SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 000-23677
NEWMARK HOMES CORP.
(Exact name of Registrant as specified in its charter)
Delaware 76-0460831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Soldiers Field Drive
Sugar Land, Texas 77479
(Address of principal executive offices) (ZIP code)
(281) 243-0100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, par value $0.01 11,500,000 shares as of September 30, 2001
NEWMARK HOMES CORP.
INDEX
PAGE
PART I. Financial Information.........................................................................3
ITEM 1. Financial Statements..........................................................................3
Condensed Consolidated Statements of Financial Position.......................................3
Condensed Consolidated Statements of Operations...............................................4
Condensed Consolidated Statements of Cash Flows...............................................6
Notes to the Condensed Consolidated Financial Statements......................................7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................................9
ITEM 3. Changes in Information about Market Risk.....................................................13
PART II. Other Information............................................................................14
ITEM 1. Legal Proceedings............................................................................14
ITEM 2. Changes in Securities........................................................................14
ITEM 3. Defaults Upon Senior Securities..............................................................14
ITEM 4. Submission of Matters to a Vote of Security Holders..........................................14
ITEM 5. Other Information............................................................................14
ITEM 6. Exhibits and Reports on Form 8-K.............................................................15
Exhibits.....................................................................................15
Reports on Form 8-K..........................................................................15
Signatures...................................................................................16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS SEPTEMBER 30, 2001 DECEMBER 31, 2000
(unaudited)
---------------------------- ----------------------------
Cash.................................................... $ 8,636 $ 4,774
Receivables............................................. 14,526 14,778
Inventory............................................... 267,311 246,712
Investment in unconsolidated subsidiaries............... 2,467 2,205
Other assets, net....................................... 14,354 10,168
Goodwill, net of accumulated amortization of
$2,749 and $1,594 in 2001 and 2000, respectively...... 44,199 45,354
--------------------------- --------------------------
Total Assets............... $351,493 $323,991
=========================== ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction loans payable.............................. $142,581 $127,546
Acquisition notes payable............................... 7,370 11,055
Other payables to affiliates............................ 679 700
Accounts payable and accrued liabilities................ 31,178 33,837
Other liabilities....................................... 21,463 15,544
--------------------------- --------------------------
Total Liabilities.................... $203,271 $188,682
Minority interest in consolidated subsidiaries.......... 99 --
Stockholders' equity
Common stock--$0.01 par value; 30,000,000
shares authorized, 11,500,000 shares issued
and outstanding..................................... 115 115
Additional paid-in capital............................ 106,855 106,855
Retained earnings..................................... 41,153 28,339
--------------------------- --------------------------
Total stockholders' equity........... 148,123 135,309
--------------------------- --------------------------
Total liabilities and stockholders'
equity............................. $351,493 $323,991
=========================== ==========================
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------
2001 2000
---- ----
Revenues................................................ $163,011 $146,207
Cost of sales........................................... 132,761 119,627
------------------------- --------------------------
Gross profit............................................ 30,250 26,580
Equity in earnings from unconsolidated
subsidiaries.......................................... 462 222
Selling, general and administrative expenses............ (18,705) (16,358)
Depreciation and amortization........................... (1,306) (958)
------------------------- --------------------------
Operating income................................... 10,701 9,486
Other income (expense):
Interest expense................................... (453) (798)
Other income, net.................................. 125 164
------------------------- --------------------------
Income before income taxes..................... 10,373 8,852
Income taxes............................................ 3,665 3,197
------------------------- --------------------------
Net income..................................... $ 6,708 $ 5,655
========================= ==========================
Earnings per common share:
Basic and Diluted..................................
$0.58 $0.49
========================= ==========================
Weighted average number of shares of common
stock equivalents outstanding:
Basic and Diluted.................................. 11,500,000 11,500,000
========================= ==========================
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
2001 2000
---- ----
Revenues................................................ $451,391 $447,670
Cost of sales........................................... 366,145 369,147
------------------------- --------------------------
Gross profit............................................ 85,246 78,523
Equity in earnings from unconsolidated
subsidiaries.......................................... 793 478
Selling, general and administrative expenses............ (51,700)
Depreciation and amortization........................... (3,776)
------------------------- --------------------------
Operating income................................... 30,563 29,393
Other income (expense):
Interest expense................................... (2,081) (2,387)
Other income, net.................................. 346 458
Minority interest in consolidated subsidiaries..... (99) --
------------------------- --------------------------
Income before income taxes..................... 28,729 27,464
Income taxes............................................ 9,705 9,906
------------------------- --------------------------
Net income..................................... $19,024 $17,558
========================= ==========================
Earnings per common share:
Basic and Diluted.................................. $1.65 $1.53
========================= ==========================
Weighted average number of shares of common
stock equivalents outstanding:
Basic and Diluted.................................. 11,500,000 11,500,000
========================= ==========================
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
2001 2000
------------------- ------------------
Cash flows from operating activities:
Net income.......................................................... $ 19,024 $ 17,558
Adjustments to reconcile net income to net cash provided by (used) in
operating activities:
Depreciation and amortization..................................... 3,776 2,920
Net loss (gain) on sale of property, premises and equipment....... 23 (30)
Equity in earnings from unconsolidated subsidiaries............... (793) (478)
Minority interest in consolidated subsidiaries.................... 99 --
Changes in operating assets and liabilities:
Inventory and land held for development, net................... (20,446) (17,055)
Receivables.................................................... 253 (1,276)
Other assets................................................... (3,031) (714)
Payable to affiliates.......................................... (21) (1,738)
Accounts payable and accrued liabilities....................... (2,659) (7,589)
Other liabilities.............................................. 5,766 1,881
------------------- ------------------
Net cash provided by (used) in operating activities............ 1,991 (6,521)
Cash flows from investing activities:
Purchases of property, premises and equipment....................... (4,091) (1,770)
Proceeds from sales of property, premises and equipment............. 292 252
Additional acquisition costs........................................ -- (480)
Investment in unconsolidated subsidiaries........................... (290) (133)
Distributions from unconsolidated subsidiaries...................... 821 370
------------------- ------------------
Net cash used in investing activities.......................... (3,268) (1,761)
Cash flows from financing activities:
Proceeds from advances on construction loans payable................ 212,257 252,109
Principal payments on construction loans payable.................... (197,223) (243,056)
Principal payments on acquisition notes payable..................... (3,685) (3,418)
Dividends paid...................................................... 6,210 --
------------------- ------------------
Net cash provided by financing activities...................... 5,139 5,635
------------------- ------------------
Increase (decrease) in cash............................................ 3,862 (2,647)
Cash, beginning of period.............................................. 4,774 8,080
------------------- ------------------
Cash, end of period.................................................... $ 8,636 $5,433
=================== ==================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest....................................................... $ 9,165 $11,780
=================== ==================
Income taxes................................................... $10,069 $11,983
=================== ==================
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
ORGANIZATION
Newmark Homes Corp. and subsidiaries (the "Company") is an 80% owned subsidiary
of Technical Olympic USA, Inc. ("TOUSA"). On December 15, 1999, TOUSA acquired
80% of the Company in a stock purchase transaction. The Company was formed in
December 1994 to serve as a real estate holding company.
The Company's primary subsidiaries are as follows:
SUBSIDIARY NATURE OF BUSINESS
---------- ------------------
Newmark Homes Corporation ("Newmark")................ Single-family residential homebuilding in Texas,
Tennessee and North Carolina - formed in 1983
Westbrooke Companies, Inc. ("Westbrooke")............ Single-family residential homebuilding and residential
lot developer in South Florida - formed in 1976
Pacific United Development Corporation Residential lot development in Texas and Tennessee -
("PUDC")............................................. formed in 1993
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The accounting and reporting policies of the Company conform
to accounting principles generally accepted in the United States and general
practices within the homebuilding industry. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States 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.
INTERIM PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by the Company and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
accounting principles generally accepted in the United States have been omitted
from the accompanying statements. The Company's management believes the
disclosures made are adequate to make the information presented not misleading.
However, the financial statements included as part of this 10-Q filing should be
read in conjunction with the financial statements and notes thereto included in
the Company's December 31, 2000 Annual Report on Form 10-K. The accompanying
unaudited consolidated financial statements reflect all adjustments, consisting
primarily of normal recurring items that, in the opinion of the management of
the Company, are considered necessary for a fair presentation of the financial
position, results from operations and cash flows for the periods presented.
Results of operations achieved through September 30, 2001 are not necessarily
indicative of those which may be achieved for the year ended December 31, 2001.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon
7
adoption of SFAS 142, that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized.
The Company's previous business combinations were accounted for using the
purchase method. As of September 30, 2001, the net carrying amount of goodwill
is $44.2 million. Amortization expenses during the nine-month period ended
September 30, 2001 was $1.2 million. Currently, the Company is assessing but has
not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its
financial position and results of operation.
EARNINGS PER SHARE
Basic Earnings Per Share is computed by dividing earnings attributable to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted Earnings Per Share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. The following table reconciles the
computation of basic and diluted Earnings Per Share for the three months ended
September 30, 2001 and 2000 and for the nine months ended September 30, 2001 and
2000 (in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER30,
------------------------ -- -----------------------
2001 2000 2001 2000
--------- ---------- --------- ----------
Income available to common
shareholders (numerator)........... $6,708 $5,655 $19,024 $17,558
Weighted average of shares
outstanding (denominator).......... 11,500 11,500 11,500 11,500
--------- ---------- --------- ----------
Basic and Diluted Earnings
Per Share.......................... $0.58 $0.49 $1.65 $1.53
========= ========== ========= ==========
RECLASSIFICATION
Certain reclassifications have been made to conform the prior year's amounts to
the current year's presentation.
8
NOTE 2. INVENTORY
Inventory balances as of September 30, 2001 and December 31, 2000 consist of the
following:
CARRYING VALUE
NUMBER OF HOMES (IN THOUSANDS)
-------------------------------- -------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2001 2000 2001 2000
-------------- -------------- -------------- -------------
Completed................................... 158 178 $35,301 $42,624
Under Construction.......................... 976 824 144,064 107,959
Models...................................... 80 73 17,366 18,715
Residential Lots............................ -- -- 70,580 77,414
-------------- -------------- -------------- -------------
Total............................. 1,214 1,075 $267,311 $246,712
============== ============== ============== =============
NOTE 3. CAPITALIZED INTEREST
A summary of interest capitalized in inventory is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------
2001 2000 2001 2000
--------- ---------- -------- ---------
Interest capitalized, beginning
of period.......................... $6,241 $6,852 $6,917 $6,266
Interest incurred..................... 2,389 3,832 8,827 11,726
Less interest included in:
Costs of Sales..................... 2,783 2,534 8,269 8,253
Other income (expense)................ 453 798 2,081 2,387
--------- ---------- -------- ---------
Interest capitalized, end
of period.......................... $5,394 $7,352 $5,394 $7,352
========= ========== ======== =========
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
the Company has meritorious defenses to these matters and that any potential
liability from these matters would not materially affect the Company's
consolidated financial statements.
NOTE 5. CONSOLIDATED JOINT VENTURES
The Company acquired a 75% interest in Silver Oak Trails, L.P., a land
development joint venture for a net initial investment of $2.9 million. The
operations of Silver Oak Trails, L.P. are consolidated with the operations of
the Company. Silver Oak Trails, L.P. earned $0.4 million of which $0.1 million
is minority interest in the earnings on a land sale transaction during the nine
months ending September 30, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, Section
21E of the Securities Exchange Act of 1934, as amended, and 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.
9
RESULTS OF OPERATIONS
The following tables set forth certain operating and financial data for the
Company:
NEW SALES CONTRACTS,
NET OF CANCELLATIONS HOME CLOSING
--------------------------- -----------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -----------------------------
2001 2000 2001 2000
----------- ------------ ------------ -------------
Houston............................................ 133 177 150 166
Austin............................................. 58 76 122 123
Dallas/Fort Worth.................................. 21 40 36 35
San Antonio........................................ 15 21 16 14
Fort Lauderdale/Palm Beach/Miami................... 213 280 251 165
Nashville.......................................... 16 23 36 25
Charlotte.......................................... 6 4 6 2
Greensboro/Winston-Salem........................... 8 13 6 9
----------- ------------ ------------ -------------
Total......................................... 470 634 623 539
=========== ============ ============ =============
NEW SALES CONTRACTS, HOMES IN SALES
NET OF CANCELLATIONS HOME CLOSINGS BACKLOG
------------------------ ---------------------- ---------------------
NINE MONTHS ENDED NINE MONTHS ENDED AS OF
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------- ---------------------
2001 2000 2001 2000 2001 2000
--------- ---------- --------- --------- -------- ---------
Houston............................... 491 509 415 461 185 169
Austin................................ 248 425 369 448 73 272
Dallas/Fort Worth..................... 93 125 115 108 29 49
San Antonio........................... 67 41 54 28 26 14
Fort Lauderdale/Palm Beach/Miami...... 749 701 592 593 610 639
Nashville............................. 93 76 85 67 28 21
Charlotte............................. 19 12 11 8 8 5
Greensboro/Winston-Salem.............. 18 25 19 22 4 8
--------- ---------- --------- --------- -------- ---------
Total............................ 1,778 1,914 1,660 1,735 963 1,177
========= ========== ========= ========= ======== =========
AS A PERCENTAGE OF AS A PERCENTAGE OF
REVENUE REVENUE
------------------------ ---------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ---------------------
2001 2000 2001 2000
--------- ---------- -------- ---------
Costs of Sales........................ 81.4% 81.8% 81.1% 82.5%
Gross Profit.......................... 18.6% 18.2% 18.9% 17.5%
Selling, general and
administrative expenses............ 11.5% 11.2% 11.5% 10.4%
Income before income taxes............ 6.4% 6.1% 6.4% 6.1%
Income taxes (1)...................... 35.3% 36.1% 33.8% 36.1%
Net income............................ 4.1% 3.9% 4.2% 3.9%
(1) As a percent of income before income taxes.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
Revenues increased by 11.5% to $163.0 million in the three months ending
September 30, 2001 from $146.2 million in the three months ending September 30,
2000 due to the net effect of an increase in units closed and a slight decrease
in the average selling price. The number of homes closed by the Company
increased by 15.6% to 623 homes in the three months ending September 30, 2001
from 539 homes in the three months ending September 30, 2000. The Company's
average selling price of homes closed in the three months ending September 30,
2001 was $260,229, a decrease of 3.1% from the $268,463 average selling price in
the three months ending September 30, 2000 due to product mix within the
10
subdivisions closing homes. The average selling price of a Newmark(R) home
closed in the three months ending September 30, 2001 was $294,935, a decrease of
0.3% from the $295,757 average selling price in the three months ending
September 30, 2000. The Fedrick, Harris Estate Homes average selling price of
homes closed in the three months ending September 30, 2001 was $498,132, a
decrease of 2.0% from the $508,155 average selling price in the three months
ending September 30, 2000. In the South Florida market, Westbrooke's average
selling price of homes closed in the three months ending September 30, 2001 was
$208,792, an increase of 1.1% from the $206,598 average selling price in the
three months ending September 30, 2000. In addition, revenue from land sales in
the three months ending September 30, 2001 decreased to $0.9 million from $1.5
million in the three months ending September 30, 2000.
New net sales contracts decreased 25.9% to 470 homes for the three months ended
September 30, 2001 from 634 homes for the three months ended September 30, 2000
due to the general economic conditions of the markets the Company is operating
in. The dollar amount of new net sales contracts decreased 24.9% to $120.1
million.
The Company was operating in 78 subdivisions at September 30, 2001 compared to
77 subdivisions at September 30, 2000. As of September 30, 2001, the Company's
backlog of sales contracts was 963 homes, an 18.2% decrease from comparable
figures at September 30, 2000.
Cost of sales increased by 11.0% to $132.8 million in the three months ended
September 30, 2001 from $119.6 million in the comparable period of 2000. The
increase was attributable to the increase in revenues as described above. Cost
of land sales for the three months ended September 30, 2001 decreased to $0.8
million from $1.3 million for the comparable period of 2000. As a percentage of
revenues, cost of sales for the three months ended September 30, 2001 decreased
to 81.4% in 2001 from 81.8% in 2000.
Selling, general and administrative ("SG&A") expense increased by 14.4% to $18.7
million in the three months ended September 30, 2001, from $16.4 million in the
comparable period of 2000. The increase is primarily due to increased selling
and marketing expenses associated with the increased revenues. As a percentage
of revenues, SG&A expense increased to 11.5% in the three months ended September
30, 2001 from 11.2% in the comparable period of 2000.
Interest expense, net of interest capitalized, decreased by 43.3% to $0.5
million in the three months ended September 30, 2001 from $0.8 million in the
comparable period of 2000. The Company follows a policy of capitalizing interest
only on inventory under construction or development. During the three months
ended September 30, 2001 and 2000, 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 quarter ending September 30, 2001 and the
decrease in interest rates on construction financing. However, this decrease was
offset by the increase in interest on certain acquisition notes pursuant to the
Second Amendment to Stock Purchase Agreement and the related Amended and
Restated Note Agreements. 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 35.3% for the three months ending September 30, 2001 compared to
36.1% for the three months ending September 30, 2000. The decrease was primarily
a result of decreased state taxes resulting from credits earned due to the
deconsolidation from combined Florida State reporting. The Company recognized
federal income tax expense amounting to $3.5 million for the three months ending
September 30, 2001 compared to $3.0 million for the three months ending
September 30, 2000.
Net income increased by 18.6% to $6.7 million in the three months ended
September 30, 2001, from $5.7 million in the comparable period of 2000. The
increase was attributable to the increase in revenues in the Company's most
profitable markets.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
Revenues decreased by 0.8% to $451.4 million in the nine months ending September
30, 2001 from $447.7 million in the nine months ending September 30, 2000 due to
the net effect of a decrease in units closed, an increase in the average selling
price and an increase in land sales. The number of homes closed by the Company
decreased by 4.3% to 1,660 homes in the nine months ending September 30, 2001
from 1,735 homes in the nine months ending September 30, 2000. The Company's
average selling
11
price of homes closed in the nine months ending September 30, 2001 was $264,243,
an increase of 3.4% from the $255,529 average selling price in the nine months
ending September 30, 2000 due to product mix within the subdivisions closing
homes. The average selling price of a Newmark(R) home closed in the nine months
ending September 30, 2001 was $295,229, an increase of 4.3% from the $282,992
average selling price in the nine months ending September 30, 2000. The Fedrick,
Harris Estate Homes average selling price of homes closed in the nine months
ending September 30, 2001 was $485,801, an increase of 1.7% from the $477,603
average selling price in the nine months ending September 30, 2000. In the South
Florida market, Westbrooke's average selling price of homes closed in the nine
months ending September 30, 2001 was $208,345, an increase of 2.8% from the
$202,641 average selling price in the nine months ending September 30, 2000. In
addition, revenue from land sales in the nine months ending September 30, 2001
increased to $12.7 million from $4.3 million in the nine months ending September
30, 2000.
New net sales contracts decreased 7.1% to 1,778 homes for the nine months ended
September 30, 2001 from 1,914 homes for the nine months ended September 30,
2000. The dollar amount of new net sales contracts decreased 5.0% to $466.8
million.
Cost of sales decreased by 0.8% to $366.1 million in the nine months ended
September 30, 2001 from $369.1 million in the comparable period of 2000. The
decrease was attributable to the decrease in revenues as described above. Cost
of land sales for the nine months ended September 30, 2001 increased to $9.7
million from $3.9 million for the comparable period of 2000. As a percentage of
revenues, cost of sales for the nine months ended September 30, 2001 decreased
to 81.1% in 2001 from 82.5% in 2000.
Selling, general and administrative ("SG&A") expense increased by 10.7% to $51.7
million in the nine months ended September 30, 2001, from $46.7 million in the
comparable period of 2000 principally due to increased employee compensation and
related benefits. As a percentage of revenues, SG&A expense increased to 11.5%
in the nine months ended September 30, 2001 from 10.4% in the comparable period
of 2000.
Interest expense, net of interest capitalized, decreased by 12.8% to $2.1
million for the nine months ended September 30, 2001 from $2.4 million in the
comparable period of 2000. The Company follows a policy of capitalizing interest
only on inventory under construction or development. During the nine months
ended September 30, 2001 and 2000, 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 nine months ending September 30, 2001 and the
decrease in interest rates on construction financing. However, this decrease was
offset by the increase in interest on certain acquisition notes pursuant to the
Second Amendment to Stock Purchase Agreement and the related Amended and
Restated Note Agreements. 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 33.8% for the nine months ending September 30, 2001 compared to
36.1% for the nine months ending September 30, 2000. The decrease was primarily
a result of decreased state taxes resulting from credits earned due to the
deconsolidation from combined Florida State reporting. The Company recognized
federal income tax expense amounting to $9.5 million for the nine months ending
September 30, 2001 compared to $9.5 million for the nine months ending September
30, 2000.
Net income increased by 8.4% to $19.0 million in the nine months ended September
30, 2001, from $17.6 million in the comparable period of 2000. The increase was
attributable to the increase in revenues in the Company's most profitable
markets.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had available cash and cash equivalents of
$8.6 million. Inventories (including finished homes and construction in
progress, developed residential lots and other land) at September 30, 2001
increased by $21.3 million from $246.7 million at December 31, 2000 due to a
general increase in business activity. Because of increased land acquisitions
and development, the Company's ratio of construction loans payable to total
capital assets increased to 51.7% at September 30, 2001 from 50.5% at December
31, 2000. The equity to total assets ratio decreased during the nine
12
months to 42.0% at September 30, 2001 from 41.7% at December 31, 2000 primarily
due to the dividends paid of $6.2 million during the nine months ending
September 30, 2001.
The Company's financing needs depend upon the results of its operations, sales
volume, inventory levels, inventory turnover, and acquisitions. The Company has
financed its operations through borrowings from financial institutions and
through funds from earnings.
At September 30, 2001, the Company had lines of credit commitments for
construction loans totaling approximately $227.7 million, of which $31.1 million
was available to draw down.
The Company's growth requires significant amounts of cash. It is anticipated
that future home construction, lot and land purchases and acquisitions will be
funded through internally generated funds and new and existing borrowing
relationships. The Company continuously evaluates its capital structure and, in
the future, may seek to further increase secured debt and obtain additional
equity to fund ongoing operations as well as to pursue additional growth
opportunities.
Except for ordinary expenditures for the construction of homes and, to a limited
extent, the acquisition of land and lots for development and sale of homes, at
September 30, 2001, the Company had no material commitments for capital
expenditures.
SEASONALITY AND QUARTER 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 diversity 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 markets. The seasonality of school terms has an impact on the Company
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.
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 and from quarter to quarter.
Although the Company's results for the nine months ended September 30, 2001 are
comparable to results for the nine months ended September 30, 2000, the Company
expects that certain of its home building markets (such as Austin, Texas) which
contributed significantly to the Company's favorable results in fiscal 2000 and
for the nine months ended September 30, 2001 may be softer in the fourth quarter
of fiscal 2001. The Company cannot, at this time, determine the full impact on
future home sales, revenues and income of the Company from any significant
decline in these key markets.
ITEM 3. CHANGES IN INFORMATION ABOUT MARKET RISK
The Company is exposed to market risk primarily related to potential adverse
changes in interest rates as discussed below. 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.
13
PART II. OTHER INFORMATION
ITEM 1. 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 6, 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 2. CHANGES IN SECURITIES
None. No disclosure required.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None. No disclosure required
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2001 Annual Meeting of Shareholders of the Company was held on October 1,
2001. Proxies were solicited by the Company pursuant to Regulation 14 under the
Securities Exchange Act of 1934, as amended to elect directors of the Company
for the ensuing year. Proxies and shareholders present representing 10,942,519
shares of stock eligible to vote at the meeting, or 95.152 percent of the
outstanding shares, were voted in connection with the election of directors. The
following is a separate tabulation with respect to the vote for each nominee:
NOMINEE TOTAL VOTES FOR TOTAL VOTES WITHHELD
Constantine Stengos 10,752,392 190,127
Andreas Stengos 10,868,200 74,319
George Stengos 10,752,392 190,127
Yannis Delikanakis 10,752,892 189,627
Larry D. Horner 10,878,319 64,200
William A. Hasler 10,878,319 64,200
Michael J. Poulos 10,878,319 64,200
Lonnie M. Fedrick 10,741,314 201,205
James M. Carr 10,741,314 201,205
ITEM 5. OTHER INFORMATION
None. No disclosure required.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits.
Exhibit Number Exhibit
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10.1 Form of Indemnification Agreement effective March 1, 2001
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the quarter ended
September 30, 2001.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWMARK HOMES CORP.
November 13, 2001 By: /s/ Terry C. White
---------------------------------------------
Terry C. White, Senior Vice President, Chief
Financial Officer, Treasurer and Secretary
16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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10.1 Form of Indemnification Agreement effective March 1, 2001