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, 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, 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.
Title Outstanding
Common Stock, par value $.01 11,500,000 shares as of June 30, 2001
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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 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....................................................... 16
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............................................ 16
Exhibits.................................................................... 16
Reports on Form 8-K......................................................... 16
Signatures.................................................................. 17
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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 JUNE 30, DECEMBER 31,
2001 2000
---------------- ----------------
(unaudited)
Cash
$ 7,235 $ 4,774
Receivables.......................................................... 12,692 14,778
Inventory............................................................ 264,546 246,865
Investment in unconsolidated subsidiaries............................ 2,141 2,205
Other assets, net.................................................... 12,301 10,168
Goodwill, net of accumulated amortization of $2,365 and $1,594 in
2001 and 2000, respectively..................................... 44,584 45,354
-------- --------
Total assets....................................... $343,499 $324,144
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction loans payable........................................... $144,242 $127,546
Acquisition notes payable............................................ 7,370 11,055
Other payables to affiliates......................................... 1,564 700
Accounts payable and accrued liabilities............................. 29,257 33,837
Other liabilities.................................................... 19,552 15,697
-------- --------
Total liabilities.................................. $201,985 $188,835
-------- --------
Minority interest in consolidated subsidiaries....................... 99 --
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............................................... 34,445 28,339
-------- --------
Total stockholders' equity......................... 141,415 135,309
-------- --------
Total liabilities and stockholders' equity......... $343,499 $324,144
======== ========
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED JUNE 30,
------------------------------
2001 2000
---------- ----------
Revenues............................................................. $ 155,565 $ 164,491
Cost of sales........................................................ 126,420 135,847
---------- ----------
Gross profit......................................................... 29,145 28,644
Equity in earnings from unconsolidated subsidiaries.................. 175 134
Selling, general and administrative expenses......................... (17,023) (16,764)
Depreciation and amortization........................................ (1,286) (914)
---------- ----------
Operating income................................................ 11,011 11,100
Other income (expense):
Interest expense................................................ (554) (845)
Other income, net............................................... 213 28
Minority interest in consolidated subsidiaries.................. (99) --
---------- ----------
Income before income taxes................................. 10,571 10,283
Income taxes......................................................... 3,308 3,703
---------- ----------
Net income................................................. $ 7,263 $ 6,580
========== ==========
Earnings per common share:
Basic........................................................... $ 0.63 $ 0.57
========== ==========
Diluted......................................................... $ 0.63 $ 0.57
========== ==========
Weighted average number of shares of common stock
equivalents outstanding:
Basic....................................................... 11,500,000 11,500,000
========== ==========
Diluted..................................................... 11,500,000 11,500,000
========== ==========
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
----------------------------
2001 2000
---------- ----------
Revenues............................................................. $288,381 $301,462
Cost of sales........................................................ 233,384 249,520
---------- ----------
Gross profit......................................................... 54,997 51,942
Equity in earnings from unconsolidated subsidiaries.................. 330 256
Selling, general and administrative expenses......................... (32,995) (30,330)
Depreciation and amortization........................................ (2,469) (1,961)
---------- ----------
Operating income................................................ 19,863 19,907
Other income (expense):
Interest expense................................................ (1,629) (1,589)
Other income, net............................................... 221 294
Minority interest in consolidated subsidiaries.................. (99) --
---------- ----------
Income before income taxes................................. 18,356 18,612
Income taxes......................................................... 6,040 6,709
---------- ----------
Net income................................................. $ 12,316 $ 11,903
========== ==========
Earnings per common share:
Basic........................................................... $1.07 $1.04
========== ==========
Diluted......................................................... $1.07 $1.04
========== ==========
Weighted average number of shares of common stock
equivalents outstanding:
Basic....................................................... 11,500,000 11,500,000
========== ==========
Diluted..................................................... 11,500,000 11,500,000
========== ==========
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Additional
Common Paid-In Retained
Stock Capital Earnings Total
----------- ------------- --------------- --------------
Balance, December 31, 2000........................ $ 115 $106,855 $ 28,339 $135,309
Net Income........................................ -- -- 12,316 12,316
Dividends paid ($0.54 per share)............ -- -- (6,210) (6,210)
--------- --------- -------- --------
Balance, June 30, 2001 $ 115 $106,855 $ 34,445 $141,415
========= ========= ======== ========
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
-----------------------------------
2001 2000
-------------- ----------------
Cash flows from operating activities:
Net income....................................................... $12,316 $11,903
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization.................................. 2,470 1,961
Net (gain) loss on sale of property, premises and equipment.... 85 (32)
Equity in earnings from unconsolidated subsidiaries............ (330) (256)
Minority interest in consolidated subsidiaries................. 99 --
-------------- ----------------
Changes in operating assets and liabilities:
Inventory and land held for development, net............... (17,681) (9,339)
Receivables................................................ 2,086 (12,577)
Other assets............................................... (2,269) (1,722)
Payable to affiliates......................................
864 (608)
Accounts payable and accrued liabilities................... (4,580) (7,954)
Other liabilities.......................................... 3,855 2,169
-------------- ----------------
Net cash provided (used) in operating activities........... (3,085) (16,455)
-------------- ----------------
Cash flows from investing activities:
Purchases of property, premises and equipment.................... (1,752) (1,302)
Proceeds from sales of property, premises and equipment......... 103 155
Decrease in goodwill............................................. -- 270
Investment in unconsolidated subsidiaries....................... (172) (133)
Distributions from unconsolidated subsidiaries................... 566 217
-------------- ----------------
Net cash used in investing activities...................... (1,255) (793)
-------------- ----------------
Cash flows from financing activities:
Proceeds from advances on construction loans payable............. 136,946 193,457
Principal payments on construction loans payable................. (120,250) (169,084)
Principal payments on acquisition notes payable.................. (3,685) (3,418)
Dividends paid................................................... (6,210) --
-------------- ----------------
Net cash provided by financing activities.................. 6,801 20,955
-------------- ----------------
Increase (decrease) in cash......................................... 2,461 3,707
Cash, beginning of period........................................... 4,774 8,080
-------------- ----------------
Cash, end of period................................................. $7,235 $11,787
============== ================
Supplemental disclosures of cash flow information: Cash paid for:
Interest....................................................... $7,009 $8,838
============== ================
Income taxes................................................... $5,801 $7,945
============== ================
See accompanying notes to the condensed consolidated financial statements.
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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:
SUBSIDIARY NATURE OF BUSINESS
---------- ------------------
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.
Pacific United Development Corporation
("PUDC")................................. Residential lot development in Texas and Tennessee -
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 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, 2000 Annual Report on Form 10-K. The accompanying unaudited
consolidated financial statements reflect all adjustments 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 June 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 adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
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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. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of June 30, 2001, the net carrying amount of goodwill is
$44.6 million. Amortization expenses during the six-month period ended June 30,
2001 was $0.8 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
June 30, 2001 and 2000 and for the six months ended June 30, 2001 and 2000 (in
thousands, except per share amounts):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
----------------- ----------------- ---------------- -----------------
Income available to common
shareholders (numerator).............. $7,263 $6,580 $12,316 $11,903
Weighted average of shares
outstanding (denominator)............. 11,500 11,500 11,500 11,500
----------------- ----------------- ---------------- -----------------
Basic and diluted
Earnings Per Share.................... $0.63 $0.57 $1.07 $1.04
================= ================= ================ =================
Diluted Earnings Per Share $0.63 $0.57 $1.07 $1.04
================= ================= ================ =================
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Note 2. INVENTORY
Inventory balances as of June 30, 2001 and December 31, 2000 consist of the
following:
Carrying Value
Number of Homes (in thousands)
----------------------------------- ----------------------------------
June 30, December 31, June 30, December 31,
2001 2000 2001 2000
-------------- ------------- ------------ ------------
Completed ............................... 155 178 $36,636 $42,624
Under construction ...................... 1,074 824 137,683 107,959
Models .................................. 75 73 17,488 18,715
Residential lots.......................... -- -- 72,739 77,567
-------------- ------------- ------------ ------------
Total...................... 1,304 1,075 $264,546 $246,865
============== ============= ============ ============
NOTE 3. CAPITALIZED INTEREST
A summary of interest capitalized in inventory is as follows (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- --------------------------------------
2001 2000 2001 2000
-------------- ----------------- ---------------- -----------------
Interest capitalized, beginning
of period.............................. $7,279 $6,873 $6,917 $6,266
Interest incurred......................... 2,746 3,991 6,439 7,896
Less interest included in:
Cost of Sales.......................... 3,230 3,168 5,486 5,720
Other income (expense) 554 845 1,629 1,589
-------------- ----------------- ---------------- -----------------
Interest capitalized,
end of period.......................... $6,241 $6,851 $6,241 $6,853
-------------- ----------------- ---------------- -----------------
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 three
months ending June 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.
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RESULTS OF OPERATIONS
The following tables set forth certain operating and financial data for the
Company:
NEW SALES CONTRACTS,
NET OF CANCELLATIONS HOME CLOSINGS
------------------------------------ --------------------------------
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------ --------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Houston..................................... 157 167 144 167
Austin...................................... 83 162 114 160
Dallas/Ft. Worth............................ 26 47 45 44
San Antonio................................. 26 8 26 10
Ft. Lauderdale,
Palm Beach, Miami..................... 246 248 202 218
Nashville................................... 24 22 25 25
Charlotte................................... 9 3 4 2
Greensboro/Winston-
Salem................................. 5 6 9 7
------- ------ ------ ------
Total ...................................... 576 663 569 633
------- ------ ------ ------
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,
--------------------------- ------------------------- ------------------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Houston........................... 358 332 265 295 202 158
Austin............................ 190 349 247 325 137 319
Dallas/Ft. Worth.................. 72 85 79 73 44 44
San Antonio....................... 52 20 38 14 27 7
Ft. Lauderdale,
Palm Beach, Miami........... 536 421 341 428 648 524
Nashville......................... 77 53 49 42 48 23
Charlotte......................... 13 8 5 6 8 3
Greensboro/Winston-
Salem....................... 10 12 13 13 2 4
------ ------ ------ ------ ------ ------
Total ............................ 1,308 1,280 1,037 1,196 1,116 1,082
------ ------ ------ ------ ------ ------
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AS A PERCENTAGE OF AS A PERCENTAGE OF
REVENUE REVENUE
----------------------------- -----------------------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Cost of Sales............................... 81.3% 82.6% 80.9% 82.8%
Gross Profit................................ 18.7% 17.4% 19.1% 17.2%
Selling, general and
administrative expenses............... 10.9% 10.2% 11.4% 10.1%
Income before income taxes.................. 6.8% 6.3% 6.4% 6.2%
Income taxes (1)............................ 31.3% 36.0% 32.9% 36.0%
Net income.................................. 4.7% 4.0% 4.3% 4.0%
(1) As a percent of income before income taxes.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Revenues decreased by 5.4% to $155.6 million in the three months ending June 30,
2001 from $164.5 million in the three months ending June 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 10.1% to 569 homes in the three months ending June 30, 2001 from
633 homes in the three months ending June 30, 2000. The Company's average
selling price of homes closed in the three months ending June 30, 2001 was
$267,985, an increase of 3.9% from the $257,929 average selling price in the
three months ending June 30, 2000 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, 2001 was $272,444, an increase of 6.3% from the
$256,411 average selling price in the three months ending June 30, 2000. The
Fedrick, Harris Estate Homes average selling price of homes closed in the three
months ending June 30, 2001 was $479,978, an increase of 0.7% from the $476,640
average selling price in the three months ending June 30, 2000. In the South
Florida market, Westbrooke's average selling price of homes closed in the three
months ending June 30, 2001 was $208,514, an increase of 2.6% from the $203,237
average selling price in the three months ending June 30, 2000. In addition,
revenue from land sales in the three months ending June 30, 2001 increased to
$3.1 million from $1.2 million in the three months ending June 30, 2000.
New net sales contracts decreased 13.1% to 576 homes for the three months ended
June 30, 2001 from 663 homes for the three months ended June 30, 2000. The
dollar amount of new net sales contracts decreased 6.9% to $156.2 million.
The Company was operating in 90 subdivisions at June 30, 2001 compared to 79
subdivisions at June 30, 2000. As of June 30, 2001, the Company's backlog of
sales contracts was 1,116 homes, a 3.1% increase over comparable figures at June
30, 2000.
Cost of sales decreased by 6.9% to $126.4 million in the three months ended June
30, 2001 from $135.8 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 three months ended June 30, 2001 increased to $2.9 million from $1.2
million for the comparable period of 2000. As a percentage of revenues, cost of
sales for the three months ended June 30, 2001 decreased to 81.3% in 2001 from
82.6% in 2000.
Selling, general and administrative ("SG&A") expense increased by 1.6% to $17.0
million in the three months ended June 30, 2001, from $16.8 million in the
comparable period of 2000. The increase was primarily caused by increased
construction and sales activity in the new markets of Nashville, Tennessee;
Charlotte and Greensboro, North Carolina as well as in the Company's existing
Texas and Florida markets, as indicated by the increase in the backlog and the
3.7% increase in the homes under construction at the end of June 2001 versus
June 2000. As a percentage of revenues, SG&A expense increased to 10.9% in the
three months ended June 30, 2001 from 10.2% in the comparable period of 2000.
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Interest expense, net of interest capitalized, decreased slightly to $0.6
million in the three months ended June 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 June 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 June 30, 2001. 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 31.3% for the three months ending June 30, 2001 compared to
36.0% for the three months ending June 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
June 30, 2001 compared to $3.6 million for the three months ending June 30,
2000.
Net income increased by 10.4% to $7.3 million in the three months ended June 30,
2001, from $6.6 million in the comparable period of 2000. The increase was
attributable to the increase in revenues in the company's most profitable
markets.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenues decreased by 4.3% to $288.4 million in the six months ending June 30,
2001 from $301.5 million in the six months ending June 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 13.3% to 1,037 homes in the six months ending June 30, 2001 from
1,196 homes in the six months ending June 30, 2000. The Company's average
selling price of homes closed in the six months ending June 30, 2001 was
$266,655, an increase of 6.8% from the $249,700 average selling price in the six
months ending June 30, 2000 due to product mix within the subdivisions closing
homes. The average selling price of a Newmark(R) home closed in the six months
ending June 30, 2001 was $267,321, an increase of 6.7% from the $250,477 average
selling price in the six months ending June 30, 2000. The Fedrick, Harris Estate
Homes average selling price of homes closed in the six months ending June 30,
2001 was $479,636, an increase of 4.6% from the $458,705 average selling price
in the six months ending June 30, 2000. In the South Florida market,
Westbrooke's average selling price of homes closed in the six months ending June
30, 2001 was $208,015, an increase of 3.4% from the $201,116 average selling
price in the six months ending June 30, 2000. In addition, revenue from land
sales in the six months ending June 30, 2001 increased to $11.9 million from
$2.8 million in the six months ending June 30, 2000.
New net sales contracts increased 2.2% to 1,308 homes for the six months ended
June 30, 2001 from 1,280 homes for the six months ended June 30, 2000. The
dollar amount of new net sales contracts increased 4.2% to $345.0 million.
Cost of sales decreased by 6.5% to $233.4 million in the six months ended June
30, 2001 from $249.5 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 six months ended June 30, 2001 increased to $8.9 million from $2.6
million for the comparable period of 2000. As a percentage of revenues, cost of
sales for the six months ended June 30, 2001 decreased to 80.9% in 2001 from
82.8% in 2000.
Selling, general and administrative ("SG&A") expense increased by 8.8% to $33.0
million in the six months ended June 30, 2001, from $30.3 million in the
comparable period of 2000. The increase was primarily caused by increased
construction and sales activity in the new markets of Nashville, Tennessee;
Charlotte and Greensboro, North Carolina as well as in the Company's existing
Texas and Florida markets, as indicated by the increase in the backlog and the
3.7% increase in the homes under construction at the end of June 2001 versus
June 2000. As a percentage of revenues, SG&A expense increased to 11.4% in the
six months ended June 30, 2001 from 10.1% in the comparable period of 2000.
Interest expense, net of interest capitalized, remained consistent at $1.6
million for the six months ended June 30, 2001 and 2000. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. During the six months ended June 30, 2001 and 2000, the Company
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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 six months
ending June 30, 2001. 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 32.9% for the six months ending June 30, 2001 compared to 36.0%
for the six months ending June 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 $6.1 million for the six months ending June 30, 2001
compared to $6.4 million for the six months ending June 30, 2000.
Net income increased by 3.5% to $12.3 million in the six months ended June 30,
2001, from $11.9 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 June 30, 2001, the Company had available cash and cash equivalents of $7.2
million. Inventories (including finished homes and construction in progress,
developed residential lots and other land) at June 30, 2001 increased by $17.7
million from $246.7 million at December 31, 2000 due to a general increase in
business activity and the expansion of operations in the newer market areas.
Because of 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 52.8% at June 30, 2001 from 50.5% at December 31, 2000. The
equity to total assets ratio decreased during the three months to 41.2% at June
30, 2001 from 41.7% at December 31, 2000 primarily due to the dividends paid of
$6.2 million during the six months ending June 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 June 30, 2001, the Company had lines of credit commitments for construction
loans totaling approximately $245.2 million, of which $26.2 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
June 30, 2001, the Company had no material commitments for capital expenditures.
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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.
Although the Company's results for the six months ended June 30, 2001 are
comparable to results for the six months ended June 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 six months ended June 30, 2001 may be softer in the second half 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.
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 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, George 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, George
Stengos, Andreas Stengos, James M. Carr, William A. Hasler,
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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
None. No disclosure required
ITEM 5. OTHER INFORMATION
None. No disclosure required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits.
Exhibit Number Exhibit
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None.
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the quarter ended June
30, 2001.
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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, 2001 By: /s/ Terry C. White
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Terry C. White, Senior Vice President, Chief
Financial Officer, Treasurer and Secretary
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