of certain of its
building materials, but it is not under any specific purchasing requirements. In
recent years, the Company has not experienced any significant delays in
construction due to shortages of materials or labor.
MARKETING AND SALES
The Company markets and sells its homes through commissioned
employees and cooperates with independent real estate brokers. Depending on the
specific market, the Company targets the "move-up" and relocation market
segments and employs sophisticated marketing techniques to attract potential
homebuyers through numerous avenues including its Internet web site, extensive
telemarketing, interactive software programs and other marketing programs. Home
sales are typically conducted from sales offices located in furnished model
homes used in each subdivision. At December 31, 2000, the Company owned 73 model
homes. The Company's sales personnel assist prospective buyers by providing them
with floor plans, price information, tours of model homes and the selection of
options and other custom features. Such personnel are trained by both the
Company and external independent experts in sales expertise. These sales and
marketing personnel are kept informed as to the availability of financing,
construction schedules and marketing and advertising plans. The Company has also
formed sales teams comprised of a sales person and other employees from
throughout the Company to provide sales support and motivation.
In addition to using model homes, the speculative homes built in
most subdivisions enhance the Company's marketing and sales activities.
Construction of these speculative homes is also necessary to satisfy the
requirements of relocated personnel, "move-up" buyers, and independent brokers,
who often represent homebuyers requiring a completed home within sixty days. The
number of speculative homes the Company builds in any given subdivision is
influenced by local market factors, such as new employment opportunities,
significant job relocations, growing housing demand and the length of time the
Company has built in the market.
The Company advertises through television, in newspapers and in real
estate and mortgage broker company publications, brochures, newsletters and
billboards. Because real estate brokers are important to sales, the Company
sponsors realtor breakfasts, contests and other events to increase awareness of
the Company's subdivisions and products. Certain of the Company's suppliers
participate with the Company in its advertising and promotional materials,
either through co-branding and cost-sharing or through rebates.
Sales of the Company's homes generally are made pursuant to a
standard sales contract that requires a down payment of $1,000 to $5,000, or 5%
to 10% of the sales price, on custom homes. The contract includes a financing
contingency which permits the customer to cancel in the event mortgage financing
at prevailing interest rates is unobtainable within a specified period,
typically four to six weeks, and may include other contingencies, such as the
sale of an existing home. The Company includes a home sale in its backlog upon
execution of the sales contract and receipt of the initial down payment. The
Company does not recognize revenue until the home is closed and title passes to
the homebuyer. The Company estimates that the average period between the
execution of a sales contract for a home and closing is approximately four to
eight months for presold homes.
TITLE SERVICES
In 1997, the Company acquired a 49% interest in Pacific Title, L.C.,
which serves as a title insurance agent and provides title insurance policies
and closing services to purchasers of homes built and sold by the Company in
Texas. The Company assumes no title insurance risk associated with these title
policies, which are issued by Stewart Title Guaranty Company, one of the oldest
title companies in Texas. Stewart Title Company owns the balance of the
interests of Pacific Title.
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CUSTOMER FINANCING
In 1997, the Company acquired a 49.99% limited partnership interest
in NHC Mortgage Group, L.P., a mortgage origination company owned jointly with
CTX Mortgage Ventures Corporation, one of the nation's largest mortgage
companies. NHC Mortgage has underwritten, originated and sold mortgages for the
homes the Company builds and for other homebuilders. The Company's capital is
not at risk in connection with these mortgages beyond its limited partner
interest.
Subsequent to the fiscal year end, the Company acquired a 49.99%
limited partnership interest in Technical Mortgage, L.P., a mortgage origination
company owned jointly with Preferred Home Mortgage, an affiliate of TOUSA.
Preferred Home Mortgage Company underwrites, originates and sells mortgages for
homes the Company builds and for other homebuilders. The Company's capital is
not at risk in connection with these mortgages beyond its limited partner
interest.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for both
pre-closing quality control inspections and responding to customer's
post-closing needs. The Company believes that the prompt, courteous response to
homebuyers' needs during and after construction reduces post-closing repair
costs, enhances the Company's reputation for quality and service, and ultimately
leads to significant repeat and referral business. The Company conducts
pre-closing inspections with homebuyers immediately prior to closing. In
conjunction with the inspections, a list of items for home completion is
created.
After a sale, all warranty requests are processed through customer
service departments located in each of the markets. In most instances, a
customer service manager inspects the warranty request within 48 hours of
receipt. If appropriate, the repair work is scheduled to be approved by the
homeowner upon satisfactory completion. An integral part of the Company's
customer service program includes post-closing interviews. In most markets, a
customer service representative is sent into each home within 45 days of closing
to evaluate the homeowner's satisfaction with both their home and their
home-buying experience. The post-closing interview involves an analysis of the
homebuyer's experiences with the sales counselor, the title company, the
mortgage company and the construction department as well as their satisfaction
with the product. Typically, after a year, another interview is conducted with
the homeowner to determine their continued satisfaction. The subsequent
interview provides management a direct link to the customer's perception of the
entire buying experience as well as valuable feedback on the quality of the
product.
WARRANTY PROGRAM
The Company provides up to a two-year limited warranty (one-year in
the case of its South Florida operations) of workmanship and materials with each
of its homes. The Company subcontracts its homebuilding work to subcontractors
who provide the Company with an indemnity and a certificate of insurance prior
to receiving payments for their work and, therefore, claims relating to
workmanship and materials are generally the primary responsibility of the
Company's subcontractors. In all markets except South Florida, the Company
provides an additional eight-year limited homeowners' warranty covering major
structural defects through a single national agreement with the Residential
Warranty Corporation. An appropriate warranty reserve is established to cover
anticipated warranty expenses not borne by the Company's subcontractors. The
Company's historical experience is such that warranty expenses generally fall
within the amount established for such reserve. The Company does not currently
have any material litigation or claims regarding warranties or latent defects
with respect to construction of homes. Current claims and litigation are
expected to be substantially covered by the Company's reserve or insurance.
Generally, warranty claims are handled by the construction superintendent who
built the particular home to ensure that the appropriate subcontractor takes
prompt and appropriate corrective action.
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COMPETITION
The development and sale of residential properties is highly
competitive and fragmented. The Company competes for residential sales on the
basis of a number of interrelated factors including location, reputation,
amenities, design, quality and price, with numerous large and small
homebuilders, including some homebuilders with nationwide operations and greater
financial resources and/or lower costs than the Company. The Company also
competes for residential sales with individual resales of existing homes,
available rental housing and, to a lesser extent, resales of condominiums. The
Company believes that it compares favorably to other builders in the markets in
which it operates, due primarily to: (i) its experience within its geographic
markets, which allows it to vary its product offerings to reflect changing
market conditions; (ii) its responsiveness to market conditions, enabling it to
capitalize on the opportunities for advantageous land acquisitions in desirable
locations; and (iii) its reputation for service and quality.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Homes and residential communities built by the Company must comply
with federal, state and local regulations relating to, among other things,
zoning, treatment of waste, construction materials that must be used, density
requirements, certain aspects of building design and minimum elevation of
properties and other local ordinances. These include laws requiring use of
construction materials that reduce the need for energy-consuming heating and
cooling systems. These laws and regulations are subject to frequent change and
often increase construction costs. In some cases, there are laws that require
that commitments to provide roads and other offsite infrastructure be in place
prior to the commencement of new construction. The provisions of these laws are
usually administered by individual counties and municipalities and may result in
additional fees and assessments or building moratoriums. In addition, certain
new development projects, particularly in Southern Florida, are subject to
assessments for schools, parks, streets and highways and other public
improvements, the costs of which can be substantial.
The residential homebuilding industry also is subject to a variety
of local, state and federal statutes, ordinances, rules and regulations
concerning the protection of health and the environment. Environmental laws and
conditions may result in delays, may cause the Company to incur substantial
compliance and other costs, and can prohibit or severely restrict homebuilding
activity in certain environmentally sensitive regions or areas. Additionally,
the climate and geology of some parts of Florida and Texas present risks of
natural disasters that could adversely affect the homebuilding industry in those
areas in general, and the Company's business in particular.
The Company's title insurance affiliates must comply with applicable
insurance laws and regulations. The Company's mortgage origination affiliates
must comply with applicable real estate lending laws and regulations.
EMPLOYEES
At December 31, 2000, the Company employed 543 persons, of whom 133
were sales and marketing personnel, 177 were executive, administrative and
clerical personnel, and 239 were involved with construction. None of the
Company's employees are covered by collective bargaining agreements. The Company
believes its relations with its employees are good.
ITEM 2. PROPERTIES
The Company owns a 16,000 square foot facility in Sugar Land, Texas,
which serves as the Company's headquarters and primary residential homebuilding
office. The Company leases an aggregate of approximately 27,415 square feet in
Dallas, Austin, San Antonio, Nashville, Charlotte/Greensboro and Miami for its
division operations. The Company has a 19,000 square foot facility under
construction in Sugar Land, Texas and construction is estimated to be completed
in August 2001. This facility will accommodate the Houston division operations,
architecture and design, mortgage company operations and title company
operations. The Company believes its existing facilities, including the facility
under construction, are adequate for the Company's current and planned levels of
operations.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of the Company's management,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the financial condition or results of operations of the
Company.
Subsequent to the press release of the Company on March 5, 2001 of
a possible merger of Engle Holdings Corp. with the Company, the Company was
notified of the filing of two lawsuits, Case No. A431555; Barry Feldman v.
Michael J. Poulos, Yannis Delikanakis, Michael S. Stevens, Constantinos Stengos,
Georgios Stengos, Andreas Stengos, James M. Carr, William A. Hasler, Larry D.
Horner, Lonnie M. Fedrick, Engle Holdings Corp. and Newmark Homes Corp.; In the
District Court, Clark County, Nevada; and Cause No. 2001-14194; Michael Gormley
v. Michael J. Poulos, Yannis Delikanakis, Michael S. Stevens, Constantinos
Stengos, Georgios Stengos, Andreas Stengos, James M. Carr, William A. Hasler,
Larry D. Horner, Lonnie M. Fedrick, Engle Holdings Corp. and Newmark Homes Corp;
In the 80th Judicial District Court of Harris County, Texas, challenging any
transaction between the Company and Engle Holdings as a violation of fiduciary
duty. Given the fact that there is no transaction agreed to between the Company
and Engle, the Company believes the lawsuits are without merit, and the Company
intends to vigorously defend itself and its directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
---- --- --------
Lonnie M. Fedrick 56 President, Chief Executive
Officer and Director
James M. Carr 50 Executive Vice President and
Director
J. Eric Rome 41 Executive Vice President --
Homebuilding
Terry C. White 51 Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary
J. Michael Beckett 41 Executive Vice President-
Purchasing/Product
Development (Newmark Home
Corporation)
Lonnie M. Fedrick has served as President and Chief Executive Officer
of the Company since 1997. Mr. Fedrick has also been President and Chief
Executive Officer of Newmark since 1994 and was Executive Vice President of
Newmark from 1984 to 1994. Mr. Fedrick co-founded Newmark in 1983 and has more
than 33 years experience in the homebuilding industry. Mr. Fedrick began his
career with Norwood Homes in 1967, most recently serving as the Vice President
of Construction. From 1974 to 1983, he served as Vice President of Operations of
Monarch Homes. He is a member of the board of directors of the Greater Houston
Builders Association.
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James M. Carr became an Executive Vice President and a Director of
the Company upon the closing of the acquisition of Westbrooke by the Company in
January 1998. Mr. Carr founded Westbrooke in 1976, and has served as Chairman,
Chief Executive Officer and President of Westbrooke since its inception. Mr.
Carr is a graduate of the University of Miami. He is the former Chairman of the
Baptist Hospital Foundation and a director of Baptist Health Systems.
J. Eric Rome has served as Executive Vice President - Homebuilding of
the Company since 1997. Mr. Rome has served as President of the Texas Division
of Newmark since 1996 and was appointed the Chief Operating Officer of Newmark
in early 2000. He was Executive Vice President of Newmark's Central Texas
Division from 1995 to 1996, a Vice President from 1984 to 1994, and Construction
Manager of Newmark's Houston division from 1983 to 1984. From 1981 to 1983, Mr.
Rome was employed by Monarch Homes as a construction superintendent. He has also
served as an officer in various capacities with the Texas Capitol Area Builders
Association.
Terry C. White has served as Chief Financial Officer and Treasurer of
the Company since 1997. Mr. White is also Senior Vice President, Chief Financial
Officer and Treasurer of Newmark, which he joined in 1984 as Controller. Prior
thereto, Mr. White was employed by Wood Bros. Homes as a division controller and
prior to that he served in various accounting and finance positions with Safeway
Stores, Inc. Mr. White is a certified public accountant and a graduate of the
University of North Texas.
J. Mike Beckett became Executive Vice President-Purchasing/Product
Development for Newmark on January 1, 2000. Mr. Beckett was Senior Vice
President- Purchasing for Newmark from January 1, 1998 to December 31, 1999 and
was the Vice President of Purchasing from 1995 to 1998. Mr. Beckett graduated
from Bowling Green State University in 1982.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the NASDAQ National
Market System on March 12, 1998 under the trading symbol "NHCH". The range of
high and low closing sales prices per share by quarter for calendar year 1998,
1999 and 2000, as reported by the NASDAQ National Market, appear in the
following table. These prices may not be the prices that you would pay to
purchase a share of our common stock during the periods shown. These prices are
what a securities dealer would pay for a share of our common stock and do not
include any commissions you might have to pay or any retail mark-ups or
mark-downs.
1999
-------------------------------------------------------------
QUARTER HIGH LOW
-------------------------------------------------------------
First $ 8.50 $ 6.25
-------------------------------------------------------------
Second 6.75 5.00
-------------------------------------------------------------
Third 8.13 5.25
-------------------------------------------------------------
Fourth 7.50 5.00
-------------------------------------------------------------
2000
-------------------------------------------------------------
First $6.50 $5.50
-------------------------------------------------------------
Second 6.50 5.06
-------------------------------------------------------------
Third 8.75 6.38
-------------------------------------------------------------
Fourth 11.50 8.31
-------------------------------------------------------------
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As of March 19, 2001, there were 41 shareholders of record. The
Company believes there are approximately 800 beneficial owners of its common
stock.
The Company did not declare any cash dividends on its common stock
in fiscal year 2000. The Company's credit agreements generally contain covenants
that limit the amount of dividends or distributions it can pay on its common
stock and the amount of stock the Company can repurchase.
Subsequent to the fiscal year end, the Company declared a dividend
on March 6, 2001 of $0.54 per share of common stock to record holders of March
31, 2001, such dividend to be paid May 15, 2001.
ITEM 6. SELECTED FINANCIAL DATA
The statement of operations data and statement of financial
condition data presented below have been derived from the historical financial
statements of the Company. The Company's consolidated financial statements for
the years ended December 31, 1997 and 1996, have been audited by KPMG LLP,
independent certified public accountants. The Company's consolidated financial
statements for the years ended December 31, 2000, 1999 and 1998 have been
audited by BDO Siedman, LLP, independent certified public accountants, except
for Westbrooke Acquisition Corp. (a consolidated subsidiary) for the year ended
December 31, 1998, which statements were audited by other auditors. The selected
financial data set forth below should be read in conjunction with and are
qualified by reference to the Company's consolidated financial statements and
notes thereto included elsewhere in this Form 10-K and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
2000 1999(1) 1998(2) 1997 1996
------------ ------------ ------------ ------------ ------------
(Dollars in thousands except per share amounts)
STATEMENT OF OPERATIONS DATA
Revenues $ 640,506 $ 491,714 $ 406,353 $ 215,360 $ 190,855
Cost of Sales 529,800 411,011 339,094 175,300 156,264
------------ ------------ ------------ ------------ ------------
Gross Profit 110,706 80,703 67,259 40,060 34,591
Equity in earnings
from unconsolidated
subsidiaries 769 725 812 465 792
Selling, general and
administrative
expenses (64,720) (49,565) (43,614) (26,512) (22,976)
Depreciation and
amortization (4,016) (3,996) (3,287) (1,669) (1,524)
------------ ------------ ------------ ------------ ------------
Operating income 42,739 27,867 21,170 12,344 10,883
Interest Expense (3,282) (1,845) (1,939) (1,987) (1,238)
Other income, net 1,086 1,064 1,201 570 851
------------ ------------ ------------ ------------ ------------
Income before taxes 40,543 27,086 20,432 10,927 10,496
Income taxes 14,852 9,701 7,637 4,272 4,164
------------ ------------ ------------ ------------ ------------
Net income $ 25,691 $ 17,385 $ 12,795 $ 6,655 $ 6,332
------------ ------------ ------------ ------------ ------------
Net income per
common share $ 2.23 $ 1.51 $ 1.16 $ 0.72 $ 0.69
------------ ------------ ------------ ------------ ------------
Weighted averages
shares outstanding 11,500,000 11,500,000 11,035,000 9,200,000 9,200,000
Operating Data:
Units:
New sales contracts,
net of cancellations 2,356 2,234 2,036 984 998
Closings 2,499 1,989 1,874 972 902
Backlog at end of
period 845 998 753 279 267
Average sales price
per closing $ 254 $ 240 $ 216 $ 219 $ 200
Sales value of
backlog at end of
period $ 211,859 $ 230,394 $ 170,402 $ 60,048 $ 50,657
Gross profit as a
percentage of
revenues 17.3% 16.4% 16.6% 18.6% 18.1%
Selling, general and
administrative
expenses as a
percentage of
revenues 10.1% 10.1% 10.7% 12.3% 12.0%
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DECEMBER 31,
------------------------------------------------------
2000 1999(1) 1998(2) 1997 1996
-------- -------- -------- -------- --------
(Dollars in thousands)
STATEMENT OF FINANCIAL
CONDITION DATA
Inventories $246,865 $255,576 $185,247 $102,547 $ 83,659
Total assets 324,144 328,892 245,338 139,213 121,177
Total construction debt 127,546 149,380 106,839 66,100 60,768
Stockholders' equity 135,309 109,618 90,112 55,691 43,929
----------
(1) Reflects the operations of the Company on a full-year basis.
(2) Reflects the operating data of Westbrooke subsequent to the
Company's acquisition of the homebuilding assets of Westbrooke
Communities, Inc. on January 1, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
As a cautionary note, except for the historical information
contained herein, certain matters discussed in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Item 7A
"Quantitative and Qualitative Disclosures About Market Risk", are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such matters involve risks and uncertainties,
including the Company's exposure to certain market risks, changes in economic
conditions, tax and interest rates, increases in raw material and labor costs,
weather conditions, and general competitive factors, that may cause actual
results to differ materially.
GENERAL
Since inception, the Company has sought to achieve profitability and
revenue growth by providing quality homes in markets that have experienced
population and job growth in excess of the national average during the past
several years. Newmark has served as the foundation to support the Company's
growth strategy, including expansion within existing markets, entry into three
new markets through start-up operations and the acquisition of a regional
homebuilder.
During 2000, the Company experienced significant growth and
positioned itself to continue to expand its residential land and lot
acquisitions in its existing markets. However, the general slow down in the
national and some regional economies and the significant decline in consumer
confidence may have a negative influence on new home sales.
The Company entered the Fort Lauderdale/Miami market through its
acquisition of Adler on March 1, 1995, and then significantly expanded its
market share in the South Florida market, including Palm Beach, by acquiring
Westbrooke on January 1, 1998. The Company also achieved synergies in its South
Florida operation by managing the remaining assets of Adler with Westbrooke's
operations in 1998.
The Company recognizes revenue at the time of closing when title to,
and possession of, the property transfers to the buyer. The Company capitalizes
in inventory all homebuilding costs during the construction period, including
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17
interest and maintenance, and charges those capitalized costs to cost of sales
as the related inventories are sold. Interest on completed inventory is expensed
as incurred. Accordingly, as the Company's completed inventory level rises and
falls, interest expense can vary significantly. Included in the Company's
depreciation and amortization expenses is amortization of goodwill of $1.5
million, $1.4 million and $1.4 million for the years ended December 31, 2000,
1999 and 1998, related to the Company's acquisitions of Newmark, Adler and
Westbrooke.
Equity in earnings from unconsolidated subsidiaries includes
earnings from Pacific Title, L.C. ("Pacific Title"), a title service business in
which the Company owns a 49% interest, and NHC Mortgage Group, L.P. ("NHC
Mortgage"), a mortgage origination company, in which the Company owns a 49.99%
interest, each of which was formed in 1997. Additionally, equity in earnings
from unconsolidated subsidiaries includes earnings from a Florida homebuilding
partnership, owned 50% by the Company, which wound-up its home-building
operations in October 1997. Currently, all of the Company's South Florida
operations are conducted through wholly-owned subsidiaries and are included in
the Company's revenues rather than in equity in earnings of unconsolidated
subsidiaries.
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RESULTS OF OPERATIONS
The following table sets forth the homebuilding revenue and number
of home closings by market for the periods indicated:
YEAR ENDED DECEMBER 31
-------------------------------------
2000 1999(2) 1998
---------- ---------- ----------
(Dollars in thousands)
Houston:
Revenues $ 163,706 $ 171,066 $ 126,138
Home Closings 616 631 482
Austin:
Revenues $ 170,176 $ 115,724 $ 82,970
Home Closings 611 511 386
Dallas/Fort Worth:
Revenues $ 43,762 $ 45,794 $ 38,078
Home Closings 142 171 159
San Antonio:
Revenues $ 9,544 -- --
Home Closings 40 -- --
Ft. Lauderdale/Palm Beach/Miami:
Revenues $ 193,918 $ 108,100 $ 144,780
Home Closings 946 581 814
Nashville:
Revenues $ 38,499 $ 33,444 $ 12,116
Home Closings 93 86 33
Charlotte:
Revenues $ 5,396 $ 940 --
Home Closings 20 3 --
Greensboro/Winston-Salem:
Revenues $ 9,486 $ 2,038 --
Home Closings 31 6 --
---------- ---------- ----------
Total homebuilding revenues(1) $ 634,487 $ 477,106 $ 404,082
---------- ---------- ----------
Total home closings 2,499 1,989 1,874
---------- ---------- ----------
Average sales price per home closed $ 254 $ 240 $ 216
---------- ---------- ----------
--------------
(1) Does not include revenues from land sales of $6.0 million, $14.6
million and $2.3 million in 2000, 1999 and 1998, respectively.
(2) Reflects the revenue and units closed on a full-year basis.
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The following table sets forth, as a percentage of revenue, certain
information in the Company's Statement of Operations for the periods indicated:
YEAR ENDED DECEMBER 31
------------------------------------
2000 1999 1998
---------- ---------- ----------
Cost of sales 82.7% 83.6% 83.4%
Gross profit 17.3% 16.4% 16.6%
Selling, general and administrative expenses 10.1% 10.1% 10.7%
Income before income taxes 6.3% 5.5% 5.0%
Income taxes (1) 36.6% 35.8% 37.4%
Net income 4.0% 3.5% 3.1%
----------
(1) As a percentage of income before income taxes.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
Revenues increased by 30.3% to $640.5 million in 2000 from $491.7
million in 1999 primarily due to an increase in the number of homes closed by
the Company which rose by 25.6% to 2,499 homes in 2000 from 1,989 homes in 1999.
The Company's average selling price of homes closed in 2000 was $254,000, an
increase of 5.9% from the $240,000 average selling price in 1999. The average
selling price of a Newmark(R) home closed in 2000 was $252,000, an increase of
5.6% from the $239,000 average selling price in 1999. The Fedrick Harris Estate
Homes average selling price of homes closed in 2000 was $475,000, an increase of
13.4% from the $419,000 average selling price in 1999. In the South Florida
market, Westbrooke's selling price of homes closed in 2000 was $205,000, an
increase of 10.2% from the $186,000 average selling price in 1999. Also,
revenues generated from sales of custom homes under Fedrick Harris Estate Homes
increased from $76.6 million in 1999 to $104.0 million in 2000, due primarily to
increased unit sales in Houston, Austin and Nashville. In addition, revenue from
land sales in 2000 decreased to $6.0 million from $14.6 million in 1999.
Cost of sales increased by 28.9% to $529.8 million in 2000 from
$411.0 million in 1999 primarily due to increased revenues from home closings as
described above. Cost of land sales for 2000 decreased to $5.7 million from
$12.1 million in 1999. As a percentage of revenues, cost of sales for 2000
decreased slightly to 82.7% from 83.6% in 1999.
Equity in earnings from unconsolidated subsidiaries increased
slightly to $769,000 in 2000 from $725,000 in 1999. The earnings are attributed
to Pacific Title, NHC Mortgage and Scofield SF, Ltd., a land development joint
venture.
Selling, general and administrative (SG&A) expense increased by 30.6%
to $64.7 million in 2000 from $49.6 million in 1999. This increase was caused by
increased revenues and by the expansion into the new markets of Nashville,
Tennessee and Charlotte and Greensboro, North Carolina as well as the expansion
in the Company's Texas and Florida markets as indicated by the 30.3% increase in
the Company's revenues. As a percentage of revenues, SG&A expense remained
consistent at 10.1% in 2000 and 1999.
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20
Interest expense, net of interest capitalized, totaled $3.2 million
in 2000 compared to $1.8 million in the previous year. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. During the years ended December 31, 1999 and 1998, the Company
expensed a portion of interest incurred and other financing costs on those
completed homes held in inventory. This expense increased due to the increase in
the average number of completed homes held in inventory for the year ending
December 31, 2000 compared to 1999. Capitalized interest and other financing
costs are included in cost of sales at the time of home closings.
The Company's provision for income taxes increased as a percentage of
earnings before taxes to 36.6% for the year ended December 31, 2000 compared to
35.8% for fiscal year 1999. The increase was primarily a result of increased
state taxes resulting from increased earnings in the State of Florida. However,
federal income taxes have decreased as a percentage of earnings before taxes to
34.3% for the year ending December 31, 2000 compared to 35.6% for the year
ending December 31, 1999 primarily as a result of the increase in deductible
amortization of goodwill resulting from the election of the Internal Revenue
Code Section 338(h)(10). The Company recognized federal income tax expense of
$13.9 million for the year ended December 31, 2000 compared to $9.6 million for
the fiscal year 1999.
Net income increased by 47.8% to $25.7 million for the year ended
December 31, 2000 from $17.4 million in the comparable period of 1999. The
increase was attributable to the increase in revenues in the Company's most
profitable markets.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
As further explained in the information regarding the "Change in
Control of Ownership", certain adjustments have been made to the Company's
goodwill, acquisition notes payable and stockholders' equity accounts to reflect
the change of control transaction. As a result, the consolidated amounts of the
Company after December 15, 1999 are presented on a new basis of accounting
different from the financial statements of the Company prior to December 15,
1999 and, therefore, are not comparable in the aforementioned regards. However,
the full year is discussed for these comparative purposes.
Revenues increased by 21.0% to $491.7 million in 1999 from $406.4
million in 1998 primarily due to an increase in the average selling prices from
an increased level of closings in the Company's higher priced markets. The
number of homes closed by the Company increased by 6.1% to 1,989 homes in 1999
from 1,874 homes in 1998. The Company's average selling price of homes closed in
1999 was $240,000, an increase of 11.1% from the $216,000 average selling price
in 1998. The average selling price of a Newmark(R) home closed in 1999 was
$239,000, an increase of 8.1% from the $221,000 average selling price in 1998.
The Fedrick, Harris Estate Homes average selling price of homes closed in 1999
was $419,000, an increase of 3.5% from the $405,000 average selling price in
1998. In the South Florida market, Westbrooke and Adler's selling price of homes
closed in 1999 was $186,000, an increase of 4.5% from the $178,000 average
selling price in 1998. Also, revenues generated from sales of custom homes under
Fedrick, Harris Estate Homes increased from $56 million in 1998 to $76 million
in 1999, due primarily to increased unit sales in Houston, Austin and Nashville.
In addition, revenue from land sales in 1999 increased to $14.6 million from
$2.3 million in 1998.
Cost of sales increased by 21.2% to $411.0 million in 1999 from $339.1
million in 1998 primarily due to increased revenues from home closings as
described above. Cost of land sales for 1999 increased to $12.1 million from
$1.5 million in 1998. As a percentage of revenues, cost of sales for 1999
increased slightly to 83.6% from 83.5% in 1998
Equity in earnings from unconsolidated subsidiaries decreased slightly
to $725,000 in 1999 from $812,000 in 1998. The earnings are attributed totally
to Pacific Title and NHC Mortgage.
Selling, general and administrative (SG&A) expense increased by 13.8%
to $49.6 million in 1999 from $43.6 million in 1998. This increase was caused by
the expansion into the new markets of Nashville, Tennessee and Charlotte and
Greensboro, North Carolina as well as the expansion in the Company's Texas and
Florida markets as indicated by the 21% increase in the Company's revenues and
the 32.5% increase in the Company's backlog in 1999 from 1998. As a percentage
of revenues, SG&A expense decreased slightly to 10.1% in 1999 from 10.7% in
1998.
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Interest expense, net of interest capitalized, totaled $1.8 million in
1999 compared to $1.9 million in the previous year. The Company follows a policy
of capitalizing interest only on inventory under construction or development.
During the years ended December 31, 1999 and 1998, the Company expensed a
portion of interest incurred and other financing costs on those completed homes
held in inventory. This expense decreased due to the decrease in the average
number of completed homes held in inventory for the year ending December 31,
1999 compared to 1998. Capitalized interest and other financing costs are
included in cost of sales at the time of home closings.
The Company's provision for income taxes decreased as a percentage of
earnings before taxes to 35.8% for the year ended December 31, 1999, compared to
37.4% for fiscal 1998. The decrease was attributable to a state income tax
benefit for Adler. The Company was included in the consolidated federal income
tax return of Pacific USA Holdings Corp. ("PUSA"), the parent company of
Pacific, through December 15, 1999. Under the former tax allocation agreement
with PUSA, (the "PUSA Tax Allocation Agreement") the Company was required to
both calculate its federal corporate income tax liability as if it filed a
separate federal income tax return for each period and to pay PUSA the sum of
which would result from such calculation if the Company were subject to federal
corporate income tax and filed a separate tax return. The Company recognized
federal income tax expense amounting to $9.7 million for the year ended December
31, 1999 compared to $7.6 million for fiscal 1998.
Effective December 16, 1999, the Company is included in the
consolidated federal income tax return of TOUSA pursuant to a tax allocation
agreement with TOUSA.
Net income increased by 35.9% to $17.4 million for the year ended
December 31, 1999 from $12.8 million for the corresponding period in 1998. The
increase was primarily attributable to the strong gains in revenues in the
Company's most profitable markets.
SEASONALITY AND UNAUDITED QUARTERLY RESULTS
The homebuilding industry is seasonal, as generally there are more
sales in the spring and summer months, resulting in more home closings in the
fall. The Company operates in the Southwestern and Southeastern markets of the
United States, where weather conditions are more suitable to a year-round
construction process than other areas. The Company also believes its geographic
dispersion to be somewhat counter-cyclical, with adverse economic conditions
associated with certain of its markets often being offset by more favorable
economic conditions in other areas. The seasonality of school terms has an
impact on the Company's operations, but it is somewhat mitigated by the fact
that many of the Company's buyers at the higher end of the Company's price
range, including Fedrick, Harris Estate Homes, no longer have children in
school. As a result of these factors, among others, the Company generally
experiences more sales in the spring and summer months, and more closings in the
summer and fall months. Likewise, Westbrooke has experienced seasonality in its
revenues, generally completing more sales in the spring and summer months and
more closings in the fourth quarter.
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22
The following table presents selected unaudited quarterly operating
data of the Company for each of the eight quarters through the period ended
December 31, 2000. In the opinion of management, all necessary adjustments
(consisting of normal recurring adjustments) have been included to present
fairly the unaudited selected quarterly operating data. This data is not
necessarily indicative of the results of the operations of the Company for any
future period.
QUARTER ENDED
-------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
2000 2000 2000 2000 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF
OPERATIONS DATA:
Revenues ................ $192,836 $146,207 $164,491 $136,972 $141,757 $126,745 $130,380 $ 92,832
Gross profit ............ 32,184 26,580 28,644 23,298 23,264 22,794 20,152 14,493
Selling, general and
administrative ....... 18,033 16,358 16,764 13,565 12,804 13,566 12,863 10,324
Operating income ........ 13,345 9,486 11,100 8,808 9,453 8,405 6,557 3,452
MARGIN ANALYSIS:
Gross margin ............ 16.7% 18.2% 17.4% 17.0% 16.4% 18.0% 15.5% 15.6%
Selling, general and
administrative ....... 9.4% 11.2% 10.2% 9.9% 9.0% 10.7% 9.9% 11.1%
Operating income ........ 6.9% 6.5% 6.7% 6.4% 6.7% 6.6% 5.0% 3.7%
OPERATING DATA:
Homes closed (units) .... 764 539 633 563 583 501 491 414
Average sales price of
homes closed ......... $ 250 $ 268 $ 258 $ 240 $ 239 $ 247 $ 248 $ 224
The Company historically has experienced, and in the future expects
to continue to experience, variability in revenues on a quarterly basis. Factors
expected to contribute to the variability include, among others: (i) the timing
of home closings; (ii) the Company's ability to continue to acquire land and
options on acceptable terms; (iii) the timing of receipt of regulatory approvals
for the construction of homes; (iv) the condition of the real estate market and
general economic conditions; (v) the cyclical nature of the homebuilding
industry; (vi) prevailing interest rates and the availability of mortgage
financing; (vii) pricing policies of the Company's competitors; (viii) the
timing of the opening of new residential projects; (ix) weather; and (x) the
cost and availability of materials and labor. The Company's historical financial
performance is not necessarily a meaningful indicator of future results and the
Company expects its financial results to vary from project to project from
quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend primarily upon its sales
volume, inventory levels, inventory turnover and land acquisitions. During the
year ended December 31, 2000, cash provided by operations was $25.8 million
resulting from the 25.6% increase in home closings from the previous year. For
the years ended December 31, 1999 and 1998, the Company used cash in operations
of $34.9 million and $19.3 million, respectively. The significant use of cash in
operations of the Company has primarily been due to the increasing inventory
levels maintained by the Company as the Company continues to expand its
business. Historically, the Company has financed its operations primarily
through its earnings, borrowings from financial institutions, and, prior to the
Company's initial public offering on March 12, 1998, capital contributions and
borrowings from Pacific, primarily for residential land development
acquisitions.
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23
On June 27, 2000, Newmark entered into a syndicated $150 million
secured revolving credit facility with six banks which matures on June 27, 2003
with annual options for one-year extensions. This credit facility is being and
will be used to finance the acquisition and development of residential
subdivisions, the purchase of developed lots and the construction of homes in
the Texas, Tennessee and North Carolina markets. On December 31, 2000, the
Company had borrowings of $74.6 million outstanding under this facility.
The Company has financed in the past, and intends to continue to
finance, its operations with cash from operations and borrowings under
construction and lot development credit facilities. Generally, these credit
agreements are with regional and national lenders. Each of the credit agreements
relates to specific markets and provides for financing residential land and lot
acquisition and construction. The agreements have restrictive covenants which,
among other things, limit speculative home building, debt to tangible net worth
ratios, dividends and set a minimum requirement for tangible net worth. The
agreements have various maturity dates and bear interest at rates based on Libor
and prime. At December 31, 2000, the Company had $28 million of available credit
under its existing credit facilities. The Company plans to renew these
facilities as they mature.
With the exception of the South Florida operation and to the extent
possible, the Company utilizes lot options as a method of controlling its
investments in land. At December 31, 2000, the Company had 2,343 lots under
option. At December 31, 2000, the Company had no material capital commitments
with respect to specific performance lot purchase contracts. In the Ft.
Lauderdale, Palm Beach and Miami markets, the Company is limited in its ability
to acquire finished lots under option contracts, a factor which requires the
Company to make significant capital expenditures in order to maintain adequate
lot inventory in this market.
At December 31, 2000 the Company had approximately $11.1 million
outstanding under promissory notes incurred in connection with the acquisition
of Westbrooke. The promissory notes are to be repaid in equal annual
installments from 2001 through 2003.
The Company believes it will have adequate financial resources,
including availability under its credit facilities, to meet its working capital
and residential land acquisition and development plans under current market
conditions. However, there can be no assurance that the amounts available from
such sources will be sufficient. The Company's combined consolidated outstanding
debt was approximately $139 million at December 31, 2000. Accordingly, the
Company expects to incur interest charges on a consolidated basis at higher
levels than it has in the past. In addition, if the Company identifies
significant new acquisition opportunities outside of the Company's existing
markets, or if the Company's operations do not generate sufficient cash from
operations at levels currently anticipated, the Company may be required to seek
additional capital in the form of equity or debt financing from a variety of
potential sources, including additional bank financings or the issuance of debt
or equity securities. There can be no assurance that the amounts available from
such sources will be sufficient. The amount and types of indebtedness that the
Company may incur are limited by the terms of its existing financing agreements.
In addition, the incurrence of additional debt by the Company would increase its
debt service and interest obligations, which could have an adverse effect on the
Company's results of operations or financial condition. If the Company is not
successful in obtaining sufficient capital to fund its planned expansion and
other expenditures, new projects may be constrained. Any such delay or
abandonment could result in a reduction in sales and may adversely affect the
Company's future business and results of operations.
INFLATION
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. The Company attempts to pass through to its customers
any of its costs through increased sales prices. However, there is no assurance
that inflation will not have a material adverse impact on the Company's future
results of operations.
23
24
IMPACT OF NEW ACCOUNTING STANDARDS
Derivative and Hedging Activities - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are attributable
to the hedge risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in income in the period of change. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2001 to affect its
financial statements.
FASB Amendments and Clarifications - In February 1999, the FASB
issued SFAS No. 135, Rescission of Financial Accounting Standards Board No. 75
("SFAS 75") and Technical Corrections. SFAS 135 rescinds SFAS 75 and amends SFAS
No. 35. SFAS 135 also amends other existing authoritative literature to make
various technical statements issued for fiscal years ending after February 15,
1999. The Company believes that the adoption of SFAS 135 will not have a
significant effect on its financial statements.
In December 1999, the SEC staff released Staff Account Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial statements
no later than the fourth quarter of fiscal years ending after December 15, 2000.
The Company adopted SAB 101 during the year ended December 31, 2000, and it had
no impact on the Company's financial position or results of operations and cash
flows.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of APB No. 25 for (a) the definition of employee for purposes of
applying
CHANGE IN CONTROL OF OWNERSHIP
The acquisition by TOUSA of the common stock of the Company held by
Pacific represented 80% of the outstanding stock of the Company. This
acquisition was accounted for as a purchase, and the purchase price was recorded
on the Company's books. The excess of purchase price over the fair value of the
assets acquired and the liabilities assumed approximated $46 million of which
approximately $2.1 million was directly attributed to the change in control
transaction.
In connection with the acquisition by TOUSA of the common stock
previously owned by Pacific, the Company entered into a Services Agreement with
PUSA to continue to provide certain centralized support services to the Company,
including general advisory services, market expansion research services and
administrative support services. This Service Agreement was terminated December
31, 2000. In addition, the 1998 Tandem Stock Option/Stock Appreciation Rights
Plan and the options granted therein were terminated. There were no other
incentive awards outstanding or exercisable in fiscal year 1999 or thereafter.
Pursuant to the stock purchase agreement entered into in connection
with the acquisition of Westbrooke in January 1998, certain additional
consideration, based on Westbrooke achieving specified income targets over a
five-year period, became due and payable to the prior majority owner and certain
key employees of Westbrooke upon a change of control. Westbrooke entered into an
Amendment to Stock Purchase Agreement ("Amendment") with the prior owner and
certain key employees of Westbrooke regarding the amount and timing of the
additional consideration as well as the acquisition of certain partnership
interests from the key employees. The amount of additional consideration
recorded in the transaction as a result of the change in control to the prior
majority owner was $4.6 million in the form of a promissory note. Additionally,
the Amendment adjusted the level of additional consideration payable to the key
employees from 6% to 7.5% of the net income before income taxes, all as defined
and
24
25
described in the Amendment. The Company will record such payments as
compensation expense in the periods in which they are earned. Subsequent to the
fiscal year end, the Company, prior owner and certain key employees entered into
the Second Amendment to Stock Purchase Agreement ("Second Amendment") regarding
the amount and timing of certain of the payments to the prior owner and certain
key employees of Westbrooke.
The PUSA Tax Allocation Agreement between PUSA and the Company was
partially terminated whereby the Company would pay PUSA an amount equal to the
federal income taxes that the Company would owe (or refund that it would
receive) had it prepared its federal income tax return on a stand-alone basis.
Certain terms remain in effect with respect to tax periods ending prior to the
change in control.
For tax purposes, the Company elected to treat the change in control
as a deemed taxable sale of assets resulting in a step-up in the tax basis of
assets in accordance with Internal Revenue Code Section 338(h)(10). By electing
Section 338(h)(10), the Company recognized taxable income of approximately $20
million, and $8 million of tax per the original tax sharing agreement, due to
the difference in the financial statement basis and the tax basis of the assets
immediately prior to the change in control. In terms of the purchase and sale
agreement between PUSA and TOUSA, the tax sharing agreement was modified to
exclude the gain and corresponding tax from this transaction from the
calculation of the tax payments by the Company to PUSA. Accordingly, the Company
recognized its income tax expense based on the taxable income generated from its
operations.
As a result of the change of control transaction described above,
certain adjustments were made to the Company's goodwill, acquisition notes
payable and stockholders' equity accounts. As a result, the consolidated amounts
of the Company after December 15, 1999 are presented on a new basis of
accounting different from the financial statements of the Company prior to
December 15, 1999.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, which is the potential loss
arising from adverse changes in market prices and rates. The Company does not
enter into, or intend to enter into, derivative financial instruments for
trading or speculative purposes. The Company's exposure to market risks is
changes to interest rates related to the Company's construction loans. The
interest rates relative to the Company's construction loans fluctuate with the
prime and Libor lending rates, both upwards and downwards. (See Note 7 -
"Construction Loans Payable" of the Notes to Consolidated Financial Statements.)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements are set forth in Item 14(a)(1) and (2), and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about the Company's directors is incorporated by
reference to the Company's definitive proxy statement, which will be filed with
the Securities and Exchange Commission not later than April 30, 2001 (120 days
after the end of the Company's fiscal year). Information regarding the executive
officers of the Company is included in Part I of this Form 10-K.
25
26
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference
to the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 30, 2001 (120 days after
the end of the Company's fiscal year).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated by reference
to the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 30, 2001 (120 days after
the end of the Company's fiscal year).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference
to the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 30, 2001 (120 days after
the end of the Company's fiscal year).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements:
Reports of independent certified public accountants.
Consolidated Statements of Financial Position as of December 31, 2000
and 1999.
Consolidated Statements of Operations for the year ended December 31,
2000 for the Period from December 16, 1999 to December 31, 1999;
for the Period from January 1, 1999 to December 15, 1999; and
for the Year Ended December 31,1998.
Consolidated Statements of Stockholders' for the year ended December
31, 2000 Equity for the Period from December 16, 1999 to
December 31, 1999; for the Period from January 1, 1999 to
December 15, 1999; and for the Year ended December 31, 1998.
Consolidated Statements of Cash Flows for the year ended December 31,
2000 for the Period from December 16, 1999 to December 31, 1999;
for the Period from January 1, 1999 to December 15, 1999; and
for the Year Ended December 31, 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
Schedule I - Condensed Financial Information of Registrant Parent
Company Only - Statements of Financial Position
as of December 31, 2000 and 1999.
Condensed Financial Information of Registrant Parent
Company Only - Statements of Operations for the
year ended December 31, 2000 for the Period from
December 16, 1999 to December 31, 1999; for the
Period from January 1, 1999 to December 15, 1999;
and for the Year Ended December 31, 1998.
Condensed Financial Information of Registrant Parent
Company Only - Statements of Cash Flows for the
year ended December 31, 2000 for the Period from
December 16, 1999 to December 31, 1999; for the
Period from January 1, 1999 to December 15, 1999;
and for the Year Ended December 31,1998.
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 2000, 1999, and 1998.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
26
27
EXHIBIT
NUMBER REF EXHIBIT
------ --- -------
2.1 (1) Stock Purchase Agreement dated January 15, 1998 among
James Carr, Westbrooke Communities, Inc., Westbrooke at
West Lake, Inc., Westbrooke at Winston Trails, Inc.,
Westbrooke at Pembroke Pines, Inc., Westbrooke at Oak
Ridge Inc., Harold L. Eisenacher, Leonard R. Chernys,
Diana Ibarria, The Westbrooke Partnership, Pacific USA
Holdings Corp., Newmark Homes Corp., and Westbrooke
Acquisition Corp.
2.1(b) (4) Amendment to Stock Purchase Agreement dated December
15, 1999 among James Carr, Westbrooke Communities,
Inc., Westbrooke at West Lake, Inc., Westbrooke at
Winston Trails, Inc., Westbrooke at Pembroke Pines,
Inc., Westbrooke at Oak Ridge, Inc., Harold L.
Eisenacher, Leonard R. Chernys and Diana Ibarria, The
Westbrooke Partnership, Pacific USA Holdings Corp.,
Newmark Homes Corp. and Westbrooke Acquisition Corp.
2.1(c) (5) Second Amendment to Stock Purchase Agreement dated
January 15, 2001 among James Carr, Westbrooke
Communities, Inc., Westbrooke at West Lake, Inc.,
Westbrooke at Winston Trails, Inc., Westbrooke at
Pembroke Pines, Inc., Westbrooke at Oak Ridge, Inc.,
Harold L. Eisenacher, Leonard R. Chernys and Dianna
Ibarria, The Westbrooke Partnership, Newmark Homes
Corp. and Westbrooke Acquisition Corp.
2.3 (2) Stock Purchase Agreement dated November 24, 1999
between Pacific Realty Group, Inc., Pacific USA
Holdings Corp., and Technical Olympic USA, Inc.
2.4 (6) Agreement and Plan of Merger dated February 12, 2001
among Newmark Homes Corp., a Delaware corporation, and
Newmark Homes Corp., a Nevada corporation.
3.1 (6) Articles of Incorporation.
3.2 (6) Bylaws.
10.1 (1) Form of Tax Allocation Agreement between Pacific USA
and various affiliates and subsidiaries, of Pacific
USA, including the Registrant, dated April 28. 1992.
10.2 (1) Form of Amendment to Tax Agreement.
10.3 (4) Tax Indemnity and Allocation Agreement dated December
15, 1999 among Pacific USA Holdings Corp., Pacific
Realty Group, Inc., Newmark Homes Corp. and Technical
Olympic USA, Inc.
10.4 (1) Employment Agreement between Newmark Homes Corp. and
Terry White dated January 1, 1998.
10.5 (1) Employment Agreement Between Newmark Homes Corp. and J.
Eric Rome dated January 1, 1998.
10.6(a) (4) Second Amended and Restated Employment Agreement
Between Westbrooke Communities, Inc. and James Carr
dated December 15, 1999.
10.6(b) (4) Amended and Restated Non-Competition Agreement dated
December 15, 1999 among Westbrooke Communities, Inc.,
Westbrooke at West Lake, Inc., Westbrooke at Winston
Trails, Inc., Westbrooke at Pembrook Pines, Inc.,
Westbrooke at Oak Ridge, Inc., The Westbrooke
Partnership, Westbrooke Acquisition Corp. and James
Carr.
10.7 (4) Amended and Restated Employment Agreement between
Newmark Home Corporation and J. Michael Beckett dated
March 1, 2000.
10.8 (4) Form of Tax Allocation Agreement between Technical
Olympic USA, Inc. and various affiliates and
subsidiaries, including Newmark Homes Corp. and its
subsidiaries.
10.9 (3) Credit Agreement among Newmark Homes, L.P. and Bank of
America, N.A. as Administrative Agent, Swing Line
Lender and Letter of Credit Issuing Lender and Other
Financial Institutions Party Hereto dated June 27,
2000.
10.10 (3) Guaranty Agreement among Newmark Homes Corp. and
Newmark Homes Corporation in favor of Bank of America,
N.A. and the Lenders under the Credit Agreement dated
June 27, 2000.
10.11 (3) Management Services Agreement between Newmark Homes
Corp. and Techolym, L.P. dated June 1, 2000.
10.12 (3) Amended and Restated Employment Agreement between
Newmark Homes Corporation and Lonnie M. Fedrick dated
May 12, 2000 effective January 1, 2000.
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EXHIBIT
NUMBER REF EXHIBIT
------ --- -------
11.1 (5) Statement relating to computation of per share
earnings.
12.1 (5) Statement relating to computation of ratios.
21.1 (5) List of subsidiaries.
(1) Filed as part of the Registrant's Registration Statement on Form S-1,
Amendment Number 3, filed with the Securities and Exchange Commission
on March 5, 1998, File No. 333-42213 and incorporated herein by
reference.
(2) Filed as Exhibit 2.1 of Registrant's Current Report on Form 8K dated
December 22, 1999 and incorporated herein by reference.
(3) Filed as part of the Registrant's Current Report on Form 10-Q, filed
with the Securities and Exchange Commission on August 10, 2000 and
incorporated herein by reference.
(4) Filed as part of the Registrant's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 27, 2000, File
No. 000-23677 and incorporated herein by reference.
(5) Filed herewith.
(6) Filed as part of the Registrant's Current Report on Form 8-K dated
March 23, 2001 and incorporated herein by reference.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated November 22,
2000 reporting the Registrant being advised that TOUSA, the holder of shares
representing 80% of the Registrant's outstanding common stock, has pledged
those shares in support of a commercial loan.
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29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEWMARK HOMES CORP.
March 27, 2001 By: /s/ Lonnie M. Fedrick
Date ------------------------------------
Name: Lonnie M. Fedrick
Title: Chief Executive Officer
(Principal Executive Officer)
March 27, 2001 By: /s/ Terry C. White
Date ------------------------------------
Name: Terry C. White
Title: Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary (Principal
Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 27, 2001 By: /s/ Constantine Stengos
Date ------------------------------------
Name: Constantine Stengos
Title: Chairman of the Board of
Directors and Director
March 27, 2001 By: /s/ Andreas Stengos
Date ------------------------------------
Name: Andreas Stengos
Title: Director
March 27, 2001 By: /s/ George Stengos
Date ------------------------------------
Name: George Stengos
Title: Director
March 27, 2001 By: /s/ Yannis Delikanakis
Date ------------------------------------
Name: Yannis Delikanakis
Title: Director
March 27, 2001 By: /s/ William A. Hasler
Date ------------------------------------
Name: William A. Hasler
Title: Director
March 27, 2001 By: /s/ Larry D. Horner
Date ------------------------------------
Name: Larry D. Horner
Title: Director
March 27, 2001 By: /s/ Lonnie M. Fedrick
Date ------------------------------------
Name: Lonnie M. Fedrick
Title: Director
March 27, 2001 By: /s/ James M. Carr
Date ------------------------------------
Name: James M. Carr
Title: Director
29
30
March 27, 2001 By: /s/ Michael Stevens
Date ------------------------------------
Name: Michael Stevens
Title: Director
March 27, 2001 By: /s/ Michael J. Poulos
Date ------------------------------------
Name: Michael J. Poulos
Title: Director
30
31
NEWMARK HOMES CORP.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
32
NEWMARK HOMES CORP.
AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3-4
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position 5-6
Consolidated Statements of Operations 7
Consolidated Statements of Stockholders' Equity 8
Consolidated Statements of Cash Flows 9-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11-31
2
33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Newmark Homes Corp.:
We have audited the accompanying consolidated statement of financial position of
Newmark Homes Corp. and subsidiaries (the "Successor Company"), a subsidiary of
Technical Olympic USA, Inc., as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 2000 and for the period from commencement of its
operations on December 16, 1999 through December 31, 1999. We have also audited
the accompanying consolidated statements of operations, stockholders' equity,
and cash flows of Newmark Homes Corp. and subsidiaries (the "Predecessor
Company" as described in Note 2 of the financial statements), a subsidiary of
Pacific USA Holdings Corp., for the year ended December 31, 1998 and for the
period from January 1, 1999 to December 15, 1999. We have also audited the
schedules listed in the accompanying index. These consolidated financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits. We did not audit the financial
statements of Westbrooke Acquisition Corp. (a consolidated subsidiary) for the
year ended December 31, 1998, which statements reflect total revenues
constituting 29% of the related consolidated totals for that year. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Westbrooke
Acquisition Corp., for the year ended December 31, 1998 is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements and schedules are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
3
34
In our opinion, the Successor Company's consolidated financial statements
referred to above, present fairly, in all material respects, the financial
position of the Company as of December 31, 2000 and 1999 and the results of its
operations and cash flows for the year ended December 31, 2000 and the period
from commencement of its operations on December 16, 1999 through December 31,
1999, in conformity with generally accepted accounting principles. Further in
our opinion, based on our audit and the report of the other auditors, the
Predecessor Company's consolidated financial statements, referred to above,
present fairly, in all material respects, the results of operations and cash
flows of the Predecessor Company for the year ended December 31, 1998, and for
the period from January 1, 1999 to December 15, 1999, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2 of the financial statements, Technical Olympic USA, Inc.
acquired an 80% interest in the Predecessor Company on December 15, 1999, in a
business combination accounted for as a purchase. As a result, the consolidated
financial statements of the Successor Company are presented on a new basis of
accounting different from the financial statements of the Predecessor Company
and, therefore, are not comparable.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth herein.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
January 31, 2001
4
35
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
December 31, 2000 1999
---------- ----------
ASSETS
CASH $ 4,774 $ 8,080
RECEIVABLES
Title companies 10,487 3,909
Other 4,291 5,297
---------- ----------
Total receivables 14,778 9,206
INVENTORIES (Note 5 and 7)
Single family residences 169,298 191,883
Lots and land held for development 77,567 63,693
---------- ----------
Total inventories 246,865 255,576
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES (Note 6) 2,205 640
PROPERTY, PREMISES AND EQUIPMENT, net of accumulated
depreciation of $4,728 and $3,503 in 2000 and 1999,
respectively 5,884 5,946
DEFERRED TAX ASSET, net (Note 9) 515 155
OTHER ASSETS (Note 5) 3,769 3,637
GOODWILL, net of accumulated amortization of $1,594 and
$67 in 2000 and 1999, respectively (Note 2, 4 and 9) 45,354 45,652
---------- ----------
Total assets $ 324,144 $ 328,892
========== ==========
See accompanying notes to consolidated financial statements.
5
36
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2000 1999
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION LOANS PAYABLE (Note 7) $ 127,546 $ 149,380
ACQUISITION NOTES PAYABLE (Note 2 and 4) 11,055 14,473
PAYABLES TO AFFILIATES (Note 9) 13 --
INCOME TAX PAYABLE 687 1,745
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Note 3) 33,837 36,639
CUSTOMER DEPOSITS (Note 10) 11,607 13,586
OTHER LIABILITIES 4,090 3,451
---------- ----------
Total liabilities 188,835 219,274
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4, 7 and 10)
STOCKHOLDERS' EQUITY (Note 7)
Common stock - $.01 par value; 30,000,000 shares
authorized and 11,500,000 shares issued and outstanding 115 115
Additional paid-in capital 106,855 106,855
Retained earnings 28,339 2,648
---------- ----------
Total stockholders' equity 135,309 109,618
---------- ----------
Total liabilities and stockholders' equity $ 324,144 $ 328,892
========== ==========
See accompanying notes to consolidated financial statements.
6
37
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM Period from
DECEMBER 16, January 1,
1999 1999
YEAR ENDED TO to Year Ended
DECEMBER 31, DECEMBER 31, December 15, December 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
(SUCCESSOR) (Predecessor) (Predecessor)
REVENUES $ 640,506 $ 44,252 $ 447,462 $ 406,353
COST OF SALES (Note 5) 529,800 37,047 373,964 339,094
------------ ------------ ------------ ------------
GROSS PROFIT 110,706 7,205 73,498 67,259
Equity in earnings from unconsolidated subsidiaries (Note 6) 769 39 686 812
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (64,720) (2,721) (46,844) (43,614)
DEPRECIATION AND AMORTIZATION (4,016) (277) (3,719) (3,287)
------------ ------------ ------------ ------------
OPERATING INCOME 42,739 4,246 23,621 21,170
OTHER INCOME (EXPENSE):
Interest expense (Note 5) (3,282) (124) (1,721) (1,939)
Other income, net 1,086 25 1,039 1,201
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 40,543 4,147 22,939 20,432
INCOME TAXES (Note 9) 14,852 1,499 8,202 7,637
------------ ------------ ------------ ------------
NET INCOME $ 25,691 $ 2,648 $ 14,737 $ 12,795
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic $ 2.23 $ .23 $ 1.28 $ 1.16
Diluted 2.23 .23 1.28 1.16
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK EQUIVALENTS OUTSTANDING:
Basic 11,500,000 11,500,000 11,500,000 11,035,342
Diluted 11,500,000 11,500,000 11,500,000 11,035,342
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
7
38
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Additional
Common Paid-in Retained
Stock Capital Earnings Total
---------- ---------- ---------- ----------
PREDECESSOR COMPANY
BALANCE, January 1, 1997 $ 92 $ 42,415 $ 1,422 $ 43,929
Capital contribution -- 9,917 -- 9,917
Dividends paid -- (167) (4,643) (4,810)
Net income -- -- 6,655 6,655
---------- ---------- ---------- ----------
BALANCE, December 31, 1997 92 52,165 3,434 55,691
Initial public offering of common stock, net of
issuance costs of $2,554 20 18,426 -- 18,446
Issuance of common stock due to the exercise
of underwriters over-allotment option, net
of issuance costs of $271 3 2,876 -- 2,879
Capital contribution -- 301 -- 301
Net income -- -- 12,795 12,795
---------- ---------- ---------- ----------
BALANCE, December 31, 1998 115 73,768 16,229 90,112
Net income for period January 1 to
December 15, 1999 -- -- 14,737 14,737
---------- ---------- ---------- ----------
BALANCE, December 15, 1999 115 73,768 30,966 104,849
========== ========== ========== ==========
SUCCESSOR COMPANY
BALANCE, December 15, 1999 115 73,768 30,966 104,849
Convert retained earnings to additional paid-in
capital (Note 2) -- 30,966 (30,966) --
New goodwill directly resulting from change
in control (Note 2) -- 2,121 -- 2,121
Net income for period December 16 to
December 31, 1999 -- -- 2,648 2,648
---------- ---------- ---------- ----------
BALANCE, December 31, 1999 115 106,855 2,648 109,618
Net income -- -- 25,691 25,691
---------- ---------- ---------- ----------
BALANCE, December 31, 2000 $ 115 $ 106,855 $ 28,339 $ 135,309
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
8
39
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM Period from
DECEMBER 16, January 1,
1999 1999
YEAR ENDED TO to Year Ended
DECEMBER 31, DECEMBER 31, December 15, December 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
(SUCCESSOR) (Predecessor) (Predecessor)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,691 $ 2,648 $ 14,737 $ 12,795
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,016 277 3,719 3,287
Net (gain) loss on sale of property, premises and equipment (24) -- (36) 27
Equity in earnings from unconsolidated subsidiaries (769) (39) (686) (812)
Deferred tax (benefit) expense (360) 22 (362) 134
Changes in operating assets and liabilities net of
effects from purchase of Westbrooke Communities, Inc.:
Inventory and land held for development, net 8,711 (2,908) (66,901) (41,998)
Receivables - title companies (6,578) 50 1,139 (1,451)
Receivables - affiliates and other 1,005 (143) (3,289) (2,247)
Other assets (715) (84) (1,920) 1,417
Payable to affiliates (349) -- (2,442) 667
Accounts payable and accrued liabilities (2,802) 571 13,134 2,930
Other liabilities (1,340) 265 6,102 5,985
Income tax payable (696) 1,383 362 --
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 25,790 2,042 (36,443) (19,266)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, premises and equipment (2,070) -- (2,286) (2,134)
Proceeds from sales of property, premises and equipment 252 -- 139 44
Purchase of Westbrooke, net of cash acquired -- -- -- 2,280
Increase in goodwill (1,230) -- -- --
Investment in unconsolidated subsidiaries (1,249) -- (345) (255)
Distributions from unconsolidated subsidiaries 453 -- 920 903
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (3,844) -- (1,572) 838
------------ ------------ ------------ ------------
9
40
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM Period from
DECEMBER 16, January 1,
1999 1999
YEAR ENDED TO to Year Ended
DECEMBER 31, DECEMBER 31, December 15, December 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
(SUCCESSOR) (Predecessor) (Predecessor)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from initial public offering of common stock -- -- -- 18,446
Net proceeds from underwriters over-allotment option -- -- -- 2,879
Capital contributions received -- -- -- 301
Proceeds from advances on construction loans payable 307,718 12,860 337,506 279,694
Principal payments on construction loans payable (329,552) (12,902) (296,737) (261,263)
Principal payments on acquisition notes payable (3,418) -- (2,468) (16,581)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (25,252) (42) 38,301 23,476
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH (3,306) 2,000 286 5,048
CASH, beginning of period 8,080 6,080 5,794 746
------------ ------------ ------------ ------------
CASH, end of period $ 4,774 $ 8,080 $ 6,080 $ 5,794
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 15,592 $ 541 $ 12,436 $ 9,501
Income taxes $ 15,802 $ -- $ 10,723 $ 7,456
============ ============ ============ ============
See accompanying Notes 2, 3, and 4 for supplemental
disclosure of noncash investing and financing activities.
See accompanying notes to consolidated financial statements.
10
41
1. ORGANIZATION Newmark Homes Corp. (NHC or the Company) is an 80%
owned subsidiary of Technical Olympic USA, Inc.
(TOUSA) as of December 15, 1999. NHC was formed in
December 1994 to serve as a real estate holding
company.
NHC's primary subsidiaries are as follows:
SUBSIDIARY NATURE OF BUSINESS
------------------------------------------------------------------------------------------------------
Newmark Home Corporation (Newmark) Single-family residential homebuilding in Texas,
Tennessee and North Carolina-formed in 1983.
Westbrooke Communities, Inc. Single-family residential homebuilding and residential
(Westbrooke) lot developer in Florida-formed in 1976.
The Adler Companies, Inc. (Adler) Single-family residential homebuilding in Florida-formed
in 1990.
Pacific United Development Residential lot developer in Texas and
Corporation Tennessee-formed (PUDC) in 1993.
------------------------------------------------------------------------------------------------------
2. CHANGE IN CONTROL On December 15, 1999, TOUSA purchased 9,200,000
shares of the Company's Common Stock for $86
million in cash. The shares sold in this
transaction represent 80% of the Company's
outstanding Common Stock. TOUSA purchased the
shares from Pacific Realty Group, Inc. (PRG), a
Nevada corporation, which is a wholly-owned
subsidiary of Pacific USA Holdings Corp. (PUSA), a
Texas corporation and an indirect subsidiary of
Pacific Electric Wire & Cable, Ltd.
TOUSA, a Delaware corporation, is a wholly-owned
subsidiary of Technical Olympic (UK) PLC, an
English company, which is a wholly-owned subsidiary
of Technical Olympic S.A., a Greek company.
11
42
2. CHANGE IN CONTROL This acquisition by TOUSA is accounted for as a
(CONTINUED) purchase, and the purchase price is recorded on the
Company's books. The excess of purchase price over
the fair value of the assets acquired and the
liabilities assumed approximates $46 million, of
which approximately $2.1 million is directly
attributed to the cost of the transaction of change
in control.
In connection with the acquisition by TOUSA of the
Common Stock, the Company entered into a Services
Agreement with PUSA to provide certain centralized
support services to the Company, including general
advisory services, market expansion research
services and administrative support services. This
Services Agreement was terminated December 31,
2000.
The 1998 Tandem Stock Option/Stock Appreciation
Rights Plan was terminated, as follows: The Company
exercised its right to terminate the options upon a
change of control and to pay the spread between the
exercise price and the closing price of the Common
Stock on the date of the change of control,
December 15, 1999. There was no spread, and the
options expired and terminated on December 15,
1999. There were no other incentive awards
outstanding or exercisable in fiscal year 1999 (see
Note 12).
Pursuant to the stock purchase agreement entered
into in connection with the acquisition of
Westbrooke in 1998 (see Note 4), certain additional
consideration dependent upon Westbrooke achieving
specified income targets over a five year period
became due and payable to the prior majority owner
and key employees of Westbrooke upon a change of
control. Westbrooke entered into an Amendment to
Stock Purchase Agreement (Amendment) with the prior
owner and key employees of Westbrooke regarding the
amount and timing of the additional consideration
as well as the acquisition of certain partnership
interests from the key employees. The amount of
additional consideration recorded in the
transaction as a result of the change in control to
the prior majority owner was $4.6 million in the
form
12
43
2. CHANGE IN CONTROL of a promissory note. Additionally, the Amendment
(CONTINUED) adjusted the level of additional consideration
payable to the key employees from 6% to 7.5% of the
net income before income taxes, all as defined in
the Amendment.
A former Tax Allocation Agreement (the Former Tax
Sharing Agreement) between PUSA and the Company was
partially terminated whereby the Company would pay
PUSA an amount equal to the federal income taxes
that the Company would owe (or refund that it would
receive) had it prepared its federal income tax
return on a stand-alone basis (see Note 10).
For tax purposes, the Company elected to treat the
change in control as a deemed taxable sale of
assets resulting in a step-up in the tax basis of
assets in accordance with Internal Revenue Code
Section 338(h)(10). By electing Section 338(h)(10),
the Company recognized taxable income of
approximately $20 million, and $8 million of tax
per the original tax sharing agreement, due to the
difference in the financial statement basis and the
tax basis of the assets immediately prior to the
change in control. In terms of the purchase and
sale agreement between PUSA and TOUSA, the Former
Tax Sharing Agreement was modified to exclude the
gain and corresponding tax from this transaction
from the calculation of the tax payments by the
Company to PUSA. Accordingly, the Company
recognized its income tax expense based on the
taxable income generated from its operations.
As a result, the consolidated amounts of the
Successor Company are presented on a new basis of
accounting different from the financial statements
of the Predecessor Company and, therefore, are not
comparable.
13
44
2. CHANGE IN CONTROL The following table represents the operating
(CONTINUED) results of the Company on a full year basis for the
year ended December 31, 1999 (in thousands, except
per share data).
Amount
------------------
Revenues $ 491,714
Cost of sales 411,011
------------------
Gross profit 80,703
Equity in earnings from unconsolidated subsidiaries 725
Selling, general and administrative expenses (49,565)
Depreciation and amortization (3,996)
------------------
Operating income 27,867
Other income (expense):
Interest expense (1,845)
Other income, net 1,064
------------------
Income before income taxes 27,086
Income taxes 9,701
------------------
Net income $ 17,385
==================
Net income per common share $ 1.51
==================
3. SUMMARY OF The accounting and reporting policies of the
SIGNIFICANT Company conform to generally accepted accounting
ACCOUNTING principles and general practices within the
POLICIES homebuilding industry. The following summarizes the
more significant of these policies.
BASIS OF PRESENTATION
The consolidated financial statements include the
accounts of NHC and its subsidiaries. All
significant intercompany balances and transactions
have been eliminated in the consolidated financial
statements.
USE OF ESTIMATES
The preparation of financial statements in
accordance with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the amounts reported in
the financial statements and accompanying notes.
Actual results could differ from those estimates.
14
45
3. SUMMARY OF ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
SIGNIFICANT
ACCOUNTING Statement of Financial Accounting Standards (SFAS)
POLICIES No. 121 addresses the accounting for the impairment
(CONTINUED) of long-lived assets, certain identifiable
intangibles and goodwill when events or changes in
circumstances indicate that the carrying amount of
an asset may not be recoverable. Impairment is
evaluated by estimating future undiscounted cash
flows expected to result from the use of the asset
and its eventual disposition. If the sum of the
expected future cash flows is less than the
carrying amount of the assets, an impairment loss
is recognized. Fair value, for purposes of
calculating impairment, is measured based on
undiscounted future cash flows.
CONCENTRATION OF CREDIT RISK
The Company conducts business primarily in Texas,
Florida, Tennessee, and North Carolina.
Accordingly, the market value of the Company's
inventory is susceptible to changes in market
conditions that may occur in Texas, Florida,
Tennessee, and North Carolina.
The Company has accounts with various financial
institutions, which are insured by the FDIC.
Amounts exceeding the FDIC insured amounts are $2.8
million at December 31, 2000.
RECEIVABLES FROM TITLE COMPANIES
Receivables from title companies consist of sales
proceeds due for homes sold and closed, less
amounts withheld by the title companies for
disbursements to third parties.
15
46
3. SUMMARY OF INVENTORY
SIGNIFICANT
ACCOUNTING Single family residences and lots and land held for
POLICIES development are recorded at the lower of cost or
(CONTINUED) estimated net realizable value. Net realizable
value is defined as the estimated proceeds upon
disposition, less applicable future costs to
complete and sell. Construction costs are
accumulated during the period of construction. The
Company utilizes the specific identification method
of charging construction costs to cost of sales as
units are sold. Common construction project costs
are allocated to each individual home in the
various subdivisions based upon the total number of
homes to be constructed in each subdivision
community.
Interest cost and overhead related to construction
activities, primarily salaries and benefits of
supervisors and supporting staff, are capitalized
as construction costs during the construction
period and charged to cost of sales as the related
inventories are sold. Selling, general and
administrative costs are expensed at the time they
are incurred.
PROPERTY, PREMISES AND EQUIPMENT
Property, premises and equipment, consisting
primarily of office premises, transportation
equipment, office furniture and fixtures, and model
home furniture, are carried at cost net of
accumulated depreciation. Office premises and
transportation equipment are depreciated using the
straight-line method over thirty years and five
years, respectively. Furniture and fixtures and
model home furniture are depreciated over estimated
useful lives of three to seven years using the
declining balance method switching to the
straight-line method in the year that depreciation,
computed on the straight-line method, equals or
exceeds that determined under the declining-balance
method.
16
47
3. SUMMARY OF PURCHASE OPTIONS
SIGNIFICANT
ACCOUNTING The Company enters into lot option contracts and
POLICIES contracts to purchase land for lot development.
(CONTINUED) When the Company does not exercise an option, its
liability is limited to the forfeiture of the
related deposit (Note 5). Consequently, the
Company's policy is to record the lots or land and
the related liabilities at the time such are
purchased and legal title has passed.
GOODWILL
At December 16, 1999, goodwill of approximately $46
million represents the combination of the goodwill
resulting from the change in control transaction
and the goodwill attributed to the 20% minority
interest immediately prior to the change in control
transaction. Starting from December 16, 1999,
goodwill is amortized on a straight-line basis over
thirty years. For the year ended December 31, 2000,
a charge of $1,500,000 related to an earn out
provision in the stock purchase agreement was
recorded to goodwill as an adjustment to the
purchase price. Periodically, the Company evaluates
goodwill for impairment by determining whether the
amortization of the balance over its remaining life
can be recovered through future undiscounted cash
flows of the Company.
REVENUE RECOGNITION
Revenue is recognized at the time of the closing of
the sale, when title to and possession of the
property transfers to the buyer.
ADVERTISING COSTS
As incurred, the Company expenses advertising
costs, consisting primarily of newspaper and trade
publications, signage and the cost of maintaining
an internet web-site. Advertising expense included
in selling, general and administrative expenses for
the years ended December 31, 2000, 1999 and 1998
was approximately $8.3 million, $7.6 million and
$6.7 million, respectively.
17
48
3. SUMMARY OF REPORTING ON THE COSTS OF START-UP ACTIVITIES
SIGNIFICANT
ACCOUNTING Statement of Position 98-5, "Reporting on the Costs
POLICIES of Start-Up Activities" (SOP 98-5), issued by the
(CONTINUED) American Institute of Certified Accountants, is
effective for years after December 15, 1998. Early
adoption is permitted. SOP 98-5 requires that costs
of start-up activities be expensed as incurred. The
Company adopted SOP 98-5 on January 1, 1999 and
$259,000 of start-up costs were expensed during the
period from January 1 to December 15, 1999.
INCOME TAXES
The Company was included in the consolidated
federal income tax return of PUSA through December
15, 1999. Under the Former Tax Sharing Agreement
with PUSA, the Company was required to calculate
its federal income tax on a separate company basis
and pay to PUSA the amount of the liability. When
applicable, the Company was entitled to receive
payments from PUSA. Such payment was only
applicable to the extent the benefits calculated
could be utilized to offset prior separate company
income through carryback or, if carried forward, at
the time such benefits were utilized to offset
separate company income.
Effective December 16, 1999, the Company is
included in the consolidated federal income tax
return with TOUSA pursuant to a revised Tax
Allocation Agreement between the Company and TOUSA.
As a result of this revised Tax Allocation
Agreement, income taxes are accounted for using the
asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to differences between
the financial statement carrying amounts of
existing assets and liabilities and their
respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in
which those temporary differences are expected to
be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is
recognized in income in the period that includes
the enactment date.
18
49
3. SUMMARY OF EARNINGS PER SHARE
SIGNIFICANT
ACCOUNTING The Company presents earnings per share data in
POLICIES accordance with the Provisions of Statement of
(CONTINUED) Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS No. 128). Basic EPS is computed by
dividing income available to common stockholders by
the weighted-average number of common shares
outstanding for the period.
Diluted earnings per share is computed based on the
weighted average number of shares of common stock
and dilutive securities outstanding during the
period. Dilutive securities are options that are
freely exercisable into common stock at less than
market exercise prices. Dilutive securities are not
included in the weighted average number of shares
when inclusion would increase the earnings per
share or decrease the loss per share.
The following tables reconcile the computation of
basic and diluted EPS for the years ended December
31, 2000, 1999 and 1998.
Period from Period from
December 16, January 1,
1999 1999
YEAR ENDED to to Year Ended
DECEMBER 31 December 31, December 15, December 31
2000 1999 1999 1998
------------------ ------------------ ------------------ ----------------
INCOME AVAILABLE TO COMMON
SHAREHOLDERS
(Numerator) $ 25,691,000 $ 2,648,000 $ 14,737,000 $ 12,795,000
================== ================== ================== ================
WEIGHTED AVERAGE OF SHARES
OUTSTANDING
(Denominator) 11,500,000 11,500,000 11,500,000 11,035,342
================== ================== ================== ================
BASIC AND DILUTED EPS $ 2.23 $ .23 $ 1.28 $ 1.16
================== ================== ================== ================
19
50
3. SUMMARY OF FAIR VALUE OF FINANCIAL INSTRUMENTS
SIGNIFICANT
ACCOUNTING Statement of Financial Accounting Standards No.
POLICIES 107, "Disclosures about Fair Value of Financial
(CONTINUED) Instruments", requires companies to disclose the
estimated fair value of their financial instrument
assets and liabilities. Fair value estimates are
made at a specific point in time, based upon
relevant market information about the financial
instrument. These estimates do not reflect any
premium or discount that could result from offering
for sale at one time the Company's entire holdings
of a particular instrument. The carrying values of
cash, other receivables, accounts payable and
accrued liabilities approximate their fair values
due to their short-term nature. The carrying value
of construction loans and notes payable
approximates its fair value as substantially all of
the debt has a fluctuating interest rate based upon
a current market index. The carrying amount of the
acquisition notes payable approximate their fair
value.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133
(SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities," issued by the Financial
Accounting Standards Board is effective for all
fiscal quarters of fiscal years beginning after
June 15, 2000. This statement establishes
accounting and reporting standards for derivative
instruments, including certain derivative
instruments embedded in other contracts, and for
hedging activities. The Company does not expect
adoption to have any effect on its financial
position, results of operations and cash flows.
RECLASSIFICATION
Certain reclassifications have been made to conform
the prior year's amounts to the current year's
presentation.
20
51
4. ACQUISITIONS WESTBROOKE ACQUISITION
Effective January 1, 1998, the Company, through its
wholly-owned subsidiary Westbrooke Acquisition
Corp., acquired all of the outstanding stock of
Westbrooke Communities, Inc. and its affiliated
entities, a single-family home builder in South
Florida. The initial purchase price for Westbrooke
was $18.9 million in the form of three promissory
notes. A note of $6.6 million bearing an interest
rate of 9%, was paid in full in December 1998. The
remaining notes are payable in annual installments
of $2.4 million beginning in January 1999. The
Company made its first installment of $2.4 million
in 1999. The remaining notes totaling $9.9 million
bear interest at 6.45% payable annually. As
indicated in Note 2, additional consideration paid
as a result of the change of control resulted in an
additional $4.6 million promissory note. During
2000, the Company made further payments on
acquisition loans of $3.4 million. The total
acquisition notes payable outstanding to
Westbrooke's prior majority owner at December 31,
2000 was $11 million (Note 2).
In January 1998, the Company agreed to continue to
pay additional consideration to certain of the
prior owners of Westbrooke equal to 6% of net
income before income taxes, as defined in the
amendment to the Stock Purchase Agreement. (As
discussed in Note 2, the Company modified the 6%
additional consideration amount to 7.5%.).
The 1998 acquisition was accounted for using the
purchase method and, accordingly, the operating
results of Westbrooke were included in the
Company's consolidated operating results since the
effective date of the acquisition.
21
52
4. ACQUISITIONS As of January 1, 1998, the fair values of assets
(CONTINUED) acquired and liabilities assumed, exclusive of cash
acquired of $3,618,000 were as follows (in
thousands):
Amount
--------------
Inventory $ 40,759
Receivables 1,540
Property and equipment 1,980
Other assets 2,216
Goodwill 10,159
Construction loans payable (22,308)
Acquisition notes payable (28,922)
Other liabilities (9,042)
--------------
$ (3,618)
==============
Additional acquisition costs of $1.3 million were
incurred by the Company and recorded as goodwill.
5. INVENTORY The inventory of single family residences as of
December 31, 2000 and 1999 consists of the
following:
Number of Homes Carrying value
----------------------- -----------------------
December 31, December 31,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In thousands)
Completed 178 137 $ 42,624 $ 29,145
Under construction 824 1,038 107,959 142,975
Models 73 80 18,715 19,763
---------- ---------- ---------- ----------
1,075 1,255 $ 169,298 $ 191,883
========== ========== ========== ==========
22
53
5. INVENTORY A summary of interest capitalized in inventory is
(CONTINUED) as follows (in thousands):
Years ended December 31, 2000 1999 1998
------- ------- -------
Interest capitalized, beginning of period $ 6,266 $ 5,516 $ 2,572
Capitalized interest acquired in purchase
of Westbrooke -- -- 2,597
Interest incurred 15,730 12,859 11,163
Less interest included in:
Cost of sales 11,797 10,264 8,877
Interest expense 3,282 1,845 1,939
------- ------- -------
Interest capitalized, end of period $ 6,917 $ 6,266 $ 5,516
======= ======= =======
In the ordinary course of business, the Company
enters into contracts to purchase lots and land
held for lot development. At December 31, 2000 and
1999, the Company had nonrefundable deposits
aggregating $1.8 million and $1.5 million,
respectively, included in other assets in the
accompanying consolidated statements of financial
position, for lots and land with a related purchase
price of approximately $98.2 million and $56.6
million, respectively. The Company's liability for
nonperformance under such contracts is limited to
forfeiture of the related deposits.
6. INVESTMENT IN Included in the investments in unconsolidated
UNCONSOLIDATED subsidiaries is an acquired 49% interest in Pacific
SUBSIDIARIES Title L.L.C., a title agency, for $24,000 and a 50%
interest in NHC Mortgage, a mortgage finance
company, for $81,000. During 1998, the Company
acquired a 25% interest in Spicewood at Bull Creek,
a land development company, for $250,000. In 1999,
the Company acquired a 37.5% interest in Scofield
Farms, a land development company, for $300,000.
During 2000, the Company made an investment in
Spring Park Village, L.P., also a land development
company, for $1.1 million. The Company does not
have control of these entities and therefore has
accounted for its interests using the equity
method. The operations are immaterial to the
consolidated financial statements.
23
54
7. CONSTRUCTION On June 27, 2000, the Company entered into a
LOANS PAYABLE syndicated $150 million secured revolving credit
facility with six banks which matures on June 27,
2003 with annual options for one year extensions.
This credit facility has been used to finance the
acquisition and development of residential
subdivisions, the purchase of developed lots and
the construction of homes in the Texas, Tennessee
and North Carolina markets.
Construction loans payable consist of the following
at December 31, 2000 and 1999 (in thousands):
2000 1999
-------- --------
Construction and lot loans with financial institutions,
collateralized by lots and single family residences
completed or under construction, bearing interest
at LIBOR plus 205 basis points to prime rate (8.69%
to 9.5% at December 31, 2000), maturing upon
completion and sale of the homes as defined in the
loan agreement $ 97,132 $114,215
Development and land acquisition loans with
financial institutions, collateralized by deeds of
trust on property, with maturing dates ranging from
July 2000 through November 2003, bearing interest
at LIBOR plus 205 basis points to prime plus 1.5%
(8.69% to 11.0% at December 31, 2000) 29,784 34,476
Promissory note with a bank, collateralized by property,
bearing interest at 7.45%, payable monthly,
maturing in March, 2008 630 689
-------- --------
$127,546 $149,380
======== ========
24
55
7. CONSTRUCTION LOANS
PAYABLE (CONTINUED) Maturities on construction loans payable at
December 31, 2000 are as follows (in thousands):
December 31, Amount
------------ ---------------
2001 $ 126,991
2002 75
2003 81
2004 87
2005 93
Thereafter 219
---------------
Total $ 127,546
===============
Construction and lot loans are generally repaid as
sales of individual homes are closed and therefore
are considered current at December 31, 2000. At
December 31, 2000, the Company had lines of credit
commitments for construction loans totaling
approximately $253.3 million, of which $28.5
million was available to draw down.
Certain of the Company's lenders require, among
other things, that the Company maintain minimum
tangible net worth levels and debt to tangible net
worth ratios. At December 31, 2000, the Company was
in compliance with such requirements. Certain debt
agreements of NHC's subsidiaries restrict the
subsidiaries' ability to pay dividends or advance
funds to NHC to the extent that the payment would
put the subsidiary in violation of debt covenants.
25
56
8. RELATED PARTY While a subsidiary of PUSA, the Company purchased
TRANSACTIONS insurance policies from an affiliated insurance
broker. The affiliated entity earned commissions of
$155,000 and $152,000 in 1999 and 1998,
respectively, with respect to such policies. From
January 1, 2000 to December 15, 2000 the Company
continued to utilize the services of the PUSA
affiliate. As of December 15, 2000 the Company
purchased insurance under the TOUSA umbrella
policy. As a result, the Company currently makes
payments directly to an unaffiliated broker. Also,
while a subsidiary of PUSA, the Company purchased
demographic and economic research information
through an affiliate for $57,000 in 1999 (See Note
2).
During 2000, the Company entered into a purchasing
agreement with its parent, Technical Olympic S.A.
The agreement provided that Technical Olympic S.A.
would purchase certain of the materials and
supplies necessary for operations and sell them to
the Newmark entities, all in an effort to
consolidate the purchasing function. Although
Technical Olympic S.A. would incur certain
franchise tax expense, Newmark and its subsidiaries
would not be required to pay such additional
purchasing liability. Technical Olympic S.A.
purchased $50,969,000 of materials and supplies on
behalf of Newmark or its subsidiaries for the year
ended December 31, 2000.
9. INCOME TAXES Components of income tax expense (benefit) consist
of (in thousands):
Years ended December 31, 2000 1999 1998
-------- -------- --------
Current:
Federal $ 14,247 $ 9,984 $ 7,183
State 965 57 320
-------- -------- --------
15,212 10,041 7,503
-------- -------- --------
Deferred:
Federal (360) (340) 134
State -- -- --
-------- -------- --------
(360) (340) 134
-------- -------- --------
$ 14,852 $ 9,701 $ 7,637
======== ======== ========
26
57
9. INCOME TAXES The difference between total reported income taxes
(CONTINUED) and expected income tax expense computed using the
federal statutory income tax rate of 35% for 2000,
1999 and 1998 is reconciled as follows (in
thousands):
Years ended December 31, 2000 1999 1998
--------- --------- ---------
Computed "expected" tax expense $ 14,190 $ 9,481 $ 7,151
Non-deductible goodwill amortization -- 208 216
State taxes, net of federal benefit 627 38 208
Other 35 (26) 62
--------- --------- ---------
Income taxes $ 14,852 $ 9,701 $ 7,637
========= ========= =========
Significant temporary differences that give rise to
the deferred tax assets and liabilities are as
follows (in thousands):
December 31, 2000 1999
--------- ---------
Deferred tax assets:
Warranty/advertising reserve $ 366 $ --
Property, premises and equipment,
principally due to differences
in depreciation 28
Capitalized interest 350 --
Amortizable intangibles -- 155
Other 160 --
--------- ---------
Total gross deferred tax assets 904 155
--------- ---------
Deferred tax liabilities:
Amortizable intangibles (381) --
Partnership investment (8) --
--------- ---------
Total gross deferred tax liabilities (389) --
--------- ---------
Net deferred tax asset $ 515 $ 155
========= =========
27
58
9. INCOME TAXES Management of the Company believes that it is more
(CONTINUED) likely than not that the gross deferred tax assets
will be realized or settled due to the Company's
ability to generate taxable income exclusive of
reversing timing differences. Accordingly, no
valuation allowance was established at December 31,
2000 and 1999.
Included in income tax payable is $637,000 payble
to TOUSA at December 31, 2000 and $362,000 and
$1,383,000 payable to PUSA and TOUSA, respectively
at December 31, 1999 under the terms of the tax
sharing agreements. Payments of $15.3 million were
made to TOUSA for federal income taxes during 2000
and $10.7 million and $7.4 million, respectively,
to PUSA for federal income taxes during 1999 and
1998, under the aforementioned agreements.
The Internal Revenue Code Section 338(h)(10)
election discussed in Note 2 resulted in the
creation of amortizable goodwill for tax purposes
in excess of amortizable goodwill for financial
statement purposes. Accordingly, the Company
recognized a new deferred tax asset of
approximately $177,000 at December 16, 1999. From
December 16, 1999, the goodwill reflected in the
financial statements of approximately $46 million
will be amortized on a straight-line basis over a
period of thirty years; whereas, the goodwill for
tax purposes of approximately $46.5 million will be
amortized on a straight-line basis over a period of
fifteen years.
10. COMMITMENTS AND The Company leases office premises and equipment
CONTINGENCIES under noncancellable operating leases. Future
minimum payments under these noncancellable
operating leases for the fiscal years ending on
December 31 are as follows (in thousands):
December 31, Amount
------------ ------------
2001 $ 550
2002 511
2003 428
2004 278
2005 165
------------
$ 1,932
============
28
59
10. COMMITMENTS AND Rental expense for the year ended December 31,
CONTINGENCIES 2000, 1999 and 1998 aggregated, $662,000, $425,000
(CONTINUED) and $327,000, respectively.
The Company is involved in various claims and legal
actions arising in the ordinary course of business.
In the opinion of management, the ultimate
disposition of these matters will not have a
material adverse effect on the Company's
consolidated financial position.
The Company provides homebuyers with a limited
warranty of workmanship and materials from the date
of sale for up to two years. The Company generally
has recourse against its subcontractors for claims
relating to workmanship and materials. The Company
also provides a ten-year homeowner's warranty
through a single national contract with a third
party. This warranty generally covers major
structural defects. Estimated warranty costs are
recorded at the time of sale. Total warranty
expense for the year ended December 31, 2000, 1999
and 1998 was $4.2 million, $3.2 million and $2.1
million, respectively. As of December 31, 2000 and
1999, the liability accrued by the Company for
warranty costs was $2.5 million and $1.2 million,
respectively, and was included in other
liabilities.
The Company has secured letter of credit facilities
which are used to issue letters of credit which
guarantee Westbrooke's performance of certain
development and construction obligations. At
December 31, 2000, letters of credit aggregating
$2.9 million were outstanding under this facility.
No additional amounts are available under this
facility.
11. EMPLOYEE The Company has a 401 (k) Profit Sharing Plan (the
BENEFIT PLAN Plan). Under the terms of the Plan, the Company
matches 50% of employee's voluntary contributions
up to a maximum of 6% of each participant's
earnings. The Company's matching contributions to
the Plan for the year ended December 31, 2000, 1999
and 1998 were $681,000, $299,000 and $446,000,
respectively. Effective December 16, 1999, this
plan is being sponsored by TOUSA.
29
60
12. STOCK OPTIONS Effective December 15, 1999, as part of the change
in control, all Tandem Stock Option/Stock
Appreciation Rights were terminated. As of December
31, 2000, the Company has not granted any
additional options (See Note 2).
During the year ended December 31, 1998, Tandem
Stock Option / Stock Appreciation Rights to acquire
682,000 shares at an exercise price of $10.50 with
market prices ranging from $7.00 to $11.13 in the
year, were granted to certain officers and
employees of the Company under the Company's stock
option plan. During this same period, no options
were exercised. During the period from January 1,
1999 to December 15, 1999, no options were
exercised.
The Company accounts for its stock option plan in
accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation
expense would be recorded on the date of grant only
if the current market price of the underlying stock
exceeded the exercise price.
FASB Statement 123, "Accounting for Stock-Based
Compensation," requires the Company to provide pro
forma information regarding net income and earnings
per share as if compensation cost for the Company's
stock option plans had been determined in
accordance with the fair value based method
prescribed in FASB Statement 123. The Company
estimates the fair value of each stock option,
using the Black Scholes method, at the
weighted-average assumption used for grants in
fiscal 1998 dividend yield of zero percent;
expected volatility of 21.5%; risk free interest
rate of 6%; and expected life of 10 years.
30
61
13. QUARTERLY RESULTS Quarterly results for the years ended December 31,
(UNAUDITED) 2000 and 1999 are reflected below (in thousands,
except per share amounts):
FOURTH THIRD SECOND FIRST
------------- ------------- ------------- -------------
2000
----
Revenue $ 192,836 $ 146,207 $ 164,491 $ 136,972
Operating income $ 13,345 $ 9,486 $ 11,100 $ 8,808
Net income $ 8,133 $ 5,655 $ 6,580 $ 5,323
Basic earnings per share $ .71 $ .49 $ .57 $ .46
Diluted earnings per share $ .71 $ .49 $ .57 $ .46
1999
----
Revenue $ 141,757 $ 126,745 $ 130,380 $ 92,832
Operating income $ 9,453 $ 8,405 $ 6,557 $ 3,452
Net income $ 5,869 $ 5,330 $ 4,191 $ 1,995
Basic earnings per share $ .51 $ .46 $ .36 $ .17
Diluted earnings per share $ .51 $ .46 $ .36 $ .17
============= ============= ============= =============
Quarterly and year-to-date computations of per
share amounts are made independently. Therefore,
the sum of per share amounts for the quarters may
not agree with the per share amounts for the year.
31
62
SCHEDULE I
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
2000 1999
-------- --------
Cash and short-term investments ........................................................ $ 120 $ 1,096
Investments in and equity in net assets of subsidiaries ................................ 96,258 71,429
Goodwill ............................................................................... 45,354 45,652
Other assets ........................................................................... 629 150
-------- --------
Total assets ................................................................. $142,361 $118,327
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Acquisition notes payable .............................................................. $ 6,650 $ 7,600
Other liabilities ...................................................................... 402 1,109
-------- --------
Total liabilities ............................................................ 7,052 8,709
-------- --------
Stockholders' Equity:
Common stock .................................................................. 115 115
Additional paid in capital .................................................... 106,855 106,855
Retained earnings ............................................................. 28,339 2,648
-------- --------
Total Stockholders' Equity ................................................... 135,309 109,618
-------- --------
Total Liabilities and Stockholders' Equity ................................... $142,361 $118,327
======== ========
PARENT COMPANY ONLY STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
PERIOD FROM PERIOD FROM
DECEMBER 16, JANUARY 1,
1999 1999
YEAR ENDED TO TO YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15, DECEMBER 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
Equity in earnings of subsidiaries
(net of taxes) .................. $ 28,846 $ 2,730 $ 15,183 $ 13,091
Other expenses ..................... 3,155 82 446 296
------------ ------------ ------------ ------------
Net income ......................... $ 25,691 $ 2,648 $ 14,737 $ 12,795
============ ============ ============ ============
63
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(DOLLARS IN THOUSANDS)
PERIOD FROM PERIOD FROM
DECEMBER 16, JANUARY 1,
1999 1999
YEAR ENDED TO TO YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15, DECEMBER 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 25,691 $ 2,648 $ 14,737 $ 12,795
Adjustments to reconcile net income to cash from operating
activities:
Change in other assets ................................. (180) (6) (132) 1,781
Change in other liabilities ............................ (707) 16 363 (1,073)
Equity in undistributed earnings of subsidiaries ....... (28,846) (2,730) (15,183) (13,091)
Net cash provided by (used in) operating activities ............. (4,042) (72) (215) 412
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from subsidiaries .................................. 8,583 -- 2,880 --
Capital contributions to subsidiaries ........................ (4,567) -- (2,000) (21,690)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities ............. 4,016 -- 880 (21,690)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on acquisition loan ....................... (950) -- -- --
Net proceeds from initial public offering of common stock .... -- -- -- 18,446
Net proceeds from underwriters over-allotment option ......... -- -- -- 2,879
Capital contributions from parent ............................ -- -- -- 301
Dividends paid to parent ..................................... -- -- -- --
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities ............. (950) -- -- 21,626
Net change in cash and short-term investments ................... (976) 72 665 348
Cash at the beginning of the period ............................. 1,096 1,024 359 11
------------ ------------ ------------ ------------
Cash at the end of the period ................................... $ 120 $ 1,096 $ 1,024 $ 359
============ ============ ============ ============
64
SCHEDULE II
NEWMARK HOMES CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (WARRANTY RESERVES)
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(DOLLARS IN THOUSANDS)
=========================================================================================================
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS -- END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS PAYMENT PERIOD
---------------------------------------------------------------------------------------------------------
December 31, 2000 $1,222 $4,197 --- $(2,884) $2,535
=========================================================================================================
December 31, 1999 $1,149 $2,827 --- $(2,754) $1,222
=========================================================================================================
December 31, 1998 $ 881 $2,138 --- $(1,870) $1,149
=========================================================================================================
65
INDEX TO EXHIBITS
EXHIBIT
NUMBER REF EXHIBIT
------ --- -------
2.1 (1) Stock Purchase Agreement dated January 15, 1998 among
James Carr, Westbrooke Communities, Inc., Westbrooke at
West Lake, Inc., Westbrooke at Winston Trails, Inc.,
Westbrooke at Pembroke Pines, Inc., Westbrooke at Oak
Ridge Inc., Harold L. Eisenacher, Leonard R. Chernys,
Diana Ibarria, The Westbrooke Partnership, Pacific USA
Holdings Corp., Newmark Homes Corp., and Westbrooke
Acquisition Corp.
2.1(b) (4) Amendment to Stock Purchase Agreement dated December
15, 1999 among James Carr, Westbrooke Communities,
Inc., Westbrooke at West Lake, Inc., Westbrooke at
Winston Trails, Inc., Westbrooke at Pembroke Pines,
Inc., Westbrooke at Oak Ridge, Inc., Harold L.
Eisenacher, Leonard R. Chernys and Diana Ibarria, The
Westbrooke Partnership, Pacific USA Holdings Corp.,
Newmark Homes Corp. and Westbrooke Acquisition Corp.
2.1(c) (5) Second Amendment to Stock Purchase Agreement dated
January 15, 2001 among James Carr, Westbrooke
Communities, Inc., Westbrooke at West Lake, Inc.,
Westbrooke at Winston Trails, Inc., Westbrooke at
Pembroke Pines, Inc., Westbrooke at Oak Ridge, Inc.,
Harold L. Eisenacher, Leonard R. Chernys and Dianna
Ibarria, The Westbrooke Partnership, Newmark Homes
Corp. and Westbrooke Acquisition Corp.
2.3 (2) Stock Purchase Agreement dated November 24, 1999
between Pacific Realty Group, Inc., Pacific USA
Holdings Corp., and Technical Olympic USA, Inc.
2.4 (6) Agreement and Plan of Merger dated February 12, 2001
among Newmark Homes Corp., a Delaware corporation, and
Newmark Homes Corp., a Nevada corporation.
3.1 (6) Articles of Incorporation.
3.2 (6) Bylaws.
10.1 (1) Form of Tax Allocation Agreement between Pacific USA
and various affiliates and subsidiaries, of Pacific
USA, including the Registrant, dated April 28. 1992.
10.2 (1) Form of Amendment to Tax Agreement.
10.3 (4) Tax Indemnity and Allocation Agreement dated December
15, 1999 among Pacific USA Holdings Corp., Pacific
Realty Group, Inc., Newmark Homes Corp. and Technical
Olympic USA, Inc.
10.4 (1) Employment Agreement between Newmark Homes Corp. and
Terry White dated January 1, 1998.
10.5 (1) Employment Agreement Between Newmark Homes Corp. and J.
Eric Rome dated January 1, 1998.
10.6(a) (4) Second Amended and Restated Employment Agreement
Between Westbrooke Communities, Inc. and James Carr
dated December 15, 1999.
10.6(b) (4) Amended and Restated Non-Competition Agreement dated
December 15, 1999 among Westbrooke Communities, Inc.,
Westbrooke at West Lake, Inc., Westbrooke at Winston
Trails, Inc., Westbrooke at Pembrook Pines, Inc.,
Westbrooke at Oak Ridge, Inc., The Westbrooke
Partnership, Westbrooke Acquisition Corp. and James
Carr.
10.7 (4) Amended and Restated Employment Agreement between
Newmark Home Corporation and J. Michael Beckett dated
March 1, 2000.
10.8 (4) Form of Tax Allocation Agreement between Technical
Olympic USA, Inc. and various affiliates and
subsidiaries, including Newmark Homes Corp. and its
subsidiaries.
10.9 (3) Credit Agreement among Newmark Homes, L.P. and Bank of
America, N.A. as Administrative Agent, Swing Line
Lender and Letter of Credit Issuing Lender and Other
Financial Institutions Party Hereto dated June 27,
2000.
10.10 (3) Guaranty Agreement among Newmark Homes Corp. and
Newmark Homes Corporation in favor of Bank of America,
N.A. and the Lenders under the Credit Agreement dated
June 27, 2000.
10.11 (3) Management Services Agreement between Newmark Homes
Corp. and Techolym, L.P. dated June 1, 2000.
10.12 (3) Amended and Restated Employment Agreement between
Newmark Homes Corporation and Lonnie M. Fedrick dated
May 12, 2000 effective January 1, 2000.
66
EXHIBIT
NUMBER REF EXHIBIT
------ --- -------
11.1 (5) Statement relating to computation of per share
earnings.
12.1 (5) Statement relating to computation of ratios.
21.1 (5) List of subsidiaries.
(1) Filed as part of the Registrant's Registration Statement on Form S-1,
Amendment Number 3, filed with the Securities and Exchange Commission
on March 5, 1998, File No. 333-42213 and incorporated herein by
reference.
(2) Filed as Exhibit 2.1 of Registrant's Current Report on Form 8-K dated
December 22, 1999 and incorporated herein by reference.
(3) Filed as part of the Registrant's Current Report on Form 10-Q, filed
with the Securities and Exchange Commission on August 10, 2000 and
incorporated herein by reference.
(4) Filed as part of the Registrant's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 27, 2000, File
No. 000-23677 and incorporated herein by reference.
(5) Filed herewith.
(6) Filed as part of the Registrant's Current Report on Form 8-K dated
March 23, 2001 and incorporated herein by reference.