<PAGE> 1
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 June 30, 2000
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)
Nevada 76-0460831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
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.
<TABLE>
<CAPTION>
Title Outstanding
<S> <C>
Common Stock, par value $.01 11,500,000 shares as of August 1, 2000
</TABLE>
<PAGE> 2
NEWMARK HOMES CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
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 Stockholders' Equity................... 6
Condensed Consolidated Statements of Cash Flows............................. 7
Notes to the Condensed Consolidated Financial Statements.................... 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 10
ITEM 3. Changes in Information About Market Risk.................................... 15
PART II. Other Information........................................................... 15
ITEM 1. Legal Proceedings........................................................... 15
ITEM 2. Changes in Securities....................................................... 15
ITEM 3. Defaults Upon Senior Securities............................................. 16
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 16
ITEM 5. Other Information........................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K............................................ 17
Exhibits.................................................................... 17
Reports on Form 8-K......................................................... 17
Signatures.................................................................. 18
</TABLE>
<PAGE> 3
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)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
(unaudited)
<S> <C> <C>
Cash ....................................................................... $ 11,787 $ 8,080
Receivables ................................................................ 21,783 9,206
Inventory .................................................................. 264,915 255,576
Investment in unconsolidated subsidiaries .................................. 812 640
Other assets, net .......................................................... 11,440 9,738
Goodwill, net of accumulated amortization of $829 and $67 in
2000 and 1999, respectively ........................................... 44,620 45,652
---------- ------------
Total assets ............................................. $ 355,357 $ 328,892
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction loans payable ................................................. $ 173,753 $ 149,380
Acquisition notes payable .................................................. 11,055 14,473
Other payables to affiliates ............................................... 387 1,745
Accounts payable and accrued liabilities ................................... 29,435 36,639
Other liabilities .......................................................... 19,206 17,037
---------- ------------
Total liabilities ........................................ 233,836 219,274
---------- ------------
Stockholders' equity:
Common stock -- $.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 ..................................................... 14,551 2,648
---------- ------------
Total stockholders' equity ............................... 121,521 109,618
---------- ------------
Total liabilities and stockholders' equity ............... $ 355,357 $ 328,892
========== ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 4
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
--------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues ............................................... $ 164,491 $ 130,380
Cost of sales .......................................... 135,847 110,228
------------ ------------
Gross profit ........................................... 28,644 20,152
Equity in earnings from unconsolidated subsidiaries .... 134 198
Selling, general and administrative expenses ........... (16,764) (12,863)
Depreciation and amortization .......................... (914) (930)
------------ ------------
Operating income .................................. 11,100 6,557
Other income (expense):
Interest expense .................................. (845) (412)
Other income, net ................................. 28 313
------------ ------------
Income before income taxes ................... 10,283 6,458
Income taxes ........................................... 3,703 2,267
------------ ------------
Net income ................................... $ 6,580 $ 4,191
============ ============
Earnings per common share:
Basic ............................................. $ .57 $ .36
============ ============
Diluted ........................................... $ .57 $ .36
============ ============
Weighted average number of shares of common
stock equivalents outstanding:
Basic ......................................... 11,500,000 11,500,000
============ ============
Diluted ....................................... 11,500,000 11,500,000
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues ............................................... $ 301,462 $ 223,212
Cost of sales .......................................... 249,520 188,567
------------ ------------
Gross profit ........................................... 51,942 34,645
Equity in earnings from unconsolidated subsidiaries .... 256 321
Selling, general and administrative expenses ........... (30,330) (23,187)
Depreciation and amortization .......................... (1,961) (1,770)
------------ ------------
Operating income .................................. 19,907 10,009
Other income (expense):
Interest expense .................................. (1,589) (815)
Other income, net ................................. 294 427
------------ ------------
Income before income taxes ................... 18,612 9,621
Income taxes ........................................... 6,709 3,435
------------ ------------
Net income ................................... $ 11,903 $ 6,186
============ ============
Earnings per common share:
Basic ............................................. $ 1.04 $ .54
============ ============
Diluted ........................................... $ 1.04 $ .54
============ ============
Weighted average number of shares of common
stock equivalents outstanding:
Basic ......................................... 11,500,000 11,500,000
============ ============
Diluted ....................................... 11,500,000 11,500,000
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 6
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 ............. $ 115 $ 106,855 $ 2,648 $ 109,618
Net income ............................. -- -- 11,903 11,903
-------- ----------- ----------- ---------
Balance, June 30, 2000 ................. $ 115 $ 106,855 $ 14,551 $ 121,521
======== =========== =========== =========
Balance, December 31, 1998 ............. $ 115 $ 73,768 $ 16,229 $ 90,112
Net income ............................. -- -- 6,186 6,186
-------- ----------- ----------- ---------
Balance, June 30, 1999 ................. $ 115 $ 73,768 $ 22,415 $ 96,298
======== =========== =========== =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
6
<PAGE> 7
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 11,903 $ 6,186
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization ...................................... 1,961 1,770
Net (gain) on sale of property, premises and equipment ............. (32) (35)
Equity in earnings from unconsolidated subsidiaries ................ (256) (321)
Changes in operating assets and liabilities:
Inventory and land held for development, net ................... (9,339) (37,412)
Receivables .................................................... (12,577) (2,015)
Other assets ................................................... (1,722) (1,482)
Payable to affiliates .......................................... (608) (2,364)
Accounts payable and accrued liabilities ....................... (7,954) 2,872
Other liabilities .............................................. 2,169 3,901
--------- ---------
Net cash used in operating activities .......................... (16,455) (28,900)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, premises and equipment ........................ (1,302) (1,130)
Proceeds from sales of property, premises and equipment .............. 155 129
Decrease in goodwill ................................................. 270 --
Investment in unconsolidated subsidiaries ............................ (133) (50)
Distributions from unconsolidated subsidiaries ....................... 217 386
--------- ---------
Net cash used in investing activities .......................... (793) (665)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from advances on construction loans payable ................. 193,457 175,400
Principal payments on construction loans payable ..................... (169,084) (141,380)
Principal payments on acquisition notes payable ...................... (3,418) (2,468)
--------- ---------
Net cash provided by financing activities ...................... 20,955 31,552
--------- ---------
INCREASE IN CASH ........................................................ 3,707 1,987
CASH, beginning of period ............................................... 8,080 5,794
--------- ---------
CASH, end of period ..................................................... $ 11,787 $ 7,781
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for:
Interest ........................................................... $ 8,838 $ 6,419
========= =========
Income taxes ....................................................... $ 7,945 $ 5,879
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
7
<PAGE> 8
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Newmark Homes Corp. and subsidiaries (the "Company") is an 80% owned subsidiary
of Technical Olympic USA, Inc. ("TOUSA") as of December 15, 1999. The Company
was formed in December 1994 to serve as a real estate holding company.
The Company's primary subsidiaries are as follows:
<TABLE>
<CAPTION>
SUBSIDIARY NATURE OF BUSINESS
---------- ------------------
<S> <C>
Newmark Home Corporation ("Newmark")........ Single-family residential homebuilding in Texas,
Tennessee and North Carolina - formed in 1983.
Westbrooke Communities, Inc.
("Westbrooke")......................... Single-family residential homebuilding and residential
lot developer in South Florida - formed in 1976.
The Adler Companies, Inc. ("Adler")......... Single-family residential homebuilding in South Florida -
formed in 1990.
Pacific United Development Corporation
("PUDC")............................... Residential lot development in Texas and Tennessee -
formed in 1993.
</TABLE>
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 generally accepted accounting principles 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 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.
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 generally
accepted accounting principles 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, 1999 Annual Report on Form 10-K.
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
June 30, 2000 and 1999 and for the six months ended June 30, 2000 and 1999 (in
thousands, except per share amounts):
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income available to common shareholders
(Numerator)..................................... $ 6,580 $ 4,191 $11,903 $ 6,186
Weighted average of shares outstanding
(Denominator)................................... 11,500 11,500 11,500 11,500
Basic and diluted Earnings Per Share............ $ .57 $ .36 $ 1.04 $ .54
------- ------- ------- -------
Diluted Earnings Per Share...................... $ .57 $ .36 $ 1.04 $ .54
======= ======= ======= =======
</TABLE>
9
<PAGE> 10
NOTE 2. INVENTORY
Inventory balances as of June 30, 2000 and December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
CARRYING VALUE
NUMBER OF HOMES (IN THOUSANDS)
------------------------- -------------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 2000 1999
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Completed ..................... 167 137 $ 38,117 $ 29,145
Under construction ............ 1,036 1,038 139,944 142,975
Models ........................ 90 80 19,508 19,763
Residential lots .............. -- -- 67,346 63,693
---------- ------------ ---------- ------------
Total .......... 1,293 1,255 $ 264,915 $ 255,576
========== ============ ========== ============
</TABLE>
NOTE 3. CAPITALIZED INTEREST
A summary of interest capitalized in inventory is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED,
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest capitalized, beginning of period .... $ 6,873 $ 6,139 $ 6,266 $ 5,516
Interest incurred ............................ 3,991 3,096 7,896 5,820
Less interest included in:
Cost of sale ............................ 3,168 3,009 5,720 4,707
Other income ............................ 845 412 1,589 815
-------- -------- -------- --------
Interest capitalized, end of period .......... $ 6,851 $ 5,814 $ 6,853 $ 5,814
======== ======== ======== ========
</TABLE>
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.
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.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following tables set forth certain operating and financial data for the
Company:
<TABLE>
<CAPTION>
NEW SALES CONTRACTS,
NET OF CANCELLATIONS HOME CLOSINGS
-------------------- -------------------
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Houston .................... 167 109 167 182
Austin ..................... 162 116 160 129
Dallas/Ft. Worth ........... 47 17 44 36
San Antonio ................ 8 -- 10 --
Ft. Lauderdale,
Palm Beach, Miami .... 248 271 218 123
Nashville .................. 22 10 25 21
Charlotte .................. 3 1 2 --
Greensboro/Winston-
Salem ................ 6 3 7 --
-------- -------- -------- --------
Total ...................... 663 527 633 491
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NEW SALES CONTRACTS, HOMES IN
NET OF CANCELLATIONS HOME CLOSINGS SALES BACKLOG
-------------------- ------------------- -------------------
SIX MONTHS SIX MONTHS AS OF
ENDED JUNE 30, ENDED JUNE 30, JUNE 30,
-------------------- ------------------- -------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Houston .................... 332 300 295 303 158 172
Austin ..................... 349 324 325 247 319 261
Dallas/Ft. Worth ........... 85 85 73 71 44 71
San Antonio ................ 20 -- 14 -- 7 --
Ft. Lauderdale,
Palm Beach, Miami .... 421 431 428 248 524 498
Nashville .................. 53 36 42 36 23 22
Charlotte .................. 8 1 6 -- 3 1
Greensboro/Winston-
Salem ................ 12 4 13 -- 4 4
-------- --------- -------- -------- -------- --------
Total ...................... 1,280 1,181 1,196 905 1,082 1,029
======== ========= ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
As a Percentage of Revenue As a Percentage of Revenue
Three Months Six Months
-------------------------- --------------------------
Ended June 30, Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cost of sales................................... 82.6% 84.5% 82.8% 84.5%
Gross profit.................................... 17.4% 15.5% 17.2% 15.5%
Selling, general and administrative expenses.... 10.2% 9.9% 10.1% 10.4%
Income before income taxes...................... 6.3% 5.0% 6.2% 4.3%
Income taxes(1)................................. 36.0% 35.1% 36.0% 35.7%
Net income...................................... 4.0% 3.2% 4.0% 2.8%
</TABLE>
(1) As a percent of income before income taxes.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999.
Revenues increased by 26.2% to $164.5 million in the three months ending June
30, 2000 from $130.4 million in the three months ending June 30, 1999 due to a
combination of an increase in units closed and an increase in average selling
price. The number of homes closed by the Company increased by 28.9% to 633 homes
in the three months ending June 30, 2000 from 491 homes in the three months
ending June 30, 1999. The Company's average selling price of homes closed in the
three months ending June 30, 2000 was $257,929, an increase of .4% from the
$256,950 average selling price in the three months ending June 30, 1999 due to
product mix within the subdivisions closing homes. The average selling price of
a Newmark(R) home closed in the three months ending June 30, 2000 was $286,659,
an increase of 7.7% from the $265,523 average selling price in the three months
ending June 30, 1999 The Fedrick, Harris Estate Homes average selling price of
homes closed in the three months ending June 30, 2000 was $476,640, an increase
of 10.3% from the $432,217 average selling price in the three months ending June
30, 1999. Also, revenues generated from sales of custom homes under the Fedrick,
Harris Estate Homes brand name increased from $22.0 million in the three months
ending June 30, 1999 to $27.2 million in the three months ending June 30, 2000
primarily due to increased unit sales in Houston, Austin and Nashville. In the
South Florida market, Westbrooke and Adler's average selling price of homes
closed in the three months ending June 30, 2000 was $203,237, a decrease of
12.1% from the $231,300 average selling price in the three months ending June
30, 1999. In addition, revenue from land sales in the three months ending June
30, 2000 decreased to $1.2 million from $4.2 million in the three months ending
June 30, 1999.
New net sales contracts increased 25.8% to 663 homes for the three months ended
June 30, 2000 from 527 homes for the three months ended June 30, 1999. The
dollar amount of new net sales contracts increased 43.8% to $167.6 million.
The Company was operating in 79 subdivisions at June 30, 2000 compared to 69
subdivisions at June 30, 1999. As of June 30, 2000, the Company's backlog of
sales contracts was 1,082 homes, a 5.2% increase over comparable figures at June
30, 1999.
Cost of sales increased by 23.2% to $135.8 million in the three months ended
June 30, 2000 from $110.2 million in the comparable period of 1999. The increase
was attributable to the increase in revenues from home closings as described
above. Cost of land sales for the three months ended June 30, 2000 decreased to
$1.2 million from $3.5 million for the comparable period of 1999. As a
percentage of revenues, cost of sales for the three months ended June 30, 2000
decreased to 82.6% in 2000 from 84.5% in 1999.
Selling, general and administrative ("SG&A") expense increased by 30.3% to $16.8
million in the three months ended June 30, 2000, from $12.9 million in the
comparable period of 1999. The increase was primarily caused by the expansion
into the new markets of Nashville, Tennessee; Charlotte and Greensboro, North
Carolina as well as the expansion in the Company's existing Texas and Florida
markets, as indicated by the 26.2% increase in the Company's revenues and the
5.2% increase in the backlog at the end of June 2000 versus June 1999. As a
percentage of revenues, SG&A expense increased to 10.2% in the three months
ended June 30, 2000 from 9.9% in the comparable period of 1999.
Interest expense, net of interest capitalized, totaled $.8 million in the three
months ended June 30, 2000 compared to $.4 million in the comparable period of
1999. The Company follows a policy of capitalizing
12
<PAGE> 13
interest only on inventory under construction or development. During the three
months ended June 30, 2000 and 1999, 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 quarter ending June 30, 2000. 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 36.0% for the three months ended June 30, 2000 compared to 35.1%
for the three months ended June 30, 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 34.7% for the three months ended June 20, 2000 compared to 36.1% due
primarily to the increase in deductible amortization of goodwill resulting from
the election of the Internal Revenue Code Section 338(h)(10). The election of
Internal Revenue Code Section 338(h)(10) was made on December 15, 1999 when
TOUSA acquired 80% of the Company's outstanding common stock. The Company
recognized federal income tax expense amounting to $3.6 million for the three
months ended June 30, 2000 compared to $2.3 million for the three months ended
June 30, 1999.
Net income increased by 57.0% to $6.6 million in the three months ended June 30,
2000, from $4.2 million in the comparable period of 1999. The increase was
attributable to the increase in revenues in the Company's most profitable
markets.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999.
Revenues increased by 35.1% to $301.5 million in the six months ending June 30,
2000 from $223.2 million in the six months ending June 30, 1999 due to a
combination of an increase in units closed and an increase in average selling
price. The number of homes closed by the Company increased by 32.2% to 1,196
homes in the six months ending June 30, 2000 from 905 homes in the six months
ending June 30, 1999. The Company's average selling price of homes closed in the
six months ending June 30, 2000 was $249,700, an increase of 3.6% from the
$241,068 average selling price in the six months ending June 30, 1999. The
Fedrick, Harris Estate Homes average selling price of homes closed in the six
months ending June 30, 2000 was $458,705, an increase of 8.5% from the $422,635
average selling price in the six months ending June 30, 1999. Also, revenues
generated from sales of custom homes under the Fedrick, Harris Estate Homes
brand name increased from $32.5 million in the six months ending June 30, 1999
to $44.5 million in the six months ending June 30, 2000, primarily due to
increased unit sales in Houston, Austin and Nashville. In the South Florida
market, Westbrooke and Adler's average selling price of homes closed in the six
months ending June 30, 2000 was $201,116, a decrease of 3.4% from the 208,199
average selling price in the six months ending June 30, 1999. In addition,
revenue from land sales in the six months ending June 30, 2000 decreased to $2.8
million from $5.0 million in the six months ending June 30, 1999.
New net sales contracts increased 8.4% to 1,280 homes for the six months ending
June 30, 2000 from 1,181 homes for the six months ending June 30, 1999. The
dollar amount of new net sales contracts increased 20.8% to $331.2 million.
Cost of sales increased by 32.1% to $249.1 million in the six months ending June
30, 2000 from $188.6 million in the comparable period 1999. The increase was
attributable to the increase in revenues from home closings as described above.
Cost of land sales for the six months ending June 30, 2000 decreased to $2.1
million from $4.0 million for the comparable period of 1999. As a percentage of
revenues, cost of sales for the six months ending June 30, 2000 decreased to
82.8% in 2000 from 84.5% in 1999.
Selling, general and administrative expense increased by 30.8% to $30.3 million
in the six months ending June 30, 2000, from $23.2 million in the comparable
period of 1999. The increase was primarily caused by the expansion into the new
markets of Nashville, Tennessee; Charlotte and Greensboro, North Carolina as
well as the expansion in the Company's existing Texas and Florida markets, as
indicated by the 34.8% increase in the Company's revenues and the 5.2% increase
in the backlog at the end of June 2000 as compared to June 1999. As a percentage
of revenues, SG&A expense decreased to 10.1% in the six months ending June 30,
2000 from 10.4% in the comparable period of 1999.
Interest expense, net of interest capitalized, totaled $1.6 million in the six
months ending June 30, 2000 compared to $.8 million in the comparable period of
1999. The Company follows a policy of capitalizing interest only on inventory
under construction or development. During the six months ending June 30, 2000
13
<PAGE> 14
and 1999, 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 during the six months ending June 30, 2000 compared to the six months
ending June 30, 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 36.0% for the six months ending June 30, 2000 compared to 35.7%
for the six months ending June 30, 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 34.6% for the six months ending June 30, 2000 compared to 36.5% for the
six months ending June 30, 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 amounting to $6.4 million for the six months ending June 30, 2000
compared to $3.5 million for the six months ending June 30, 1999.
Net income increased by 92.4% to $11.9 million in the six months ending June 30,
2000, from $6.2 million in the comparable period of 1999. The increase was
attributable to the increase in revenues in the Company's most profitable
markets.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had available cash and cash equivalents of $11.8
million. Inventories (including finished homes and construction in progress,
developed residential lots and other land) at June 30, 2000 increased by $9.3
million from $255.6 million at December 31, 1999 due to a general increase in
business activity and the expansion of operations in the newer market areas.
Because of the increased business activity and expansion of operations in the
newer markets, the Company's ratio of construction loans payable to total
capital assets increased to 64.1% at June 30, 2000 from 57.1% at December 31,
1999. The equity to total assets ratio increased during the six months to 34.2%
at June 30, 2000 from 33.3% at December 31, 1999 due to increased earnings as
discussed above.
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 June 30, 2000, the Company had lines of credit commitments for construction
loans totaling approximately $237.2 million, of which $22.8 million is 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
June 30, 2000, the Company had no material commitments for capital expenditures.
14
<PAGE> 15
NEW FINANCING FACILITY
On June 27, 2000, the Company entered into a syndicated $150 million secured
revolving credit facility with five banks which matures on June 27, 2003 with
annual options for one year extensions. This credit facility 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. At June 30, 2000, the Company had borrowings of
$117.1 million outstanding under this facility.
SEASONALITY AND 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 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.
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.
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 effect on the financial condition or results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES.
Under the new syndicated financing facility described above there are
certain financial covenants which impose working capital restrictions
and restrictions on the payment of dividends on the Common Stock of the
Company.
15
<PAGE> 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None. No disclosure required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 2000 Annual Meeting of Shareholders of the Company was held on
July 17, 2000. Proxies were solicited by the Company pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as amended,
(a) to elect directors of the Company for the ensuing year and (b) to
approve the annual bonus plan of the Chief Executive Officer.
Proxies and shareholders present representing 11,221,284 shares of
stock eligible to vote at the meeting, or 97.6 percent of the
outstanding shares, were voted in connection with the election of
directors, and 11,221,284 shares of stock eligible to vote at the
meeting, or 97.6 percent of the outstanding shares, were voted in
connection with the approval of the annual bonus plan of the Chief
Executive Officer. The following is a separate tabulation with respect
to the vote for each nominee:
Michael Stevens, appointed to the Board of Directors on June 21, 2000,
will continue to serve as a director until the 2001 Annual Meeting of
Shareholders or until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
NOMINEE TOTAL VOTES FOR TOTAL VOTES WITHHELD
------- --------------- --------------------
<S> <C> <C>
Constantine Stengos 11,192,875 28,300
Andreas Stengos 11,190,125 31,050
George Stengos 11,190,125 31,050
Yannis Delikanakis 11,192,125 29,050
Larry D. Horner 11,195,525 26,650
William A. Hasler 11,194,525 26,650
Michael J. Poulos 11,194,525 26,650
Lonnie M. Fedrick 11,194,875 26,300
James M. Carr 11,194,525 26,650
</TABLE>
The following is a tabulation with respect to the vote on the annual
bonus plan of the Chief Executive Officer:
<TABLE>
<S> <C>
Total Votes For 10,506,384
Total Votes Against: 27,882
Total Votes Withheld: 4,454
</TABLE>
ITEM 5. OTHER INFORMATION.
The Company entered into a Management Services Agreement with Techolym,
L.P., a wholly owned subsidiary of TOUSA to provide general advisory
services and administrative support services to the Company. The fees
for such services will be $1.5 million annually and will increase each
year depending on the costs incurred by Techolym, L.P. The Company has
accrued $750,000 in management services fees through June 30, 2000. The
Management Services Agreement was approved by independent directors
comprising the Special Committee of the Company on June 1, 2000.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Exhibit
-------------- -------
<S> <C>
10.1 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.
10.2 Guaranty Agreement among Newmark Homes Corp. and
Newmark Home Corporation in favor of Bank of
America, N.A. and the Lenders under the Credit
Agreement dated June 27, 2000.
10.3 Management Services Agreement between Newmark
Homes Corp. and Techolym, L.P. dated June 1,
2000.
10.4 Amended and Restated Employment Agreement between
Newmark Homes Corporation and Lonnie M. Fedrick
dated May 12, 2000 effective as of January 1,
2000.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the quarter ended
June 30, 2000.
17
<PAGE> 18
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.
August 10, 2000 By: /s/ Terry C. White
-------------------------------- ---------------------------------------
Date Terry C. White, Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
-------------- -------
<S> <C>
10.1 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.
10.2 Guaranty Agreement among Newmark Homes Corp. and
Newmark Home Corporation in favor of Bank of
America, N.A. and the Lenders under the Credit
Agreement dated June 27, 2000.
10.3 Management Services Agreement between Newmark
Homes Corp. and Techolym, L.P. dated June 1,
2000.
10.4 Amended and Restated Employment Agreement between
Newmark Homes Corporation and Lonnie M. Fedrick
dated May 12, 2000 effective as of January 1,
2000.
27 Financial Data Schedule
</TABLE>
