TOUSA, INC.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
(Mark One)
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2007
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number:
001-32322
TOUSA, Inc.
(Exact Name of Registrant as
Specified in Its Charter)
|
|
|
Delaware
|
|
76-0460831
|
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
4000 Hollywood Boulevard, Suite 500 North
|
|
33021
|
Hollywood, Florida
|
|
(Zip Code)
|
(Address of Principal Executive
Offices)
|
|
|
Registrants telephone number, including area code:
(954) 364-4000
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Title of Each
Class
Common Stock, $.01 par value
9% Senior Notes due 2010 (CUSIP No. 872962 AA3)
9% Senior Notes due 2010 (CUSIP No. 872962 AB1)
103/8% Senior
Subordinated Notes due 2012 (CUSIP No. 872962 AD7)
71/2% Senior
Subordinated Notes due 2011 (CUSIP No. 872962 AC9)
71/2% Senior
Subordinated Notes due 2015 (CUSIP No. 872962 AE5)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 o No þ
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of common stock held by
non-affiliates of the Registrant was approximately
$82.6 million as of June 30, 2007.
As of August 6, 2008, there were 59,604,169 shares of
the Registrants common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF
CONTENTS
|
|
|
EX-10.56 |
|
EMPLOYMENT AGREEMENT, DATED JANUARY 1, 2008, BY AND BETWEEN
TOUSA, INC. AND GEORGE YEONAS |
|
EX-10.57 |
|
AMENDMENT TO EMPLOYMENT AGREEMENT, DATED JANUARY 18, 2008, BY
AND BETWEEN TOUSA, INC. AND TOMMY MCADEN |
|
EX-21.0 |
|
SUBSIDIARIES OF THE REGISTRANT |
|
EX-23.1 |
|
CONSENT OF ERNST & YOUNG LLP INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM |
|
EX-23.2 |
|
CONSENT OF ERNST & YOUNG LLP INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS |
|
EX-31.1 |
|
SECTION 302 CERTIFICATION OF THE CEO |
|
EX-31.2 |
|
SECTION 302 CERTIFICATION OF THE CFO |
|
EX-32.1 |
|
SECTION 906 CERTIFICATION OF THE CEO |
|
EX-32.2 |
|
SECTION 906 CERTIFICATION OF THE CFO |
|
EX-99.1 |
|
CONSOLIDATED FINANCIAL STATEMENTS OF TE/TOUSA, LLC AND
SUBSIDIARIES FOR THE YEARS ENDED NOVEMBER 30, 2006 AND THE
PERIOD FROM INCEPTION (JULY 1, 2005) TO NOVEMBER 30,
2005 |
|
EX-99.2 |
|
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF TE/TOUSA, LLC AND
SUBSIDIARIES FOR THE EIGHT MONTHS ENDED JULY 30, 2007 |
|
EX-99.3 |
|
FINANCIAL STATEMENTS OF ENGLE/SUNBELT HOLDINGS, LLC |
PART I
ITEM 1. Business
Explanatory
Note
In some instances we have attempted to provide information as of
a date more current than December 31, 2007. The housing
market has continued to deteriorate significantly since
December 31, 2007 and we have not yet completed the
analyses and processes required for the preparation of our
quarterly reports on
Form 10-Q
for the periods ended March 31, 2008 and June 30,
2008. Therefore, the information contained herein does not
include reserves or provisions for any period after the period
ended December 31, 2007. As a result of the continued
homebuilding and overall macroeconomic market deterioration and
the impact of our Chapter 11 filing on our operations, it
is likely that we will have material impairments, losses and
provisions upon completion of the analyses and processes in
connection with the preparation of our quarterly reports on
Form 10-Q
for the periods ended March 31, 2008 and June 30, 2008.
Introduction
TOUSA, Inc. (TOUSA, the Company,
we, us and our) designs,
builds and markets high-quality detached single-family
residences, town homes and condominiums. We conduct homebuilding
operations through our consolidated subsidiaries and
unconsolidated joint ventures in various metropolitan markets in
nine states, located in four major geographic regions, which are
also our reportable segments: Florida, the Mid-Atlantic, Texas
and the West.
Our predecessor company was founded in Houston, Texas in 1983.
Our company was formed in 1994 as a Nevada corporation under the
name Newark Homes Corp. We completed our initial public offering
of common stock in March 1998. In March 2001, we changed the
state of our incorporation from Nevada to Delaware. On
April 15, 2002 we sold the stock of our wholly-owned
subsidiary, Westbrooke Acquisition Corp., to Standard Pacific
Corp. On June 25, 2002, Engle Holdings Corp., a
wholly-owned subsidiary of our majority stockholder, Technical
Olympic, S.A., merged with and into us and we changed our name
to Technical Olympic USA, Inc. On October 4, 2002, we
acquired the net assets of DS Ware Homes, LLC, a homebuilder
operating in Jacksonville, Florida. On November 18, 2002,
we acquired the net assets of Masonry Homes, Inc., a homebuilder
operating in the northwestern suburbs of Baltimore, Maryland and
southern Pennsylvania. On February 6, 2003, we acquired the
net assets of Trophy Homes, Inc., a homebuilder operating in Las
Vegas, Nevada. On February 28, 2003, we acquired the net
assets of The James Construction Company, a homebuilder
operating in the greater Denver, Colorado area. On
September 28, 2004, we acquired substantially all of the
assets of Gilligan Development, Inc., a homebuilder operating in
Delaware, Maryland and Pennsylvania. On August 1, 2005, we
formed a joint venture of which we held a 50% interest to
acquire substantially all of the homebuilding assets of
Transeastern Property, Inc. (Transeastern JV). On
May 8, 2007, we changed our name to TOUSA, Inc.
On January 29, 2008, TOUSA, Inc. and certain of our
subsidiaries (excluding our financial services subsidiaries and
joint ventures) filed voluntary petitions for reorganization
relief under the provisions of Chapter 11 of Title 11
of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida,
Fort Lauderdale Division. The Chapter 11 cases have
been consolidated solely on an administrative basis and are
pending as Case
No. 08-10928-JKO.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, TOUSA, Inc.
entered into the Senior Secured Super-Priority Debtor in
Possession Credit and Security Agreement. The agreement provided
for a first priority and priming secured revolving credit
interim commitment of up to $134.6 million. The agreement
was subsequently amended to extend it to June 19, 2008. No
funds were drawn under the agreement. The agreement was
subsequently terminated and we entered into an agreement with
our secured lenders to use cash collateral on hand (cash
generated by our operations, including the sale of excess
inventory and the proceeds of our federal tax refund of
$207.3 million received in April 2008).
2
See Item 3, Legal Proceedings, of this Annual Report on
Form 10-K
for additional discussion.
As used in this
Form 10-K,
consolidated information refers only to information
relating to our continuing operations, which are consolidated in
our financial statements and exclude the results of our
Dallas/Fort Worth
division, which we have classified as a discontinued operation;
and combined information includes consolidated
information and information relating to our unconsolidated joint
ventures. Unless otherwise noted, the information contained
herein is shown on a consolidated basis. Our consolidated
financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
We market our homes to a diverse group of homebuyers, including
first-time homebuyers,
move-up
homebuyers, homebuyers who are relocating to a new city or
state, buyers of second or vacation homes, active-adult
homebuyers and homebuyers with grown children who want a smaller
home (empty-nesters).
As part of our objective to provide homebuyers a seamless home
purchasing experience, we offer an array of financial services,
which we provide to buyers of our homes, as well as to others.
As part of this business, we offer mortgage financing to
qualified buyers, title insurance and settlement services and
property and casualty insurance products. Our mortgage financing
operations revenues consist primarily of origination and
premium fee income, interest income and the gain on the sale of
the mortgages. We sell substantially all of our mortgages and
the related servicing rights to third parties. Our mortgage
financing operation derives most of its revenues from buyers of
our homes, although existing homeowners may also use these
services. In contrast, our title insurance and settlement
services operation, as well as our insurance agency operations,
are used by our homebuyers and a broad range of other clients
purchasing or refinancing residential or commercial real estate.
Since 2006, the homebuilding industry has experienced a
significant and sustained decrease in demand for new homes, an
oversupply of new and existing homes available for sale and a
more restrictive mortgage lending environment. Although we
operate in a number of markets, approximately 53% of our
operations are concentrated in Florida and the West, based on
2007 deliveries, which suffered particularly severe downturns in
home buying activity. The rapid increase in new and existing
home prices in these markets over the past several years reduced
housing affordability and tempered buyer demand. More recently,
investors and speculators have reduced their purchasing activity
and instead stepped up their efforts to sell the residential
property they had earlier acquired. These trends, which were
more pronounced in markets that had experienced the greatest
levels of price appreciation, resulted in overall fewer home
sales, greater cancellations of home purchase agreements by
buyers, higher inventories of unsold and foreclosed homes and
the increased use by homebuilders, speculators, investors and
others of discounts, incentives, price concessions, broker
commissions and advertising to close home sales compared to the
past several years.
Reflecting these trends, we, like many other homebuilders,
experienced severe liquidity challenges in the credit and
mortgage markets, diminished consumer confidence, increased home
inventories and foreclosures, and downward pressure on home
prices. Potential buyers have exhibited both a reduction in
confidence as to the economy in general and a willingness to
delay purchase decisions based on a perception that prices will
continue to decline. Prospective homebuyers continue to be
concerned about interest rates and the inability to sell their
current homes or to obtain appraisals at sufficient amounts to
secure mortgage financing as a result of the recent disruption
in the mortgage markets and the tightening of credit standards.
For the year ended December 31, 2007, our consolidated
continuing operations delivered 6,580 homes, having an average
sales price of $311,000, had 4,836 net sales orders and
generated $2.2 billion in homebuilding revenues. At
December 31, 2007, our continuing operations had 2,379
consolidated homes in backlog with an aggregate sales value of
$736.3 million. At December 31, 2007, we had contracts
for 511 homes, representing $115.6 million in revenue, with
a third-party that marketed homes in the United Kingdom. These
contracts were cancelled in 2008. As of December 31, 2007,
we controlled approximately 32,200 homesites on a consolidated,
continuing operations basis. During 2007, we also delivered
1,666 homes through our unconsolidated joint ventures. See
additional discussion regarding our joint ventures located in
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources.
3
For the six months ended June 30, 2008, our consolidated
continuing operations delivered 2,139 homes, having an average
sales price of $265,000, had 1,340 net sales orders and
generated $567.8 million in home sales revenues. At
June 30, 2008, our continuing operations had 1,580
consolidated homes in backlog with an aggregate sales value of
$479.3 million.
For the year ended December 31, 2007, we had a loss from
continuing operations of $1.3 billion. As a result of
deteriorating market conditions and liquidity constraints, we
did not exercise certain homesite option contracts and reviewed
our inventories, goodwill, investment in joint ventures and
other assets for possible impairment charges. We recognized
charges totaling $1.3 billion in 2007 related to inventory
impairments, abandonment costs, joint venture impairments,
goodwill impairments and the settlement of a loss contingency
related to the Transeastern JV. Joint venture impairments and
losses totaled $209.0 million for the year ended
December 31, 2007 compared to $48.1 million for the
year ended December 31, 2006. Additionally, in some cases
our Chapter 11 filings have constituted an event of default
under the joint venture lender agreements, which have resulted
in the joint ventures debt becoming immediately due and
payable, limiting the joint ventures access to future
capital.
On July 31, 2007, we consummated transactions to settle the
disputes regarding the Transeastern JV with the lenders of the
Transeastern JV, its land bankers and our joint venture partner
in the Transeastern JV. Pursuant to the settlement, among other
things, the Transeastern JV became a wholly-owned subsidiary by
merger into one of our subsidiaries. The acquisition of the
Transeastern JV was accounted for using the purchase method of
accounting. The results of operations of the Transeastern JV
have been included in our consolidated results beginning on
July 31, 2007. Results of operations prior to July 31,
2007 are included in the results for the unconsolidated joint
ventures.
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a committee composed of six members, three from
Preferred Home Mortgage Company and three from Wells Fargo. The
venture entered into a revolving credit agreement with Wells
Fargo Bank, N.A. providing for advances of up to
$20.0 million. Wells Fargo Home Mortgage provides the
general and administrative support (as well as all loan related
processing, underwriting, closing functions), and is the end
investor for the majority of the loans closed through the joint
venture. Prior to the joint venture, Preferred Home Mortgage
Company had a centralized operations center that provided those
support functions. The majority of these support functions
ceased in June 2008.
For financial information about our homebuilding and financial
services operating segments, please see our consolidated
financial statements on pages F-1 through F-66.
Business
Strategy
We have taken and will continue to take aggressive actions to
maximize cash receipts and minimize cash expenditures with the
understanding that certain of these actions may make us less
able to take advantage of future improvements in the
homebuilding market. We continue to take steps to reduce our
general and administrative expenses by streamlining activities
and increasing efficiencies, which have led and will continue to
lead to major reductions in the workforce. However, much of our
efforts to reduce general and administrative expenses are being
offset by professional and consulting fees associated with our
Chapter 11 cases. In addition, we are working with our
existing suppliers and seeking new suppliers, through
competitive bid processes, to reduce construction material and
labor costs. We have and will continue to analyze each community
based on anticipated sales absorption rates, net cash flows and
financial returns taking into consideration current market
factors in the homebuilding industry such as the oversupply of
homes available for sale in most of our markets, less demand,
decreased consumer confidence, tighter mortgage loan
underwriting criteria, higher foreclosures and the actions of
competitors, including increased incentives and
4
price discounting. In order to generate cash and to reduce our
inventory to levels consistent with our business plan, we have
taken and will continue to take the following actions, to the
extent possible given the limitations resulting from our
Chapter 11 cases:
|
|
|
|
|
limiting new arrangements to acquire land (by submitting
proposals to increased review);
|
|
|
|
engaging in bulk sales of land and unsold homes;
|
|
|
|
reducing the number of unsold homes under construction and
limiting
and/or
curtailing development activities in any development where we do
not expect to deliver homes in the near future;
|
|
|
|
re-negotiating terms or abandoning our rights under option
contracts;
|
|
|
|
considering other asset dispositions including the possible sale
of underperforming assets, communities, divisions and joint
venture interests (see Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations Recent Developments regarding the
June 2007 sale of our Dallas/Fort Worth division and the
September 2007 bulk sale of homesites in our Mid-Atlantic
region);
|
|
|
|
reducing our speculative inventory levels; and
|
|
|
|
pursuing other initiatives designed to monetize our assets.
|
Homebuilding
Operations
Operations
Although our homebuilding activities were previously operated on
a decentralized basis, in light of current conditions in the
homebuilding and financial markets, we have initiated a process
to migrate toward a more centralized business platform. At
December 31, 2007, we operated in various metropolitan
markets managed as 12 separate homebuilding operating divisions.
Generally, each operating division consists of a division
president; land entitlement, acquisition and development
personnel; a sales manager and sales personnel; a construction
manager and construction superintendents; customer service
personnel; a finance team; a purchasing manager and office
staff. Before 2008, our division presidents reported to one of
four regional executive vice presidents. Our current structure
has eliminated the regional executive vice president structure
and our division presidents now report to the newly created
position of Chief Operating Officer. Our current structure is
intended to reduce selling, general and administrative expenses
necessitated by market conditions while at the same time
recognizing that homebuilding is a market specific industry and
therefore, requires significant involvement from local
management. We believe that the division presidents and their
management teams, who are familiar with local market conditions,
have significant information on which to base decisions
regarding local operations.
Operating
Division Responsibilities
Each operating division is responsible for:
|
|
|
|
|
site selection, which involves
|
|
|
|
|
|
a feasibility study;
|
|
|
|
an intensive evaluation of competition;
|
|
|
|
soil and environmental reviews;
|
|
|
|
review of existing zoning and other governmental
requirements; and
|
|
|
|
review of the need for and extent of offsite work required to
meet local building codes;
|
|
|
|
|
|
negotiating certain aspects of the homesite option or similar
contracts;
|
|
|
|
obtaining necessary land development and home construction
approvals;
|
|
|
|
overseeing land development;
|
5
|
|
|
|
|
selecting building plans and architectural schemes;
|
|
|
|
selecting and managing construction subcontractors and suppliers
within an integrated national supply chain network;
|
|
|
|
planning and managing homebuilding schedules; and
|
|
|
|
developing and implementing sales and marketing plans.
|
Centralized
Controls
We centralize the key risk elements of our homebuilding business
through our corporate offices. Our corporate executives and
corporate departments are responsible for establishing our
operational policies and internal control standards and for
monitoring compliance with established policies and controls
throughout our operations. Our corporate offices also have
primary responsibility for the following centralized functions:
|
|
|
|
|
financing;
|
|
|
|
treasury and cash management;
|
|
|
|
risk and litigation management;
|
|
|
|
allocation of capital;
|
|
|
|
issuance and monitoring of inventory investment guidelines;
|
|
|
|
review and approval of all land and homesite acquisition
contracts;
|
|
|
|
oversight of land and construction inventory levels;
|
|
|
|
environmental assessments of land and homesite acquisitions and
dispositions;
|
|
|
|
approval and funding of land and homesite acquisitions and
dispositions;
|
|
|
|
accounting, financial and management reporting;
|
|
|
|
review and approval of division plans and budgets;
|
|
|
|
internal audit;
|
|
|
|
information technology systems;
|
|
|
|
administration of human resource compliance, payroll and
employee benefits;
|
|
|
|
negotiation of national purchasing contracts; and
|
|
|
|
management of major national or regional supply chain
initiatives.
|
In response to market conditions, we have centralized certain
approval processes and have established procedures requiring
corporate approval before the construction of unsold homes may
commence and prior to any purchases of homesites.
Markets
We operate in various metropolitan markets in nine states
located in four major geographic regions: Florida, the
Mid-Atlantic, Texas and the West. For the year ended
December 31, 2007, our top two largest metropolitan
markets, representing approximately 38% of our consolidated home
deliveries, were Central Florida and Houston.
|
|
|
|
|
|
|
Florida
|
|
Mid-Atlantic
|
|
Texas
|
|
West
|
|
Central Florida
|
|
Baltimore/Southern Pennsylvania
|
|
Austin
|
|
Colorado
|
Jacksonville
|
|
Nashville
|
|
Houston
|
|
Las Vegas
|
Southeast Florida
|
|
Northern Virginia
|
|
San Antonio
|
|
Phoenix
|
Southwest Florida
Tampa/St. Petersburg
|
|
|
|
|
|
|
6
Florida. Our Florida region is comprised of
five metropolitan markets: Central Florida, which is comprised
of Polk, Lake, Orange, Brevard, Volusia and Seminole Counties;
Jacksonville; Southeast Florida, which is comprised of
Miami-Dade, Broward, Palm Beach, Martin, St. Lucie and Indian
River Counties; Southwest Florida, which is comprised of the
Fort Myers/Naples area; and the
Tampa/St.
Petersburg area. For the year ended December 31, 2007, our
consolidated continuing operations delivered 2,471 homes in
Florida, generating revenue of $849.1 million, or 41% of
our consolidated revenues from home sales as compared to 43% and
38% for the years ended December 31, 2006 and 2005,
respectively.
Mid-Atlantic. Our Mid-Atlantic region is
comprised of four metropolitan markets: Baltimore/Southern
Pennsylvania, Nashville and Northern Virginia. For the year
ended December 31, 2007, our consolidated continuing
operations delivered 649 homes in our Mid-Atlantic region
generating revenue of $228.2 million, or 11% of our
consolidated revenues from home sales as compared to 11% and 13%
for the years ended December 31, 2006 and 2005,
respectively.
Texas. Our Texas region is comprised of three
metropolitan markets: Austin, Houston and San Antonio. For
the year ended December 31, 2007, our consolidated
continuing operations delivered 2,421 homes in Texas, generating
revenue of $625.4 million, or 31% of our consolidated
revenues from home sales as compared to 26% and 19% for the
years ended December 31, 2006 and 2005, respectively.
West. Our West region is comprised of three
metropolitan markets: Colorado, which is comprised of Denver,
Boulder and Colorado Springs; Las Vegas, Nevada; and Phoenix,
Arizona. For the year ended December 31, 2007, our
consolidated continuing operations delivered 1,039 homes in our
West region generating revenue of $346.7 million, or 17% of
our consolidated revenues from home sales as compared to 20% and
30% for the years ended December 31, 2006 and 2005,
respectively.
Product
Mix
We select our product mix in a particular geographic market
based on the demographics of the market, demand for a particular
product, margins and the economic strength of the market. We
regularly review our product mix in each of our markets so that
we can quickly respond to market changes and opportunities.
Percentage of deliveries by price range for the years ended
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
Home Delivery Price Ranges
|
|
2007
|
|
|
2006
|
|
|
Below $200,000
|
|
|
28
|
%
|
|
|
23
|
%
|
$200,000 to $300,000
|
|
|
26
|
|
|
|
27
|
|
$300,001 to $400,000
|
|
|
23
|
|
|
|
26
|
|
Over $400,000
|
|
|
23
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007, 75% of our home
deliveries were generated from single family homes and 25% of
our home deliveries were generated from multi-family homes, as
compared to 77% of our home deliveries from single family homes
and 23% of our home deliveries from multi-family homes for the
year ended December 31, 2006.
Land and
Homesites
We believe acquiring land and homesites in premier locations is
a key factor to a successful homebuilding business. We utilize a
strategy of balancing owned homesites and land with those we can
acquire under option contracts, together with limited
participation in land development joint ventures. The downturn
in the market and our liquidity situation has forced us to
abandon options to acquire land in numerous markets resulting in
the loss of cash deposits and draws on letters of credit posted
as deposits under these option contracts and relinquishment of
our rights under certain joint ventures.
7
Types
of Land and Homesites
In our homebuilding operations, we generally acquire land or
homesites that are entitled. Land is entitled when
all requisite residential zoning has been obtained. We also
generally seek to acquire entitled land and homesites that have
water and sewage systems, streets and other infrastructure in
place (we refer to these properties as developed
homesites) because they are ready to have homes built on
them. When we acquire entitled homesites that are not developed,
we must first put in place the necessary infrastructure before
commencing construction. However, we believe that there are
economic benefits to undertaking the development of some of the
land that we may acquire and, in those cases, we will attempt to
take advantage of those economic benefits by engaging in land
development activities.
In connection with the development of certain of our
communities, community development or improvement districts may
utilize tax-exempt bond financing to fund construction or
acquisition of certain
on-site and
off-site infrastructure improvements. Some bonds are repaid
directly by us while other bonds only require us to pay non-ad
valorem assessments related to lots not yet delivered to
residents. These bonds are typically secured by the property and
are repaid from assessments levied on the property over time. We
also guarantee district shortfalls under certain bond debt
service agreements when the revenues, fees and assessments which
are designed to cover principal and interest and other operating
costs of the bonds are insufficient.
We generally acquire homesites that are located adjacent to or
near our other homesites in a community, which enables us to
build and market our homes more cost efficiently than if the
homesites were scattered throughout the community. Cost
efficiencies arise from economies of scale, such as shared
marketing expenses and project management.
Land
Acquisition Policies
We have adopted strict land acquisition policies and procedures
that cover all homesite acquisitions, including homesites
acquired through option contracts. All proposed land purchases
are reviewed with the goal of minimizing risk and use of
capital, while maximizing our financial returns.
Initially, our management teams in each of our divisions conduct
extensive analysis on the local market to determine if we want
to enter or expand our operations in that market. As part of
this analysis, we consider a variety of factors, including:
|
|
|
|
|
historical and projected population, employment, and income
growth rates for the surrounding area;
|
|
|
|
demographic information such as age, education and economic
status of the homebuyers in the area;
|
|
|
|
desirability of location, including proximity to metropolitan
area, local traffic corridors and amenities;
|
|
|
|
market competition, including the prices and number of
comparable new and resale homes in the areas; and
|
|
|
|
the amount of capital currently invested in that market.
|
We then evaluate and identify specific homesites that are
consistent with our strategy for the particular market,
including the type of home and anticipated sales price that we
wish to offer in the community. In addition, we review:
|
|
|
|
|
estimated costs of completed homesite development;
|
|
|
|
current and anticipated competition in the area, including the
type and anticipated sales prices and absorption of homes
offered by our competitors;
|
|
|
|
opportunity to acquire additional homesites in the future, if
desired; and
|
|
|
|
results of financial analyses, such as projected profit margins
and return on invested capital.
|
In addition, we conduct environmental due diligence, including
on-site
inspection and soil testing, and confirming that the land has
the necessary zoning and other governmental entitlements
required to develop and use the property for residential home
construction.
8
Each land acquisition proposal, including the purchase of lots
under options, is subject to review and approval by our Asset
Committee. The Asset Committee is comprised of representatives
from our land, finance and supply management departments.
Land
Supply and Asset Management Actions
We acquire the land and homesites through a combination of
purchase agreements, option contracts and joint ventures. At
December 31, 2007, we controlled approximately 32,200
consolidated homesites in continuing operations. Of this amount,
we owned approximately 21,400 homesites and had option contracts
on approximately 10,800 homesites. At December 31, 2006, we
controlled approximately 60,600 consolidated homesites in
continuing operations. Of this amount, we owned approximately
21,200 homesites and had option contracts on approximately
39,400 homesites.
As part of our land inventory management strategy, we review the
size, geographic allocation and components of our inventory to
better align these assets with estimated future deliveries.
Based on current market conditions, existing inventory levels
and our historical and projected results, we have excess land
inventory. We are and will continue to take necessary actions to
reduce our inventory. These actions include, to the extent
possible given the limitations resulting from our
Chapter 11 cases: limiting new arrangements to acquire land
by submitting proposals to a rigorous review; engaging in bulk
sales of land and unsold homes; reducing the number of unsold
homes under construction and limiting
and/or
curtailing development activities in any development where we do
not expect to deliver homes in the near future; re-negotiating
terms or abandoning our rights under option contracts;
considering other asset dispositions including the possible sale
of underperforming assets, communities, divisions and joint
venture interests; reducing our speculative inventory levels and
pursuing other initiatives designed to monetize our assets.
Revenues from land sales for the year ended December 31,
2007 were $109.4 million, as compared to
$131.9 million for the year ended December 31, 2006.
However, due to challenging housing market conditions, we may
not be able to continue to sell land profitably or at all.
Option
Contracts
We have utilized option contracts to acquire land whenever
feasible. Under the option contracts, we typically have the
right, but not the obligation, to buy homesites at predetermined
prices on a predetermined takedown schedule anticipated to be
commensurate with home starts. Option contracts generally
require the payment of a cash deposit or the posting of a letter
of credit, which is typically less than 20% of the underlying
purchase price, and may require monthly maintenance payments.
These option contracts are either with land sellers or financial
investors who have acquired the land to enter into the option
contract with us. In some cases, these contracts give the other
party the right to require us to purchase homesites or guarantee
minimum returns. (see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Financial Condition, Liquidity and
Capital Resources Off-Balance Sheet
Arrangements)
In certain instances, we have entered into development
agreements under these option contracts which require us to
complete the development of the land even if we choose not to
exercise our option and forfeit our deposit. Although we are
typically compensated for this work, in most cases we are
responsible for any cost overruns.
At December 31, 2007, we had option contracts on
approximately 10,800 homesites and had approximately
$56.9 million in non-refundable cash deposits and
$44.9 million in letters of credit under those option
contracts. At December 31, 2006, we had option contracts on
approximately 39,400 homesites and had approximately
$216.6 million in cash deposits and $257.8 million in
letters of credit under those option contracts. As a result of
worsening market conditions and liquidity constraints, during
the year ended December 31, 2007, we abandoned our rights
under certain option agreements. In connection with the
abandonment of our rights under these option contracts, we
forfeited $82.5 million in cash deposits and had letters of
credit totaling $98.5 million drawn at December 31,
2007, which increased our outstanding borrowings. Through
June 30, 2008 an additional $72.8 million of letters
of credit have been drawn related to the abandonment of option
contracts.
9
Joint
Ventures
We have used strategic joint ventures to acquire and develop
land and/or
to acquire, develop, build and market homes to mitigate and
share the risks associated with land ownership and development,
increase our return on equity and extend our capital resources.
Our partners in these joint ventures (generally) are unrelated
homebuilders, land sellers, financial investors, or other real
estate entities. In joint ventures where the acquisition,
development
and/or
construction of the property are being financed with debt, the
borrowings are non-recourse to us, except that we have agreed to
complete certain property development in the event the joint
ventures default and to indemnify the lenders for losses
resulting from fraud, misappropriation and similar acts. In some
cases, we have agreed to make capital contributions to the joint
venture sufficient to comply with a specified debt to value
ratio. Our obligations become full recourse upon certain
bankruptcy events at the joint venture.
In some cases our Chapter 11 filings have constituted an
event of default under the joint venture lender agreements which
have resulted in the debt becoming immediately due and payable,
limiting the joint ventures access to future capital. As a
result of our Chapter 11 cases and our reduced investments
in joint ventures, we anticipate only limited use of joint
ventures in the future.
At December 31, 2007 our unconsolidated joint ventures
controlled approximately 3,600 homesites, which included 1,100
homesites under option contracts compared to approximately 5,000
controlled homesites, which included 2,100 homesites under
option contracts at December 31, 2006. At December 31,
2007 and 2006, we had investments in and receivables from
unconsolidated joint ventures of $9.3 million and
$156.2 million, respectively. The decrease in 2007 compared
to 2006 is primarily due to joint venture impairments recognized
during the year ended December 31, 2007 totaling
$194.1 million as a result of our evaluation of the
recoverability of our investments in the joint ventures under
Accounting Principles Board Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock
(APB 18). During the year ended
December 31, 2007 our unconsolidated joint ventures had a
total of 815 net sales orders and 1,666 homes
delivered compared to 456 net sales orders and 3,951 homes
delivered for the year ended December 31, 2006. At
December 31, 2007, our unconsolidated joint ventures had 94
homes in backlog with a sales value of $24.7 million
compared to 1,199 homes in backlog with a sales value of
$365.6 million at December 31, 2006.
See additional discussion regarding joint ventures located in
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations
Off-Balance Sheet Arrangements.
Transeastern
JV
We acquired our 50% interest in the Transeastern JV on
August 1, 2005, when the Transeastern JV acquired
substantially all of the homebuilding assets and operations of
Transeastern Properties, Inc. including work in process,
finished lots and certain land option rights. The Transeastern
JV paid approximately $826.2 million for these assets and
operations (which included the assumption of $127.1 million
of liabilities and certain transaction costs, net of
$30.1 million of cash). The other member of the joint
venture was an entity controlled by the former majority owners
of Transeastern Properties, Inc. We functioned as the managing
member of the Transeastern JV through a wholly-owned subsidiary.
As a result of, among other factors, lower than expected
deliveries resulting from lower than expected gross sales and
higher cancellations, we evaluated the recoverability of our
investment in the joint venture under APB 18 and determined that
our investment was fully impaired. As of September 30, 2006
we wrote off $143.6 million related to our investment in
the Transeastern JV, which included $35.0 million of our
member loans receivable and $16.2 million of receivables
for management fees, advances and interest due to us from the
joint venture.
On October 31, 2006 and November 1, 2006, we received
demand letters from the administrative agent for the lenders to
the Transeastern JV demanding payment under certain guarantees.
The demand letters alleged that potential defaults and events of
default had occurred under the credit agreements and that such
potential defaults or events of default had triggered our
obligations under the guarantees. The lenders claimed that our
guarantee obligations equaled or exceeded all of the outstanding
obligations under each of the credit agreements and that we were
liable for default interest, costs and expenses.
10
On July 31, 2007, we consummated transactions to settle the
disputes regarding the Transeastern JV with the lenders to the
Transeastern JV, its land bankers and our joint venture partner
in the Transeastern JV. Pursuant to the settlement, among other
things,
|
|
|
|
|
the Transeastern JV became a wholly-owned subsidiary of ours by
merger into one of our subsidiaries, which became a guarantor on
our credit facilities and note indentures (the acquisition was
accounted for using the purchase method of accounting and
results of operations have been included in our consolidated
results beginning on July 31, 2007);
|
|
|
|
the senior secured lenders of the Transeastern JV were repaid in
full, including accrued interest (approximately
$400.0 million in cash);
|
|
|
|
the senior mezzanine lenders to the Transeastern JV received
$20.0 million in aggregate principal amount of
14.75% Senior Subordinated PIK Election Notes due 2015 and
$117.5 million in initial aggregate liquidation preference
of 8% Series A Convertible Preferred PIK Preferred Stock;
|
|
|
|
the junior mezzanine lenders to the Transeastern JV received
warrants to purchase shares of our common stock which had an
estimated fair value of $8.2 million at issuance (based on
the Black-Scholes option pricing model and before issuance
costs);
|
|
|
|
we entered into settlement and mutual release agreements with
the senior mezzanine lenders and the junior mezzanine lenders to
the Transeastern JV which released us from our potential
obligations to them; and
|
|
|
|
we entered into a settlement and mutual release agreement with
Falcone/Ritchie LLC and certain of its affiliates (the
Falcone Entities) concerning the Transeastern JV,
one of which owned 50% of the equity interests in the
Transeastern JV and, among other things, released the Falcone
Entities from claims under the 2005 asset purchase agreement
pursuant to which we acquired our interest in the Transeastern
JV. Pursuant to the settlement agreement, we remain obligated on
certain indemnification obligations, including, without
limitation, related to certain land bank arrangements.
|
To effect the settlement of the Transeastern JV dispute, on
July 31, 2007, we also entered into:
|
|
|
|
|
an amendment to our $800.0 million revolving loan facility,
dated January 30, 2007;
|
|
|
|
a new $200.0 million aggregate principal amount first lien
term loan facility; and
|
|
|
|
a new $300.0 million aggregate principal amount second lien
term loan facility.
|
The proceeds from the first lien and second lien term loans were
used to satisfy claims of the senior secured lenders against the
Transeastern JV, and to pay related expenses. Our existing
$800.0 million revolving loan facility was amended and
restated to reduce the revolving commitments thereunder by
$100.0 million and permit the incurrence of the first and
second lien term loan facilities (and make other conforming
changes relating to the facilities). Net proceeds from these
financings at closing were $470.6 million which is net of a
1% discount and transaction costs.
In connection with the Transeastern JV settlement, we recognized
a loss of $426.6 million, of which $151.6 million was
recognized during the year ended December 31, 2007, and
$275.0 million was recognized during the year ended
December 31, 2006.
We also paid:
|
|
|
|
|
$50.2 million in cash to purchase land under existing land
bank arrangements with the former Transeastern JV
partner; and
|
|
|
|
$33.5 million in interest and expenses.
|
Supply
Management
We use our purchasing power and a team-oriented sourcing
methodology to achieve volume discounts and/or rebates and the
best possible service from our suppliers, thereby reducing
costs, ensuring timely
11
deliveries and reducing the risk of supply shortages due to
allocations of materials. Our team-oriented sourcing methodology
involves the use of corporate and divisional teams of supply
management personnel who are responsible for identifying which
commodities should be purchased and used on a national,
regional, or divisional level to optimize our purchasing power.
We have negotiated price arrangements, which we believe are
favorable, to purchase lumber, sheetrock, appliances, heating
and air conditioning, bathroom fixtures, roofing and insulation
products, concrete, bricks, floor coverings and other housing
equipment and materials. Our purchase contracts are with high
quality national, regional, and local suppliers.
Our supply management team uses our quality control procedures
to monitor and assess the effectiveness of our suppliers and
subcontractors within our overall building processes. In
addition, our design process includes input from our supply
management team to develop product designs that take into
account standard material sizes and quantities with the goal of
creating product designs that eliminate unnecessary material and
labor costs.
Design
To appeal to the tastes and preferences of local communities, we
expend considerable effort in developing an appropriate design
and marketing concept for each community, including determining
the size, style and price range of the homes and, in certain
projects, the layout of streets, individual homesites and
overall community design. In addition, in certain markets,
outside architects who are familiar with the local communities
in which we build, assist us in preparing home designs and floor
plans. The product line that we offer in a particular community
depends upon many factors, including the housing generally
available in the area, the needs of the particular market and
our costs of homesites in the community. To improve the
efficiency of our design process and make full use of our
resources and expertise, we maintain a company-wide database, or
product library, of detailed information relating to the design
and construction of our homes, including architectural plans
previously or currently used in our communities. Periodically,
we review the product library to determine which plans have high
and low sales paces, as well as the high and low margins. We
then attempt to remove the lesser performing plans from our
product library. This enables us to lower the cost of
maintaining a large number of plans and lower construction costs
by increasing the efficiency of the building process by building
better performing plans more frequently.
Design
Centers
We maintain design centers in most of our markets as part of our
marketing process and to assist our homebuyers in selecting
options and upgrades, which can result in additional revenues.
The design centers heighten interest in our homes by allowing
homebuyers to participate in the design process and introducing
homebuyers to the various finishes and colors including
flooring, lighting, fixtures and hardware options available to
them. While the size and content of our design centers vary
between markets, the focus of all of our design centers is on
making the homebuyers selection process less complicated
and an enjoyable experience, while increasing our profitability.
Construction
Subcontractors perform substantially all of our construction
work. Our construction superintendents monitor the construction
of each home, coordinate the activities of subcontractors and
suppliers, subject the work of subcontractors to quality and
cost controls and monitor compliance with zoning and building
codes. We typically retain subcontractors pursuant to a contract
that obligates the subcontractor to complete construction at a
fixed price in a good and workmanlike manner at or
above industry standards. In addition, under these contracts the
subcontractor generally provides us with standard
indemnifications and warranties. Typically, we work with the
same subcontractors within each market, which provides us with a
stable and reliable trade base and better control over the costs
and quality of the work performed. Although we compete with
other homebuilders for qualified subcontractors, we have
established long-standing relationships with many of our
subcontractors and have not experienced any material
difficulties in obtaining the services of desired subcontractors.
12
We typically complete the construction of a home within four to
ten months after the receipt of relevant permits. Construction
time, however, depends on weather, availability of labor,
materials and supplies and other factors. We do not maintain
significant inventories of construction materials, except for
materials related to work in progress for homes under
construction. While the availability and cost of construction
materials may be negatively impacted from time to time due to
various factors, including weather conditions, generally, the
construction materials used in our operations are readily
available from numerous sources. We have established price
arrangements or contracts, which we believe are favorable, with
suppliers of certain of our building materials, but we are not
under specific purchasing requirements.
We have, and will continue to establish and maintain,
information systems and other practices and procedures that
allow us to effectively manage our subcontractors and the
construction process. For example, we have implemented
information systems that monitor homebuilding production,
scheduling and budgeting. We believe that this program has and
will continue to improve our efficiency and decrease our
construction time.
Marketing
and Sales
We currently market our homes primarily under the Engle Homes
brand name in Florida, most of the Mid-Atlantic and the West and
under the Newmark Homes and Fedrick Harris Estate Homes brand
names in Texas and in Nashville, Tennessee. We also market our
homes targeted to first-time homebuyers under the
Trophy Homes brand name, primarily in Texas. We believe our
brands are widely recognized in the markets in which we operate
for providing quality homes in desirable locations.
We build and market different types of homes to meet the needs
of different homebuyers and the needs of different markets. We
employ a variety of marketing techniques to attract potential
homebuyers through numerous avenues, including Internet web
sites for our various homebuilding brands, advertising and other
marketing programs. We advertise on radio, in newspapers and
other publications, through our own brochures and newsletters,
on billboards, on the web, where permitted, and in brochures and
newsletters produced and distributed by real estate and mortgage
brokers.
We typically conduct home sales activities from sales offices
located in furnished model homes in each community. We use
commissioned sales personnel who assist prospective buyers by
providing them with floor plans, price information, tours of
model homes and information on the available options and other
custom features. We provide our sales personnel with extensive
training, and we keep them updated as to the availability of
financing, construction schedules and marketing and advertising
plans to facilitate their marketing and sales activities. We
supplement our in-house training program with training by
outside marketing and sales consultants.
We market and sell homes through our own sales personnel and in
cooperation with independent real estate brokers. Because a
portion of our sales originate from independent real estate
brokers, we sponsor a variety of programs and events to provide
the brokers with a level of familiarity with our communities,
homes and financing options necessary to successfully market our
homes.
Sales of our homes generally are made pursuant to a standard
sales contract that is tailored to the requirements of each
jurisdiction. Generally, our sales contracts require a deposit
of a fixed amount or percentage, typically averaging about five
percent of the purchase price, plus additional deposits for
options and upgrades selected by homebuyers. The contract may
include contingencies, such as financing or the prior sale of a
buyers existing home. We estimate that the average period
between the execution of a sales contract for a pre-sold home
and closing ranges from four months to over a year, depending on
the market and size and complexity of home being built.
Customer
Service and Quality Control
Our operating divisions are responsible for both pre-delivery
quality control inspections and responding to customers
post-delivery needs. We believe that the prompt, courteous
response to homebuyers needs reduces post-delivery repair
costs, enhances our reputation for quality and service and
ultimately leads to significant
13
repeat and referral business. We conduct home orientations and
pre-delivery inspections with homebuyers immediately before
closing.
An integral part of our customer service program includes
post-delivery surveys. We contract with independent third
parties to conduct periodic post-delivery evaluations of the
customers satisfaction with their home, as well as the
customers experience with our sales personnel,
construction department and title and mortgage services. We use
a national customer satisfaction survey company to mail customer
satisfaction surveys to homeowners within 60 days of their
home closing. These surveys provide us with a direct link to the
customers perception of the entire buying experience as
well as valuable feedback on the quality of the homes we deliver
and the services we provide.
Warranty
Program
For all homes we sell, we provide our homebuyers with a limited
warranty that provides a one-year or two-year limited warranty
on workmanship and materials, and a five to ten-year limited
warranty covering major structural defects. The extent of these
warranties may differ in some or all of the states in which we
operate. We currently have liability insurance coverage in place
which covers repair costs associated with warranty claims for
structure and design defects related to homes sold by us during
the policy period, subject to a significant self-insured
retention per occurrence. We have a warranty administration
program, including mandatory alternative dispute resolution
procedures that we believe will allow us to more effectively
manage and resolve our warranty claims. We subcontract
homebuilding work to subcontractors who generally are required
to indemnify us and provide evidence of required insurance
coverage before receiving payments for their work. Therefore,
claims relating to workmanship and materials are the primary
responsibility of our subcontractors; however, we may be unable
to enforce these contractual indemnities.
After we deliver a home, we process all warranty requests
through our customer service departments located in each of our
markets. If a warranty repair is necessary, we manage and
supervise the repair to ensure that the appropriate
subcontractor takes prompt and appropriate corrective action.
Additionally, we have developed a proactive response and
remediation protocol to address any warranty claim that may
result in mold damage. We generally have not had any material
litigation or claims regarding warranties or latent defects with
respect to construction of homes. Current claims and litigation
are expected to be substantially covered by our reserves or
insurance.
To support our warranty program, we implemented an automated
warranty application in 2007 in approximately half of our
divisions. It allows management, customers and associates the
ability to track and manage warranty requests from reporting
through resolution to improve communication and customer
satisfaction. This application also helps us to objectively
select and manage vendors that deliver quality work on time.
To address homebuyer concerns regarding our fulfillment of
warranty obligations at the inception of our Chapter 11
cases, we entered into an agreement with an affiliate of Zurich
Financial Services Group, which guarantees our warranty
obligations for the first ten years and assumes all liability
for structural claims in years three through ten. The agreement
covered all homes in backlog on January 21, 2008 and homes
sold or delivered between January 21, 2008 and
June 30, 2008.
Financial
Services
As part of our objective to provide homebuyers with a seamless
home purchasing experience, we offer an array of financial
services, which we provide to buyers of our homes, as well as to
others. As part of this business, we provide mortgage financing,
title insurance and settlement services, and property and
casualty insurance products. Our mortgage financing operation
derives most of its revenues from buyers of our homes, although
existing homeowners may also use these services. In contrast,
our title and settlement services and our insurance agency
operations are used by our homebuyers and a broad range of other
clients purchasing or refinancing residential or commercial real
estate.
14
Our mortgage business provides a full selection of conventional,
FHA-insured and VA-guaranteed mortgage products to our
homebuyers. We are an approved Fannie Mae
seller / servicer. All of our loans are originated and
underwritten in accordance with the guidelines of Fannie Mae,
Freddie Mac, FHA, VA or other institutional third parties. We
sell substantially all of our loans and the related servicing
rights to third party investors. We conduct this business
through our subsidiary, Preferred Home Mortgage Company, which
has its headquarters in Tampa, Florida and has offices in each
of our markets. For the year ended December 31, 2007,
approximately 10% of our homebuyers paid in cash and 70% of our
non-cash homebuyers utilized the services of our mortgage
business. During 2007, we closed 5,192 loans totaling
$1.3 billion in principal amount.
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a committee composed of six members, three from
Preferred Home Mortgage Company and three from Wells Fargo. The
venture entered into a revolving credit agreement with Wells
Fargo Bank, N.A. providing for advances of up to
$20.0 million. Wells Fargo Home Mortgage provides the
general and administrative support (as well as all loan related
processing, underwriting and closing functions), and is the end
investor for the majority of the loans closed through the joint
venture. Prior to the joint venture, Preferred Home Mortgage
Company had a centralized operations center that provided those
support functions. The majority of these support functions
ceased in June 2008.
Through our title services business, we, as agent, obtain
competitively-priced title insurance for, and provide settlement
services to our homebuyers as well as third party homebuyers. We
conduct this business through our subsidiary, Universal Land
Title, Inc. and its subsidiaries and affiliates.
Our Universal Land Title subsidiary works with national
underwriters and lenders to facilitate client service and
coordinates closings at its offices. It is equipped to handle
e-commerce
applications,
e-mail
closing packages and digital document delivery. The principal
sources of revenues generated by our title insurance business
are fees paid to Universal Land Title for title insurance
obtained for our homebuyers and other third party residential
purchasers. Universal Land Title operates as a title agency with
its headquarters in West Palm Beach, Florida and has 21
additional offices.
For the year ended December 31, 2007, approximately 97% of
our homebuyers used Universal Land Title or its affiliates for
their title insurance and settlement services. Third party
homebuyers (or non-company customers) accounted for 41% of our
title services business revenue for the year ended
December 31, 2007.
Alliance Insurance and Information Services, LLC, owned by
Universal Land Title, is a full service insurance agency serving
all of our markets. Alliance markets homeowners, flood and
auto insurance directly to homebuyers and others in all of our
markets and also markets life insurance in Florida. Interested
homebuyers obtain free quotes and have the necessary paperwork
delivered directly to the closing table for added convenience.
For the year ended December 31, 2007, 2% of our new
homebuyers used Alliance for their insurance needs.
Governmental
Regulation
We must comply with federal, state and local laws and
regulations relating to, among other things, zoning, treatment
of waste, land development, required construction materials,
density requirements, building design and elevation of homes in
connection with the construction of our homes. These include
laws requiring use of construction materials that reduce the
need for energy-consuming heating and cooling systems. In
addition, we and our subcontractors are subject to laws and
regulations relating to employee health and safety. These laws
and regulations are subject to frequent change and often
increase construction costs. In some cases, there are laws
requiring that commitments to provide roads and other
infrastructure be in place prior to the commencement of new
construction. These laws and regulations are usually
administered by individual counties and municipalities and may
result in fees and assessments or building moratoriums. In
addition,
15
certain new development projects are subject to assessments for
schools, parks, streets and highways and other public
improvements, the costs of which can be substantial.
The residential homebuilding industry also is subject to a
variety of local, state and federal statutes, ordinances, rules
and regulations concerning the protection of health and the
environment. The requirements, interpretation
and/or
enforcement of these environmental laws and regulations are
subject to change. Environmental laws and conditions may result
in delays, may cause us to incur substantial compliance and
other costs and can prohibit or severely restrict homebuilding
activity in environmentally sensitive regions or areas. In
recent years, several cities and counties in which we have
developments have submitted to voters
and/or
approved slow growth or no growth
initiatives and other ballot measures, which could impact the
affordability and availability of homes and land within those
localities.
Our title insurance agency subsidiaries must comply with
applicable state and federal insurance laws and regulations. Our
mortgage financing subsidiary must comply with applicable real
estate lending laws and regulations. In addition, to make it
possible for purchasers of some of our homes to obtain
FHA-insured or VA-guaranteed mortgages, we must construct those
homes in compliance with regulations promulgated by those
agencies.
The mortgage financing and title insurance subsidiaries are
licensed in the states in which they do business and must comply
with laws and regulations in those states regarding mortgage
financing, homeowners insurance and title insurance
agencies. These laws and regulations include provisions
regarding capitalization, operating procedures, investments,
forms of policies and premiums.
Competition
and Market Forces
The development and sale of residential properties is a highly
competitive business. We compete in each of our markets with
numerous national, regional and local builders on the basis of a
number of interrelated factors including location, price,
reputation, amenities, design, quality and financing. Builders
of new homes compete for homebuyers and for desirable
properties, raw materials and reliable, skilled subcontractors.
We also compete with resales of existing homes, available rental
housing and, to a lesser extent, resales of condominiums. We
believe we generally compare favorably to other builders in the
markets in which we operate, due primarily to:
|
|
|
|
|
our experience within our geographic markets;
|
|
|
|
the ability of our local managers to identify and quickly
respond to local market conditions;
|
|
|
|
our reputation for service and quality; and
|
|
|
|
our ability to retain key employees.
|
The housing industry is cyclical and is affected by consumer
confidence levels and prevailing economic conditions, including
interest rate levels. A variety of other factors affect the
housing industry and demand for new homes, including the
availability of labor and materials and increases in the costs
thereof, changes in costs associated with home ownership such as
increases in property taxes, energy costs, changes in consumer
preferences, demographic trends and the availability of and
changes in mortgage financing programs.
Our mortgage operation competes with other mortgage lenders,
including national, regional and local mortgage bankers,
mortgage brokers, banks and other financial institutions, in the
origination, sale and servicing of mortgage loans. Principal
competitive factors include interest rates and other features of
mortgage loan products available to the consumer. Our title and
insurance operations compete with other insurance agencies,
including national, regional and local insurance agencies and
attorneys in the sale of title insurance, homeowner insurance
and related insurance services. Principal competitive factors
include the level of service available, technology, cost and
other features of insurance products available to the consumer.
We are required under certain contracts to provide performance
bonds. The market for performance bonds was severely impacted by
certain corporate failures in recent years and continues to be
impacted by general economic conditions. Consequently, less
overall bonding capacity is available in the market than in the
past,
16
and surety bonds have become more expensive and restrictive.
Additionally, in certain cases where we have stopped activities
in a community, we may have failed to complete the
infrastructure for which the performance bond was posted. In
such cases, sureties for our performance bonds are required to
fulfill our obligations and in the future, may be unwilling to
issue performance bonds or may require additional collateral to
issue or renew performance bonds.
The past year has seen intense competition in the homebuilding
industry for a decreased group of homebuyers. See Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Financial
Condition, Liquidity and Capital Resources, for discussion
of 2007 developments.
Seasonality
The homebuilding industry tends to be seasonal, as generally
there are more homes sold in the spring and summer months when
the weather is milder, although the number of sales contracts
for new homes is highly dependent on the number of active
communities and the timing of new community openings. Because
new home deliveries trail new home contracts by a number of
months, we typically have the greatest percentage of home
deliveries in the fall and winter, and slow sales in the spring
and summer months could negatively affect our full year results.
We operate primarily in the Southwest and Southeast, where
weather conditions are more suitable to a year-round
construction process than in other parts of the country. Our
operations in Florida and Texas are at risk of repeated and
potentially prolonged disruptions during the Atlantic hurricane
season, which lasts from June 1 until November 30.
Backlog
At December 31, 2007, our consolidated continuing
operations had 2,379 homes in backlog representing
$736.3 million in revenue, as compared to 3,869 homes in
backlog representing $1.4 billion in revenue as of
December 31, 2006. At December 31, 2007, we had
contracts for 511 homes, representing $115.6 million in
revenue, with a third-party that marketed homes in the United
Kingdom. These contracts were cancelled in 2008. At
June 30, 2008, our consolidated continuing operations had
1,580 homes in backlog representing $479.3 million in
revenue. Backlog represents home purchase contracts that have
been executed and for which earnest money deposits have been
received, but for which the sale has not yet closed. We do not
record home sales as revenues until the closings occur. Our
consolidated sales order cancellation rate for the year ended
December 31, 2007 was approximately 38%, as compared to 32%
for the year ended December 31, 2006. The increase in the
sales order cancellation rate is a result of the continued
deterioration of conditions in most of our markets during 2007
characterized by record levels of new and existing homes
available for sale, speculative investors canceling existing
contracts, reduced affordability, increased competition among
builders, diminished buyer confidence and tightening of
available mortgage financing. All of our markets are
experiencing patterns of lower traffic, increased cancellations,
higher incentives, lower margins and reduced absorption.
Employees
At December 31, 2007, we employed 1,461 people in our
consolidated operations and 9 people in our unconsolidated
Engle/Sunbelt joint venture as compared to 2,007 people in
our consolidated operations and 297 people in our
unconsolidated joint ventures at December 31, 2006. At
June 30, 2008, we employed 1,039 people in our
consolidated operations. The decrease in staffing levels in 2008
and 2007 compared to 2006 is in response to the decline in
business levels. Our ability to attract, motivate and retain key
and essential personnel is impacted by the Bankruptcy Code which
limits our ability to implement a retention program or take
other measures intended to motivate employees to remain with us.
As part of our business strategy initiatives and as a result of
uncertainties involving our Chapter 11 cases, we expect to
experience further reductions in workforce. None of our
employees are covered by collective bargaining agreements.
In 2007, our division presidents received performance bonuses
based upon achieving targeted financial and operational measures
in their operating divisions. We are currently evaluating our
compensation structure for our division presidents in light of
our Chapter 11 cases.
17
Availability
of Reports and Other Information
Our corporate website is www.TOUSA.com. We make available, free
of charge, access to our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
Proxy Statements on Schedule 14A and amendments to those
materials filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 on our website
under Investor Information SEC Filings,
as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the United States
Securities and Exchange Commission. We also make available on
our website under Investor Information
Corporate Governance copies of materials regarding our
corporate governance policies and practices, including our
Corporate Governance Guidelines, our Code of Business Ethics and
the charters relating to the committees of our Board of
Directors. This information is available in print free of charge
to any stockholder who submits a written request for such
document to TOUSA, Inc., Attn: Investor Relations, 4000
Hollywood Blvd., Suite 500 N, Hollywood, Florida 33021.
Information on our website is not part of this document.
Additional information regarding our Chapter 11 cases,
including access to court documents and other general
information about the Chapter 11 cases, is available at
www.kccllc.net/tousa. Financial information on the website is
prepared according to requirements of federal bankruptcy law.
While such financial information reflects information required
under federal bankruptcy law, such information may be
unconsolidated, unaudited and prepared in a format different
than that used in our consolidated financial statements
incorporated herein prepared in accordance with generally
accepted accounting principles in the United States and filed
under the securities laws. Moreover, the materials filed with
the Bankruptcy Court are not prepared for the purpose of
providing a basis for investment decisions relating to our stock
or debt or for comparison with other financial information filed
with the Securities and Exchange Commission.
Risks
Relating to the Chapter 11 Cases
We are
subject to the risks and uncertainties associated with our
Chapter 11 cases.
We are operating our businesses as debtors and
debtors-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders
of the Bankruptcy Court. As a result, we are subject to the
risks and uncertainties associated with our Chapter 11
cases which include, among other things:
|
|
|
|
|
our ability to obtain and maintain normal terms with existing
and potential homebuyers, vendors and service providers and
maintain contracts and leases that are critical to our
operations;
|
|
|
|
limitations on our ability to implement and execute our business
plans and strategy;
|
|
|
|
limitations on our ability to obtain Bankruptcy Court approval
with respect to motions in the Chapter 11 cases that we may
seek from time to time or potentially adverse decisions by the
Bankruptcy Court with respect to such motions, including as a
result of the actions of our creditors and other third parties,
who may oppose our plans or who may seek to require us to take
actions that we oppose;
|
|
|
|
limitations on our ability to reject contracts or leases that
are burdensome or uneconomical;
|
|
|
|
limitations on our ability to raise capital, including through
sales of assets;
|
|
|
|
our ability to attract, motivate and retain key and essential
personnel is impacted by the Bankruptcy Code which limits our
ability to implement a retention program or take other measures
intended to motivate employees to remain with us; and
|
|
|
|
our ability to obtain needed approval from the Bankruptcy Court
for transactions outside of the ordinary course of business,
which may limit our ability to respond on a timely basis to
certain events or take advantage of certain opportunities.
|
These risks and uncertainties could negatively affect our
business and operations in various ways. For example, events or
publicity associated with our Chapter 11 cases could
adversely affect our relationships with
18
existing and potential homebuyers, vendors and employees, which
in turn could adversely affect our operations and financial
condition, particularly if such cases are protracted.
As a result of our Chapter 11 cases and the other matters
described herein, including the uncertainties related to the
fact that we have not yet had time to complete and obtain
confirmation of a plan of reorganization, there is substantial
doubt about our ability to continue as a going concern. Our
ability to continue as a going concern, including our ability to
meet our ongoing operational obligations, is dependent upon,
among other things:
|
|
|
|
|
our ability to generate and maintain adequate cash;
|
|
|
|
the cost, duration and outcome of the restructuring process;
|
|
|
|
our ability to comply with the terms of our cash collateral
order and, if necessary, seek further extensions of our ability
to use cash collateral;
|
|
|
|
our ability to achieve profitability following a restructuring
given housing market challenges; and
|
|
|
|
our ability to retain key employees.
|
These challenges are in addition to those operational and
competitive challenges that we face in connection with our
business. In conjunction with our advisors, we are implementing
strategies to aid our liquidity and our ability to continue as a
going concern. However, such efforts may not be successful.
In light of the foregoing, trading in our securities during the
pendency of our Chapter 11 cases is highly speculative and
poses substantial risks. These risks include extremely volatile
trading prices. In addition, during the pendency of the
Chapter 11 cases, the Bankruptcy Court has entered an order
that places certain limitations on trading in our common stock
and certain securities, including options convertible into our
common stock, and has also provided the potentially retroactive
application of notice and sell-down procedures for trading in
claims against the debtors estates (in the event that such
procedures are approved in the future). Holders of our
securities, especially holders of our common stock, may not be
able to resell such securities and, in connection with our
reorganization, may have their securities cancelled and in
return receive no payment or other consideration, or a payment
or other consideration that is less than the par value or the
purchase price of such securities.
A long
period of operating under Chapter 11 may harm our
business.
A long period of operating under Chapter 11 could adversely
affect our businesses and operations. So long as the
Chapter 11 cases continue, our senior management will be
required to spend a significant amount of time and effort
dealing with the Chapter 11 reorganization instead of
focusing exclusively on business operations. A prolonged period
of operating under Chapter 11 will also make it more
difficult to attract and retain management and other key
personnel necessary to the success and growth of our businesses.
In addition, the longer the Chapter 11 cases continue, the
more likely it is that our customers and suppliers will lose
confidence in our ability to successfully reorganize our
businesses and seek to establish alternative commercial
relationships.
Furthermore, so long as the Chapter 11 cases continue, we
will be required to incur substantial costs for professional
fees and other expenses associated with the cases. A prolonged
continuation of the Chapter 11 cases may also require us to
seek additional financing and obtain relief from certain terms
contained in the cash collateral order. It may not be possible
for us to obtain additional financing during the term of the
Chapter 11 cases on commercially favorable terms or at all.
If we require additional financing during the Chapter 11
cases and we are unable to obtain the financing on favorable
terms or at all, our chances of successfully reorganizing our
businesses may be seriously jeopardized.
Operating
under the Bankruptcy Code may restrict our ability to pursue our
business strategies.
Among other things, the Bankruptcy Code limits our ability to:
|
|
|
|
|
incur additional indebtedness;
|
19
|
|
|
|
|
pay dividends, repurchase our capital stock or make certain
other restricted payments or investments;
|
|
|
|
make investments;
|
|
|
|
sell assets;
|
|
|
|
consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets;
|
|
|
|
grant liens;
|
|
|
|
plan for or react to market conditions or meet capital needs or
otherwise restrict our activities or business plans; and
|
|
|
|
finance our operations, strategic acquisitions, investments or
joint ventures or other capital needs or to engage in other
business activities that would be in our interest.
|
These restrictions may place us at a competitive disadvantage
compared to our competitors who are not subject to similar
restrictions, which may adversely affect our results of
operations.
Our
cash collateral order includes operating budgets and financial
covenants that limit our operating flexibility.
The cash collateral order requires us to maintain certain
financial budgets and covenants that, among other things,
restrict our ability to take specific actions, even if we
believe such actions are in our best interest. These include,
among other things, restrictions on our ability to:
|
|
|
|
|
incur indebtedness;
|
|
|
|
incur liens and enter sale/leaseback transactions except for
model homes subject to certain limitations;
|
|
|
|
make or own investments;
|
|
|
|
enter into transactions with affiliates;
|
|
|
|
engage in new lines of business;
|
|
|
|
consolidate, merge, sell all or substantially all of our assets;
|
|
|
|
issue guarantees of debt;
|
|
|
|
agree to amendment or modification to our organizational
documents;
|
|
|
|
incur or create claims; and
|
|
|
|
make additional payments on prepetition indebtedness.
|
Limitations
in the cash collateral order on making capital expenditures and
incurring additional debt may prevent us from pursing new
business initiatives, which may place us at a competitive
disadvantage.
The cash collateral order limits the amount of money that we may
spend on capital expenditures. Accordingly, we could be unable
to make capital expenditures to pursue new business initiatives.
Our inability to pursue new business initiatives may put us at a
competitive disadvantage to our competitors who are not subject
to these restrictions. If our competitors successfully pursue
new business initiatives, these restrictions may limit our
ability to react effectively, and our results of operations or
financial condition could be adversely affected.
We
require a significant amount of cash, which may not be available
to us.
Our ability to make payments on, repay or refinance our debt, to
fund planned capital expenditures and to generate sufficient
working capital to operate our business will depend largely upon
our future operating performance. Our future performance is
subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond our control. In
addition, our ability to borrow funds depends on the
satisfaction of the covenants of our debt agreements that we
will have upon our exit from Chapter 11.
20
Additionally, our working capital needs may increase to the
extent that our suppliers are unwilling to extend credit to us
on satisfactory terms. Our business may not generate sufficient
cash flow from operations and future borrowings may not be
available to us in an amount sufficient to enable us to pay our
debt, fund capital expenditures or fund our working capital or
other liquidity needs.
We may
not be able to confirm or consummate a plan of
reorganization.
In order to successfully emerge from our Chapter 11 cases
as a viable company, we must develop, obtain requisite creditor
and Bankruptcy Court approval of, and consummate a
Chapter 11 plan of reorganization. This process requires us
to meet certain statutory requirements under the Bankruptcy Code
with respect to adequacy of disclosure regarding a plan of
reorganization, soliciting and obtaining creditor acceptances of
a plan, and fulfilling other statutory conditions for
confirmation. We may not receive the requisite acceptances to
confirm a plan of reorganization. Even if the requisite
acceptances to a plan of reorganization are received, the
Bankruptcy Court may not confirm the plan. In addition, even if
a plan of reorganization is confirmed, we may not be able to
consummate such plan.
If a plan of reorganization is not confirmed by the Bankruptcy
Court, or if we are unable to successfully consummate a plan
after confirmation, we may not be able to reorganize our
businesses. If an alternative reorganization could not be agreed
upon, we may have to liquidate our assets.
We have the exclusive right to file a Chapter 11 plan or
plans prior to October 25, 2008 and the exclusive right to
solicit acceptance thereof until December 24, 2008.
Pursuant to Section 1121 of the Bankruptcy Code, the
exclusivity periods may be expanded or reduced by the Bankruptcy
Court, but in no event can the exclusivity periods to file and
solicit acceptance of a plan or plans of reorganization be
extended beyond 18 months and 20 months, respectively.
Transfers
of our equity, or issuances of equity in connection with our
restructuring, may impair our ability to utilize our federal
income tax net operating loss carryforwards in the
future.
Under federal income tax law, a corporation is generally
permitted to deduct from taxable income in any year net
operating losses carried forward from prior years. We have net
operating loss carryforwards and built in losses (which are
treated similarly to net operating losses) of approximately
$83.5 million and $1.2 billion, respectively, as of
December 31, 2007. In addition, we have alternative minimum
tax credit carryforwards of $12.5 million. Our ability to
deduct net operating loss carryforwards and recognize the
benefits of the built in losses and the alternative minimum tax
credit carryforwards could be subject to a significant
limitation if we were to undergo an ownership change
for purposes of Section 382 of the Internal Revenue Code of
1986, as amended, during or as a result of our Chapter 11
cases. During the pendency of the Chapter 11 cases, the
Bankruptcy Court has entered an order that places certain
limitations on trading in our common stock or certain
securities, including options, convertible into our common
stock. The Bankruptcy Court has also provided the potentially
retroactive application of notice and sell-down procedures for
trading in claims against the debtors estates (in the
event that such procedures are approved in the future). These
limitations, however, may not prevent an ownership
change and our ability to utilize our net operating loss
carryforwards and recognize the benefits of the built in losses
and the alternative minimum tax credit carryforwards may be
significantly limited as a result of our reorganization.
The
Bankruptcy Code may limit our secured creditors ability to
realize value from their collateral.
Upon the commencement of a case under Chapter 11 of the
Bankruptcy Code, a secured creditor is prohibited from
repossessing its security from a debtor in a Chapter 11
case, or from disposing of security repossessed from such
debtor, without Bankruptcy Court approval. Moreover, the
Bankruptcy Code generally permits the debtor to continue to
retain and use collateral even though the debtor is in default
under the applicable debt instruments, provided that the secured
creditor is given adequate protection. The meaning
of the term adequate protection may vary according
to circumstances, but it is intended to protect the value of the
secured creditors interest in the collateral and may
include cash payments or the granting of additional security if
and at such times as the Bankruptcy Court in its discretion
determines that the value of the secured
21
creditors interest in the collateral is declining during
the pendency of a Chapter 11 case. A Bankruptcy Court may
determine that a secured creditor may not require compensation
for a diminution in the value of its collateral if the value of
the collateral exceeds the debt it secures.
In view of the lack of a precise definition of the term
adequate protection and the broad discretionary
power of a Bankruptcy Court, it is impossible to predict:
|
|
|
|
|
how long payments under our secured debt could be delayed as a
result of our Chapter 11 cases;
|
|
|
|
whether or when secured creditors (or their applicable agents)
could repossess or dispose of collateral; or
|
|
|
|
the value of the collateral.
|
In addition, the instruments governing certain of our
indebtedness provide that the secured creditors (or their
applicable agents) may not object to a number of important
matters following the filing of a bankruptcy petition.
Accordingly, it is possible that the value of the collateral
securing our indebtedness could materially deteriorate and
secured creditors would be unable to raise an objection.
Furthermore, if the Bankruptcy Court determines that the value
of the collateral is not sufficient to repay all amounts due on
applicable secured indebtedness, the holders of such
indebtedness would hold a secured claim only to the extent of
the value of their collateral and would otherwise hold unsecured
claims with respect to any shortfall. The Bankruptcy Code
generally permits the payment and accrual of post-petition
interest, costs and attorneys fees to a secured creditor
during a debtors Chapter 11 case, but only to the
extent the value of its collateral is determined by a Bankruptcy
Court to exceed the aggregate outstanding principal amount of
the obligations secured by the collateral.
Our
successful reorganization will depend on our ability to retain
and motivate key employees.
Our success and the successful implementation of a business plan
is largely dependent on the skills, experience and efforts of
our people, particularly senior management. Our ability to
attract, motivate and retain key and essential personnel is
impacted by the Bankruptcy Code which limits our ability to
implement a retention program or take other measures intended to
motivate employees to remain with us. In addition, we must
obtain U.S. Bankruptcy Court approval of employment
contracts and other employee compensation programs. The process
of obtaining such approvals, including negotiating with creditor
committees (which may raise objections to or otherwise limit our
ability to implement such contracts or programs), has resulted
in delays and reduced potential compensation for many employees.
Certain employees, including certain key members of senior
management, have resigned following the filing of our
Chapter 11 cases. The continued loss of such individuals or
other key personnel could have a material adverse effect upon
the implementation of a business plan and on our ability to
reorganize successfully and emerge from bankruptcy.
Our
financial results may be volatile and may not reflect historical
trends.
While in Chapter 11, we expect our financial results to
continue to be volatile as asset impairments, asset
dispositions, restructuring activities, contract terminations
and rejections and claims assessments may significantly impact
our consolidated financial statements. As a result, our
historical financial performance is likely not indicative of our
financial performance during bankruptcy or post-bankruptcy. Upon
emergence from Chapter 11, the amounts reported in our
subsequent consolidated financial statements may materially
change relative to our historical consolidated financial
statements, including as a result of revisions to our operating
plans pursuant to our plan of reorganization. In addition, as
part of our successful emergence from Chapter 11, we expect
that we will be required to adopt fresh start accounting. If
fresh start accounting is applicable, our assets and liabilities
will be recorded at fair value as of the fresh start reporting
date. The fair value of our assets and liabilities may differ
materially from the recorded values of assets and liabilities on
our consolidated statements of financial condition. In addition,
our financial results after the application of fresh start
accounting may be different from historical trends.
22
Risks
Related to Capital Resources; Liquidity
We
have substantial liquidity needs and face liquidity
pressure.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, we entered into
the Senior Secured Super-Priority Debtor in Possession Credit
and Security Agreement. The agreement provided for a first
priority and priming secured revolving credit interim commitment
of up to $134.6 million. The agreement was subsequently
amended to extend it to June 19, 2008. No funds were drawn
under the agreement. The agreement was subsequently terminated
and we entered into an agreement with our secured lenders to use
cash collateral on hand (cash generated by our operations,
including the sale of excess inventory and the proceeds of our
federal tax refund of $207.3 million received in April
2008). Under the Bankruptcy Court order dated June 20,
2008, we are authorized to use cash collateral of our first lien
and second lien lenders (approximately $358.0 million at
the time of the order) for a period of six months in a manner
consistent with a budget negotiated by the parties. The order
further provides for the paydown of $175.0 million to our
first lien term loan facility secured lenders, subject to
disgorgement provisions in the event that certain claims against
the lenders are successful and repayment is required. The order
also reserves our sole right to paydown an additional
$15.0 million to our fist lien term loan facility secured
lenders. We are permitted under the order to incur liens and
enter into sale/leaseback transactions for model homes subject
to certain limitations. As part of the order, we have granted
the prepetition agents and the lenders various forms of
protection, including liens and claims to protect against any
diminution of the collateral value, payment of accrued, but
unpaid interest on the first priority indebtedness at the
non-default rate and the payment of reasonable fees and expenses
of the agents under our secured facilities.
We continue to have substantial liquidity needs in the operation
of our business and face liquidity challenges. Our business
depends upon our ability to obtain financing for the acquisition
of land, operating costs, development of our residential
communities and to provide bonds to ensure the completion of our
projects. Our ability to make payments on our indebtedness will
depend on our ability to generate cash. This, to a large extent,
is dependent upon industry conditions, as well as general
economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control. The success of our
Chapter 11 cases and implementation of our business plan
will depend on our ability to achieve our budgeted operating
results and access sufficient resources.
Our
substantial indebtedness could adversely impact our financial
health and limit our operations.
Our high level of indebtedness has important consequences,
including:
|
|
|
|
|
limiting our ability to borrow additional amounts for working
capital, capital expenditures, debt service requirements,
execution of our strategy or other purposes;
|
|
|
|
limiting our ability to use operating cash flow in other areas
of our business because we must dedicate a substantial portion
of these funds to service the debt;
|
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
limiting our ability to capitalize on business opportunities and
to react to competitive pressures and adverse changes in
government regulation; and
|
|
|
|
limiting our ability or increasing the costs to refinance
indebtedness.
|
We may
be unable to obtain additional financing in the
future.
Our ability to arrange financing (including any extension or
refinancing) and the cost of the financing are dependent upon
numerous factors, including:
|
|
|
|
|
general economic and capital market conditions;
|
|
|
|
credit availability from banks or other lenders for us and our
industry peers, as well as the economy in general;
|
23
|
|
|
|
|
investor confidence in the industry and in us; and
|
|
|
|
provisions of tax and securities laws that are conducive to
raising capital.
|
Our
cash collateral order imposes significant operating and
financial restrictions on us; any failure to comply with these
restrictions could have a material adverse effect on our
liquidity and our operations.
These restrictions could adversely affect us by limiting our
ability to plan for or react to market conditions or to meet our
capital needs. These restrictions limit or prohibit our ability,
subject to certain exceptions to, among other things:
|
|
|
|
|
incur additional indebtedness and issue stock;
|
|
|
|
make additional prepayments on or purchase indebtedness in whole
or in part;
|
|
|
|
pay dividends and other distributions with respect to our
capital stock or repurchase our capital stock or make other
restricted payments;
|
|
|
|
make certain investments;
|
|
|
|
incur liens and enter sale/leaseback transactions except for
model homes subject to certain limitations;
|
|
|
|
consolidate or merge with another entity, or allow one of our
subsidiaries to do so;
|
|
|
|
lease, transfer or sell assets and use proceeds of permitted
asset leases, transfers or sales;
|
|
|
|
incur dividend or other payment restrictions affecting certain
subsidiaries;
|
|
|
|
engage in certain business activities; and
|
|
|
|
acquire other businesses.
|
Our ability to comply with these covenants depends in part on
our ability to implement our restructuring program during the
Chapter 11 cases. If we are unable to achieve the goals
associated with our restructuring program and the other elements
of our business plan, we may not be able to comply with these
covenants.
We may
incur significant damages and expenses due to the purported
class action complaints filed against us and certain of our
officers.
TOUSA, Inc. is a defendant in a class action lawsuit pending in
the United States District Court for the Southern District of
Florida. The name and case number of the class action suit is
Durgin, et al., v. TOUSA, Inc., et al.,
No. 06-61844-CIV.
Beginning in December 2006, various stockholder plaintiffs
brought lawsuits seeking class action status in the
U.S. District Court for the Southern District of Florida.
At a hearing held March 29, 2007, the Court consolidated
the actions and heard arguments on the appointment of lead
plaintiff and counsel. On September 7, 2007, the Court
appointed Diamondback Capital Management, LLC as the lead
plaintiff and approved Diamondbacks selection of counsel.
Pursuant to a scheduling order, the lead plaintiff filed a
Consolidated Complaint on November 2, 2007.
The Consolidated Complaint names TOUSA, all of TOUSAs
directors, David Keller, Randy Kotler, Beatriz Koltis, Lonnie
Fedrick, Technical Olympic, S.A., UBS Securities, LLC, Citigroup
Global Markets, Inc., Deutsche Bank Securities, Inc. and JMP
Securities, LLC as defendants. The alleged class period is
August 1, 2005 to March 19, 2007. The Consolidated
Complaint alleges that TOUSAs public filings and other
public statements that described the financing for the
Transeastern Joint Venture as non-recourse to TOUSA were false
and misleading. The Consolidated Complaint also alleges that
certain public filings and statements were misleading or
suffered from material omissions in failing to disclose fully or
describe the Completion and Carve-Out Guaranties that TOUSA
executed in support of the Transeastern Joint Venture financing.
The Consolidated Complaint asserts claims under Section 11
of the Securities Act against all defendants other than
Ms. Koltis for strict liability and negligence regarding
the registration statements and prospectus associated with the
September 2005 offering of 4 million shares of stock.
Plaintiffs contend that the registration
24
statements and prospectus contained material misrepresentations
and suffered from material omissions in the description of the
Transeastern Joint Venture financing and TOUSAs related
obligations. The Consolidated Complaint asserts related claims
against Technical Olympic, S.A. and Messrs. Konstantinos
Stengos, Antonio B. Mon, David Keller and Tommy L. McAden as
controlling persons responsible for the statements in the
registration statements and prospectus. The Consolidated
Complaint also alleges claims under Section 10(b) of the
Exchange Act for fraud with respect to various public statements
about the non-recourse nature of the Transeastern debt and
alleged omissions in disclosing or describing the Guaranties.
These claims are alleged against TOUSA, Messrs. Mon,
McAden, Keller and Kotler and Ms. Koltis. Finally, the
Consolidated Complaint asserts related claims against
Messrs. Mon, Keller, Kotler and McAden as controlling
persons responsible for the various alleged false disclosures.
Plaintiffs seek compensatory damages, plus fees and costs, on
behalf of themselves and the putative class of purchasers of
TOUSA common stock and purchasers and sellers of options on
TOUSA common stock.
On January 30, 2008, TOUSA filed a Motion to Dismiss
Plaintiffs Consolidated Complaint. TOUSA moved to dismiss
plaintiffs claims on the grounds that plaintiffs:
a) could not establish materially false or misleading
statements or omissions; b) could not establish loss
causation; c) failed to plead with particularity facts
giving rise to a strong inference of scienter; and
d) lacked standing to pursue a Section 11 claim. Many
of the other defendants also filed motions to dismiss
and/or
signed on to TOUSAs Motion to Dismiss.
On February 4, 2008, TOUSA filed a Notice of Suggestion of
Bankruptcy notifying the Court that TOUSA filed for bankruptcy
on January 29, 2008. On February 5, 2008, the Court
entered an order staying the action as to TOUSA pursuant to
Section 362 of the United States Bankruptcy Code. The
action continues with respect to defendants other than TOUSA.
On April 30, 2008, lead plaintiff Diamondback Capital
Management moved to withdraw as lead plaintiff. On May 22,
2008, the Court entered an order: granting Diamondback Capital
Managements motion to withdraw as lead plaintiff;
establishing a procedure pursuant to which a new lead plaintiff
would be appointed; extending the time for plaintiffs to respond
to the motions to dismiss until a new lead plaintiff is
selected; and acknowledging that the Court may need to set a
time for the filing of an amended complaint, if requested by the
new lead plaintiff.
On June 6, 2008, two prospective lead plaintiffs filed
motions to be appointed the new lead plaintiff. On July 15,
2008, the Court entered an Order appointing the
Bricklayers & Trowel Trades International Pension Fund
as the new lead plaintiff. The Court further ordered that,
within 15 days of the entry of the Order, the new plaintiff
must either respond to the previously filed Motions to Dismiss,
or file a notice of intent to file an amended complaint. On
July 30, 2008, the new plaintiff filed a notice of intent
to file an amended complaint. On July 31, 2008, following
the notice of intent to file an amended complaint, the Court
denied as moot, without prejudice, the defendants
previously filed motion to dismiss the consolidated complaint.
Under the current schedule set by the Court, the plaintiff must
file its amended complaint by August 29, 2008.
You
may find it difficult to sell our common stock and debt
securities.
Effective November 19, 2007, NYSE Regulation, Inc.
suspended our common stock and debt securities from trading on
the NYSE. We appealed the suspension. Following our suspension
from the NYSE, we began trading on the Pink Sheet Electronic
Quotation Service. On February 15, 2008, the NYSE denied
our appeal and affirmed the decision to suspend trading in our
common stock and debt securities on the NYSE and commenced
delisting procedures. On March 3, 2008, the NYSE filed
Forms 25, Notification of Removal of Listing
and/or
Registration under Section 12(b) of the Securities Exchange
Act of 1934, with the SEC with respect to our listed securities.
Our securities will be delisted 90 days thereafter.
The trading of our common stock over the counter negatively
impacts the trading price of our common stock and the levels of
liquidity available to our stockholders. In addition, the
trading of our common stock over the counter materially
adversely affects our access to the capital markets and our
ability to raise capital through alternative financing sources
on terms acceptable to us or at all. Securities that trade on
the Pink Sheets are not eligible for margin loans and make our
common stock subject to the provisions of
Rule 15g-9
of the Securities Exchange Act of 1934, commonly referred to as
the penny stock rule. The Securities and
25
Exchange Commission generally defines penny stock to
be any equity security that has a market price less than $5.00
per share, subject to certain exceptions. If our common stock is
deemed to be a penny stock, trading in the shares will be
subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. Accredited
investors are persons with assets in excess of
$1.0 million, or annual income exceeding $200,000, or
$300,000 together with their spouse. For transactions covered by
these rules, broker-dealers must make a special suitability
determination for the purchase of such security and must have
the purchasers written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery,
prior to the first transaction, of a risk disclosure document,
prepared by the SEC, relating to the penny stock market. A
broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must
be sent disclosing recent price information for the penny stocks
held in an account and information on the limited market in
penny stocks. Consequently, these rules may restrict the ability
of broker-dealers to trade
and/or
maintain a market in our common stock and may affect the ability
of our shareholders to sell their shares. There are also other
negative implications, including the potential loss of
confidence by suppliers, existing and potential homebuyers and
employees and the loss of institutional investor interest in our
company.
Risks
Related to Our Business
The
homebuilding industry is experiencing a severe downturn that may
continue for an indefinite period which may further adversely
affect our business and results of operations compared to prior
periods.
Since 2006, the homebuilding industry as a whole has experienced
a significant and sustained decrease in demand for new homes, an
oversupply of new and existing homes available for sale and a
more restrictive mortgage lending environment. Although we
operate in a number of markets, approximately 53% of our
operations are concentrated in Florida and the West, based on
2007 deliveries, which suffered a particularly severe downturn
in home buying activity. The rapid increase in new and existing
home prices in these markets over the past several years reduced
housing affordability and tempered buyer demand. In particular,
investors and speculators reduced their purchasing activity and
instead stepped up their efforts to sell the residential
property they had earlier acquired. These trends, which were
more pronounced in markets that had experienced the greatest
levels of price appreciation, resulted in overall fewer home
sales, greater cancellations of home purchase agreements by
buyers, higher inventories of unsold homes and the increased use
by homebuilders, speculators, investors and others of discounts,
incentives, price concessions, broker commissions and
advertising to close home sales compared to the past several
years.
Reflecting these trends, we, like many other homebuilders,
experienced the impact of severe liquidity challenges in the
credit and mortgage markets, diminished consumer confidence,
increased home inventories and foreclosures and downward
pressure on home prices. Potential buyers have exhibited both a
reduction in confidence as to the economy in general and a
willingness to delay purchase decisions based on a perception
that prices will continue to decline. Prospective homebuyers
continue to be concerned about interest rates and the inability
to sell their current homes or to obtain appraisals at
sufficient amounts to secure mortgage financing as a result of
the recent disruption in the mortgage markets and the tightening
of credit standards. The homebuilding market may not improve in
the near future, and is forecast to weaken further. Continued
weakness in the homebuilding market would have an adverse effect
on our business and our results of operations as compared to
those of earlier periods.
Our
strategies in responding to the adverse conditions in the
homebuilding industry have had limited success and the continued
implementation of these and other strategies may not be
successful.
In 2007 we have experienced significantly reduced gross profit
levels and have incurred significant asset impairment charges.
These contributed to the net loss we recognized in 2007. Also,
in 2007, notwithstanding our sales strategies, we continued to
experience an elevated rate of sales contract cancellations. We
believe that the elevated cancellation rate largely reflects a
decrease in homebuyer confidence, with continued price declines
and increases in the level of sales incentives for both new and
existing homes prompting homebuyers to forgo or delay home
purchases. A more restrictive mortgage lending environment and
the inability of some
26
buyers to sell their existing homes have also led to
cancellations. Many of the factors that affect new orders and
cancellation rates are beyond our control. These factors include
the level of employment, consumer confidence, consumer income,
the availability of financing and interest rate levels.
Continued reduced sales levels and the increased level of
cancellations would continue to have an adverse effect on our
business and our results of operations as compared to those of
earlier periods.
Continued
high cancellation rates may negatively impact our
business.
Our backlog reflects the number and value of sold but
undelivered homes. Generally we have the right to compel the
customer to complete the purchase, however our only effective
remedy may be the retention of the deposit. In some cases a
customer may cancel the contract and receive a complete or
partial refund of the deposit. If the current industry downturn
continues, or if mortgage financing becomes less available, more
homebuyers may cancel their contracts with us. Significant
cancellations have had, and could have in the future, a material
adverse effect on our business and results of operations.
Contracts with a third-party that marketed homes in the United
Kingdom included in backlog at December 31, 2007 were
cancelled in 2008. These contracts were for 511 homes,
representing $115.6 million in revenue.
Our
revenues and profitability may be adversely affected by natural
disasters or weather conditions.
Homebuilders are particularly subject to natural disasters and
severe weather conditions as they can delay our ability to
timely complete or deliver homes, damage partially complete or
other unsold homes that are in our inventory, negatively impact
the demand for homes,
and/or
negatively affect the price and availability of qualified labor
and materials. Our operations are located in many areas that are
especially subject to natural disasters; for example, we have
significant operations in Florida and Texas which is especially
at risk of hurricanes. To the extent that hurricanes, severe
storms, floods, tornadoes or other natural disasters or similar
weather events occur, our business may be adversely affected. To
the extent our insurance is not adequate to cover business
interruption or losses resulting from these events, our revenues
and profitability may be adversely affected.
We are
subject to substantial risks with respect to the land and home
inventories we maintain, and fluctuations in market conditions
may affect our ability to sell our land and home inventories at
expected prices, if at all, which would reduce our profit
margins.
As a homebuilder, we must constantly locate and acquire new
tracts of land for development and developed homesites to
support our homebuilding operations. There is a lag between the
time we acquire land for development or developed homesites and
the time that we can bring the communities to market and sell
homes. Lag time varies on a
project-by-project
basis; however, historically, we have experienced a lag time of
up to three years. As a result, we face the risk that demand for
housing may decline or costs of labor or materials may increase
during this period and that we will not be able to dispose of
developed properties or undeveloped land or homesites acquired
for development at expected prices or profit margins or within
anticipated time frames or at all. The market value of home
inventories, undeveloped land and developed homesites can
fluctuate significantly because of changing market conditions.
In addition, inventory carrying costs (including interest on
funds used to acquire land or build homes) can be significant
and can adversely affect our performance. The downturn in the
housing market has caused the fair market value of certain of
our inventory to fall, in some cases well below the purchase
price. As a result, we were required to take substantial
write-downs of the carrying value of our land inventory and we
elected not to exercise options, even though that required us to
forfeit deposits, write-off pre-acquisition land development
costs and incur additional liabilities related to these
contracts. Additionally, as a result of these market conditions,
we recorded significant valuation adjustments relating to our
investments in unconsolidated entities. If the current downturn
in the housing market continues, we may need to take additional
charges against our earnings for abandonments or inventory
impairments, or both. Although impairments are non-cash charges,
abandonments give the owner of the land the right to draw on
letters of credit or cash deposits that may have an adverse
impact on our liquidity. Additionally, any non-cash charges
would have an adverse effect on our financial condition and
results of operations.
27
Reduced
home sales may impair our ability to recoup development costs or
force us to absorb additional costs.
We incur many costs even before we begin to build homes in a
community. Depending on the stage of development, these include
costs of developing land and installing roads, sewage and other
utilities, as well as taxes and other costs related to ownership
of the land on which we plan to build homes. Reducing the rate
at which we build homes extends the length of time it takes us
to recover these costs. Also, we frequently acquire options to
purchase land and make deposits that will be forfeited if we do
not exercise the options within specified periods. Because of
current market conditions, we have had to terminate some of
these options, resulting in the forfeiture of deposits and
unrecoverable development costs. Any such charges would have an
adverse effect on our financial condition and results of
operations, including our liquidity as a result of a lower
borrowing base which reduces availability under our cash
collateral order.
Market
conditions in the mortgage lending and mortgage finance
industries deteriorated significantly in 2007, adversely
impacting us by increasing the supply of inventory housing,
negatively impacting pricing conditions, as well as decreasing
the demand for our homes, which adversely affected our revenues
and profitability. Recent changes in mortgage lending
requirements or further reduced mortgage liquidity could
adversely affect the availability of credit for some purchasers
of our homes and thereby reduce our sales.
Approximately 90% of our customers finance their purchases
through mortgage financing obtained from us or other sources.
Increases in interest rates or decreases in the availability of
mortgage funds provided or sponsored by Fannie Mae, Freddie Mac,
the Federal Housing Administration, or the Veterans
Administration could cause a decline in the market for new homes
as potential homebuyers may not be able to obtain affordable
financing. In particular, because the availability of mortgage
financing is an important factor in marketing many of our homes,
any limitations or restrictions on the availability of those
types of financing could reduce our home sales and the lending
volume at our mortgage subsidiary.
In 2007, approximately 3% to 5% of the homebuyers that utilized
our mortgage subsidiary obtained sub-prime loans. We define a
sub-prime loan as one where the buyers FICO score is below
620 and is not an FHA or VA loan. At December 31, 2007,
approximately 4% to 6% of our backlog that utilized our mortgage
subsidiary included homebuyers seeking sub-prime financing.
During 2007, the mortgage lending and mortgage finance
industries experienced significant instability due to, among
other things, defaults on subprime loans and a resulting decline
in the market value of such loans. In light of these
developments, lenders, investors, regulators and other third
parties questioned the adequacy of lending standards and other
credit requirements for several loan programs made available to
borrowers in recent years. This has led to reduced investor
demand for mortgage loans and mortgage-backed securities,
tightened credit requirements, reduced liquidity, increased
credit risk premiums and regulatory actions. Deterioration in
credit quality among subprime and other nonconforming loans has
caused most lenders to eliminate subprime mortgages and most
other loan products that do not conform to Fannie Mae, Freddie
Mac, the Federal Housing Administration, or the Veterans
Administration standards. In general, these developments have
resulted in a reduction in demand for the homes we sell and have
delayed any general improvement in the housing market.
Furthermore, they have resulted in a reduction in demand for the
mortgage loans that we originate.
The Housing and Economic Recovery Act of 2008 was enacted into
law on July 30, 2008. One provision of the Act eliminates
down payment assistance programs for FHA loans approved after
September 30, 2008. Down payment assistance programs were
utilized for approximately 15% of our closings over the past
year, but for over 50% of our Trophy Homes division closings.
We are
dependent on the continued availability and satisfactory
performance of our subcontractors, which, if unavailable, could
have a material adverse effect on our business.
Subcontractors perform substantially all of our construction
work. As a consequence, we depend on the continued availability
of and satisfactory performance by these subcontractors for the
construction of our
28
homes. There may not be sufficient availability of and
satisfactory performance by these unaffiliated third-party
subcontractors, which could have a material adverse effect on
our business.
Supply
risks and shortages relating to labor and materials can harm our
business by delaying construction and increasing
costs.
The homebuilding industry from time to time has experienced
significant difficulties with respect to:
|
|
|
|
|
shortages of qualified trades people and other labor;
|
|
|
|
inadequately capitalized local subcontractors;
|
|
|
|
shortages of materials; and
|
|
|
|
volatile increases in the cost of certain materials, including
lumber, framing, roofing and cement, which are significant
components of home construction costs, associated with the rapid
rise in the cost of oil, energy, and other factors.
|
These difficulties can, and often do, cause unexpected
short-term increases in construction costs and cause
construction delays. In addition, to the extent our
subcontractors incur increased costs associated with increases
in insurance premiums and compliance with state and local
regulations, these costs are passed on to us as homebuilders. We
are generally unable to pass on any unexpected increases in
construction costs to those customers who have already entered
into sales contracts, as those contracts generally fix the price
of the house at the time the contract is signed, which may be up
to two years in advance of the delivery of the home. We have
historically been able to offset sustained increases in the
costs of materials with increases in the prices of our homes and
through operating efficiencies. However, in the future, pricing
competition, oversupply of new and existing homes and tightening
mortgage qualifications, among other factors may restrict our
ability to pass on any additional costs, and negatively impact
our profit margins.
The
competitive conditions in the homebuilding industry could
increase our costs, reduce our revenues and otherwise adversely
affect our results of operations.
The homebuilding industry is highly competitive and fragmented.
We compete in each of our markets with numerous national,
regional and local builders. Some of these builders have greater
financial resources, more experience, more established market
positions and better opportunities for land and homesite
acquisitions than we do and have lower costs of capital, labor
and material than us. Builders of new homes compete for
homebuyers, as well as for desirable properties, raw materials
and skilled subcontractors. The competitive conditions in the
homebuilding industry could, among other things:
|
|
|
|
|
increase our costs, including selling and marketing expenses,
and reduce our revenues
and/or
profit margins;
|
|
|
|
make it difficult for us to acquire suitable land or homesites
at acceptable prices;
|
|
|
|
require us to increase selling commissions and other incentives;
|
|
|
|
result in delays in construction if we experience a delay in
procuring materials or hiring laborers; and
|
|
|
|
result in lower sales volumes.
|
We also compete with resales of existing homes, available rental
housing and, to a lesser extent, condominium resales. An
oversupply of attractively priced resale or rental homes in the
markets in which we operate could adversely affect our
absorption rates and profitability. Foreclosures in the various
markets as well as within our own communities creating enormous
downward pressure on prices and consumer confidence.
Our financial services operations are also subject to
competition from third party providers, many of which are
substantially larger, may have a lower cost structure and may
focus exclusively on providing such services.
29
Future
limitations on our ability to obtain bonds may adversely affect
our homebuilding operations.
We are required under certain contracts to provide performance
bonds. The market for performance bonds was severely impacted by
certain corporate failures in recent years and continues to be
impacted by general economic conditions. Consequently, less
overall bonding capacity is available in the market than in the
past, and surety bonds have become more expensive and
restrictive. Additionally, in certain cases where we have
stopped activities in a community, we may have failed to
complete the infrastructure for which the performance bond was
posted. In such cases, sureties for our performance bonds are
required to fulfill our obligations and in the future, may be
unwilling to issue performance bonds or may require additional
collateral to issue or renew performance bonds. An inability to
obtain new or renew existing performance bonds in a timely
manner, on acceptable terms, or at all could result in
limitations on our ability to enter into new contracts or
fulfill existing contracts which could have a material adverse
effect on our financial condition and results of operations.
We are
subject to product liability and warranty claims arising in the
ordinary course of business that could adversely affect our
results of operations.
As a homebuilder, we are subject in the ordinary course of our
business to liability and home warranty claims. We provide our
homebuyers with a limited warranty that provides a one-year or
two-year limited warranty covering workmanship and materials and
a five to ten-year limited warranty covering major structural
defects. Claims arising under these warranties and general
liability claims are common in the homebuilding industry and can
be costly. Although we maintain liability insurance, the
coverage offered by, and availability of, liability insurance
for construction defects is currently limited and, where
coverage is available, it may be costly. We currently have
liability insurance coverage which covers repair costs
associated with warranty claims for structure and design defects
related to homes sold by us during the policy period, subject to
a significant self-insured retention per occurrence. However,
our insurance coverage may contain limitations with respect to
coverage; this insurance coverage may not be adequate to cover
all liability and warranty claims for which we may be liable. In
addition, coverage may be further restricted and become more
costly. Although we generally seek to require our subcontractors
and design professionals to indemnify us for liabilities arising
from their work, we may be unable to enforce any such
contractual indemnities. Uninsured and unindemnified liability
and warranty claims, as well as the cost of insurance coverage,
could adversely affect our results of operations.
Our
business is subject to governmental regulations that may delay,
increase the cost of, prohibit or severely restrict our
development and homebuilding projects.
We are subject to extensive and complex laws and regulations
that affect the land development and homebuilding process,
including laws and regulations related to zoning, permitted land
uses, levels of density, building design, elevation of
properties, water and waste disposal, and use of open spaces. In
addition, we and our subcontractors are subject to laws and
regulations relating to workers health and safety. We also are
subject to a variety of local, state and federal laws and
regulations concerning the protection of health and the
environment. In some of the markets in which we operate, we are
required to pay environmental impact fees, use energy saving
construction materials and give commitments to provide certain
infrastructure such as roads and sewage systems. We must also
obtain permits and approvals from local authorities to complete
residential development or home construction. The laws and
regulations under which we and our subcontractors operate, and
our and their obligations to comply with them, may result in
delays in construction and development, cause us to incur
substantial compliance and other increased costs, and prohibit
or severely restrict development and homebuilding activity in
certain areas in which we operate.
Several states, cities and counties in which we operate have
approved, and others in which we operate may approve, various
slow growth or no growth initiatives and
other ballot measures that could negatively impact the
availability of land and building opportunities within those
localities. Approval of slow or no growth measures would reduce
our ability to build and sell homes in the affected markets and
create additional costs and administration requirements, which
in turn could have an adverse effect on our future revenues.
30
Our financial services operations are subject to numerous
federal, state and local laws and regulations. Failure to comply
with these requirements can lead to administrative enforcement
actions, the suspension or loss of required licenses, and claims
for monetary damages.
Our title insurance agency subsidiaries must comply with
applicable insurance laws and regulations. Our mortgage
financing subsidiary must comply with applicable real estate
lending laws and regulations. In addition, to make it possible
for purchasers of some of our homes to obtain FHA-insured or
VA-guaranteed mortgages, we must construct those homes in
compliance with regulations promulgated by those agencies.
The mortgage financing and title insurance subsidiaries are
licensed in the states in which they do business and must comply
with laws and regulations in those states regarding mortgage
financing, homeowners insurance and title insurance
agencies. These laws and regulations include provisions
regarding capitalization, operating procedures, investments,
forms of policies and premiums.
Forward-Looking
Statements
This Annual Report on
Form 10-K
contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, including in the material set forth in the
sections entitled Business and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. These statements
concern expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts, and typically
include the words anticipate, believe,
expect, estimate, project
and future. Specifically, this annual report
contains forward-looking statements including with respect to:
|
|
|
|
|
our expectations regarding population growth and median income
growth trends and their impact on future housing demand in our
markets;
|
|
|
|
our expectation regarding the impact of geographic and customer
diversification;
|
|
|
|
our expectations regarding successful implementation of our
asset management strategy and its impact on our business;
|
|
|
|
our expectations regarding future land sales;
|
|
|
|
our belief regarding growth opportunities within our financial
services business;
|
|
|
|
our estimate that we have adequate financial resources to meet
our current and anticipated working capital, including our debt
service payments, and land acquisition and development needs;
|
|
|
|
the impact of inflation on our future results of operations;
|
|
|
|
our expectations regarding our ability to pass through to our
customers any increases in our costs;
|
|
|
|
our expectations regarding our option contracts, investments in
land development joint ventures;
|
|
|
|
our expectations regarding the housing market in 2008 and beyond;
|
|
|
|
our expectations regarding our use of cash in
operations; and
|
|
|
|
our expectations of receiving federal and state income tax
refunds.
|
We do not undertake any obligation to update any forward-looking
statements.
These forward-looking statements reflect our current views about
future events and are subject to risks, uncertainties and
assumptions. As a result, actual results may differ
significantly from those expressed in any forward-looking
statement. The most important factors that could prevent us from
achieving our goals, and cause the assumptions underlying
forward-looking statements and the actual results to differ
materially from
31
those expressed in or implied by those forward-looking
statements include, but are not limited to, the following:
|
|
|
|
|
the risks and uncertainties associated with our Chapter 11
cases, including our ability to successfully reorganize and
emerge from Chapter 11;
|
|
|
|
a long period of operating under Chapter 11 may harm our
business;
|
|
|
|
we may not be able to obtain confirmation of our Chapter 11
plan;
|
|
|
|
operating under the Bankruptcy Code may restrict our ability to
pursue our business strategies;
|
|
|
|
our debt instruments include restrictive and financial covenants
that limit our operating flexibility;
|
|
|
|
our ability to attract, motivate and retain key and essential
personnel is impacted by the Bankruptcy Code which limits our
ability to implement a retention program or take other measures
intended to motivate employees to remain with us;
|
|
|
|
we require a significant amount of cash, which may not be
available to us;
|
|
|
|
our ability to confirm or consummate a plan of reorganization;
|
|
|
|
financial results that may be volatile and may reflect
historical trends;
|
|
|
|
our belief that our ability to continue as a going concern will
depend upon our ability to restructure our capital structure;
|
|
|
|
our belief that failure to restructure our capital structure
would result in depleting our available funds and not being able
to pay our obligations when they become due;
|
|
|
|
our ability to borrow or otherwise finance our business in the
future;
|
|
|
|
our ability to identify and acquire, at anticipated prices,
additional homebuilding opportunities
and/or to
effect our growth strategies in our homebuilding operations and
financial services business;
|
|
|
|
our relationship with Technical Olympic, S.A. and its control
over our business activities;
|
|
|
|
economic or other business conditions that affect the desire or
ability of our customers to purchase new homes in markets in
which we conduct our business, such as increases in interest
rates, inflation, or unemployment rates or declines in median
income growth, consumer confidence or the demand for, or the
price of, housing;
|
|
|
|
events which would impede our ability to open new communities
and/or
deliver homes within anticipated time frames
and/or
within anticipated budgets;
|
|
|
|
our ability to enter successfully into, utilize, and recognize
the anticipated benefits of, joint ventures and option contracts;
|
|
|
|
a further decline in the value of our land and home inventories;
|
|
|
|
an increase in the cost of, or shortages in the availability of,
qualified labor and materials;
|
|
|
|
our ability to dispose successfully of developed properties or
undeveloped land or homesites at expected prices and within
anticipated time frames;
|
|
|
|
our ability to compete in our existing and future markets;
|
|
|
|
the impact of hurricanes, tornadoes or other natural disasters
or weather conditions on our business, including the potential
for shortages and increased costs of materials and qualified
labor and the potential for delays in construction and obtaining
government approvals;
|
|
|
|
an increase or change in government regulations, or in the
interpretation
and/or
enforcement of existing government regulations;
|
32
|
|
|
|
|
the impact of any or all of the above risks on the operations or
financial results of our unconsolidated joint ventures; and
|
|
|
|
a change in ownership of our stock, as defined in
Section 382 of the Internal Revenue Code, which would limit
our ability to receive anticipated income tax refunds.
|
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
By letter dated May 19, 2006, the SEC provided us with
comments relating to various registration statements filed by us
in April 2006 and the Annual Report on
Form 10-K
for the year ended December 31, 2005 filed by us on
March 10, 2006. We responded to the letter on July 21,
2006 and filed amendments to the registration statements.
Through a series of letters with the SEC, responses were
provided to additional comments on the filings noted above, the
Quarterly Report on
Form 10-Q
for the quarter ended July 30, 2006 and the Annual Report
on
Form 10-K
for the year ended December 31, 2006. We have not yet
responded to comments from the SEC in a letter dated
May 11, 2007. These comments relate principally to
disclosures related to the operating results of the Transeastern
JV. We believe that the disclosures were appropriate.
In the Matter of TOUSA, Inc. SEC Inquiry, File
No. FL-3310.
In June 2007, the Company was contacted by the Miami Regional
Office of the SEC requesting the voluntary provision of
documents, and other information from the Company, relating
primarily to corporate and financial information and
communications for the Transeastern JV to determine if there
have been any violations of federal securities laws. The SEC has
advised the Company that this inquiry should not be construed as
an indication that any violations of law have occurred, nor
should it be considered a reflection upon any person, entity, or
security. The Company is cooperating with the inquiry.
We lease our executive offices located at 4000 Hollywood Blvd.,
Suite 500 N, Hollywood, Florida 33021. We lease
substantially all of the office space required for our
homebuilding and financial services operations and our corporate
offices. We believe that our existing facilities exceed our
current and planned levels of operations. We have cancelled a
number of leases and are reviewing others with a view towards
rejecting them as part of our bankruptcy proceedings. We do not
believe that any single leased property is material to our
current or planned operations.
|
|
ITEM 3.
|
Legal
Proceedings
|
Chapter 11
Chapter 11
Cases
On January 29, 2008, TOUSA, Inc. and certain of our
subsidiaries (excluding our financial services subsidiaries and
joint ventures) filed voluntary petitions for reorganization
relief under the provisions of Chapter 11 of Title 11
of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida,
Fort Lauderdale Division. The Chapter 11 cases have
been consolidated solely on an administrative basis and are
pending as Case
No. 08-10928-JKO.
We continue to operate our businesses and manage our properties
as debtors and
debtors-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders
of the Bankruptcy Court. As part of the first day
relief, we sought from the Bankruptcy Court in the
Chapter 11 cases, we obtained Bankruptcy Court approval to,
among other things, continue to pay certain critical vendors and
vendors with lien rights, meet our pre-petition payroll
obligations, maintain our cash management systems, sell homes
free and clear of liens, pay our taxes, continue to provide
employee benefits and maintain our insurance programs. In
addition, the Bankruptcy Court has approved certain trading
notification and transfer procedures designed to allow us to
restrict trading in our common stock (and related securities)
and has also provided for potentially retroactive application of
notice and sell-down procedures for trading in claims against
the debtors estates (in the event that such procedures are
approved in the future) which could negatively impact our
accumulated net operating losses and other tax
33
attributes. The Bankruptcy Court has also entered orders to
establish procedures for the purchase and disposition of real
property by us subject to certain monetary limits without
specific approval for each transaction.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, TOUSA, Inc.
entered into the Senior Secured Super-Priority Debtor in
Possession Credit and Security Agreement. The agreement provided
for a first priority and priming secured revolving credit
interim commitment of up to $134.6 million. The agreement
was subsequently amended to extend it to June 19, 2008. No
funds were drawn under the DIP Credit Agreement. The agreement
was subsequently terminated and we entered into an agreement
with our secured lenders to use cash collateral on hand (cash
generated by our operations, including the sale of excess
inventory and the proceeds of our federal tax refund of
$207.3 million received in April 2008). Under the
Bankruptcy Court order dated June 20, 2008, we are
authorized to use cash collateral of our first lien and second
lien lenders (approximately $358.0 million at the time of
the order) for a period of six months in a manner consistent
with a budget negotiated by the parties. The order further
provides for the paydown of $175.0 million to our first
lien term loan facility secured lenders, subject to disgorgement
provisions in the event that certain claims against the lenders
are successful and repayment is required. The order also
reserves our sole right to paydown an additional
$15.0 million to our fist lien term loan facility secured
lenders. We are permitted under the order to incur liens and
enter into sale/leaseback transactions for model homes subject
to certain limitations. As part of the order, we have granted
the prepetition agents and the lenders various forms of
protection, including liens and claims to protect against any
diminution of the collateral value, payment of accrued, but
unpaid interest on the first priority indebtedness at the
non-default rate and the payment of reasonable fees and expenses
of the agents under our secured facilities.
We have the exclusive right to file a Chapter 11 plan or
plans prior to October 25, 2008 and the exclusive right to
solicit acceptance thereof until December 24, 2008.
Pursuant to section 1121 of the Bankruptcy Code, the
exclusivity periods may be expanded or reduced by the Bankruptcy
Court, but in no event can the exclusivity periods to file and
solicit acceptance of a plan or plans of reorganization be
extended beyond 18 months and 20 months, respectively.
As a result of our Chapter 11 cases and other matters
described herein, including uncertainties related to the fact
that we have not yet had time to complete and obtain
confirmation of a plan or plans of reorganization, there is
substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern, including
our ability to meet our ongoing operational obligations, is
dependent upon, among other things:
|
|
|
|
|
our ability to generate and maintain adequate cash;
|
|
|
|
the cost, duration and outcome of the restructuring process;
|
|
|
|
our ability to comply with the terms of our cash collateral
order and, if necessary, seek further extensions of our ability
to use cash collateral;
|
|
|
|
our ability to achieve profitability following a restructuring
given housing market challenges; and
|
|
|
|
our ability to retain key employees.
|
These challenges are in addition to those operational and
competitive challenges that we face in connection with our
business. In conjunction with our advisors, we are implementing
strategies to aid our liquidity and our ability to continue as a
going concern. However, such efforts may not be successful.
We have taken and will continue to take aggressive actions to
maximize cash receipts and minimize cash expenditures with the
understanding that certain of these actions may make us less
able to take advantage of future improvements in the
homebuilding market. We continue to take steps to reduce our
general and administrative expenses by streamlining activities
and increasing efficiencies, which have led and will continue to
lead to major reductions in the workforce. However, much of our
efforts to reduce general and administrative expenses are being
offset by professional and consulting fees associated with our
Chapter 11 cases. In addition, we are working with our
existing suppliers and seeking new suppliers, through
competitive bid processes, to reduce construction material and
labor costs. We have and will continue to analyze each
34
community based on anticipated sales absorption rates, net cash
flows and financial returns taking into consideration current
market factors in the homebuilding industry such as the
oversupply of homes available for sale in most of our markets,
less demand, decreased consumer confidence, tighter mortgage
loan underwriting criteria and higher foreclosures. In order to
generate cash and to reduce our inventory to levels consistent
with our business plan, we have taken and will continue to take
the following actions, to the extent possible given the
limitations resulting from our Chapter 11 cases:
|
|
|
|
|
limiting new arrangements to acquire land (by submitting
proposals to increased review);
|
|
|
|
engaging in bulk sales of land and unsold homes;
|
|
|
|
reducing the number of unsold homes under construction and
limiting
and/or
curtailing development activities in any development where we do
not expect to deliver homes in the near future;
|
|
|
|
renegotiating terms or abandoning our rights under option
contracts;
|
|
|
|
considering other asset dispositions including the possible sale
of underperforming assets, communities, divisions and joint
venture interests (see Note 15 regarding the June 2007 sale
of our Dallas/Fort Worth division and Note 14
regarding the September 2007 bulk sale of homesites in our
Mid-Atlantic region);
|
|
|
|
reducing our speculative home levels; and
|
|
|
|
pursuing other initiatives designed to monetize our assets.
|
The foregoing discussion provides general background information
regarding our Chapter 11 Cases, and is not intended to be
an exhaustive description. Additional information regarding our
Chapter 11 Cases, including access to court documents and
other general information about the Chapter 11 Cases, is
available at www.kccllc.net/tousa. Financial information on the
website is prepared according to requirements of federal
bankruptcy law and the local Bankruptcy Court. While such
financial information accurately reflects information required
under federal bankruptcy law, such information may be
unconsolidated, unaudited and prepared in a format different
than that used in our consolidated financial statements prepared
in accordance with generally accepted accounting principles in
the United States and filed under the securities laws. Moreover,
the materials filed with the Bankruptcy Court are not prepared
for the purpose of providing a basis for investment decisions
relating to our stock or debt or for comparison with other
financial information filed with the Securities and Exchange
Commission.
These challenges are in addition to those operational and
competitive challenges that we face in connection with our
business. In conjunction with our advisors, we are implementing
strategies to aid our liquidity and our ability to continue as a
going concern. However, such efforts may not be successful.
Class Action
Lawsuit
TOUSA, Inc. is a defendant in a class action lawsuit pending in
the United States District Court for the Southern District of
Florida. The name and case number of the class action suit is
Durgin, et al., v. TOUSA, Inc., et al.,
No. 06-61844-CIV.
Beginning in December 2006, various stockholder plaintiffs
brought lawsuits seeking class action status in the
U.S. District Court for the Southern District of Florida.
At a hearing held March 29, 2007, the Court consolidated
the actions and heard arguments on the appointment of lead
plaintiff and counsel. On September 7, 2007, the Court
appointed Diamondback Capital Management, LLC as the lead
plaintiff and approved Diamondbacks selection of counsel.
Pursuant to a scheduling order, the lead plaintiff filed a
Consolidated Complaint on November 2, 2007.
The Consolidated Complaint names TOUSA, all of TOUSAs
directors, David Keller, Randy Kotler, Beatriz Koltis, Lonnie
Fedrick, Technical Olympic, S.A., UBS Securities LLC, Citigroup
Global Markets Inc., Deutsche Bank Securities Inc. and JMP
Securities LLC as defendants. The alleged class period is
August 1, 2005 to March 19, 2007. The Consolidated
Complaint alleges that TOUSAs public filings and other
public statements that described the financing for the
Transeastern Joint Venture as non-recourse to TOUSA were false
and misleading. The Consolidated Complaint also alleges that
certain public filings and statements were
35
misleading or suffered from material omissions in failing to
fully disclose or describe the Completion and Carve-Out
Guaranties that TOUSA executed in support of the Transeastern
Joint Venture financing. The Consolidated Complaint asserts
claims under Section 11 of the Securities Act against all
defendants other than Ms. Koltis for strict liability and
negligence regarding the registration statements and prospectus
associated with the September 2005 offering of 4 million
shares of stock. Plaintiffs contend that the registration
statements and prospectus contained material misrepresentations
and suffered from material omissions in the description of the
Transeastern Joint Venture financing and TOUSAs related
obligations. The Consolidated Complaint asserts related claims
against Technical Olympic, S.A. and Messrs. Konstantinos
Stengos, Antonio B. Mon, David Keller and Tommy L. McAden
as controlling persons responsible for the statements in the
registration statements and prospectus. The Consolidated
Complaint also alleges claims under Section 10(b) of the
Exchange Act for fraud with respect to various public statements
about the non-recourse nature of the Transeastern debt and
alleged omissions in disclosing or describing the Guaranties.
These claims are alleged against TOUSA, Messrs. Mon,
McAden, Keller and Kotler and Ms. Koltis. Finally, the
Consolidated Complaint asserts related claims against
Messrs. Mon, Keller, Kotler and McAden as controlling
persons responsible for the various alleged false disclosures.
Plaintiffs seek compensatory damages, plus fees and costs, on
behalf of themselves and the putative class of purchasers of
TOUSA common stock and purchasers and sellers of options on
TOUSA common stock.
On January 30, 2008, TOUSA filed a Motion to Dismiss
Plaintiffs Consolidated Complaint. TOUSA moved to dismiss
plaintiffs claims on the grounds that plaintiffs:
a) could not establish materially false or misleading
statements or omissions; b) could not establish loss
causation; c) failed to plead with particularity facts
giving rise to a strong inference of scienter; and
d) lacked standing to pursue a Section 11 claim. Many
of the other defendants also filed motions to dismiss
and/or
signed on to TOUSAs Motion to Dismiss.
On February 4, 2008, TOUSA filed a Notice of Suggestion of
Bankruptcy notifying the Court that TOUSA filed for bankruptcy
on January 29, 2008. On February 5, 2008 the Court
entered an order staying the action as to TOUSA pursuant to
Section 362 of the United States Bankruptcy Code. The
action continues with respect to defendants other than TOUSA.
On April 30, 2008, lead plaintiff Diamondback Capital
Management moved to withdraw as lead plaintiff. On May 22,
2008, the Court entered an order: granting Diamondback Capital
Managements motion to withdraw as lead plaintiff;
establishing a procedure pursuant to which a new lead plaintiff
would be appointed; extending the time for plaintiffs to respond
to the motions to dismiss until a new lead plaintiff is
selected; and acknowledging that the Court may need to set a
time for the filing of an amended complaint, if requested by the
new lead plaintiff.
On June 6, 2008, two prospective lead plaintiffs filed
motions to be appointed the new lead plaintiff. On July 15,
2008, the Court entered an Order appointing the
Bricklayers & Trowel Trades International Pension Fund
as the new lead plaintiff. The Court further ordered that,
within 15 days of the entry of the Order, the new plaintiff
must either respond to the previously filed Motions to Dismiss,
or file a notice of intent to file an amended complaint. On
July 30, 2008, the new plaintiff filed a notice of intent
to file an amended complaint. On July 31, 2008, following
the notice of intent to file an amended complaint, the Court
denied as moot, without prejudice, the defendants
previously filed motion to dismiss the consolidated complaint.
Under the current schedule set by the Court, the plaintiff must
file its amended complaint by August 29, 2008.
Proceeding
by Official Committee of Unsecured Creditors
In re TOUSA, Inc., Docket
No. 08-10928-JKO;
Adv. Pro
No. 08-1435-JKO.
TOUSA and certain of our subsidiaries are non-parties in an
adversary proceeding brought as part of our Chapter 11
proceedings. This adversary proceeding was brought by the
Official Committee of Unsecured Creditors of TOUSA, Inc. on
behalf of our bankruptcy estates. The adversary proceeding seeks
to avoid certain allegedly fraudulent and preferential
pre-petition transfers of up to $800.0 million made in
connection with the settlement of litigation related to the
Transeastern Joint Venture (the Transeastern
Settlement), and further seeks to avoid as a preferential
transfer any security interest that may have been granted to
certain lenders in a tax refund of approximately
$210.0 million that the Debtors received in June 2008. The
Committees complaint names over
36
60 defendants including the lenders under the credit agreements
funding the Transeastern Joint Venture as well as the original
lenders (and their successors and assigns) and administrators
under the credit agreements entered into as a result of the
Transeastern Settlement. We are not defendants in the adversary
proceeding.
The complaint alleges that, in order to resolve certain
prepetition litigation regarding the Transeastern Joint Venture,
the parties to that litigation entered into a series of
settlement agreements releasing all claims relating to the
Transeastern acquisition. The complaint alleges that, as part of
these settlement agreements, certain TOUSA entities agreed to
pay over $420.0 million to the administrator of the
Transeastern loans and to issue approximately
$135.0 million in notes and warrants. The complaint further
alleges that to fund these payments, TOUSA, TOUSA Homes, LP and
certain of their subsidiaries (the Conveying
Subsidiaries) entered into the three new credit
agreements. According to the complaint, the loans issued under
these new credit agreements were secured by liens on the
property and assets of all of the debtors, including the
Conveying Subsidiaries. The complaint alleges that the Conveying
Subsidiaries were not defendants in the prepetition Transeastern
litigation and were not obligated on the Transeastern debt that
was released in connection with the Transeastern Settlement.
Therefore, the complaint alleges, the Conveying Subsidiaries did
not receive reasonably equivalent value for the secured debt
obligations that they incurred. The complaint also alleges that
the Conveying Subsidiaries were either insolvent at the time of
the Transeastern Settlement or became insolvent as a result of
it, and that the Conveying Subsidiaries were left with
unreasonably small capital as a result of the new credit
agreements. Based on these allegations, the Committee seeks to
have the liens established under the new credit agreements
voided and all amounts already repaid under the new credit
agreements returned. The Committee also seeks to have the
security interest granted on the Debtors tax refund voided
and the new lenders claims seeking allowance of the full
amount of the new loans disallowed in their entirety or reduced.
Proofs of
Claims
The Bankruptcy Court established May 19, 2008 as the bar
date for filing proofs of claim against the Debtors relating to
obligations arising before January 29, 2008. To date,
approximately 4,130 claims have been filed against us totaling
approximately $7.0 billion in asserted liabilities. These
claims are comprised of approximately $1.0 million in
administrative claims, $182.0 million in secured claims,
$73.0 million in priority claims and $6.7 billion in
unsecured claims. There are many claims (at least 1,418) that
have been asserted in unliquidated amounts or that
contain an unliquidated component. Notably, among the
unliquidated claims are the claims of our secured first and
second lien lenders. In addition, the indenture trustees under
the approximately $1.1 billion of our unsecured debentures
each filed an unliquidated claim with respect to such
obligations.
Vista
Lakes
Plaintiffs, purchasers of homes in the Vista Lakes community
near Orlando, filed a class action complaint alleging that their
homes were built on the site of a former bombing range. The
plaintiffs seek recovery under theories of fraud, breach of
contract, strict liability, negligence, and civil conspiracy.
Because the plaintiffs named debtor defendants Tousa, Inc.,
Tousa Homes, Inc., d/b/a Engle Homes Orlando and Tousa Homes, LP
as defendants in this action, the action was removed to federal
court. The plaintiffs then agreed to dismiss the debtor
defendants and the parties entered into a stipulation for
remand. The state court case has been
re-opened
and the parties still remaining as defendants include Tousa
Financial Services (which has not been served) and Universal
Land Title, Inc.
Plaintiffs have granted an extension on the response to the
complaint and the discovery requests up to and including
August 18, 2008 in order to re-evaluate their claims
against the defendants and amend their complaint.
Other
Litigation
We are also involved in various other claims and legal actions
arising in the ordinary course of business. We do not believe
that the ultimate resolution of these other matters will have a
material adverse effect on our
37
financial condition or results of operations. As of the date of
the Chapter 11 filing, then pending litigation was
generally stayed, and absent further order of the Bankruptcy
Court, most parties may not take any action to recover on
prepetition claims against us.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock traded on the New York Stock Exchange
(NYSE) under the symbol TOA until
November 19, 2007 when the NYSE Regulation, Inc. suspended
our common stock and debt securities from trading on the NYSE.
We appealed the suspension. Following our suspension from the
NYSE, we began trading on the Pink Sheet Electronic Quotation
Service under the symbol TOUS. On February 15,
2008, the NYSE denied our appeal and affirmed the decision to
suspend trading in our common stock and debt securities on the
NYSE and commenced delisting procedures. On March 3, 2008,
the NYSE filed Forms 25, Notification of Removal of Listing
and/or
Registration under Section 12(b) of the Securities Exchange
Act of 1934, with the SEC of its intention to remove our common
stock, 9% Senior Notes due July 1, 2010,
9% Senior Notes due July 1, 2010,
71/2% Senior
Subordinated Notes due March 15, 2011,
71/2% Senior
Subordinated Notes due January 15, 2015 and the
103/8% Senior
Subordinated Notes due July 1, 2012 at the opening of
business May 13, 2008.
The table below sets forth the high and low sales price for our
common stock as reported by the Pink Sheet Electronic Quotation
Service or the New York Stock Exchange as applicable for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
10.87
|
|
|
$
|
3.66
|
|
Second Quarter
|
|
$
|
4.85
|
|
|
$
|
3.32
|
|
Third Quarter
|
|
$
|
4.20
|
|
|
$
|
1.61
|
|
Fourth Quarter
|
|
$
|
2.08
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
23.97
|
|
|
$
|
18.31
|
|
Second Quarter
|
|
$
|
23.00
|
|
|
$
|
13.26
|
|
Third Quarter
|
|
$
|
14.63
|
|
|
$
|
9.66
|
|
Fourth Quarter
|
|
$
|
11.37
|
|
|
$
|
6.55
|
|
As of August 6, 2008, there were 34 record holders of our
common stock. The closing sale price of our common stock on
August 6, 2008 was $0.09 per share.
During the year ended December 31, 2007, we did not declare
any common stock dividends. During the year ended
December 31, 2006, we declared a cash dividend of $0.015
per share of common stock in each of February 2006, May 2006,
August 2006 and November 2006. Our cash collateral order
prohibits the payment of dividends and issuance of common stock.
On May 19, 2006, our stockholders approved an amendment to
our Annual and Long Term Incentive Plan increasing the maximum
number of shares that may be granted from 7,500,000 to 8,250,000.
38
PERFORMANCE
GRAPH
The following graph and table compare the cumulative total
stockholder return on our common stock from December 31,
2002 through December 31, 2007 with the performance of:
(i) the Standard & Poors 500 Stock Index
and (ii) the Standard & Poors 600
Homebuilding Index. The comparisons reflected in the graph and
table below are not intended to forecast the future performance
of our stock and may not be indicative of future performance.
The graph and table assume investments of $100 in our stock and
each index on December 31, 2002.
Comparison
of Cumulative Five Year Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Period
|
|
|
|
Cumulative Total Return Years Ending December 31,
|
|
|
|
|
December 31,
|
|
|
|
|
|
Company/Index
|
|
|
2002
|
|
|
|
2003
|
|
|
|
2004
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
TOUSA, INC.
|
|
|
|
100.00
|
|
|
|
|
185.01
|
|
|
|
|
257.52
|
|
|
|
|
268.13
|
|
|
|
|
129.92
|
|
|
|
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 INDEX
|
|
|
|
100.00
|
|
|
|
|
128.68
|
|
|
|
|
142.69
|
|
|
|
|
149.70
|
|
|
|
|
173.34
|
|
|
|
|
182.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 600 HOMEBUILDING
|
|
|
|
100.00
|
|
|
|
|
178.19
|
|
|
|
|
265.64
|
|
|
|
|
265.20
|
|
|
|
|
218.07
|
|
|
|
|
97.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
ITEM 6.
|
Selected
Financial Data
|
The following Selected Financial Data should be read in
conjunction with the consolidated financial statements and notes
thereto in Item 8 of this report and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of this
report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
Statement of Income
Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,195.3
|
|
|
$
|
2,504.6
|
|
|
$
|
2,408.0
|
|
|
$
|
2,060.6
|
|
|
$
|
1,608.1
|
|
Homebuilding revenues
|
|
$
|
2,158.8
|
|
|
$
|
2,441.3
|
|
|
$
|
2,360.5
|
|
|
$
|
2,026.1
|
|
|
$
|
1,570.0
|
|
Homebuilding gross profit (loss)
|
|
$
|
(507.4
|
)
|
|
$
|
417.9
|
|
|
$
|
591.0
|
|
|
$
|
422.2
|
|
|
$
|
314.6
|
|
Homebuilding pretax income
(loss)(2)
|
|
$
|
(1,349.3
|
)
|
|
$
|
(265.1
|
)
|
|
$
|
336.1
|
|
|
$
|
187.6
|
|
|
$
|
117.3
|
|
Financial services pretax income
|
|
$
|
(3.7
|
)
|
|
$
|
21.5
|
|
|
$
|
8.5
|
|
|
$
|
8.3
|
|
|
$
|
15.6
|
|
Income (loss) from continuing operations before income
taxes(2)
|
|
$
|
(1,353.0
|
)
|
|
$
|
(243.6
|
)
|
|
$
|
344.6
|
|
|
$
|
195.9
|
|
|
$
|
132.9
|
|
Income (loss) from continuing operations, net of
taxes(2)
|
|
$
|
(1,319.7
|
)
|
|
$
|
(200.8
|
)
|
|
$
|
218.1
|
|
|
$
|
123.4
|
|
|
$
|
84.4
|
|
Share
Data(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per common
share
basic(2)(4)
|
|
$
|
(22.22
|
)
|
|
$
|
(3.37
|
)
|
|
$
|
3.82
|
|
|
$
|
2.20
|
|
|
$
|
1.60
|
|
Income (loss) from continuing operations per common
share
diluted(2)(4)
|
|
$
|
(22.22
|
)
|
|
$
|
(3.37
|
)
|
|
$
|
3.68
|
|
|
$
|
2.15
|
|
|
$
|
1.59
|
|
Common stock cash dividends per share
|
|
$
|
|
|
|
$
|
0.060
|
|
|
$
|
0.057
|
|
|
$
|
0.036
|
|
|
$
|
|
|
Statement of Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
1,271.8
|
|
|
$
|
2,078.5
|
|
|
$
|
1,630.2
|
|
|
$
|
1,209.4
|
|
|
$
|
1,099.1
|
|
Total assets
|
|
$
|
1,762.0
|
|
|
$
|
2,842.2
|
|
|
$
|
2,422.7
|
|
|
$
|
1,920.6
|
|
|
$
|
1,536.2
|
|
Homebuilding notes payable and bank
borrowings(5)
|
|
$
|
1,753.8
|
|
|
$
|
1,060.7
|
|
|
$
|
876.6
|
|
|
$
|
811.4
|
|
|
$
|
497.9
|
|
Total
borrowings(5)(6)
|
|
$
|
1,761.6
|
|
|
$
|
1,096.1
|
|
|
$
|
911.7
|
|
|
$
|
860.4
|
|
|
$
|
561.1
|
|
Redeemable preferred
stock(7)
|
|
$
|
3.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stockholders equity (deficit)
|
|
$
|
(475.5
|
)
|
|
$
|
774.9
|
|
|
$
|
971.3
|
|
|
$
|
662.7
|
|
|
$
|
537.6
|
|
|
|
|
(1) |
|
See Note 9 to the consolidated financial statements for
discussion of discontinued operations and the effect on
comparability. |
|
(2) |
|
Results for 2007 and 2006 include charges totaling
$1.3 billion and $586.7 million, respectively, related
to inventory impairments, abandonment costs, joint venture
impairments, goodwill impairments and the provision for
settlement of loss contingency. |
|
(3) |
|
The shares issued and outstanding, the earnings per share and
the cash dividends per share amounts have been adjusted to
reflect a three-for-two stock split effected in the form of a
50% stock dividend paid on June 1, 2004 and a five-for-four
stock split effected in the form of a 25% stock dividend paid on
March 31, 2005. |
|
(4) |
|
Net of preferred stock dividends and accretion of discount,
initially accrued for in the third quarter of 2007. |
|
(5) |
|
Homebuilding notes payable and bank borrowings and total
borrowings do not include obligations for inventory not owned of
$26.0 million, $300.6 million, $92.9 million,
$126.9 million and $246.2 million as of
December 31, 2007, 2006, 2005, 2004 and 2003 respectively. |
|
(6) |
|
Total borrowings include Homebuilding borrowings and Financial
Services borrowings. |
|
(7) |
|
Issued in connection with the Transeastern JV acquisition. |
40
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with the
consolidated financial statements and related notes included
elsewhere in this report.
As used in this
Form 10-K,
consolidated information refers only to information
relating to our continuing operations which are consolidated in
our financial statements and exclude the results of our
Dallas/Fort Worth
division which we have classified as a discontinued operation;
and combined information includes consolidated
information and information relating to our unconsolidated joint
ventures. Unless otherwise noted, the information contained
herein is shown on a consolidated basis. Our consolidated
financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
On July 31, 2007, we consummated transactions to settle the
disputes regarding the Transeastern JV with the lenders to the
Transeastern JV, its land bankers and our joint venture partner
in the Transeastern JV. Pursuant to the settlement, among other
things, the Transeastern JV became a wholly-owned subsidiary of
ours by merger into one of our subsidiaries. The acquisition of
the Transeastern JV (the TE Acquisition) was
accounted for using the purchase method of accounting. The
results of operations of the Transeastern JV have been included
in our consolidated results beginning on July 31, 2007.
Results of operations prior to July 31, 2007 are included
in the results for the unconsolidated joint ventures.
Executive
Summary
We generate revenues from our homebuilding operations
(Homebuilding) and financial services operations
(Financial Services), which comprise our two
principal business segments. Through our Homebuilding operations
we design, build and market high-quality detached single-family
residences, town homes and condominiums in various metropolitan
markets in nine states located in four major geographic regions,
which are also our reportable segments: Florida, the
Mid-Atlantic, Texas and the West.
|
|
|
|
|
|
|
Florida
|
|
Mid-Atlantic
|
|
Texas
|
|
West
|
|
Central Florida
|
|
Baltimore/Southern Pennsylvania
|
|
Austin
|
|
Colorado
|
Jacksonville
|
|
Nashville
|
|
Houston
|
|
Las Vegas
|
Southeast Florida
|
|
Northern Virginia
|
|
San Antonio
|
|
Phoenix
|
Southwest Florida
|
|
|
|
|
|
|
Tampa/St. Petersburg
|
|
|
|
|
|
|
We conduct our Homebuilding operations through our consolidated
subsidiaries and through various unconsolidated joint ventures
that additionally build and market homes.
Since 2006, the homebuilding industry as a whole has experienced
a significant and sustained decrease in demand for new homes, an
oversupply of new and existing homes available for sale and a
more restrictive mortgage lending environment. Although we
operate in a number of markets, approximately 53% of our
operations are concentrated in Florida and the West, based on
2007 deliveries, which suffered particularly severe downturns in
home buying activity. The rapid increase in new and existing
home prices in these markets over the past several years reduced
housing affordability and tempered buyer demand. In particular,
investors and speculators reduced their purchasing activity and
instead stepped up their efforts to sell the residential
property they had earlier acquired. These trends, which were
more pronounced in markets that had experienced the greatest
levels of price appreciation, resulted in overall fewer home
sales, greater cancellations of home purchase agreements by
buyers, higher inventories of unsold homes and the increased use
by homebuilders, speculators, investors and others of discounts,
incentives, price concessions, broker commissions and
advertising to close home sales compared to the past several
years.
Reflecting these trends, we, like many other homebuilders,
experienced severe liquidity challenges in the credit and
mortgage markets, diminished consumer confidence, increased home
inventories and foreclosures and downward pressure on home
prices. Potential buyers have exhibited both a reduction in
confidence as to the economy in general and a willingness to
delay purchase decisions based on a perception that prices will
41
continue to decline. Prospective homebuyers continue to be
concerned about interest rates and the inability to sell their
current homes or to obtain appraisals at sufficient amounts to
secure mortgage financing as a result of the recent disruption
in the mortgage markets and the tightening of credit standards.
As a result of deteriorating market conditions and liquidity
constraints, we did not exercise certain homesite option
contracts and reviewed our inventories, goodwill, investments in
joint ventures and other assets for possible impairment charges.
As a result, we recognized charges totaling $1.3 billion
for the year ended December 31, 2007 related to inventory
impairments, abandonment costs, joint venture impairments,
goodwill impairments and the settlement of a loss contingency
compared to $586.7 million for the year ended
December 31, 2006.
For the year ended December 31, 2007, we had a loss from
continuing operations, net of taxes, of $1.3 billion
compared to $200.8 million for the year ended
December 31, 2006. Home deliveries from continuing
operations decreased 9%, Homebuilding revenues decreased 12%,
and net sales orders from continuing operations decreased 21%
for the year ended December 31, 2007 as compared to the
year ended December 31, 2006. During the year ended
December 31, 2007, our unconsolidated joint ventures had a
decrease in deliveries of 58% and an increase in net sales
orders of 79% as compared to the year ended December 31,
2006. The increase in net sales orders was due to high
cancellation rates experienced during the third quarter of last
year by the Transeastern JV. Sales orders at our other joint
ventures declined 15%, as compared to prior year, due to
worsening market conditions, decreased demand and higher
cancellation rates in the current year.
Recent
Developments
Chapter 11
Cases
On January 29, 2008, TOUSA, Inc. and certain of our
subsidiaries (excluding our financial services subsidiaries and
joint ventures) filed voluntary petitions for reorganization
relief under the provisions of Chapter 11 of Title 11
of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida,
Fort Lauderdale Division. The Chapter 11 cases have
been consolidated solely on an administrative basis and are
pending as Case
No. 08-10928-JKO.
We continue to operate our businesses and manage our properties
as debtors and
debtors-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders
of the Bankruptcy Court. As part of the first day
relief, we sought from the Bankruptcy Court in the
Chapter 11 cases, we obtained Bankruptcy Court approval to,
among other things, continue to pay certain critical vendors and
vendors with lien rights, meet our pre-petition payroll
obligations, maintain our cash management systems, sell homes
free and clear of liens, pay our taxes, continue to provide
employee benefits and maintain our insurance programs. In
addition, the Bankruptcy Court has approved certain trading
notification and transfer procedures designed to allow us to
restrict trading in our common stock (and related securities)
and has also provided for potentially retroactive application of
notice and sell-down procedures for trading in claims against
the debtors estates (in the event that such procedures are
approved in the future) which could negatively impact our
accumulated net operating losses and other tax attributes. The
Bankruptcy Court has also entered orders to establish procedures
for the purchase and disposition of real property by us subject
to certain monetary limits without specific approval for each
transaction.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, we entered into
the Senior Secured Super-Priority Debtor in Possession Credit
and Security Agreement. The agreement provided for a first
priority and priming secured revolving credit interim commitment
of up to $134.6 million. The agreement was subsequently
amended to extend it to June 19, 2008. No funds were drawn
under the agreement. The agreement was subsequently terminated
and we entered into an agreement with our secured lenders to use
cash collateral on hand (cash generated by our operations,
including the sale of excess inventory and the proceeds of our
federal tax refund of $207.3 million received in April
2008). Under the Bankruptcy Court order dated June 20,
2008, we are authorized to use cash collateral of our first lien
and second lien lenders (approximately $358.0 million at
the time of the order) for a period of six months in a
42
manner consistent with a budget negotiated by the parties. The
order further provides for the paydown of $175.0 million to
our first lien term loan facility secured lenders, subject to
disgorgement provisions in the event that certain claims against
the lenders are successful and repayment is required. The order
also reserves our sole right to paydown an additional
$15.0 million to our fist lien term loan facility secured
lenders. We are permitted under the order to incur liens and
enter into sale/leaseback transactions for model homes subject
to certain limitations. As part of the order, we have granted
the prepetition agents and the lenders various forms of
protection, including liens and claims to protect against any
diminution of the collateral value, payment of accrued, but
unpaid interest on the first priority indebtedness at the
non-default rate and the payment of reasonable fees and expenses
of the agents under our secured facilities.
We have the exclusive right to file a Chapter 11 plan or
plans prior to October 25, 2008 and the exclusive right to
solicit acceptance thereof until December 24, 2008.
Pursuant to section 1121 of the Bankruptcy Code, the
exclusivity periods may be expanded or reduced by the Bankruptcy
Court, but in no event can the exclusivity periods to file and
solicit acceptance of a plan or plans of reorganization be
extended beyond 18 months and 20 months, respectively.
As a result of our Chapter 11 cases and other matters
described herein, including uncertainties related to the fact
that we have not yet had time to complete and obtain
confirmation of a plan or plans of reorganization, there is
substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern, including
our ability to meet our ongoing operational obligations, is
dependent upon, among other things:
|
|
|
|
|
our ability to generate and maintain adequate cash;
|
|
|
|
the cost, duration and outcome of the restructuring process;
|
|
|
|
our ability to comply with the terms of our cash collateral
order and, if necessary, seek further extensions of our ability
to use cash collateral;
|
|
|
|
our ability to achieve profitability following a restructuring
given housing market challenges; and
|
|
|
|
our ability to retain key employees.
|
These challenges are in addition to those operational and
competitive challenges that we face in connection with our
business. In conjunction with our advisors, we are implementing
strategies to aid our liquidity and our ability to continue as a
going concern. However, such efforts may not be successful.
We have taken and will continue to take aggressive actions to
maximize cash receipts and minimize cash expenditures with the
understanding that certain of these actions may make us less
able to take advantage of future improvements in the
homebuilding market. We continue to take steps to reduce our
general and administrative expenses by streamlining activities
and increasing efficiencies, which have led and will continue to
lead to major reductions in the workforce. However, much of our
efforts to reduce general and administrative expenses are being
offset by professional and consulting fees associated with our
Chapter 11 cases. In addition, we are working with our
existing suppliers and seeking new suppliers, through
competitive bid processes, to reduce construction material and
labor costs. We have and will continue to analyze each community
based on anticipated sales absorption rates, net cash flows and
financial returns taking into consideration current market
factors in the homebuilding industry such as the oversupply of
homes available for sale in most of our markets, less demand,
decreased consumer confidence, tighter mortgage loan
underwriting criteria and higher foreclosures. In order to
generate cash and to reduce our inventory to levels consistent
with our business plan, we have taken and will continue to take
the following actions, to the extent possible given the
limitations resulting from our Chapter 11 cases:
|
|
|
|
|
limiting new arrangements to acquire land (by submitting
proposals to increased review);
|
|
|
|
engaging in bulk sales of land and unsold homes;
|
|
|
|
reducing the number of unsold homes under construction and
limiting
and/or
curtailing development activities in any development where we do
not expect to deliver homes in the near future;
|
43
|
|
|
|
|
renegotiating terms or abandoning our rights under option
contracts;
|
|
|
|
considering other asset dispositions including the possible sale
of underperforming assets, communities, divisions and joint
venture interests (see Note 15 regarding the June 2007 sale
of our Dallas/Fort Worth division and Note 14
regarding the September 2007 bulk sale of homesites in our
Mid-Atlantic region);
|
|
|
|
reducing our speculative home levels; and
|
|
|
|
pursuing other initiatives designed to monetize our assets.
|
The foregoing discussion provides general background information
regarding our Chapter 11 Cases, and is not intended to be
an exhaustive description. Additional information regarding our
Chapter 11 Cases, including access to court documents and
other general information about the Chapter 11 Cases, is
available at www.kccllc.net/tousa. Financial information on the
website is prepared according to requirements of federal
bankruptcy law and the local Bankruptcy Court. While such
financial information accurately reflects information required
under federal bankruptcy law, such information may be
unconsolidated, unaudited and prepared in a format different
than that used in our consolidated financial statements prepared
in accordance with generally accepted accounting principles in
the United States and filed under the securities laws. Moreover,
the materials filed with the Bankruptcy Court are not prepared
for the purpose of providing a basis for investment decisions
relating to our stock or debt or for comparison with other
financial information filed with the Securities and Exchange
Commission.
Mortgage
Joint Venture
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a committee composed of six members, three from
Preferred Home Mortgage Company and three from Wells Fargo. The
venture entered into a revolving credit agreement with Wells
Fargo Bank, N.A. providing for advances of up to
$20.0 million. Wells Fargo Home Mortgage provides the
general and administrative support (as well as all loan related
processing, underwriting, closing functions), and is the end
investor for the majority of the loans closed through the joint
venture. Prior to the joint venture, Preferred Home Mortgage
Company had a centralized operations center that provided those
support functions. The majority of these support functions
ceased in June 2008.
Transeastern
JV Settlement
On July 31, 2007, we consummated transactions to settle the
disputes regarding the Transeastern JV with the lenders to the
Transeastern JV, its land bankers and our joint venture partner
in the Transeastern JV. Pursuant to the settlement, among other
things,
|
|
|
|
|
the Transeastern JV became a wholly-owned subsidiary of ours by
merger into one of our subsidiaries, which became a guarantor on
our credit facilities and note indentures (the acquisition was
accounted for using the purchase method of accounting and
results of operations have been included in our consolidated
results beginning on July 31, 2007);
|
|
|
|
the senior secured lenders of the Transeastern JV were repaid in
full, including accrued interest (approximately
$400.0 million in cash);
|
|
|
|
the senior mezzanine lenders to the Transeastern JV received
$20.0 million in aggregate principal amount of
14.75% Senior Subordinated PIK Election Notes due 2015 and
$117.5 million in initial aggregate liquidation preference
of 8% Series A Convertible Preferred PIK Preferred Stock;
|
44
|
|
|
|
|
the junior mezzanine lenders to the Transeastern JV received
warrants to purchase shares of our common stock which had an
estimated fair value of $8.2 million at issuance (based on
the Black-Scholes option pricing model and before issuance
costs);
|
|
|
|
we entered into settlement and mutual release agreements with
the senior mezzanine lenders and the junior mezzanine lenders to
the Transeastern JV which released us from our potential
obligations to them; and
|
|
|
|
we entered into a settlement and mutual release agreement with
Falcone/Ritchie LLC and certain of its affiliates (the
Falcone Entities) concerning the Transeastern JV,
one of which owned 50% of the equity interests in the
Transeastern JV and, among other things, released the Falcone
Entities from claims under the 2005 asset purchase agreement
pursuant to which we acquired our interest in the Transeastern
JV. Pursuant to the settlement agreement, we remain obligated on
certain indemnification obligations, including, without
limitation, related to certain land bank arrangements.
|
To effect the settlement of the Transeastern JV dispute, on
July 31, 2007, we also entered into:
|
|
|
|
|
an amendment to our $800.0 million revolving loan facility,
dated January 30, 2007;
|
|
|
|
a new $200.0 million aggregate principal amount first lien
term loan facility; and
|
|
|
|
a new $300.0 million aggregate principal amount second lien
term loan facility.
|
The proceeds from the first lien and second lien term loans were
used to satisfy claims of the senior secured lenders against the
Transeastern JV, and to pay related expenses. Our existing
$800.0 million revolving loan facility was amended and
restated to reduce the revolving commitments thereunder by
$100.0 million and permit the incurrence of the first and
second lien term loan facilities (and make other conforming
changes relating to the facilities). Net proceeds from these
financings at closing were $470.6 million which is net of a
1% discount and transaction costs.
In connection with the Transeastern JV settlement, we recognized
a loss of $426.6 million, of which $151.6 million was
recognized during the year ended December 31, 2007, and
$275.0 million was recognized during the year ended
December 31, 2006.
We also paid:
|
|
|
|
|
$50.2 million in cash to purchase land under existing land
bank arrangements with the former Transeastern JV
partner; and
|
|
|
|
$33.5 million in interest and expenses.
|
NYSE
Delisting
Effective November 19, 2007, NYSE Regulation, Inc.
suspended our common stock and debt securities from trading on
the NYSE. We appealed the suspension. Following our suspension
from the NYSE, we began trading on the Pink Sheet Electronic
Quotation Service. On February 15, 2008, the NYSE denied
our appeal and affirmed the decision to suspend trading in our
common stock and debt securities on the NYSE and commenced
delisting procedures. On March 3, 2008, the NYSE filed
Forms 25, Notification of Removal of Listing
and/or
Registration under Section 12(b) of the Securities Exchange
Act of 1934, with the SEC of its intention to remove our common
stock, 9% Senior Notes due July 1, 2010,
9% Senior Notes due July 1, 2010,
71/2% Senior
Subordinated Notes due March 15, 2011,
71/2% Senior
Subordinated Notes due January 15, 2015 and the
103/8% Senior
Subordinated Notes due July 1, 2012 at the opening of
business May 13, 2008.
Sale
of Dallas/Fort Worth Operations
On June 6, 2007, we sold substantially all of our
Dallas/Fort Worth division to an unrelated third party for
$56.5 million and realized a pre-tax loss on disposal of
$13.6 million. Results of our Dallas/Fort Worth
operations have been classified as discontinued operations and
prior periods have been restated.
45
Bulk
Sale of Homesites in the Mid-Atlantic (excluding Nashville) and
Virginia Divisions
As part of our asset management initiatives, on
September 25, 2007, we sold 317 homesites to an unrelated
homebuilder. Additionally, as part of the transaction, in the
fourth quarter of 2007, the unrelated homebuilder purchased an
option interest to acquire 250 homesites as well as 34 owned
homesites. The total purchase price for these transactions was
$31.3 million and we realized a pre-tax loss of
$12.5 million. In July 2008, we received a letter of
intent from a party interested in purchasing our remaining
assets in our Pennsylvania, Maryland, Delaware and Virginia
divisions. The letter of intent is subject to a number of
conditions.
SEC
Inquiry
In the Matter of TOUSA, Inc. SEC Inquiry, File
No. FL-3310.
In June of 2007, we were contacted by the Miami Regional Office
of the SEC requesting the voluntary provision of documents, and
other information from the Company, relating primarily to
corporate and financial information and communications related
to the Transeastern Joint Venture. The SEC has advised us that
this inquiry should not be construed as an indication that any
violations of law have occurred, nor should it be considered a
reflection upon any person, entity, or security. We are
cooperating with the inquiry.
Total
Controlled Homesites by our Homebuilding Operations (Including
Joint Ventures)
The following is a summary of our controlled homesites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Owned
|
|
|
Optioned
|
|
|
Controlled
|
|
|
Owned
|
|
|
Optioned
|
|
|
Controlled
|
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida(1)
|
|
|
8,600
|
|
|
|
600
|
|
|
|
9,200
|
|
|
|
6,900
|
|
|
|
11,000
|
|
|
|
17,900
|
|
Mid-Atlantic
|
|
|
400
|
|
|
|
800
|
|
|
|
1,200
|
|
|
|
800
|
|
|
|
2,700
|
|
|
|
3,500
|
|
Texas(2)
|
|
|
2,500
|
|
|
|
4,000
|
|
|
|
6,500
|
|
|
|
2,700
|
|
|
|
7,800
|
|
|
|
10,500
|
|
West(3)
|
|
|
9,900
|
|
|
|
5,400
|
|
|
|
15,300
|
|
|
|
10,800
|
|
|
|
17,900
|
|
|
|
28,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
21,400
|
|
|
|
10,800
|
|
|
|
32,200
|
|
|
|
21,200
|
|
|
|
39,400
|
|
|
|
60,600
|
|
Discontinued
operations(2)
|
|
|
100
|
|
|
|
100
|
|
|
|
200
|
|
|
|
1,000
|
|
|
|
3,100
|
|
|
|
4,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated homesites
|
|
|
21,500
|
|
|
|
10,900
|
|
|
|
32,400
|
|
|
|
22,200
|
|
|
|
42,500
|
|
|
|
64,700
|
|
Unconsolidated joint ventures
|
|
|
2,500
|
|
|
|
1,100
|
|
|
|
3,600
|
|
|
|
2,900
|
|
|
|
2,100
|
|
|
|
5,000
|
|
Transeastern
JV(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
|
13,500
|
|
|
|
15,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
24,000
|
|
|
|
12,000
|
|
|
|
36,000
|
|
|
|
27,300
|
|
|
|
58,100
|
|
|
|
85,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2007, Florida includes 3,700 owned and 200
optioned homesites acquired as part of the TE Acquisition that
met the consolidation criteria at December 31, 2007. The
homesites for these joint ventures were included in
unconsolidated joint ventures at December 31, 2006. |
|
(2) |
|
The Texas region excludes the Dallas/Fort Worth division,
which is classified as a discontinued operation. |
|
(3) |
|
The West region includes 100 owned homesites from joint ventures
that met the consolidation criteria at December 31, 2007.
The homesites for these joint ventures were included in
unconsolidated joint ventures at December 31, 2006. |
46
The following is a summary breakdown of our owned homesites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residences Completed
|
|
|
Homesites Finished
|
|
|
Raw Land Held for
|
|
|
Total Consolidated
|
|
|
|
or Under Construction
|
|
|
or Under Construction
|
|
|
Future Development
|
|
|
Homesites
|
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida(1)
|
|
|
1,400
|
|
|
|
1,700
|
|
|
|
6,600
|
|
|
|
3,500
|
|
|
|
600
|
|
|
|
1,700
|
|
|
|
8,600
|
|
|
|
6,900
|
|
Mid-Atlantic
|
|
|
100
|
|
|
|
300
|
|
|
|
300
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
800
|
|
Texas(2)
|
|
|
700
|
|
|
|
1,000
|
|
|
|
1,400
|
|
|
|
1,100
|
|
|
|
400
|
|
|
|
600
|
|
|
|
2,500
|
|
|
|
2,700
|
|
West(3)
|
|
|
700
|
|
|
|
800
|
|
|
|
2,500
|
|
|
|
2,200
|
|
|
|
6,700
|
|
|
|
7,800
|
|
|
|
9,900
|
|
|
|
10,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
2,900
|
|
|
|
3,800
|
|
|
|
10,800
|
|
|
|
7,300
|
|
|
|
7,700
|
|
|
|
10,100
|
|
|
|
21,400
|
|
|
|
21,200
|
|
Discontinued
operations(2)
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
300
|
|
|
|
100
|
|
|
|
500
|
|
|
|
100
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,900
|
|
|
|
4,000
|
|
|
|
10,800
|
|
|
|
7,600
|
|
|
|
7,800
|
|
|
|
10,600
|
|
|
|
21,500
|
|
|
|
22,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For December 31, 2007, the Florida region includes 3,700
owned homesites acquired as part of the TE Acquisition. |
|
(2) |
|
The Texas region excludes the Dallas/Fort Worth division,
which is now classified as a discontinued operation. |
|
(3) |
|
The West region includes 100 homesites from joint ventures that
met the consolidation criteria at December 31, 2007. The
homesites for these joint ventures were included in
unconsolidated joint ventures at December 31, 2006. |
We use option contracts in addition to land joint ventures in
order to acquire land whenever feasible. Option contracts allow
us to control large homesite positions with reduced capital
investment.
From time to time we acquired and developed larger land parcels
that we believed could yield homesites exceeding the
requirements of our homebuilding activities over the next 3 to
5 years. These additional homesites are typically sold to
other homebuilders. At December 31, 2007, of the 21,400
owned homesites from our continuing operations, 6,300 homesites
are part of this strategy. At December 31, 2007, of the
10,800 homesites controlled through option contracts from
our continuing operations, 4,700 homesites are also part of this
strategy. At December 31, 2007, deposits related to these
controlling homesites under option approximated
$14.9 million. We plan to continue reducing our positions
in these large land transactions in connection with our asset
management activities.
Controlled homesites represent homesites either owned or under
option by our consolidated subsidiaries or by our unconsolidated
joint ventures that build and market homes. We do not include as
controlled homesites those homesites which are included in land
development joint ventures where we do not intend to build
homes. These joint ventures will acquire and develop land to be
sold to us for use in our homebuilding operations or sold to
others. As of December 31, 2007 and 2006, these joint
ventures owned 3,000 and 3,100 homesites, respectively. We
had options to acquire 500 homesites, which are included in our
consolidated homesites under option at December 31, 2006.
We did not have any remaining options to acquire homesites from
these joint ventures at December 31, 2007. Any profits
generated from the purchase of homesites from these joint
ventures are deferred until the ultimate sale to an unrelated
third party. The number of homesites controlled by our
unconsolidated joint ventures, decreased by 17,100 homesites, or
83%, from December 31, 2006, primarily due to the
settlement and purchase of the Transeastern JV. See additional
discussion regarding our joint ventures located in
Liquidity and Capital Resources section.
Due to worsening market conditions impacting the new home
industry, we have applied increasingly conservative standards to
our land retention and option exercise decisions. We have
analyzed each of our communities to determine if they are
aligned with our immediate and mid term goals which are focused
on our ability to monetize assets within a relatively short
period of time. As part of the analysis we have reviewed our
construction processes including our bid procedures, bid
templates and engineering designs in an attempt
47
to reduce costs from home construction. Preacquisition costs,
development costs and the number of home starts and speculative
homes have also been reduced in light of the new challenges
facing the market.
At December 31, 2007, the number of homesites controlled by
our consolidated continuing operations has decreased by 28,400,
or 47%, as compared to December 31, 2006. The decrease in
controlled homesites is a result of our asset management
initiatives including the sale of our Dallas/Fort Worth
division, the bulk sale of homesites in our Mid-Atlantic
(excluding Nashville) and Virginia divisions, other land sales
and the abandonment of rights under certain option contracts. In
connection with our asset management efforts, as well as in part
to our liquidity constraints, during the year ended
December 31, 2007, we did not exercise certain option
contracts which resulted in a reduction of 21,100 optioned
homesites. In addition, the sale of our Dallas/Fort Worth
division and the bulk sale of homesites in our Mid-Atlantic
(excluding Nashville) and Virginia divisions reduced the number
of controlled homesites by approximately 3,700 homesites. This
decrease, however, was partially offset by an increase in the
number of homesites acquired as part of the TE Acquisition as
reflected in the table above. In connection with the abandonment
of our rights under these option contracts, we forfeited cash
deposits of $82.5 million and had letters of credit of
$98.5 million drawn at December 31, 2007, which
increased our outstanding borrowings. Through June 30, 2008
an additional $72.8 million of letters of credit have been
drawn related to the abandonment of option contracts.
Homebuilding
Operations
For the year ended December 31, 2007 total consolidated
home deliveries from continuing operations decreased 9%,
consolidated Homebuilding revenues decreased 12%, and
consolidated net sales orders from continuing operations
decreased 21% as compared to the year ended December 31,
2006. We had a net loss from continuing operations of
$1.3 billion for the year ended December 31, 2007 as
compared to a net loss from continuing operations of
$200.8 million for the year ended December 31, 2006.
For the year ended December 31, 2007, our unconsolidated
joint ventures had an increase in net sales orders of 79% and a
decrease in deliveries of 58% as compared to the year ended
December 31, 2006.
Compared to December 31, 2006, consolidated sales value in
backlog from continuing operations at December 31, 2007
decreased 47% to $736.3 million. Contracts with a
third-party that marketed homes in the United Kingdom included
in backlog at December 31, 2007 were cancelled in 2008.
These contracts were for 511 homes, representing
$115.6 million in revenue. Our unconsolidated joint
ventures had an additional $24.7 million in sales value in
backlog at December 31, 2007. Our sales orders cancellation
rate was approximately 38% for the year ended December 31,
2007 as compared to 32% for the year ended December 31,
2006. Cancellation rates continue to be affected by worsening
market conditions.
We build homes for inventory (speculative homes) and on a
pre-sold basis. At December 31, 2007, we had 2,900 homes
completed or under construction compared to 3,800 homes at
December 31, 2006. Approximately 42% of these homes were
unsold at December 31, 2007, an increase from 35% at
December 31, 2006. At December 31, 2007, we had 532
completed unsold homes in our inventory, up 91% from 279 homes
at December 31, 2006. Approximately 70% of our completed,
unsold homes at December 31, 2007 had been completed for
more than 90 days. As part of our asset management
strategy, we are focusing our efforts on diligently managing the
number and geographic allocation of our speculative homes,
addressing our inventory levels and timing our construction
starts, together with other actions, to strengthen our balance
sheet.
Once a sales contract with a buyer has been approved, we
classify the transaction as a new sales order and
include the home in backlog. Such sales orders are
usually subject to certain contingencies such as the
buyers ability to qualify for financing and ability to
sell their existing home. At closing, title passes to the buyer
and a home is considered to be delivered and is
removed from backlog. Revenues, which are net of buyer
incentives and cost of sales, are recognized upon the delivery
of the home, land or homesite when title is transferred to the
buyer. We estimate that the average period between the execution
of a sales contract for a home and closing is approximately four
months to over a year for pre-sold homes; however, this varies
by market. The principal expenses of our Homebuilding operations
are cost of sales and selling, general and administrative
(SG&A) expenses. Costs of home sales include
land and land development costs, home construction costs,
previously capitalized indirect costs, capitalized interest and
estimated warranty costs.
48
SG&A expenses for our Homebuilding operations include
administrative costs, advertising expenses,
on-site
marketing expenses, sales commission costs and closing costs.
Sales commissions are included in selling, general and
administrative costs when the related revenue is recognized. As
used herein, Homebuilding includes results of home
and land sales. Home sales includes results related
only to the sale of homes.
Financial
Services Operations
To provide homebuyers with a seamless home purchasing
experience, we have a financial services business which provides
mortgage financing and settlement services and offers title,
homeowners and other insurance products to our homebuyers
and others. Our mortgage financing operation derives most of its
revenues from buyers of our homes, although it also offers its
services to existing homeowners refinancing their mortgages. Our
title and settlement services and our insurance agency
operations are used by our homebuyers and a broad range of other
clients purchasing or refinancing residential or commercial real
estate. Our mortgage financing operations revenues consist
primarily of origination and premium fee income, interest income
and the gain on the sale of mortgages which is recognized when
the loans and related servicing rights are sold to third party
investors. Our title operations revenues consist primarily
of fees and premiums from title insurance and settlement
services. The principal expenses of our Financial Services
operations are SG&A expenses, which consist primarily of
compensation and interest expense on our warehouse lines of
credit.
During the year ended December 31, 2007, approximately 3%
to 5% of the homebuyers, including those in our unconsolidated
joint ventures, that utilized our mortgage subsidiary obtained
sub-prime loans. We define a sub-prime loan as one where the
buyers FICO score is below 620 and is not an FHA or VA
loan. At December 31, 2007, approximately 4% to 6% of our
backlog that utilized our mortgage subsidiary included
homebuyers seeking sub-prime financing. During the year ended
December 31, 2007, the mortgage markets experienced a
significant disruption, which commenced with increasing rates of
default on sub-prime loans and declines in the
market value of those loans. These events led to an
unprecedented combination of reduced investor demand for
mortgage loans and mortgage-backed securities, tighter credit
underwriting standards, reduced mortgage loan liquidity and
increased credit risk premiums, all of which affected the
availability of nonconforming mortgage products. The tightening
of credit standards in the sub-prime market had an impact on the
Alt-A and prime loans and further negatively impacted current
homebuilding market conditions.
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a committee composed of six members, three from
Preferred Home Mortgage Company and three from Wells Fargo. The
venture entered into a revolving credit agreement with Wells
Fargo Bank, N.A. providing for advances of up to
$20.0 million. Wells Fargo Home Mortgage provides the
general and administrative support (as well as all loan related
processing, underwriting, closing functions), and is the end
investor for the majority of the loans closed through the joint
venture. Prior to the joint venture, Preferred Home Mortgage
Company had a centralized operations center that provided those
support functions. The majority of these support functions
ceased in June 2008.
Critical
Accounting Policies
In the preparation of our consolidated financial statements, we
apply accounting principles generally accepted in the United
States. The application of generally accepted accounting
principles may require management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying results. Listed below are
those policies that we believe are critical or require the use
of complex judgment in their application.
49
Homebuilding
Revenues and Cost of Sales
Revenue from the sale of homes and the sale of land and
homesites is recognized at closing when title passes to the
buyer and all of the following conditions are met: (1) a
sale is consummated; (2) a significant down payment is
received; (3) the earnings process is complete; and
(4) the collection of any remaining receivables is
reasonably assured. As a result, our revenue recognition process
does not involve significant judgments or estimates. However, we
do rely on certain estimates to determine the related
construction and land costs and resulting gross profit
associated with revenues recognized. Our construction and land
costs are comprised of direct and allocated costs, including
interest, indirect construction costs and estimated costs for
future warranties and indemnities. Our estimates are based on
historical results, adjusted for current factors. Land, land
improvements and other common costs are generally allocated on a
relative fair value basis to units within a parcel or community.
Land and land development costs generally include related
interest and property taxes incurred until construction is
substantially completed. We believe that the accounting policy
related to revenue recognition is a critical accounting policy
because of the significance of revenue.
Financial
Services Revenues and Expenses
Our Financial Services operations generate revenues from
mortgage financing, title insurance and settlement services and
property and casualty insurance agency operations. Our mortgage
financing operations revenues consist primarily of
origination and premium fee income, interest income and the gain
on the sale of the mortgages. Revenue from our mortgage
financing operations is recognized when the mortgage loans and
related servicing rights are sold to third-party investors.
Substantially all of our mortgages are sold to private investors
within 30 days of closing. Title operations revenues
consist primarily of title insurance policy commissions and
settlement services fees, which are recognized at the time of
settlement. Our property and casualty insurance revenues are
recognized when commissions are received from third-party
insurers. As a result, our revenue recognition process does not
involve significant judgments or estimates. We believe that the
accounting policy related to revenue recognition is a critical
accounting policy because of the significance of revenue.
Impairment
of Long-Lived Assets
Housing communities and land/homesites under development are
stated at the lower of cost or net realizable value. Property
and equipment is carried at cost less accumulated depreciation.
We assess these assets for impairment in accordance with the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets is measured by
comparing the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. We believe
that the accounting for impairment of long-lived assets is a
critical accounting policy because of the assumptions inherent
in the evaluations and the impact of recognizing impairments
would be material to our consolidated financial statements.
These evaluations for impairment are significantly impacted by
estimates of future revenues, costs and expenses and other
factors involving some amount of uncertainty. Therefore, due to
uncertainties in the estimation process, actual results could
differ from such estimates. If an asset is considered to be
impaired, the impairment loss to be recognized is measured by
the amount by which the carrying amount of the asset exceeds the
fair value of the asset. During the year ended December 31,
2007, we recorded impairment losses of $180.8 million on
active communities, including $3.9 million of inventory
impairments recognized on assets consolidated under SFAS 66
for which we do not have title to the underlying asset.
Investments
in Unconsolidated Joint Ventures
We evaluate our investments in and receivables from our
unconsolidated joint ventures in accordance with the provisions
of Accounting Principles Board Opinion No. 18, The
Equity Method of Accounting for Investments in Common Stock,
Statement of Position
78-9,
Accounting for Investments in Real Estate Ventures, and
Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan.
Recoverability of our investments in and receivables from
unconsolidated joint ventures are measured by
50
comparing the carrying amount of the assets to future
undiscounted net cash flows expected to be generated by the
assets. We believe that the accounting for the impairments of
our investments in and receivables from our unconsolidated joint
ventures is a critical accounting policy because of the
assumptions inherent in the evaluations and the impact of
recognizing these impairments would be material to our
consolidated financial statements. These evaluations for
impairment are significantly impacted by estimates of future
revenues, costs and expenses and other factors involving some
amount of uncertainty. Therefore, due to uncertainties in the
estimation process, actual results could differ from such
estimates.
In some instances, we are liable under the joint venture credit
agreements, we have agreed to: complete certain property
development commitments in the event the joint ventures default;
pay an amount necessary to decrease the principal balance of the
joint ventures loans to achieve a certain loan to value
ratio; and, to indemnify the lenders for losses resulting from
fraud, misappropriation and similar acts. We evaluate our
obligations related to these commitments under Statement of
Financial Accounting Standards No. 5, Accounting for
Contingencies. Because of the high degree of judgment
required in determining these estimated obligations, actual
amounts could differ from our current estimates.
Goodwill
Goodwill is accounted for in accordance with the provisions of
SFAS No. 142, Goodwill and Other Intangible
Assets. Pursuant to SFAS No. 142, goodwill is not
subject to amortization. Goodwill is subject to at least an
annual assessment for impairment by applying a fair-value based
test. For purposes of the impairment test, we consider each
division a reporting unit. Our impairment test is based on
discounted cash flows derived from internal projections. This
process requires us to make assumptions on future revenues,
costs and timing of expected cash flows. Due to the degree of
judgment required and uncertainties surrounding such estimates,
actual results could differ from such estimates. To the extent
additional information arises or our strategies change, it is
possible that our conclusion regarding goodwill impairment could
change, which could have a material effect on our financial
position and results of operations. For these reasons, we
consider the accounting estimate related to goodwill impairment
to be a critical accounting estimate. We performed impairment
tests during the year ended December 31, 2007 and
determined that the goodwill recorded in each of our
Homebuilding regions was impaired; accordingly, we wrote off
$89.7 million of goodwill. Additionally, during the year
ended December 31, 2007, we wrote off $3.9 million of
Finance Services goodwill and $3.1 million of goodwill
related to Dallas/Fort Worth, which has been accounted for
as a discontinued operation.
Homesite
Option Contracts and Consolidation of Variable Interest
Entities
We enter into option contracts to purchase homesites and land
held for development in the ordinary course of business. Option
contracts allow us to control significant homesite positions
with minimal capital investment. Our liability for
nonperformance under such contracts is generally limited to
forfeiture of the related deposits. However, in some cases we
are obligated to complete construction of certain improvements
notwithstanding the cancellation of the option. Although we are
typically compensated for this work, in certain cases we are
responsible for any cost overruns. At December 31, 2007, we
had option contracts from continuing operations on 10,800
homesites. At December 31, 2007 and December 31, 2006,
we had non-refundable deposits aggregating $56.9 million
and $216.6 million, respectively, included in inventory. In
addition, at December 31, 2007 and December 31, 2006,
we had issued $44.9 million and $257.8 million,
respectively, in letters of credit under option contracts.
We enter into option contracts with land sellers and third-party
financial entities as a method of acquiring developed homesites.
From time to time to leverage our ability to acquire and finance
the development of these homesites, we transfer our option right
to third parties. Option contracts generally require the payment
of a non-refundable cash deposit or the issuance of a letter of
credit for the right to acquire homesites over a specified
period of time at predetermined prices. Typically, our deposits
or letters of credit are less than 20% of the underlying
purchase price. We generally have the right at our discretion to
terminate our obligations under these option agreements by
forfeiting our cash deposit or repaying amounts drawn under the
letter of credit with no further financial responsibility. In
some cases, these contracts give the other party the right to
51
require us to purchase homesites or guarantee minimum returns.
(see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations Financial Condition, Liquidity and
Capital Resources Off-Balance Sheet
Arrangements). We do not have legal title to these assets.
Additionally, we do not have an investment in the third-party
acquirer and do not guarantee their liabilities. However, if
certain conditions are met, including the deposit
and/or
letters of credit exceeding certain significance levels as
compared to the remaining homesites under the option contract,
we will include the homesites in inventory with a corresponding
liability in obligations for inventory not owned.
Homebuilders may enter into option contracts for the purchase of
land or homesites with land sellers and third-party financial
entities, some of which qualify as Variable Interest Entities
(VIEs) under Financial Accounting Standards Board
(FASB) Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities
(FIN 46(R) ). FIN 46(R) addresses
consolidation by business enterprises of VIEs in which an entity
absorbs a majority of the expected losses, receives a majority
of the entitys expected residual returns, or both, as a
result of ownership, contractual or other financial interests in
the entity, which have one or both of the following
characteristics: (1) the equity investment at risk is not
sufficient to permit the entity to finance its activities
without additional subordinated support from other parties,
which is provided through other interests that will absorb some
or all of the expected losses of the entity; or (2) the
equity investors lack one or more of the following essential
characteristics of a controlling financial interest:
(a) the direct or indirect ability to make decisions about
the entitys activities through voting rights or similar
rights; or (b) the obligation to absorb the expected losses
of the entity if they occur, which makes it possible for the
entity to finance its activities; or (c) the right to
receive the expected residual returns of the entity if they
occur, which is the compensation for the risk of absorbing the
expected losses.
In applying FIN 46(R) to our homesite option contracts and
other transactions with VIEs, we make estimates regarding cash
flows and other assumptions. We believe that our critical
assumptions underlying these estimates are reasonable based on
historical evidence and industry practice. Based on our analysis
of transactions entered into with VIEs, we determined that we
are the primary beneficiary of certain of these homesite option
contracts. Consequently, FIN 46(R) requires us to
consolidate the assets (homesites) at their fair value, although
(1) we have no legal title to the assets, (2) our
maximum exposure to loss is generally limited to the deposits or
letters of credits placed with these entities, and
(3) creditors, if any, of these entities have no recourse
against us. We classify these assets as inventory not
owned with a corresponding liability in obligations
for inventory not owned in the accompanying consolidated
statement of financial condition. Additionally, we have entered
into arrangements with VIEs to acquire homesites in which our
variable interest is insignificant and, therefore, we have
determined that we are not the primary beneficiary and are not
required to consolidate the assets of such VIEs.
In addition to land options recorded pursuant to FIN 46(R),
we evaluate land options in accordance with the provisions of
SFAS No. 49, Product Financing Arrangements.
When our deposits and pre-acquisition development costs exceed
certain thresholds, or we have determined that we are compelled
to exercise our option, we record the remaining purchase price
of the land in the consolidated statements of financial
condition under obligations for inventory not owned.
Stock-Based
Compensation
Effective January 1, 2006, we adopted
SFAS No. 123(R), Share-Based Payment,
(SFAS 123R) using the modified prospective
method. SFAS No. 123R generally requires entities to
recognize the cost of employee services in exchange for awards
of equity instruments based on the grant-date fair value of
those awards. That cost, based on the estimated number of awards
that are expected to vest, will be recognized over the period
during which the employee is required to provide the service in
exchange for the award. No compensation cost is recognized for
awards for which employees do not render the requisite service.
The grant-date fair value of employee share options and similar
instruments was estimated using the Black-Scholes valuation
model.
The Black-Scholes valuation model requires the input of
subjective assumptions, including the expected life of the
stock-based award and stock price volatility. The assumptions
used are managements best estimates,
52
but the estimates involve inherent uncertainties and the
application of management judgment. As a result, if other
assumptions had been used, the recorded and pro forma
stock-based compensation expense could have been materially
different from that depicted in the consolidated financial
statements.
Warranty
Reserves
In the normal course of business we will incur warranty related
costs associated with homes that have been delivered to the
homebuyers. Warranty reserves are established by charging cost
of sales and recognizing a liability for the estimated warranty
costs for each home that is delivered. We monitor this reserve
on a regular basis by evaluating the historical warranty
experience in each market in which we operate and the reserve is
adjusted as appropriate for current quantitative and qualitative
factors. Actual future warranty costs could differ from our
currently estimated amounts.
Insurance
and Litigation Reserves
Insurance and litigation reserves have been established for
estimated amounts based on an analysis of historical claims. We
have, and require the majority of our subcontractors to have,
general liability insurance that protects us against a portion
of our risk of loss from construction-related claims. We reserve
for costs to cover our self-insured retentions and deductible
amounts under these policies and for any costs in excess of our
coverage limits. Because of the high degree of judgment required
in determining these estimated reserve amounts, actual future
claim costs could differ from our currently estimated amounts.
Income
Taxes
We calculate a provision for income taxes using the asset and
liability method, under which deferred tax assets and
liabilities are recognized by identifying the temporary
differences arising from the different treatment of items for
tax and accounting purposes. We assess the realization of our
deferred tax assets to determine whether an income tax valuation
allowance is required. Based on all available evidence, both
positive and negative, and the weight of that evidence to the
extent such evidence can be objectively verified, we determine
whether it is more likely than not that all or a portion of the
deferred tax assets will be realized. In determining the future
tax consequences of events that have been recognized in our
consolidated financial statements or tax returns, judgment is
required. Differences between the anticipated and actual
outcomes of these future tax consequences could have a material
impact on our consolidated results of operations or financial
position.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of SFAS 109, (FIN 48).
FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is
required to meet before it is recognized in the consolidated
financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006. We adopted FIN 48 effective
January 1, 2007, and recognized a $1.3 million
increase in the liability for unrecognized tax benefits, which
was accounted for as a reduction to the retained earnings
balance at January 1, 2007. In accordance with the
transition requirements of FIN 48, results of prior periods
have not been restated.
Results
of Operations Consolidated
Fiscal
Year 2007 compared to Fiscal Year 2006
Total revenues decreased 12% to $2.2 billion for the year
ended December 31, 2007, from $2.5 billion for the
year ended December 31, 2006. This decrease is primarily
attributable to a decrease in Homebuilding revenues of 12%.
For the year ended December 31, 2007, we had a loss from
continuing operations before benefit for income taxes of
$1.4 billion as compared to a loss from continuing
operations before benefit for income taxes of
$243.6 million for the year ended December 31, 2006.
Results for 2007 and 2006 include charges totaling
53
$1.3 billion and $586.7 million, respectively, related
to inventory impairments, abandonment costs, joint venture
impairments, goodwill impairments and the provision for
settlement of loss contingency.
Our effective tax rate was 2.5% and 17.6% for the years ended
December 31, 2007 and 2006, respectively. The 2007
effective tax rate was primarily impacted by a valuation
allowance on our deferred tax asset. The 2006 effective tax rate
was primarily impacted by a valuation allowance on certain
deferred tax assets and the non-deductible state portion of the
impairment of our investment in unconsolidated joint ventures,
and the provision of the settlement of a loss contingency in
connection with the Transeastern JV.
For the year ended December 31, 2007, we had a loss from
continuing operations, net of taxes, of $1.3 billion (or a
loss of $22.22 per diluted share) compared to a loss from
continuing operations, net of taxes, of $200.8 million (or
a loss of $3.37 per diluted share) for the year ended
December 31, 2006. For the year ended December 31,
2007, we had a net loss of $1.3 billion (or a loss of
$22.60 per diluted share) compared to a net loss of
$201.2 million (or a loss of $3.38 per diluted share) for
the year ended December 31, 2006.
Homebuilding
Homebuilding revenues decreased 12% to $2.2 billion for the
year ended December 31, 2007, from $2.4 billion for
the year ended December 31, 2006. This decrease is
primarily due to a decrease in revenue from home sales to
$2.0 billion for the year ended December 31, 2007 from
$2.3 billion for the year ended December 31, 2006. The
decrease in revenue from home sales, which is net of buyer
incentives, was due to a 9% decrease in the number of deliveries
from continuing operations to 6,580 for the year ended
December 31, 2007 from 7,260 for the year ended
December 31, 2006. The average price of homes delivered
from continuing operations fell slightly, decreasing to $311,000
for the year ended December 31, 2007, from $318,000 for the
year ended December 31, 2006. We expect our home sales
revenues to continue to decrease in 2008 as the number of home
deliveries declines and the average price of homes delivered
continues to be impacted by increased incentives as a result of
severe market conditions in the new and existing home industry
combined with diminished consumer confidence, the oversupply of
new and existing homes available for sale, increased
foreclosures and downward pressure on home prices.
For the year ended December 31, 2007, we had a homebuilding
gross loss of $507.4 million as compared to a gross profit
of $417.9 million for the year ended December 31,
2006. This decrease is primarily due to an increase in inventory
impairments and abandonment costs during the year ended
December 31, 2007 in addition to the decrease in the number
of deliveries coupled with higher incentives on homes delivered
in response to challenging homebuilding market conditions.
Inventory impairments and abandonment costs were
$852.7 million for the year ended December 31, 2007
compared to $153.2 million for the year ended
December 31, 2006. For the year ended December 31,
2007, our incentives from continuing operations increased to
$43,900 per home delivered from $21,200 per home delivered for
the year ended December 31, 2006. We expect gross margins
to continue to decline in 2008 due to our expected continued use
of higher incentives to drive our sales rates and downward
pressure on home prices in response to challenging market
conditions.
SG&A expenses increased to $362.7 million for the year
ended December 31, 2007, from $358.3 million for the
year ended December 31, 2006. This increase in expenses is
due to: (i) an increase of $22.6 million in
professional and consultant fees related to the Transeastern JV
settlement and professional services obtained in connection with
the development of a long term business plan and the evaluation
of our restructuring options; and (ii) an increase of
$9.3 million in selling and marketing expenses. The
increase in SG&A expenses was partially offset by a
reduction in overhead and related expenses.
SG&A expenses as a percentage of revenues from home sales
for the year ended December 31, 2007 increased to 18%, as
compared to 16% for the year ended December 31, 2006. The
increase in SG&A expenses as a percentage of home sales
revenues is due to the factors discussed above. We expect our
selling expenses as a percentage of our revenue from home sales
to continue to increase in 2008 due to the competition for
homebuyers.
54
For the year ended December 31, 2007, we had a loss from
unconsolidated joint ventures of $14.9 million compared to
income from unconsolidated joint ventures of $104.7 million
for the year ended December 31, 2006. The decrease in our
earnings from unconsolidated joint ventures is primarily due to:
(i) reduced earnings in the joint ventures as our joint
ventures are experiencing similar severe market conditions as
our consolidated operations and (ii) a reduction in the
number of joint ventures. In addition, during the year ended
December 31, 2007 and 2006, we recorded impairment losses
of $194.1 million and $152.8 million, respectively,
related to unconsolidated joint ventures. For the year ended
December 31, 2007, our unconsolidated joint ventures
delivered 1,666 homes as compared to 3,951 homes delivered
during the comparable period in the prior year.
Net Sales
Orders and Homes in Backlog (Consolidated)
For the year ended December 31, 2007, net sales orders from
continuing operations decreased by 21% to 4,836 as compared to
6,085 for the year ended December 31, 2006. The decrease in
net sales orders is due to decreased demand for new homes and
higher cancellation rates. We expect these factors to continue
to negatively impact our net sales orders until the markets
normalize.
Our cancellation rate increased to 38% for the year ended
December 31, 2007 from 32% for the year ended
December 31, 2006. Except for our West region, all of our
regions experienced increases in cancellation rates for the year
ended December 31, 2007 when compared with the same period
in 2006. Our Florida region had the largest increase in
cancellation rate to 47% for the year ended December 31,
2007 from 33% for the year ended December 31, 2006. Our
Texas region also experienced a large increase in cancellation
rate to 35% for the year ended December 31, 2007 from 28%
for the year ended December 31, 2006. The cancellation rate
for our Mid-Atlantic region was 33% for the year ended
December 31, 2007, which represents an 8% increase over the
comparative period in the prior year. The cancellation rate for
our West region was 36% for the year ended December 31,
2007, which represents an 8% decrease over the comparative
period in the prior year.
We had 2,379 homes in backlog from continuing operations as of
December 31, 2007, as compared to 3,869 homes in backlog as
of December 31, 2006. The 39% decrease in backlog units is
primarily due to a decline in sales orders and an increase in
cancellation rates as a result of decreased demand. The sales
value of backlog from continuing operations decreased 47% to
$736.3 million at December 31, 2007, from
$1.4 billion at December 31, 2006, due to the decrease
in the number of homes in backlog in addition to a decrease in
the average selling price of homes in backlog to $310,000 from
$361,000 from period to period. The decrease in the average
selling price of homes in backlog was primarily due to increased
incentives and a change in product mix. Contracts with a
third-party that marketed homes in the United Kingdom included
in backlog at December 31, 2007 were cancelled in 2008.
These contracts were for 511 homes, representing
$115.6 million in revenue. At June 30, 2008, our
consolidated continuing operations had 1,580 homes in backlog
representing $479.3 million in revenue. We expect the
average selling price of homes in backlog to decrease in the
future as cancellations remain higher than historical levels and
higher incentives are offered to move home inventory.
Net Sales
Orders and Homes in Backlog (Unconsolidated Joint
Ventures)
For the year ended December 31, 2007, net sales orders
increased by 79% as compared to the year ended December 31,
2006. The increase in net sales orders was due to high
cancellation rates experienced during the third quarter of last
year by the Transeastern JV. Sales orders at our other joint
ventures declined 15% due to worsening market conditions,
decreased demand and higher cancellation rates in the current
year. We expect these factors to continue to negatively impact
our combined net sales orders until the markets strengthen. The
decrease in net sales orders at our joint ventures other than
the Transeastern JV was also due to a decline in the number of
active communities. We intend to limit the use of joint ventures
that build and sell homes.
We had 94 homes in backlog as of December 31, 2007, as
compared to 1,199 homes in backlog as of December 31, 2006.
The 92% decrease in backlog is primarily due to a decline in net
sales orders due to the factors described above. Additionally,
the results of operations of the Transeastern JV, which were
previously included in the results for the unconsolidated joint
ventures, have been included in our consolidated results
beginning on July 31, 2007.
55
Joint venture revenues are not included in our consolidated
financial statements. At December 31, 2007, the sales value
of our joint ventures homes in backlog was
$24.7 million compared to $365.6 million at
December 31, 2006. This decrease is due to the decrease in
the number of homes in backlog and the decrease in the average
selling price of homes in backlog to $263,000 from $305,000 from
year to year.
In some cases our Chapter 11 filings have constituted an
event of default under the joint venture lender agreements which
have resulted in the joint ventures debt becoming
immediately due and payable, limiting the joint ventures
access to future capital. See additional discussion regarding
our joint ventures located in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Financial
Condition, Liquidity and Capital Resources.
Financial
Services
Financial Services revenues decreased to $36.5 million for
the year ended December 31, 2007, from $63.3 million
for the year ended December 31, 2006. This 42% decrease is
due primarily to a decrease in the number of closings at our
title operations. For the year ended December 31, 2007, our
mix of mortgage originations was 6% adjustable rate mortgages
(of which approximately 91% were interest only) and 94% fixed
rate mortgages, which is a shift from 19% adjustable rate
mortgages (of which approximately 89% were interest only) and
81% fixed rate mortgages in the comparable period of the prior
year. The average FICO score of our homebuyers during the year
ended December 31, 2007 was 731, and the average
loan-to-value ratio on first mortgages was 79%. For the years
ended December 31, 2007 and 2006, approximately 10% of our
homebuyers paid in cash. Our combined mortgage operations
capture ratio for non-cash homebuyers increased to 70% for the
year ended December 31, 2007 from 69% for the year ended
December 31, 2006. The number of closings at our mortgage
operations decreased to 5,192 for the year ended
December 31, 2007, from 6,276 for the year ended
December 31, 2006. Our combined title operations capture
ratio was 97% for the year ended December 31, 2007, down
slightly from the comparative prior periods 98% capture
ratio. The number of closings at our title operations decreased
to 13,792 for the year ended December 31, 2007, from 23,248
for the same period in 2006 as a result of deteriorating market
conditions. Non-affiliated customers accounted for approximately
41% of our title company revenues for the year ended
December 31, 2007.
Financial Services expenses decreased to $36.3 million for
the year ended December 31, 2007, from $41.8 million
for the year ended December 31, 2006. This 13% decrease is
a result of reduced staff levels in 2007 versus 2006 in response
to a more challenging housing market.
Discontinued
Operations
On June 6, 2007, we sold substantially all of our
Dallas/Fort Worth division to an independent third-party
for $56.5 million and realized a pre-tax loss on disposal
of $13.6 million.
In accordance with SFAS 144, results of our
Dallas/Fort Worth division have been classified as
discontinued operations, and prior periods have been restated to
be consistent with the December 31, 2007 presentation.
Discontinued operations include Dallas/Fort Worth division
revenues of $47.9 million and $132.7 million for the
year ended December 31, 2007 and 2006, respectively. The
Dallas/Fort Worth division had a net loss of
$22.8 million for the year ended December 31, 2007 as
compared to a net loss of $0.4 million for the year ended
December 31, 2006.
Fiscal
Year 2006 Compared to Fiscal Year 2005
Total revenues from continuing operations increased 4% to
$2.5 billion for the year ended December 31, 2006,
from $2.4 billion for the year ended December 31,
2005. This increase was attributable to an increase in
Homebuilding revenues of 3%, and an increase in Financial
Services revenues of 33%.
For the year ended December 31, 2006, we had a loss from
continuing operations before benefit for income taxes of
$243.6 million as compared to income from continuing
operations before benefit for income taxes of
$344.6 million for the year ended December 31, 2005.
This decrease is due primarily to (1) $153.2 million
in inventory impairments and write-offs of land deposits and
related abandonment costs, (2) $152.8 million in
56
impairments related to our unconsolidated joint ventures,
(3) a $275.0 million increase in the estimated loss
contingency related to the settlement of the Transeastern JV
litigation, and (4) goodwill impairments totaling
$5.7 million.
Our effective tax rate was 17.6% and 36.7% for the year ended
December 31, 2006 and 2005, respectively. The 2006
effective tax rate was primarily impacted by a valuation
allowance on certain deferred tax assets and the non-deductible
state portion of the impairment of our investment in
unconsolidated joint ventures, and the provision of the
settlement of a loss contingency in connection with the
Transeastern JV.
For the year ended December 31, 2006, we had a loss from
continuing operations, net of taxes, of $200.8 million (or
a loss of $3.37 per diluted share) compared to net income from
continuing operations, net of taxes, of $218.1 million (or
$3.82 per diluted share) for the year ended December 31,
2005. For the year ended December 31, 2006, we had a net
loss of $201.2 million (or a loss of $3.38 per diluted
share) compared to net income of $218.3 million (or $3.68
per diluted share) for the year ended December 31, 2005.
Homebuilding
Homebuilding revenues increased 3% to $2.4 billion for the
year ended December 31, 2006 compared to the comparable
period in the prior year. This increase was due to a 6% increase
in revenue from home sales to $2.3 billion for the year
ended December 31, 2006 from $2.2 billion for the year
ended December 31, 2005, partially offset by a 29% decrease
in revenue from land sales to $131.9 million for the year
ended December 31, 2006 from $186.1 million for the
comparable period in 2005. The increase in revenue from home
sales, which is net of buyer incentives, was due to a 7%
increase in the average price of homes delivered to $318,000 for
the year ended December 31, 2006, from $297,000 for the
year ended December 31, 2005. The increase in the average
price of homes delivered is due to increased demand in many of
our markets in 2005 which allowed us to increase prices, and to
a lesser degree to changes in product mix. The decrease in
revenue from land sales was due to the sale of various large
tracts of land, particularly in the Phoenix market, during the
year ended December 31, 2005.
For the year ended December 31, 2006, we had a homebuilding
gross profit of $417.9 million as compared to a gross
profit of $591.0 million for the year ended
December 31, 2005. This decrease is primarily due to an
increase in inventory impairments and abandonment costs to
$153.2 million for the year ended December 31, 2006 in
addition to the decrease in the number of deliveries and higher
incentives on homes delivered in response to softening demand.
For the year ended December 31, 2006, our incentives
increased to $21,200 per home delivered from $8,800 per home
delivered for the year ended December 31, 2005.
SG&A expenses increased to $358.3 million for the year
ended December 31, 2006, from $309.1 million for the
year ended December 31, 2005. The increase in SG&A
expenses is due primarily to: (1) an increase of
$38.8 million in direct selling and advertising expenses,
which include commissions, closing costs, advertising and sales
associates compensation, as a result of the more challenging
housing market; (2) an increase of $10.1 million in
severance expenses resulting from employee termination benefits
and contract termination costs relating to certain consulting
contracts for which we did not expect to receive economic
benefit during the remaining terms; (3) an increase of $5.0
in stock-based compensation expense; and
(4) $3.5 million in professional fees related to the
Transeastern JV.
SG&A expenses as a percentage of revenues from home sales
for the year ended December 31, 2006 increased to 16%, as
compared to 14% for the year ended December 31, 2005. The
increase in SG&A expenses as a percentage of home sales
revenues is due to the factors discussed above. Our ratio of
SG&A expenses as a percentage of revenues from home sales
is also affected by the fact that our consolidated revenues from
home sales do not include revenues recognized by our
unconsolidated joint ventures; however, the compensation and
other expenses capitalized by us in connection with certain of
these joint ventures are included in our consolidated SG&A
expenses.
For the year ended December 31, 2006, we had income from
unconsolidated joint ventures of $104.7 million compared to
income of $45.7 million for the year ended
December 31, 2005. This increase is the result of an
increase in deliveries to 3,951 for the year ended
December 31, 2006 from 1,666 deliveries for
57
the year ended December 31, 2005. Impairments on
unconsolidated joint ventures totaled $152.8 million for
the year ended December 31, 2006 and consist of
(1) $145.1 million related to our investment in the
Transeastern JV and (2) $7.7 million from a joint
venture in Southwest Florida.
Net Sales
Orders and Homes in Backlog (Consolidated)
For the year ended December 31, 2006, net sales orders from
continuing operations decreased by 24% to 6,085 as compared to
8,042 for the year ended December 31, 2006. The decrease in
net sales orders is due to decreased demand for new homes and
higher cancellation rates, especially during the second half of
2006.
Our cancellation rate increased to 32% for the year ended
December 31, 2006 from 17% for the year ended
December 31, 2005. All of our regions experienced increases
in cancellation rates for the year ended December 31, 2006
when compared with the same period in 2005. Our West region had
the largest increase in cancellation rate to 44% for the year
ended December 31, 2006 from 18% for the year ended
December 31, 2005. Our Florida region also experienced a
large increase in cancellation rate to 33% for the year ended
December 31, 2006 from 11% for the year ended
December 31, 2005. The cancellation rate for our
Mid-Atlantic
region was 25% for the year ended December 31, 2006, which
represents a 6% increase over the comparative period in the
prior year. The cancellation rate for our Texas region was 28%
for the year ended December 31, 2006, which represents a 5%
decrease over the comparative period in the prior year.
We had 3,869 homes in backlog at December 31, 2006, as
compared to 4,984 homes in backlog at December 31, 2005.
The 22% decrease in backlog is primarily due to a decline in
sales orders and an increase in cancellation rates as a result
of decreased demand. The sales value of backlog decreased 17% to
$1.4 billion at December 31, 2006, from
$1.7 billion at December 31, 2005, due to the decrease
in the number of homes in backlog. The decrease in the sales
value of backlog was partially offset by a 6% increase in
average sales price to $361,000 from $339,000 for the same
periods.
Net Sales
Orders and Homes in Backlog (Unconsolidated Joint
Ventures)
For the year ended December 31, 2006, unconsolidated joint
ventures net sales orders decreased by 77% to 456 as compared to
2,009 for the year ended December 31, 2006 due to
challenging market conditions, decreased demand and higher
cancellation rates especially in the Transeastern JV. The
decrease in net sales orders was also due to a decline in the
number of active communities as we limit the use of joint
ventures that build and sell homes.
We had 1,199 homes in backlog as of December 31, 2006, as
compared to 4,749 homes in backlog as of December 31, 2005.
The 75% decrease in backlog primarily is due to a decline in net
sales orders due to the factors described above.
Joint venture revenues are not included in our consolidated
financial statements. At December 31, 2006, the sales value
of our joint ventures homes in backlog was
$365.6 million compared to $1.5 billion at
December 31, 2005. This decrease is due primarily to the
decrease in the number of homes in backlog. In addition, the
average selling price of homes in backlog decreased to $305,000
from $318,000 from period to period.
Financial
Services
Financial Services revenues increased to $63.3 million for
the year ended December 31, 2006, from $47.5 million
for the year ended December 31, 2005. This 33% increase was
due primarily to an increase in the number of closings at our
mortgage and title operations and increased revenue per loan at
our mortgage operations due to a shift toward more fixed rate
mortgages. For the year ended December 31, 2006, our mix of
mortgage originations was 19% adjustable rate mortgages (of
which approximately 89% were interest only) and 81% fixed rate
mortgages, which is a shift from 34% adjustable rate mortgages
and 66% fixed rate mortgages in the comparable period in 2005.
The average FICO score of our homebuyers during the year ended
December 31, 2006 was 728, and the average loan to value
ratio on first mortgages was 77%. For the year ended
December 31, 2006, approximately 10% of our homebuyers paid
in cash as compared to 11%
58
during the year ended December 31, 2005. Our combined
mortgage operations capture ratio for non-cash homebuyers
(excluding the Transeastern JV) increased to 69% for the year
ended December 31, 2006 from 65% for the year ended
December 31, 2005. The number of closings at our mortgage
operations decreased to 5,192 for the year ended
December 31, 2006, from 5,455 for the year ended
December 31, 2005. Our combined title operations capture
ratio (excluding the Transeastern JV) increased to 98% of our
homebuyers for the year ended December 31, 2006, from 91%
for the comparable period in 2005. The capture ratio for the
year ended December 31, 2005 was affected by an
organizational change in our Phoenix operations causing a loss
of closings during the period. The number of closings at our
title operations decreased slightly to 23,248 for the year ended
December 31, 2006, from 23,530 for the same period in 2005.
Non-affiliated customers accounted for approximately 66% of our
title company revenues for the year ended December 31, 2006.
Financial Services expenses increased to $41.8 million for
the year ended December 31, 2006, from $39.0 million
for the year ended December 31, 2005. This 7% increase is a
result of increased compensation and slightly higher staff
levels in 2006 compared to 2005.
Discontinued
Operations
On June 6, 2007, we sold substantially all of our
Dallas/Fort Worth division to Wall Homes Texas LLC for
$56.5 million and realized a pre-tax loss on disposal of
$13.6 million.
In accordance with SFAS 144, results of our
Dallas/Fort Worth division have been classified as
discontinued operations, and prior periods have been restated to
be consistent with the December 31, 2007 presentation.
Discontinued operations include Dallas/Fort Worth division
revenues of $132.7 million and $101.0 million for the
year ended December 31, 2006 and 2005, respectively. The
Dallas/Fort Worth division had a net loss of
$0.4 million for the year ended December 31, 2006 as
compared to net income of $0.2 million for the year ended
December 31, 2005.
Reportable
Segments
Our operating segments are aggregated into reportable segments
in accordance with Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise and
Related Information, based primarily upon similar economic
characteristics, product type, geographic area, and information
used by the chief operating decision maker to allocate resources
and assess performance. Our reportable segments consist of our
four major Homebuilding geographic regions (Florida,
Mid-Atlantic, Texas and the West) and our Financial Services
operations.
Homebuilding
Operations
The reportable segments for our Homebuilding operations are as
follows:
Florida: Central Florida, Jacksonville,
Southeast Florida, Southwest Florida, Tampa/St. Petersburg
Mid-Atlantic: Baltimore/Southern Pennsylvania,
Nashville, Northern Virginia (on September 25, 2007 we sold
in bulk, home sites in our Mid-Atlantic (excluding Nashville)
and Virginia divisions)
Texas: Austin, Houston, San Antonio (on
June 6, 2007, we sold substantially all of our
Dallas/Fort Worth division)
West: Colorado, Las Vegas, Phoenix
59
Selected
Homebuilding Operations and Financial Data
The following tables set forth selected operational and
financial data for our Homebuilding operations for the periods
indicated (dollars in millions, except average price in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Homebuilding revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of homes
|
|
$
|
849.1
|
|
|
$
|
999.2
|
|
|
$
|
829.4
|
|
Sales of land
|
|
|
42.8
|
|
|
|
18.8
|
|
|
|
29.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Florida
|
|
|
891.9
|
|
|
|
1,018.0
|
|
|
|
859.2
|
|
Mid-Atlantic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of homes
|
|
|
228.2
|
|
|
|
258.8
|
|
|
|
290.3
|
|
Sales of land
|
|
|
36.8
|
|
|
|
47.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mid-Atlantic
|
|
|
265.0
|
|
|
|
306.0
|
|
|
|
290.9
|
|
Texas(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of
homes(1)
|
|
|
625.4
|
|
|
|
592.0
|
|
|
|
408.4
|
|
Sales of
land(1)
|
|
|
9.6
|
|
|
|
10.3
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Texas(1)
|
|
|
635.0
|
|
|
|
602.3
|
|
|
|
415.4
|
|
West:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of homes
|
|
|
346.7
|
|
|
|
459.4
|
|
|
|
646.3
|
|
Sales of land
|
|
|
20.2
|
|
|
|
55.6
|
|
|
|
148.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total West
|
|
|
366.9
|
|
|
|
515.0
|
|
|
|
795.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues
|
|
$
|
2,158.8
|
|
|
$
|
2,441.3
|
|
|
$
|
2,360.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
(543.6
|
)
|
|
$
|
11.8
|
|
|
$
|
138.1
|
|
Mid-Atlantic
|
|
|
(119.0
|
)
|
|
|
(20.9
|
)
|
|
|
38.1
|
|
Texas(1)
|
|
|
52.4
|
|
|
|
59.4
|
|
|
|
33.6
|
|
West
|
|
|
(473.1
|
)
|
|
|
26.4
|
|
|
|
186.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding
|
|
|
(1,083.3
|
)
|
|
|
76.7
|
|
|
|
396.2
|
|
Financial Services
|
|
|
(0.8
|
)
|
|
|
21.5
|
|
|
|
8.5
|
|
Corporate and unallocated
|
|
|
(268.9
|
)
|
|
|
(341.8
|
)
|
|
|
(60.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from continuing operations before income
taxes
|
|
$
|
(1,353.0
|
)
|
|
$
|
(243.6
|
)
|
|
$
|
344.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Impairment charges on active communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
95.8
|
|
|
$
|
13.2
|
|
|
$
|
1.8
|
|
Mid-Atlantic
|
|
|
16.0
|
|
|
|
26.2
|
|
|
|
0.8
|
|
Texas(1)
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
|
|
West
|
|
|
68.0
|
|
|
|
41.9
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180.8
|
|
|
|
81.9
|
|
|
|
6.5
|
|
Write-offs of deposits and abandonment costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
370.1
|
|
|
|
8.3
|
|
|
|
|
|
Mid-Atlantic
|
|
|
63.3
|
|
|
|
11.8
|
|
|
|
|
|
Texas(1)
|
|
|
5.3
|
|
|
|
0.2
|
|
|
|
0.2
|
|
West
|
|
|
233.2
|
|
|
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
671.9
|
|
|
|
71.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments and abandonment costs
|
|
$
|
852.7
|
|
|
$
|
153.2
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Homes
|
|
|
$
|
|
|
Homes
|
|
|
$
|
|
|
Homes
|
|
|
$
|
|
|
Deliveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
2,471
|
|
|
$
|
849.1
|
|
|
|
2,742
|
|
|
$
|
999.2
|
|
|
|
2,785
|
|
|
$
|
829.4
|
|
Mid-Atlantic
|
|
|
649
|
|
|
|
228.2
|
|
|
|
683
|
|
|
|
258.8
|
|
|
|
697
|
|
|
|
290.3
|
|
Texas(1)
|
|
|
2,421
|
|
|
|
625.4
|
|
|
|
2,382
|
|
|
|
592.0
|
|
|
|
1,610
|
|
|
|
408.4
|
|
West
|
|
|
1,039
|
|
|
|
346.7
|
|
|
|
1,453
|
|
|
|
459.4
|
|
|
|
2,228
|
|
|
|
646.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
6,580
|
|
|
|
2,049.4
|
|
|
|
7,260
|
|
|
|
2,309.4
|
|
|
|
7,320
|
|
|
|
2,174.4
|
|
Discontinued
operations(1)
|
|
|
190
|
|
|
|
44.9
|
|
|
|
564
|
|
|
|
129.7
|
|
|
|
449
|
|
|
|
92.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,770
|
|
|
|
2,094.3
|
|
|
|
7,824
|
|
|
|
2,439.1
|
|
|
|
7,769
|
|
|
|
2,266.6
|
|
Unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida (excluding Transeastern)
|
|
|
40
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transeastern
|
|
|
739
|
|
|
|
174.8
|
|
|
|
2,173
|
|
|
|
659.3
|
|
|
|
347
|
|
|
|
106.6
|
|
Mid-Atlantic
|
|
|
16
|
|
|
|
4.0
|
|
|
|
108
|
|
|
|
31.2
|
|
|
|
185
|
|
|
|
55.5
|
|
West
|
|
|
871
|
|
|
|
255.9
|
|
|
|
1,670
|
|
|
|
590.7
|
|
|
|
1,134
|
|
|
|
382.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint ventures
|
|
|
1,666
|
|
|
|
446.0
|
|
|
|
3,951
|
|
|
|
1,281.2
|
|
|
|
1,666
|
|
|
|
544.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
8,436
|
|
|
$
|
2,540.3
|
|
|
|
11,775
|
|
|
$
|
3,720.3
|
|
|
|
9,435
|
|
|
$
|
2,810.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Homes
|
|
|
$
|
|
|
Homes
|
|
|
$
|
|
|
Homes
|
|
|
$
|
|
|
Net Sales
Orders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
1,349
|
|
|
$
|
381.9
|
|
|
|
2,028
|
|
|
$
|
809.2
|
|
|
|
2,794
|
|
|
$
|
959.2
|
|
Mid-Atlantic
|
|
|
517
|
|
|
|
174.6
|
|
|
|
588
|
|
|
|
227.8
|
|
|
|
597
|
|
|
|
243.1
|
|
Texas(2)
|
|
|
1,996
|
|
|
|
506.6
|
|
|
|
2,406
|
|
|
|
611.3
|
|
|
|
2,182
|
|
|
|
558.2
|
|
West
|
|
|
974
|
|
|
|
269.8
|
|
|
|
1,063
|
|
|
|
345.6
|
|
|
|
2,469
|
|
|
|
817.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
4,836
|
|
|
|
1,332.9
|
|
|
|
6,085
|
|
|
|
1,993.9
|
|
|
|
8,042
|
|
|
|
2,578.1
|
|
Discontinued
operations(2)
|
|
|
60
|
|
|
|
15.6
|
|
|
|
498
|
|
|
|
119.8
|
|
|
|
572
|
|
|
|
124.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,896
|
|
|
|
1,348.5
|
|
|
|
6,583
|
|
|
|
2,113.7
|
|
|
|
8,614
|
|
|
|
2,702.5
|
|
Unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida (excluding Transeastern)
|
|
|
12
|
|
|
|
1.7
|
|
|
|
10
|
|
|
|
4.7
|
|
|
|
4
|
|
|
|
1.7
|
|
Transeastern
|
|
|
248
|
|
|
|
27.1
|
|
|
|
(208
|
)
|
|
|
(32.6
|
)
|
|
|
387
|
|
|
|
118.4
|
|
Mid-Atlantic
|
|
|
19
|
|
|
|
3.8
|
|
|
|
74
|
|
|
|
18.0
|
|
|
|
141
|
|
|
|
47.3
|
|
West
|
|
|
536
|
|
|
|
129.5
|
|
|
|
580
|
|
|
|
161.0
|
|
|
|
1,477
|
|
|
|
548.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint ventures
|
|
|
815
|
|
|
|
162.1
|
|
|
|
456
|
|
|
|
151.1
|
|
|
|
2,009
|
|
|
|
715.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
5,711
|
|
|
$
|
1,510.6
|
|
|
|
7,039
|
|
|
$
|
2,264.8
|
|
|
|
10,623
|
|
|
$
|
3,417.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of cancellations. |
|
(2) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
Homes
|
|
|
$
|
|
|
Price
|
|
|
Homes
|
|
|
$
|
|
|
Price
|
|
|
Homes
|
|
|
$
|
|
|
Price
|
|
|
Sales Backlog:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida(1)
|
|
|
1,330
|
|
|
$
|
435.7
|
|
|
$
|
328
|
|
|
|
2,228
|
|
|
$
|
851.9
|
|
|
$
|
382
|
|
|
|
2,937
|
|
|
$
|
1,036.7
|
|
|
$
|
353
|
|
Mid-Atlantic
|
|
|
80
|
|
|
|
28.1
|
|
|
$
|
351
|
|
|
|
206
|
|
|
|
80.5
|
|
|
$
|
391
|
|
|
|
246
|
|
|
|
94.7
|
|
|
$
|
385
|
|
Texas(2)
|
|
|
549
|
|
|
|
154.8
|
|
|
$
|
282
|
|
|
|
974
|
|
|
|
273.6
|
|
|
$
|
281
|
|
|
|
950
|
|
|
|
254.3
|
|
|
$
|
268
|
|
West
|
|
|
420
|
|
|
|
117.7
|
|
|
$
|
280
|
|
|
|
461
|
|
|
|
189.9
|
|
|
$
|
412
|
|
|
|
851
|
|
|
|
303.8
|
|
|
$
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
2,379
|
|
|
|
736.3
|
|
|
$
|
310
|
|
|
|
3,869
|
|
|
|
1,395.9
|
|
|
$
|
361
|
|
|
|
4,984
|
|
|
|
1,689.5
|
|
|
$
|
339
|
|
Discontinued
operations(2)
|
|
|
3
|
|
|
|
0.8
|
|
|
$
|
253
|
|
|
|
222
|
|
|
|
55.1
|
|
|
$
|
248
|
|
|
|
288
|
|
|
|
65.0
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
|
2,382
|
|
|
|
737.1
|
|
|
$
|
309
|
|
|
|
4,091
|
|
|
|
1,451.0
|
|
|
$
|
355
|
|
|
|
5,272
|
|
|
|
1,754.5
|
|
|
$
|
333
|
|
Unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida (excluding Transeastern)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
14.2
|
|
|
$
|
308
|
|
|
|
36
|
|
|
|
9.5
|
|
|
$
|
261
|
|
Transeastern
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
194.3
|
|
|
$
|
279
|
|
|
|
3,078
|
|
|
|
886.2
|
|
|
$
|
288
|
|
Mid-Atlantic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1.3
|
|
|
$
|
434
|
|
|
|
92
|
|
|
|
31.3
|
|
|
$
|
341
|
|
West
|
|
|
94
|
|
|
|
24.7
|
|
|
$
|
263
|
|
|
|
453
|
|
|
|
155.8
|
|
|
$
|
344
|
|
|
|
1,543
|
|
|
|
585.5
|
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint ventures
|
|
|
94
|
|
|
|
24.7
|
|
|
$
|
263
|
|
|
|
1,199
|
|
|
|
365.6
|
|
|
$
|
305
|
|
|
|
4,749
|
|
|
|
1,512.5
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
2,476
|
|
|
$
|
761.8
|
|
|
$
|
308
|
|
|
|
5,290
|
|
|
$
|
1,816.6
|
|
|
$
|
343
|
|
|
|
10,021
|
|
|
$
|
3,267.0
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Contracts with a third-party that marketed homes in the United
Kingdom included in backlog at December 31, 2007 were
cancelled in 2008. These contracts were for 511 homes
representing $115.6 million in revenue. |
|
(2) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Deliveries
|
|
|
Sales Orders
|
|
|
Deliveries
|
|
|
Sales Orders
|
|
|
Deliveries
|
|
|
Sales Orders
|
|
|
Average Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
344
|
|
|
$
|
283
|
|
|
$
|
364
|
|
|
$
|
399
|
|
|
$
|
298
|
|
|
$
|
343
|
|
Mid-Atlantic
|
|
$
|
352
|
|
|
$
|
338
|
|
|
$
|
379
|
|
|
$
|
387
|
|
|
$
|
417
|
|
|
$
|
407
|
|
Texas(1)
|
|
$
|
258
|
|
|
$
|
254
|
|
|
$
|
249
|
|
|
$
|
254
|
|
|
$
|
254
|
|
|
$
|
256
|
|
West
|
|
$
|
334
|
|
|
$
|
277
|
|
|
$
|
316
|
|
|
$
|
325
|
|
|
$
|
290
|
|
|
$
|
331
|
|
Continuing operations
|
|
$
|
311
|
|
|
$
|
276
|
|
|
$
|
318
|
|
|
$
|
328
|
|
|
$
|
297
|
|
|
$
|
321
|
|
Discontinued
operations(1)
|
|
$
|
236
|
|
|
$
|
259
|
|
|
$
|
230
|
|
|
$
|
241
|
|
|
$
|
205
|
|
|
$
|
218
|
|
Total
|
|
$
|
309
|
|
|
$
|
275
|
|
|
$
|
312
|
|
|
$
|
321
|
|
|
$
|
292
|
|
|
$
|
314
|
|
Unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida (excluding Transeastern)
|
|
$
|
282
|
|
|
$
|
142
|
|
|
$
|
|
|
|
$
|
476
|
|
|
$
|
|
|
|
$
|
410
|
|
Transeastern
|
|
$
|
237
|
|
|
$
|
109
|
|
|
$
|
303
|
|
|
$
|
157
|
|
|
$
|
307
|
|
|
$
|
306
|
|
Mid-Atlantic
|
|
$
|
249
|
|
|
$
|
202
|
|
|
$
|
289
|
|
|
$
|
243
|
|
|
$
|
300
|
|
|
$
|
336
|
|
West
|
|
$
|
294
|
|
|
$
|
242
|
|
|
$
|
354
|
|
|
$
|
278
|
|
|
$
|
337
|
|
|
$
|
371
|
|
Total unconsolidated joint ventures
|
|
$
|
268
|
|
|
$
|
199
|
|
|
$
|
324
|
|
|
$
|
332
|
|
|
$
|
327
|
|
|
$
|
356
|
|
Combined total
|
|
$
|
301
|
|
|
$
|
265
|
|
|
$
|
316
|
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
322
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
Fiscal
Year 2007 Compared to Fiscal Year 2006
Florida: Homebuilding revenues decreased 12%
to $892.0 million for the year ended December 31, 2007
from $1.0 billion for the year ended December 31,
2006. The decrease in Homebuilding revenues was due to a 15%
decrease in revenues from home sales to $849.1 million for
the year ended December 31, 2007 from $999.2 million
for the year ended December 31, 2006, partially offset by
an increase in revenue from land sales to $42.8 million for
the year ended December 31, 2007 from $18.8 million
for the year ended December 31, 2006. The decrease in
revenue from home sales was due to a 10% decrease in the number
of home deliveries to 2,471 homes delivered for the year ended
December 31, 2007 from 2,742 homes delivered for the year
ended December 31, 2006, and a 6% decrease in the average
selling price of homes to $344,000 for the year ended
December 31, 2007 from $364,000 for the year ended
December 31, 2006.
The gross margin on home sales decreased to 8% for the year
ended December 31, 2007 from 26% for the year ended
December 31, 2006. During the year ended December 31,
2007, we recognized $95.8 million in impairment charges
compared to $13.2 million for the year ended
December 31, 2006. Gross margin on home sales, excluding
impairments, was 19% for the year ended December 31, 2007,
compared to 27% for the year ended December 31, 2006. This
decrease in gross margin was primarily due to an increase in
sales incentives offered to home buyers. The average sales
incentive per home delivered increased 193% to $66,300 per home
for the year ended December 31, 2007, from $22,600 for the
year ended December 31, 2006.
For the year ended December 31, 2007, we generated a loss
of $372.7 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$370.1 million, as compared to a loss on land sales of
$1.6 million during the year ended December 31, 2006,
which included $8.3 million of write-offs of deposits and
abandonments costs.
For the year ended December 31, 2007, we incurred
$90.5 million of impairment charges and accrued obligations
related to our unconsolidated joint ventures as compared to
$152.8 million for the year ended December 31, 2006.
Mid-Atlantic: Homebuilding revenues decreased
13% to $265.0 million for the year ended December 31,
2007 from $306.0 million for the year ended
December 31, 2006. The decrease in Homebuilding revenues
was
63
primarily due to a 12% decrease in revenues from home sales to
$228.2 million for the year ended December 31, 2007
from $258.8 million for the year ended December 31,
2006, and in part due to a decrease in revenue from land sales
to $36.8 million for the year ended December 31, 2007
from $47.2 million for the year ended December 31,
2006. The decrease in revenue from home sales was due to:
(1) a 5% decrease in the number of home deliveries to 649
homes delivered for the year ended December 31, 2007 from
683 homes delivered for the year ended December 31, 2006,
and (2) a 7% decrease in the average selling price of homes
to $352,000 for the year ended December 31, 2007 from
$379,000 for the year ended December 31, 2006.
The gross margin on home sales decreased to 6% for the year
ended December 31, 2007 from 11% for the year ended
December 31, 2006. During the year ended December 31,
2007, we recognized $16.0 million in impairment charges
compared to $26.2 million for the year ended
December 31, 2006. Gross margin on home sales, excluding
impairments, was 13% for the year ended December 31, 2007,
compared to 21% for the year ended December 31, 2006. This
decrease in gross margin was primarily due to an increase in
sales incentives offered to home buyers. The average sales
incentive per home delivered increased 27% to $31,400 per home
for the year ended December 31, 2007, from $24,800 for the
year ended December 31, 2006.
For the year ended December 31, 2007, we generated a loss
of $76.8 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$63.3 million, as compared to a loss on land sales of
$19.2 million during the year ended December 31, 2006,
which included $11.8 million of write-offs of deposits and
abandonments costs.
Texas: Homebuilding revenues increased 5% to
$635.0 million for the year ended December 31, 2007
from $602.3 million for the year ended December 31,
2006. The increase in Homebuilding revenues was primarily due to
a 6% increase in revenues from home sales to $625.4 million
for the year ended December 31, 2007 from
$592.0 million for the year ended December 31, 2006,
partially offset by a decrease in revenue from land sales to
$9.6 million for the year ended December 31, 2007 from
$10.3 million for the year ended December 31, 2006.
The increase in revenue from home sales was due to a 2% increase
in the number of home deliveries to 2,421 homes delivered for
the year ended December 31, 2007 from 2,382 homes delivered
for the year ended December 31, 2006, and a 4% increase in
the average selling price of homes to $258,000 for the year
ended December 31, 2007 from $249,000 for the year ended
December 31, 2006.
The gross margin on home sales was 22% for the year ended
December 31, 2007, consistent with the comparable prior
year. During the year ended December 31, 2007, we
recognized $1.0 million in impairment charges compared to
$0.6 million for the year ended December 31, 2006. The
average sales incentive per home delivered increased 38% to
$18,100 per home for the year ended December 31, 2007, from
$13,100 for the year ended December 31, 2006.
For the year ended December 31, 2007, we generated a loss
of $4.3 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$5.3 million, compared to a $1.7 million profit during
the year ended December 31, 2006, which included
$0.2 million of write-offs of deposits and abandonments
costs.
West: Homebuilding revenues decreased 29% to
$366.9 million for the year ended December 31, 2007
from $515.0 million for the year ended December 31,
2006. The decrease in Homebuilding revenues was primarily due to
a 25% decrease in revenues from home sales to
$346.7 million for the year ended December 31, 2007
from $459.4 million for the year ended December 31,
2006, and in part due to a decrease in revenue from land sales
to $20.2 million for the year ended December 31, 2007
from $55.6 million for the year ended December 31,
2006. The decrease in revenue from home sales was due to a 28%
decrease in the number of home deliveries to 1,039 homes
delivered for the year ended December 31, 2007 from 1,453
homes delivered for the year ended December 31, 2006,
partially offset by a 6% increase in the average selling price
of homes to $334,000 for the year ended December 31, 2007
from $316,000 for the year ended December 31, 2006.
The gross margin on home sales decreased to (9)% for the year
ended December 31, 2007 from 15% for the year ended
December 31, 2006. During the year ended December 31,
2007, we recognized $68.0 million in impairment charges
compared to $41.9 million for the year ended
December 31, 2006. Gross margin on
64
home sales, excluding impairments, was 11% for the year ended
December 31, 2007, compared to 24% for the year ended
December 31, 2006. This decrease in gross margin was
primarily due to an increase in sales incentives offered to home
buyers. The average sales incentive per home delivered increased
95% to $58,900 per home for the year ended December 31,
2007, from $30,200 for the year ended December 31, 2006.
For the year ended December 31, 2007, we generated a loss
of $240.5 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$233.2 million, as compared to a loss on land sales of
$44.3 million during year ended December 31, 2006,
which included $51.0 million of write-offs of deposits and
abandonment costs.
For the year ended December 31, 2007, we incurred
$99.9 million of impairment charges and accrued obligations
related to our unconsolidated joint ventures as compared to none
for the year ended December 31, 2006.
Fiscal
Year 2006 Compared to Fiscal Year 2005
Florida: Homebuilding revenues increased 18%
to $1.0 billion for the year ended December 31, 2006
from $859.2 million for the year ended December 31,
2005. The increase in Homebuilding revenues was primarily due to
a 20% increase in revenues from home sales to
$999.2 million for the year ended December 31, 2006
from $829.4 million for the year ended December 31,
2005, partially offset by a decrease in revenue from land sales
to $18.8 million for the year ended December 31, 2006
from $29.8 million for the year ended December 31,
2005. The increase in revenue from home sales was due to a 22%
increase the average selling price of homes to $364,000 for the
year ended December 31, 2006 from $298,000 for the year
ended December 31, 2005, partially offset by a 2% decrease
in the number of home deliveries to 2,742 homes delivered for
the year ended December 31, 2006 from 2,785 homes delivered
for the year ended December 31, 2005.
The gross margin on home sales increased to 26% for the year
ended December 31, 2006 from 25% for the year ended
December 31, 2005. During the year ended December 31,
2006, we recognized $13.2 million in impairment charges
compared to $1.8 million for the year ended
December 31, 2005. Gross margin on home sales, excluding
impairments, was 27% for the year ended December 31, 2006,
compared to 25% for the year ended December 31, 2005. The
average sales incentive per home delivered increased 562% to
$22,600 per home for the year ended December 31, 2006, from
$3,400 for the year ended December 31, 2005.
For the year ended December 31, 2006, we generated a loss
of $1.6 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$8.3 million, as compared to a profit on land sales of
$15.4 million during year ended December 31, 2005.
There were no write-offs of deposits and abandonment costs for
the year ended December 31, 2005.
Impairments on our investments in, and related receivables from,
unconsolidated joint ventures of $152.8 million were
recognized during the year ended December 31, 2006.
Mid-Atlantic: Homebuilding revenues increased
5% to $306.0 million for the year ended December 31,
2006 from $290.9 million for the year ended
December 31, 2005. The increase in Homebuilding revenues
was due to a sizeable increase in revenues from land sales to
$47.2 million for the year ended December 31, 2006
from $0.6 million for the year ended December 31,
2005, partially offset by a 11% decrease in revenue from home
sales to $258.8 million for the year ended
December 31, 2006 from $290.3 million for the year
ended December 31, 2005. The decrease in revenue from home
sales was due to a 9% decrease the average selling price of
homes to $379,000 for the year ended December 31, 2006 from
$417,000 for the year ended December 31, 2005, and a 2%
decrease in the number of home deliveries to 683 homes delivered
for the year ended December 31, 2006 from 697 homes
delivered for the year ended December 31, 2005.
The gross margin on home sales decreased to 11% for the year
ended December 31, 2006 from 24% for the year ended
December 31, 2005. During the year ended December 31,
2006, we recognized $26.2 million in impairment charges
compared to $0.8 million for the year ended
December 31, 2005. Gross margin on home sales, excluding
impairments, was 21% for the year ended December 31, 2006,
compared to 24% for the year ended December 31, 2005. This
decrease in gross margin was primarily due to an increase in
sales
65
incentives offered to home buyers. The average sales incentive
per home delivered increased 249% to $24,800 per home for the
year ended December 31, 2006, from $7,100 for the year
ended December 31, 2005.
For the year ended December 31, 2006, we generated a loss
of $19.2 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$11.8 million, as compared to a loss on land sales of
$4.6 million during year ended December 31, 2005.
There were not any write-offs of deposits and abandonment costs
for the year ended December 31, 2005.
Texas: Homebuilding revenues increased 45% to
$602.3 million for the year ended December 31, 2006
from $415.4 million for the year ended December 31,
2005. The increase in Homebuilding revenues was primarily due to
a 45% increase in revenues from home sales to
$592.0 million for the year ended December 31, 2006
from $408.4 million for the year ended December 31,
2005, and in part to an increase in revenue from land sales to
$10.3 million for the year ended December 31, 2006
from $7.0 million for the year ended December 31,
2005. The increase in revenue from home sales was due to a 48%
increase in the number of home deliveries to 2,382 homes
delivered for the year ended December 31, 2006 from 1,610
homes delivered for the year ended December 31, 2005,
partially offset by a 2% decrease the average selling price of
homes to $249,000 for the year ended December 31, 2006 from
$254,000 for the year ended December 31, 2005.
The gross margin on home sales was 22% for the year ended
December 31, 2006, consistent with the comparable prior
year. During the year ended December 31, 2006, we
recognized $0.6 million in impairment charges. There were
no impairment charges on home sales for the year ended
December 31, 2005. The average sales incentive per home
delivered decreased 27% to $13,100 per home for the year ended
December 31, 2006, from $17,900 for the year ended
December 31, 2005.
For the year ended December 31, 2006, we generated a profit
of $1.7 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$0.3 million, as compared to a loss on land sales of
$1.6 million during year ended December 31, 2005,
which also included $0.2 million of write-offs of deposits
and abandonment costs.
West: Homebuilding revenues decreased 35% to
$515.1 million for the year ended December 31, 2006
from $795.0 million for the year ended December 31,
2005. The decrease in Homebuilding revenues was due to a 29%
decrease in revenues from home sales to $459.5 million for
the year ended December 31, 2006 from $646.3 million
for the year ended December 31, 2005, and a decrease in
revenue from land sales to $55.6 million for the year ended
December 31, 2006 from $148.7 million for the year
ended December 31, 2005. The decrease in revenue from home
sales was due to a 35% decrease in the number of home deliveries
to 1,453 homes delivered for the year ended December 31,
2006 from 2,228 homes delivered for the year ended
December 31, 2005, partially offset by a 9% increase the
average selling price of homes to $316,000 for the year ended
December 31, 2006 from $290,000 for the year ended
December 31, 2005.
The gross margin on home sales decreased to 15% for the year
ended December 31, 2006 from 28% for the year ended
December 31, 2005. For the year ended December 31,
2006, we recognized $41.9 million in impairment charges
compared to $3.9 million for the year ended
December 31, 2005. Gross margin on home sales, excluding
impairments, was 24% for the year ended December 31, 2006,
compared to 28% for the year ended December 31, 2005. This
decrease in gross margin was primarily due to an increase in
sales incentives offered to home buyers. The average sales
incentive per home delivered increased 222% to $30,200 per home
for the year ended December 31, 2006, from $9,400 for the
year ended December 31, 2005.
For the year ended December 31, 2006, we generated a loss
of $44.3 million on our revenues from land sales, which
included write-offs of deposits and abandonment costs of
$51.0 million, as compared to a profit on land sales of
$36.3 million during year ended December 31, 2005.
There were no write-offs of deposits and abandonment costs for
the year ended December 31, 2005.
Operating income for the year ended December 31, 2006
included a $5.7 million charge for the impairment of
goodwill at our Colorado division.
66
Financial
Services Operations
The following table presents selected financial data related to
our Financial Services reportable segment for the periods
indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
36.5
|
|
|
$
|
63.3
|
|
|
$
|
47.5
|
|
Expenses
|
|
|
36.3
|
|
|
|
41.8
|
|
|
|
39.0
|
|
Goodwill Impairment
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
$
|
(3.7
|
)
|
|
$
|
21.5
|
|
|
$
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Sources
and Uses of Cash
Our Homebuilding operations primary uses of cash have been
for land acquisitions, construction and development
expenditures, joint venture investments, and SG&A
expenditures. Our sources of cash to finance these uses have
been primarily cash generated from operations and cash from our
financing activities.
Our Financial Services operations primarily use cash to fund
mortgages, prior to their sale, and SG&A expenditures. We
rely primarily on internally generated funds, which include the
proceeds generated from the sale of mortgages, and the mortgage
operations warehouse lines of credit to fund these
operations. Our income before non-cash charges generally is our
most significant source of operating cash flow.
At December 31, 2007, we had unrestricted cash and cash
equivalents of $76.5 million as compared to
$54.2 million at December 31, 2006.
We are operating our businesses as debtors and
debtors-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders
of the Bankruptcy Court. As a result, we are subject to the
risks and uncertainties associated with our Chapter 11
cases which include, among other things:
|
|
|
|
|
our ability to operate subject to the terms of the
debtors-in-possession
financing;
|
|
|
|
our ability to obtain final approval of the debtor in possession
financing or some other financing alternative;
|
|
|
|
limitations on our ability to implement and execute our business
plans and strategy;
|
|
|
|
our ability to obtain and maintain normal terms with existing
and potential homebuyers, vendors and service providers and
maintain contracts and leases that are critical to our
operations;
|
|
|
|
our ability to obtain needed approval from the Bankruptcy Court
for transactions outside of the ordinary course of business,
which may limit our ability to respond on a timely basis to
certain events or take advantage of certain opportunities;
|
|
|
|
limitations on our ability to obtain Bankruptcy Court approval
with respect to motions in the Chapter 11 cases that we may
seek from time to time or potentially adverse decisions by the
Bankruptcy Court with respect to such motions, including as a
result of the actions of our creditors and other third parties,
who may oppose our plans or who may seek to require us to take
actions that we oppose;
|
|
|
|
limitations on our ability to reject contracts or leases that
are burdensome or uneconomical;
|
|
|
|
limitations on our ability to raise capital, including through
sales of assets; and
|
|
|
|
our ability to attract, motivate and retain key and essential
personnel is impacted by the Bankruptcy Code which limits our
ability to implement a retention program or take other measures
intended to motivate employees to remain with us.
|
67
These risks and uncertainties could negatively affect our
business and operations in various ways. For example, events or
publicity associated with our Chapter 11 cases could
adversely affect our relationships with existing and potential
homebuyers, vendors and employees, which in turn could adversely
affect our operations and financial condition, particularly if
such proceedings are protracted.
As a result of our Chapter 11 cases and the other matters
described herein, including the uncertainties related to the
fact that we have not yet had time to complete and obtain
confirmation of a plan of reorganization, there is substantial
doubt about our ability to continue as a going concern. Our
ability to continue as a going concern, including our ability to
meet our ongoing operational obligations, is dependent upon,
among other things:
|
|
|
|
|
our ability to generate and maintain adequate cash;
|
|
|
|
the cost, duration and outcome of the restructuring process;
|
|
|
|
our ability to comply with the terms of our cash collateral
order and, if necessary, seek further extensions of our ability
to use cash collateral;
|
|
|
|
our ability to achieve profitability following a restructuring
given housing market challenges; and
|
|
|
|
our ability to retain key employees.
|
These challenges are in addition to those operational and
competitive challenges that we face in connection with our
business.
As a result of severe market conditions and our liquidity
constraints, during the year ended December 31, 2007, we
abandoned our rights under certain option agreements which
resulted in a 21,100 unit decline in our controlled
homesites. Abandonment decisions were made following in depth
community by community analyses of all option contracts based on
projected returns, amount and timing of incremental cash flow,
and owned homesites. In connection with the abandonment of our
rights under these option contracts, we forfeited cash deposits
of $82.5 million and had letters of credit of
$98.5 million drawn at December 31, 2007, which
increased our outstanding borrowings. Through June 30, 2008
an additional $72.8 million of letters of credit have been
drawn related to the abandonment of option contracts. In certain
instances, we have entered into development agreements in
connection with option contracts which require us to complete
the development of the land, at a fixed reimbursable amount,
even if we choose not to exercise our option and forfeit our
deposit and even if our costs exceed the reimbursable amount. As
of December 31, 2007 we recorded a $43.6 million loss
accrual with respect thereto. See Note 3 to our
consolidated financial statements included herein. In 2008, we
expect to continue to reduce inventory in an attempt to further
align our inventory levels to housing demand in those markets we
serve, reduce our cost of sales relating to construction and
labor costs for the homes we build, and reduce our selling,
general and administrative costs to levels consistent with fewer
home deliveries to operate within our liquidity constraints.
These or future actions may not be sufficient to allow us to
continue our operations.
Our consolidated financial statements are presented on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. We
have $1.8 billion in borrowings, have experienced
significant losses for the years ended December 31, 2007
and 2006 and continue to generate negative cash flows from
operations. For the year ended December 31, 2007, we
incurred a net loss from continuing operations of
$1.3 billion and had stockholders deficit of
$475.5 million, which was a significant decrease compared
to $774.9 million at December 31, 2006. There is
substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern and emerge
successfully from our Chapter 11 cases will depend upon our
development and consummation of a plan of reorganization. The
accompanying consolidated financial statements do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets.
For the year ended December 31, 2007, cash used in
operating activities was $79.4 million, as compared to
$146.9 million during the year ended December 31,
2006. The improvement in the use of cash by our operating
activities is primarily a result of a decrease in our inventory
during the year ended December 31, 2007. On June 6,
2007, we sold substantially all of our Dallas/Fort Worth
division for approximately
68
$56.5 million in net cash proceeds and on
September 25, 2007 we sold in bulk, home sites in our
Mid-Atlantic and Virginia division for $31.3 million in net
cash proceeds. Both of these transactions helped to offset a
portion of the cash used by our operating activities during the
year ended December 31, 2007.
Cash used in investing activities was $34.0 million during
the year ended December 31, 2007, as compared to
$7.8 million during the year ended December 31, 2006.
The increase in cash used in investing activities is primarily
due to reductions in the receipt of capital distributions from
our unconsolidated joint ventures to $14.3 million during
the year ended December 31, 2007 from $52.9 million
for the prior year period and net acquisition cash disbursement
related to the Transeastern JV acquisition of $7.6 million,
partially offset by a decrease in net additions to property and
equipment to $8.9 million for the year ended
December 31, 2007 compared to $16.4 million for the
prior year period.
Refunds
of Federal & State Income Taxes
In April 2008, we received a $207.3 million refund of
previously paid income taxes for 2005 and 2006 through the
carryback of our taxable loss from 2007. In addition to this
refund resulting from the carryback of the 2007 loss through
June 2008, we have received refunds of overpayments of federal
and state income taxes reflected on our 2006 returns and a quick
refund application for 2007 estimated tax payments totaling
$33.4 million.
Financing
Activities
Our consolidated borrowings at December 31, 2007 were
$1.8 billion, an increase of $0.7 billion as compared
to December 31, 2006. See Note 8 to the consolidated
financial statements for homebuilding borrowings as of
December 31, 2007 and 2006.
The filing of the Chapter 11 cases triggered repayment
obligations under a number of instruments and agreements
relating to our direct and indirect financial obligations. As a
result, all our obligations under the notes became automatically
and immediately due and payable. We believe that any efforts to
enforce the payment obligations are stayed as a result of the
filing of the Chapter 11 cases in the Bankruptcy Court.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, we entered into
the Senior Secured Super-Priority Debtor in Possession Credit
and Security Agreement. The agreement provided for a first
priority and priming secured revolving credit interim commitment
of up to $134.6 million. The agreement was subsequently
amended to extend it to June 19, 2008. No funds were drawn
under the agreement. The agreement was subsequently terminated
and we entered into an agreement with our secured lenders to use
cash collateral on hand (cash generated by our operations,
including the sale of excess inventory and the proceeds of our
federal tax refund of $207.3 million received in April
2008). Under the Bankruptcy Court order dated June 20,
2008, we are authorized to use cash collateral of our first lien
and second lien lenders (approximately $358.0 million at
the time of the order) for a period of six months in a manner
consistent with a budget negotiated by the parties. The order
further provides for the paydown of $175.0 million to our
first lien term loan facility secured lenders, subject to
disgorgement provisions in the event that certain claims against
the lenders are successful and repayment is required. The order
also reserves our sole right to paydown an additional
$15.0 million to our fist lien term loan facility secured
lenders. We are permitted under the order to incur liens and
enter into sale/leaseback transactions for model homes subject
to certain limitations. As part of the order, we have granted
the prepetition agents and the lenders various forms of
protection, including liens and claims to protect against any
diminution of the collateral value, payment of accrued, but
unpaid interest on the first priority indebtedness at the
non-default rate and the payment of reasonable fees and expenses
of the agents under our secured facilities.
Revolving
Loan Facility and First and Second Lien Term Loan
Facilities
To effect the Transeastern JV acquisition, on July 31,
2007, we entered into (i) the $200.0 million aggregate
principal amount first lien term loan facility (the First
Lien Term Loan Facility) and (ii) the
$300.0 million aggregate principal amount second lien term
loan facility (the Second Lien Term Loan Facility),
(First and Second Lien Term Loan Facilities taken together, the
Facilities) with Citicorp
69
North America, Inc. as Administrative Agent. The proceeds
from the credit facilities were used to satisfy claims of the
senior lenders against the Transeastern JV. Our existing
$800.0 million revolving loan facility (the Revolving
Loan Facility) was amended and restated to (i) reduce
the revolving commitments thereunder by $100.0 million and
(ii) permit the incurrence of the Facilities (and make
other conforming changes relating to the Facilities).
Collectively, these transactions are referred to as the
Financing. Net proceeds from the Financing at
closing were $470.6 million which is net of a 1% discount
and transaction costs. The Revolving Loan Facility expires on
March 9, 2010. The First Lien Term Loan Facility expires on
July 31, 2012 and the Second Lien Term Loan Facility
expires on July 31, 2013.
On October 25, 2007, our Revolving Loan Facility was
amended by Amendment No. 1 to the Second Amended and
Restated Revolving Credit Agreement. Among other things, the
existing agreement was amended with respect to (i) the
pricing of loans, (ii) limiting the amounts which may be
borrowed prior to December 31, 2007, (iii) modifying
the definition of a Material Adverse Effect,
(iv) waiving compliance with certain representations and
financial covenants, (v) establishing minimum operating
cash flow requirements, (vi) requiring compliance with
weekly budgets, (vii) inclusion of a five week operating
cash flow covenant at the end of November, (viii) requiring
the payment of certain fees, and (ix) reducing the
Lenders commitments by $50.0 million.
On October 25, 2007, the First Lien Term Loan Facility was
also amended by Amendment No. 1 to the First Lien Term Loan
Credit Agreement to amend certain terms including (i) the
pricing of loans, (ii) the definition of Material
Adverse Effect, and (iii) waiving compliance with
certain financial covenants.
On December 14, 2007, we entered into further amendments to
our First Lien Term Loan Credit Agreement and our Revolving Loan
Facility to, among other things, (i) extend through
February 1, 2008, the waiver of the financial covenants set
forth in Amendment No. 1 to the First Lien Term Loan Credit
Agreement and the Revolving Loan Facility, (ii) revise the
material adverse change representation with respect to matters
disclosed in our quarterly report on
Form 10-Q
for the nine months ended September 30, 2007,
(iii) modify a provision regarding the obligation to pay
amounts owed in connection with certain land banking
arrangements, and (iv) seek waivers of the cross-default
provision resulting from any breach of a covenant regarding the
matters described in (iii) above.
The interest rates on the Facilities and the Revolving Loan
Facility are based on LIBOR plus a margin or an alternate base
rate plus a margin, at our option. For the Revolving Loan
Facility, the LIBOR rates are increased by between 2.50% and
5.25% depending on our leverage ratio (as defined in the
Agreement) and credit ratings. Loans bearing interest at the
base rate (the rate announced by Citibank as its base rate or
0.50% above the Federal Funds Rate) increase between 1.00% and
4.25% in accordance with the same criteria. Based on our current
leverage ratio and credit ratings, our LIBOR loans bear interest
at LIBOR plus 5.25% and our base rate loans bear interest at the
Federal Funds Rate plus 4.25%. For the First Lien Term Loan
Facility, the interest rate is LIBOR plus 5.00% or base rate
plus 4.00%. For the Second Lien Term Loan Facility, the interest
rate is LIBOR plus 7.25% or base rate plus 6.25%. The Second
Lien Term Loan Facility allows us to pay interest, at our
option, (i) in cash, (ii) entirely by increasing the
principal amount of the Second Lien Term Loan Facility, or
(iii) a combination thereof. The Facilities and the New
Revolving Loan Facility are guaranteed by substantially all of
our domestic subsidiaries (the Guarantors). The
obligations are secured by substantially all of our assets,
including those of our Guarantors. Our mortgage and title
subsidiaries are not Guarantors.
Senior
Notes and Senior Subordinated Notes
On April 12, 2006, we issued $250.0 million of
81/4% Senior
Notes due 2011. In connection with the issuance of the
81/4% Senior
Notes, we filed within 90 days of the issuance a
registration statement with the SEC covering a registered offer
to exchange the notes for exchange notes of ours having terms
substantially identical in all material respects to the notes
(except that the exchange notes will not contain terms with
respect to special interest or transfer restrictions). The
registration statement has not been declared effective within
the required 180 days of issuance and, as a result, on
October 9, 2006 in accordance with the terms of the notes
became subject to special interest which accrues at a rate of
0.25% per annum during the
90-day
70
period immediately following the occurrence of such default, and
shall increase by 0.25% per annum at the end of each
90-day
period, up to a maximum of 1.0% per annum. For the year ended
December 31, 2007, we incurred an additional
$2.0 million of additional interest expense as a result of
such default. In addition, we accrued a contingency reserve of
$2.5 million for such interest expected to be incurred in
2008.
Our outstanding senior notes are guaranteed, on a joint and
several basis, by the Guarantor Subsidiaries, which are all of
our material domestic subsidiaries, other than our mortgage and
title subsidiaries (the Non-Guarantor Subsidiaries). Our
outstanding senior subordinated notes are guaranteed on a senior
subordinated basis by all of the Guarantor Subsidiaries. The
senior notes rank pari passu in right of payment with all
of our existing and future unsecured senior debt and senior in
right of payment to our senior subordinated notes and any future
subordinated debt. The senior subordinated notes rank pari
passu in right of payment with all of our existing and
future unsecured senior subordinated debt. The indentures
governing the senior notes and senior subordinated notes
generally require us to maintain a minimum consolidated net
worth and place certain restrictions on our ability, among other
things, to incur additional debt, pay or declare dividends or
other restricted payments, sell assets, enter into transactions
with affiliates, invest in joint ventures above specified
amounts, and merge or consolidate with other entities. Interest
on our outstanding senior notes and senior subordinated notes is
payable semi-annually.
Senior
Subordinated PIK Notes
As part of the transactions to settle the disputes regarding the
Transeastern JV, on July 31, 2007, the senior mezzanine
lenders to the Transeastern JV received $20.0 million in
aggregate principal amount of 14.75% Senior Subordinated
PIK Election Notes due 2015.
Interest on the PIK Notes is payable semi-annually. The Notes
are unsecured senior subordinated obligations of ours, and are
guaranteed on an unsecured senior subordinated basis by each of
our existing and future subsidiaries that guarantee our
7.5% Senior Subordinated Notes due 2015 (the Existing
Notes). We are required to pay 1% of the interest in cash
and the remaining 13.75%, at our option, (i) in cash,
(ii) entirely by increasing the principal amount of the
Notes or issuing new notes, or (iii) a combination thereof.
The Notes will mature on July 1, 2015. The indenture
governing the Notes contains the same covenants as contained in
the indenture governing the Existing Notes and is subject, in
most cases, to any change to such covenants made to the
indenture governing the Existing Notes. The Notes are redeemable
by us at redemption prices greater than their principal amount.
The PIK Notes contain an optional redemption feature that allows
us to redeem up to a maximum of 35% of the aggregate principal
amount of the PIK Notes using the proceeds of subsequent sales
of its equity interest at 114.75% of the aggregate principal
amount of the PIK Notes then outstanding, plus accrued and
unpaid interest. Additionally, after July 1, 2012, subject
to certain terms of our other debt agreements, we may redeem the
PIK Notes at a premium to the principal amount as follows:
2012 107.375%; 2013 103.688%; 2014 and
thereafter 100.000%. The call options exercisable at
anytime after July 1, 2012 at a premium do not require
bifurcation under SFAS 133 because they are only
exercisable by us and they are not contingently exercisable. The
redemption option conditionally exercisable based on the
proceeds raised from an equity offering at 114.75% of up to 35%
of the aggregate outstanding PIK Notes principal represents an
embedded call option that must be bifurcated from the PIK Notes;
however, the fair value of this call option is not material and
has not been bifurcated from the host instrument at
December 31, 2007.
The PIK Notes provide for registration rights for the holders
whereby the interest rate shall increase by 0.25% per annum for
the first 90 days of a registration default, as defined,
which amount shall increase by an additional 0.25% every
90 days a registration default is continuing, not to exceed
1.0% in the aggregate, from and including the date of the
registration default to and excluding the date on which the
registration default is cured. Registration default payments
shall be paid, at our option, in (i) cash,
(ii) additional Notes, or (iii) a combination thereof.
For the year ended December 31, 2007, we have not incurred
additional interest expense as a result of such default.
71
Financial
Services Borrowings
Our mortgage subsidiary has two warehouse lines of credit in
place to fund the origination of residential mortgage loans. The
revolving warehouse line of credit (the Warehouse Line of
Credit), which was entered into on December 5, 2007,
provides for revolving loans of up to $25.0 million. The
Warehouse Line of Credit replaced the $100.0 million
revolving warehouse line of credit that expired on
December 8, 2007. From January 25, 2008 through
December 4, 2008 the availability under the Warehouse Line
of Credit is reduced to $15.0 million. The
$150.0 million mortgage loan purchase facility
(Purchase Facility) was amended to decrease the size
of the facility to $75.0 million. From January 25,
2008 through December 4, 2008 the availability under the
Purchase Facility is reduced to $40.0 million. At no time
may the amount outstanding under the Warehouse Line of Credit
and the purchased loans pursuant to the Purchase Facility exceed
$55.0 million. Both the Warehouse Line of Credit and
Purchase Facility expire on December 4, 2008. The Warehouse
Line of Credit bears interest at the
30-day LIBOR
rate plus a margin of 2.0%, and is secured by funded mortgages,
which are pledged as collateral, and requires our mortgage
subsidiary to maintain certain financial ratios and minimums.
The Warehouse Line of Credit also places certain restrictions
on, among other things, our mortgage subsidiarys ability
to incur additional debt, create liens, pay or make dividends or
other distributions, make equity investments, enter into
transactions with affiliates and merge or consolidate with other
entities. Our mortgage subsidiary was in compliance with all
covenants and restrictions at December 31, 2007. At
December 31, 2007, our mortgage subsidiary had
$7.8 million in borrowings under its Warehouse Line of
Credit, and had the capacity to borrow an additional
$17.2 million, subject to our mortgage subsidiary
satisfying the relevant borrowing conditions. As discussed
above, the borrowing capacity changed on January 25, 2008.
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a committee composed of six members, three from
Preferred Home Mortgage Company and three from Wells Fargo. The
venture entered into a revolving credit agreement with Wells
Fargo Bank, N.A. providing for advances of up to
$20.0 million.
Liquidity
Needs
We continue to have substantial liquidity needs in the operation
of our business and face liquidity challenges. Our business
depends upon our ability to obtain financing for the development
of our residential communities and to provide bonds to ensure
the completion of our projects. We expect to have sufficient
resources and borrowing capacity to meet all of our commitments
throughout the projected term of our Chapter 11 cases.
However, the success of our business plan, including our
restructuring program, and ultimately our plan of
reorganization, will depend on our ability to achieve our
budgeted operating results.
Contractual
Obligations and Commitments
At December 31, 2007, the amount of our annual debt service
payments was $173.9 million. This amount included annual
debt service payments on the senior and senior subordinated
notes of $91.2 million, interest payments on the Revolving
Loan Facility of $19.0 million, interest payments on the
First Lien Term Loan Facility of $19.5 million, interest
payments on the Second Lien Term Loan Facility of
$40.6 million and annual debt service on the Senior
Subordinated PIK Notes of $3.1 million, and interest
payments on the warehouse lines of credit of $0.5 million,
based on the balances outstanding as of December 31, 2007.
As of December 31, 2007, we had an aggregate of
approximately $692.4 million drawn under our Revolving Loan
Facility, term loans and warehouse lines of credit that are
subject to changes in interest rates. An increase or decrease of
1% in interest rates will change our annual debt service
payments by $6.9 million per year.
72
The following summarizes our significant contractual obligations
and commitments as of December 31, 2007 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
|
|
|
Between
|
|
|
Between
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
1 and 3
|
|
|
3 and 5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Contractual
Obligations(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Obligations (Note 8)
|
|
$
|
1,773.7
|
|
|
$
|
1,773.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest Payments
(Note 8)(2)
|
|
|
909.2
|
|
|
|
179.6
|
|
|
|
363.9
|
|
|
|
265.2
|
|
|
|
100.5
|
|
Capital Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Obligations (Note 10)
|
|
|
30.0
|
|
|
|
9.3
|
|
|
|
9.7
|
|
|
|
5.2
|
|
|
|
5.8
|
|
Purchase Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 48 Unrecognized Tax Benefits, net (Note 9)
|
|
|
7.5
|
|
|
|
0.9
|
|
|
|
3.8
|
|
|
|
2.8
|
|
|
|
|
|
Other Long-Term Liabilities Reflected on the Registrants
Statement of Financial Condition under GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,720.4
|
|
|
$
|
1,963.5
|
|
|
$
|
377.4
|
|
|
$
|
273.2
|
|
|
$
|
106.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include obligations for inventory not owned
of $32.0 million at December 31, 2007. See
Notes 2 and 3 to the consolidated financial statements
included elsewhere in this
Form 10-K
for more information on obligations for inventory not
owned. |
|
(2) |
|
Although the Company is currently in default on its debt, for
purposes of calculating interest payment obligations in the
table above, it is assumed that the interest payments would be
made at the regularly scheduled dates through maturity.
Represents scheduled interest payments on fixed rate debt
obligations. Estimates of future interest payments for variable
rate debt are based on interest rates as of December 31,
2007. |
Off-Balance
Sheet Arrangements
Land and
Homesite Option Contracts
In the ordinary course of business, we enter into option
contracts to purchase homesites and land held for development.
Under these option contracts, we have the right to buy homesites
at predetermined prices on a predetermined takedown schedule
anticipated to be commensurate with home starts. Option
contracts generally require the payment of a cash deposit or the
posting of a letter of credit, which is typically less than 20%
of the underlying purchase price, and may require monthly
maintenance payments. At December 31, 2007 we had
non-refundable cash deposits aggregating $56.9 million.
These option contracts are either with land sellers or third
party financial entities who have acquired the land to enter
into the option contract with us. Homesite option contracts are
generally non-recourse, thereby limiting our financial exposure
for non-performance to our cash deposits
and/or
letters of credit. In certain instances, we have entered into
development agreements in connection with option contracts which
require us to complete the development of the land, at a fixed
reimbursable amount, even if we choose not to exercise our
option and forfeit our deposit and even if our costs exceed the
reimbursable amount. As of December 31, 2007, we have
abandoned our rights under option contracts that require us to
complete the development of land for a fixed reimbursable
amount. At December 31, 2007, we recorded a loss accrual of
$10.3 million, in connection with the abandonment of these
option contracts, for our obligations under the development
agreements, based on our estimate of the excess of costs to
complete the development of the land over the fixed reimbursable
amounts. See Note 3 to our consolidated financial
statements included herein.
In addition, certain of these option contracts give the other
party the right to require us to purchase homesites or guarantee
certain minimum returns. During the year ended December 31,
2007, we abandoned our rights under certain option contracts
that give the other party the right to require us to purchase
the homesites. Some of these parties have given notice
exercising their right to require us to purchase the homesites.
We do not have the ability to comply with these notices due to
liquidity constraints. These option
73
contracts were previously consolidated and the inventory was
included in inventory not owned and the corresponding liability
was included in obligations for inventory not owned. As we do
not have the intent or the ability to comply with the
requirement to purchase the property, we have deconsolidated
these option contracts at December 31, 2007. Impairment
charges related to capitalized pre-acquisition costs associated
with these option contracts of $10.6 million were written
off during the year ended December 31, 2007. In addition,
at December 31, 2007, we recorded a loss accrual of
$22.3 million, in connection with the abandonment of these
option contracts, for our estimated obligations under these
option contracts, including $10.5 million for letters of
credit which we anticipated would be drawn due to nonperformance
under such contracts, based on estimated deficiency between the
fair value of the underlying inventory compared to our required
purchase price under the option contract. As of
December 31, 2007, the total required purchase price under
these option contracts was $26.1 million.
We are subject to the normal obligations associated with
entering into contracts for the purchase, development and sale
of real estate in the routine conduct of our business.
Additionally, at December 31, 2007, we had letters of
credit outstanding of approximately $70.6 million primarily
related to land development activities. We are committed under
various letters of credit and performance bonds which are
required for certain development activities, deposits on land
and deposits on homesite purchase contracts. Under these
arrangements, we had total outstanding letters of credit of
$115.5 million. As a result of abandoning our rights under
option contracts, as of December 31, 2007, we accrued
$43.6 million for letters of credits which we anticipated
would be drawn due to nonperformance under such contracts. In
addition, $98.5 million of letters of credit have been
drawn at December 31, 2007, which increased our borrowings
outstanding under our Revolving Loan Facility. Through
June 30, 2008 an additional $72.8 million of letters
of credit have been drawn related to the abandonment of option
contracts.
At December 31, 2007, we have total outstanding
performance/surety bonds of $207.3 million related to land
development activities and have estimated our exposure on our
outstanding surety bonds to be $116.9 million based on land
development remaining to be completed. At December 31,
2007, we recorded an accrual totaling $48.0 million for
surety bonds where we consider it probable that we will be
required to reimburse the surety for amounts drawn related to
defaulted agreements. We have been experiencing a reduction in
availability of security bond capacity. If we are unable to
secure such bonds, we may elect to post alternative forms of
collateral with government entities or escrow agents. Other
forms of collateral, if available, may result in higher costs to
us.
Investments
in Unconsolidated Joint Ventures
We have entered into strategic joint ventures that acquire and
develop land for our Homebuilding operations
and/or that
also build and market homes for sale to third parties. Our
partners in these joint ventures generally are unrelated
homebuilders, land sellers, financial investors or other real
estate entities. In some cases our Chapter 11 filings have
constituted an event of default under the joint venture lender
agreements which have resulted in the debt becoming immediately
due and payable, limiting the joint ventures access to
future capital. In joint ventures where the assets are being
financed with debt, the borrowings are non-recourse to us except
that we have agreed to complete certain property development
commitments in the event the joint ventures default and to
indemnify the lenders for losses resulting from fraud,
misappropriation and similar acts. In some cases, we have agreed
to make capital contributions to the joint venture sufficient to
comply with a specified debt to value ratio. Our obligations
become full recourse upon certain bankruptcy events with respect
to the joint venture. At December 31, 2007 and 2006, we had
investments in unconsolidated joint ventures of
$9.0 million and $129.0 million, respectively. We
account for these investments under the equity method of
accounting. These unconsolidated joint ventures are limited
liability companies or limited partnerships in which we have a
limited partnership interest and a minority interest in the
general partner. At December 31, 2007 and 2006, we had
receivables of $0.3 million and $27.2 million,
respectively, from these joint ventures due to loans and
advances, unpaid management fees and other items.
We believe that the use of off-balance sheet arrangements
enables us to acquire rights in land which we may not have
otherwise been able to acquire at favorable terms. Although, we
view the use of off-balance
74
sheet arrangements as beneficial to our Homebuilding activities,
as a result of our Chapter 11 cases and our reduced
investments in joint ventures, we anticipate only limited use of
joint ventures in the future.
Engle/Sunbelt
Joint Venture
In December 2004, we entered into a joint venture agreement with
Suntous Investors, LLC to form Engle/Sunbelt Holdings, LLC.
Engle/Sunbelt was formed to develop finished homesites and to
build and deliver homes in the Phoenix, Arizona market. Upon its
inception, the venture acquired eight of our existing
communities in Phoenix, Arizona. We and Suntous contributed
capital of approximately $28.0 million and
$3.2 million, respectively, and the joint venture itself
obtained financing arrangements with an aggregate borrowing
capacity of $180.0 million, of which $150.0 million
related to a revolving loan and $30.0 million related to a
mezzanine financing instrument.
In July 2005, we contributed assets to Engle/Sunbelt resulting
in a net capital contribution by us of $5.4 million. At
that time, Engle/Sunbelt amended its financing arrangements to
increase the revolving loan to $250.0 million. On
April 30, 2007, Engle/Sunbelt amended its revolving loan to
reduce the aggregate commitment of the lenders from
$250.0 million to $200.0 million and extended the
maturity date to March 17, 2008. In addition, the amendment
increased the minimum adjusted tangible net worth covenant and
reduced the minimum interest coverage ratio covenant. On
January 16, 2008, the facility was further amended to
reduce the revolving loan limit to $115.0 million and
terminate the mezzanine financing instrument. In addition, the
amendment reduced the minimum interest coverage ratio covenant.
While the borrowings by Engle/Sunbelt were non-recourse to us,
we had obligations to complete construction of certain
improvements and housing units in the event Engle/Sunbelt
defaulted. Additionally, we agreed to indemnify the lenders for,
among other things, potential losses resulting from fraud,
misappropriation, bankruptcy filings and similar acts by
Engle/Sunbelt.
In connection with the July 2005 contribution of assets to
Engle/Sunbelt, we realized a gain of $42.6 million, of
which $36.3 million was deferred due to our continuing
involvement with these assets through our investment. In March
2006, we assigned to Engle/Sunbelt our rights under a contract
to purchase approximately 539 acres of raw land for a price
of $18.7 million with a corresponding gain of
$15.8 million, of which $13.5 million was deferred. In
January 2007, we assigned to Engle/Sunbelt our rights under an
option contract for $5.1 million, all of which was
deferred, payable in the form of a note with a one year term,
bearing interest at 10% per annum. These deferrals were being
recognized in the consolidated statements of operations as homes
were delivered by the joint venture.
During the years ended December 31, 2007, 2006 and 2005, we
recognized revenue previously of $5.7 million,
$10.0 million and $2.7 million, respectively, related
to these transactions which is included in cost of sales-other
in the accompanying consolidated statements of operations. At
December 31, 2006, $22.8 million was deferred and
included in accounts payable and other liabilities in the
accompanying consolidated statement of financial condition.
There were no amounts deferred at December 31, 2007 due to
the write-off of our investment in the joint venture as
discussed below.
Although Engle/Sunbelt was not included in our Chapter 11
filings, our Chapter 11 filings constituted an event of
default under the financing arrangements and
Engle/Sunbelts debt became immediately due and payable.
In April 2008, we entered into a settlement agreement with the
lenders pursuant to which Engle/Sunbelt has agreed to the
appointment of a receiver and further agreed to either, at the
election of the lenders, deliver a deed in lieu of foreclosure
to its assets or consent to a judicial foreclosure. We have also
agreed to assist the lenders in their efforts to complete
certain construction for which we will receive arms length
compensation. Upon transfer of title to the lenders, we will be
relieved from our obligations under the completion and indemnity
agreements. The Bankruptcy Court, in which our Chapter 11
cases are pending, entered an order approving the settlement
agreement.
During the year ended December 31, 2007, we evaluated the
recoverability of our investment in and receivables from
Engle/Sunbelt for impairment under APB 18 and SFAS 114
respectively and recorded an
75
impairment charge of $60.7 million representing the full
value our investment in and receivables from
Engle/Sunbelt,
net of deferred gains of $22.5 million. No completion
obligation accrual has been established at December 31,
2007 with respect to Engle/Sunbelt due to the settlement
agreement reached with the lenders to the joint venture.
TOUSA/Kolter
Joint Venture
In January 2005, we entered into a joint venture with Kolter
Real Estate Group, LLC to form
TOUSA/Kolter
Holdings, LLC (TOUSA/Kolter) for the purpose of
acquiring, developing and selling approximately 1,900 homesites
and commercial property in a master planned community in South
Florida. The joint venture obtained senior and senior
subordinated term loans (the term loans) of which
$47.0 million and $7.0 million, respectively, were
outstanding as of December 31, 2007. We entered into a
Performance and Completion Agreement in favor of the lenders
under which we agreed, among other things, to construct and
complete the horizontal development of the lots and commercial
property and related infrastructure in accordance with certain
agreed plans. The term loans required, among other things,
TOUSA/Kolter to have completed the development of certain lots
by January 7, 2007. Due to unforeseen and unanticipated
delays in the entitlement process and additional development
requests by the county and water management district,
TOUSA/Kolter was unable to complete the development of these
certain lots by the required deadline. On June 21, 2007,
and in response to missing the development deadline,
TOUSA/Kolter amended the existing term loan agreements and we
amended the Performance and Completion Agreement to extend the
Performance and Completion Agreement development deadline to
May 31, 2008. The amendments to the term loan agreements
increased the interest rate on the senior term loan by
100 basis points to LIBOR plus 3.25% and by 50 basis
points to LIBOR plus 8.5% for the senior subordinated term loan.
As a condition to the amendment, we agreed to be responsible for
the additional 150 basis points; accordingly, this would be
a cost of the lots we acquired from TOUSA/Kolter. The amendment
also required us to increase the existing letter of credit by an
additional $1.8 million to $12.1 million and place an
additional $3.0 million cash deposit on the remaining lots
under option. The $3.0 million was used by TOUSA/Kolter to
pay down a portion of the senior term loan.
As we have abandoned our rights under the option contract due to
non-performance, at December 31, 2007, we recorded an
obligation of $12.1 million for the letter of credit we
anticipated would be drawn, wrote-off the $3.0 million cash
deposit and $1.0 million in capitalized pre-acquisition
costs. These costs are included in inventory impairments and
abandonment costs in the accompanying Consolidated Statements of
Operations.
The lenders to the joint venture have declared the loan to the
venture to be in default, but have not demanded performance of
our obligations under either the Performance and Completion
Agreement or the Remargining Agreement. The Remargining
Agreement requires us to pay to the Administrative Agent, upon
default of the joint venture, an amount necessary to decrease
the principal balance of the loan so that the outstanding
balance does not exceed 70% of the value of the joint
ventures assets. Based on the estimated fair value of the
assets of the joint venture, we recorded a $54.0 million
obligation (which includes the $12.1 million letter of
credit accrual), as of December 31, 2007, in connection
with our obligation under the re-margining provisions of the
loan agreement. We did not record any additional contingent
liability under the completion guarantee as the
$54.0 million accrual represents the full joint venture
debt obligation of the joint venture.
During the year ended December 31, 2007, we evaluated the
recoverability of our investment and receivables from
TOUSA/Kolter for impairment under APB 18 and SFAS 114
respectively and recorded an impairment charge of
$58.8 million representing the full value of our investment
in and receivables from TOUSA/Kolter, net of deferred gains of
$12.8 million which were deferred as a result of the
contributed assets and contract assignments to TOUSA/Kolter.
Additionally, we recorded an obligation of $18.9 million
for performance bonds and letters of credit that we placed on
behalf of the joint venture, as we consider it probable that we
will be required to reimburse these amounts for development
remaining to be completed.
76
Centex/TOUSA
at Wellington, LLC
In December 2005, we entered into a joint venture with Centex
Corporation to form Centex/TOUSA at Wellington, LLC
(Centex/TOUSA at Wellington) for the purpose of
acquiring, developing and selling approximately 264 homesites in
a community in South Florida. The joint venture obtained a term
loan of which $31.0 million was outstanding as of
December 31, 2007. The credit agreement requires us to
construct and complete the horizontal development of the lots
and related infrastructure in accordance with certain agreed
upon plans. On August 31, 2007, Centex/TOUSA at Wellington
received a notice from the lender requiring the joint venture
members to contribute approximately $10.0 million to the
joint venture to reduce the outstanding term loan in order to
comply with the 60%
loan-to-value
ratio covenant. We have not made the required equity
contribution.
We evaluated the recoverability of our investment in and
receivables from Centex/TOUSA at Wellington for impairment under
APB 18 and SFAS 114 respectively, and recorded an
impairment of $11.6 million representing the full value of
our investment in and receivables from Centex/TOUSA during the
year ended December 31, 2007. Based on the estimated fair
value of the assets of the joint venture, we recorded a
$15.5 million obligation, as of December 31, 2007, in
connection with our obligation under the re-margining provisions
of the loan agreement which represents our portion of the joint
ventures outstanding debt. We did not record any
additional contingent liability under the completion guarantee
as the $15.5 million accrual represents our portion of the
full joint venture debt obligation.
Layton
Lakes Joint Venture
In connection with our joint venture with Lennar Corporation
(the Layton Lakes Joint Venture) to acquire and
develop land, townhome properties and commercial property in
Arizona, we entered into a Completion and Limited Indemnity
Agreement for the benefit of the lender to the joint venture.
The agreement required us to maintain a tangible net worth of
$400.0 million. As a result of the decrease in our tangible
net worth, this covenant has been breached and the outstanding
$60.0 million loan to the joint venture is in default. The
default has not been cured and the lender, in its discretion,
may accelerate the loan, foreclose on its liens, and exercise
all other contractual remedies, including our completion
guaranty. In addition, the operating agreement of the joint
venture states that a breach by a member of any covenant of such
member contained in any loan agreement entered into in
connection with the financing of the property is an event of
default. Under the operating agreement, a defaulting member does
not have the right to vote or otherwise participate in the
management of the joint venture until the default is cured. A
defaulting member may not take down any lots from the joint
venture.
The joint ventures loan requires that the outstanding loan
balance may not exceed 65% of the value of the joint
ventures assets. Based on an appraisal obtained by the
bank, the joint venture has been notified that a principal
payment is required in order to maintain the specified loan to
value ratio. The joint venture has failed to make such principal
payment.
Additionally, we have not made the $1.0 million capital
contribution to the joint venture required under the operating
agreement and as a result Lennar Corporation made a member loan
to the joint venture for $0.7 million. We have been
informed by Lennar that the interest on the loan accrues at 20%
and that the principal and the interest are due immediately.
Under the operating agreement, the joint venture is not
obligated to convey lots to us until the loan and related
interest are repaid.
We evaluated the recoverability of our investment in and
receivables from Layton Lakes Joint Venture for impairment under
APB 18 and SFAS 114 respectively and recorded an impairment
charge of $24.9 million representing the full value our
investment in and receivables from Layton Lakes Joint Venture.
Additionally, we recorded an obligation of $4.4 million for
performance bonds that we placed on behalf of the joint venture,
as we consider it probable that we will be required to reimburse
these amounts for development remaining to be completed. We did
not record any obligation under the re-margining provision as we
are not a party to the re-margining agreement. We did not record
any additional contingent liability under the completion
guarantee as based on the estimated fair value of the assets of
the joint venture, we do not believe that it is probable that we
will called to perform under the completion obligation. Should
we be called to perform under the
77
completion agreement in the future, we estimate that our portion
of the costs to be incurred approximate $26.6 million.
Transeastern
JV
See discussion in Part I, Item 1 section of this
Form 10-K.
Other
During the year ended December 31, 2007, we evaluated the
recoverability of our investment in and receivables from an
unconsolidated joint venture located in Colorado, under APB 18
and SFAS 114 respectively, and recorded an impairment of
$2.8 million, which is included in loss from unconsolidated
joint ventures in the accompanying consolidated statements of
operations.
Certain of our unconsolidated joint venture agreements require
the ventures to allocate earnings to the members using preferred
return levels based on actual and expected cash flows throughout
the life of the venture. Accordingly, determination of the
allocation of the members earnings in these joint ventures
can only be certain at or near the completion of the project and
upon agreement of the partners. In order to allocate earnings,
the members of the joint venture must make estimates based on
expected cash flows throughout the life of the venture. During
the year ended December 31, 2006, two of our unconsolidated
joint ventures neared completion, which allowed the joint
venture to adjust the income allocation to its members based on
the final cash flow projections. The reallocation of earnings
resulted in the recognition of an additional $5.9 million
in income from unconsolidated joint ventures during the year
ended December 31, 2006. We have evaluated these revisions
in earnings allocations under SFAS No. 154,
Accounting Changes and Error Corrections, a replacement of
Opinion No. 20 and FASB Statement No. 3, and have
appropriately accounted for this change in estimate in our
December 31, 2006 consolidated financial statements.
On August 30, 2006, we terminated one of our unconsolidated
joint ventures that was formed to purchase land, construct and
develop a condominium project in Northern Virginia. As part of
the agreement, we purchased our partners interest in the
venture for $32.6 million. After purchasing our
partners interest, we became the sole member of the entity
as a consolidated subsidiary. The purchase price was allocated
to the net assets of the venture, which were comprised primarily
of inventory.
During the year ended December 31, 2006, we evaluated the
recoverability of our investment in and receivables from an
unconsolidated joint venture located in Southwest Florida, under
APB 18 and SFAS 114 respectively, and recorded an
impairment of $7.7 million, which is included in loss from
unconsolidated joint ventures in the accompanying consolidated
statements of operations.
Recent
Accounting Pronouncements
See Note 2 to our consolidated financial statements.
Seasonality
of Operations
The homebuilding industry tends to be seasonal, as generally
there are more homes sold in the spring and summer months when
the weather is milder, although the number of sales contracts
for new homes is highly dependent on the number of active
communities and the timing of new community openings. Because
new home deliveries trail new home contracts by a number of
months, we typically have the greatest percentage of home
deliveries in the fall and winter, and slow sales in the spring
and summer months could negatively affect our full year results.
We operate primarily in the Southwest and Southeast, where
weather conditions are more suitable to a year-round
construction process than in other parts of the country. Our
operations in Florida and Texas are at risk of repeated and
potentially prolonged disruptions during the Atlantic hurricane
season, which lasts from June 1 until November 30.
78
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
As a result of our senior and senior subordinated notes
offerings, as of December 31, 2007, $1.1 billion of
our outstanding borrowings are based on fixed interest rates. We
are exposed to market risk primarily related to potential
adverse changes in interest rates on our revolving credit
facility, term loans and warehouse lines. The interest rates
relative to these borrowings fluctuate with the prime, Federal
Funds, LIBOR, and Eurodollar lending rates. As of
December 31, 2007, we had an aggregate of approximately
$692.4 million drawn under our Revolving Loan Facility,
term loans and warehouse lines of credit that are subject to
changes in interest rates. An increase or decrease of 1% in
interest rates will change our annual debt service payments by
$6.9 million per year.
On July 31, 2007, as part of the global settlement related
to the Transeastern JV, we entered into (1) a new
$200.0 million aggregate principal amount first lien term
loan facility which expires on July 31, 2012 and (2) a
new $300.0 million aggregate principal amount second lien
term loan facility which expires on July 31, 2013. The
interest rates relative to these borrowings fluctuate with the
LIBOR or Federal Funds lending rate.
The failure to pay interest on certain notes and the filing of
the Chapter 11 cases have constituted events of default or
otherwise triggered repayment obligations under a number of
instruments and agreements relating to our direct and indirect
financial obligations. As a result of the events of default, all
our obligations became automatically and immediately due and
payable and have been reflected as such in the following table.
We believe that any efforts to enforce the payment obligations
are stayed as a result of the filing of the Chapter 11
cases.
The following table presents the future principal payment
obligations and weighted average interest rates associated with
our debt instruments assuming our actual level of indebtedness
as of December 31, 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
Liabilities
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Value
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
(71/2)%
|
|
$
|
325.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.0
|
|
Fixed rate
(81/4)%
|
|
|
250.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.3
|
|
Fixed rate (9)%
|
|
|
300.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124.3
|
|
Fixed rate
(103/8)%
|
|
|
185.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Fixed rate, Senior Subordinated PIK Notes
(143/4%)
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Variable rate, First Lien Term Loan Facility (9.8% at
December 31, 2007)
|
|
|
199.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199.0
|
|
Variable rate, Second Lien Term Loan Facility (12.8% at
December 31, 2007)
|
|
|
317.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317.1
|
|
Variable rate, credit facility (11.25% at December 31, 2007)
|
|
|
168.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168.5
|
|
Variable rate, warehouse lines of credit (6.6% at
December 31, 2007)
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
Our operations are interest rate sensitive as overall housing
demand is adversely affected by increases in interest rates. If
mortgage interest rates increase significantly, this may
negatively affect the ability of homebuyers to secure adequate
financing. Higher interest rates also increase our borrowing
costs because, as indicated above, our bank loans will fluctuate
with the prime, Federal Funds, LIBOR, and Eurodollar lending
rates.
We may be adversely affected during periods of high inflation,
primarily because of higher land and construction costs. In
addition, inflation may result in higher interest rates. This
may significantly affect the affordability of permanent mortgage
financing for prospective purchasers, which in turn adversely
affects overall housing demand. In addition, this may increase
our interest costs. We attempt to pass through to our customers
any increases in our costs through increased selling prices and,
to date, inflation has not had a
79
material adverse effect on our results of operations. However,
there is no assurance that inflation will not have a material
adverse impact on our future results of operations.
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Financial statements and supplementary data for us are on pages
F-1 through F-66.
|
|
ITEM 9.
|
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
To ensure that the information we must disclose in our filings
with the Securities and Exchange Commission is recorded,
processed, summarized, and reported on a timely basis, we have
formalized our disclosure controls and procedures. Our principal
executive officer and principal financial officer have reviewed
and evaluated the effectiveness of our disclosure controls and
procedures, as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e),
as of December 31, 2007. Based on such evaluation, such
officers have concluded that, as of December 31, 2007, our
disclosure controls and procedures were effective. There has
been no change in our internal control over financial reporting
during the quarter ended December 31, 2007 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Managements Report on Internal Control over Financial
Reporting is included on
page F-2
of this
Form 10-K.
Our managements assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2007 has been audited by
Ernst &Young LLP, an independent registered public
accounting firm, as stated in their attestation report which is
included on
page F-3
of this
Form 10-K.
|
|
ITEM 9B.
|
Other
Information
|
None.
PART III
|
|
ITEM 10.
|
Directors
and Executive Officers of the Registrant
|
On August 8, 2007, we submitted to the New York Stock
Exchange an Annual CEO Certification, signed by our
Chief Executive Officer, certifying that our Chief Executive
Officer was not aware of any violation by the Company of the New
York Stock Exchanges corporate governance listing
standards. Additionally, we have filed as exhibits to this
Form 10-K
the CEO/CFO Certifications required under Section 302 of
the Sarbanes-Oxley Act.
80
Set forth in the table below is a list of the Companys
directors and executive officers, serving at the time of the
filing of this Report, together with certain biographical
information, including their ages as of March 15, 2008:
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Principal Occupation
|
|
Konstantinos Stengos
|
|
|
71
|
|
|
Chairman of the Board, TOUSA, Inc. and President and Managing
Director, Technical Olympic S.A.
|
Antonio B. Mon
|
|
|
62
|
|
|
Chief Executive Officer and Vice Chairman of TOUSA, Inc.
|
Andreas Stengos
|
|
|
45
|
|
|
Executive Vice President and General Manager, Technical Olympic
S.A.
|
George Stengos
|
|
|
41
|
|
|
Managing Director, Mochlos S.A.
|
Marianna Stengou
|
|
|
30
|
|
|
Vice President, Porto Carras Campus Hospitality Studies S.A.
|
Larry D. Horner
|
|
|
74
|
|
|
Retired, Chairman and Chief Executive Officer of KPMG LLP
|
William A. Hasler
|
|
|
66
|
|
|
Private Investor
|
Tommy L. McAden
|
|
|
45
|
|
|
Executive Vice President and Chief Financial Officer, TOUSA, Inc.
|
Michael J. Poulos
|
|
|
77
|
|
|
Private Investor
|
Susan B. Parks
|
|
|
51
|
|
|
Chief Executive Officer, Walkstyles, Inc.
|
J. Bryan Whitworth
|
|
|
69
|
|
|
Of Counsel, Wachtell, Lipton, Rosen & Katz
|
|
|
|
|
|
|
|
Officers
|
|
Age
|
|
Principal Occupation
|
|
John Boken
|
|
|
45
|
|
|
Chief Restructuring Officer, TOUSA, Inc.
|
George Yeonas
|
|
|
53
|
|
|
Executive Vice President and Chief Operating Officer TOUSA, Inc.
|
Paul Berkowitz
|
|
|
59
|
|
|
Executive Vice President and Chief of Staff, TOUSA, Inc.
|
Michael Glass
|
|
|
49
|
|
|
President, Financial Services, TOUSA, Inc.
|
Angela Valdes
|
|
|
38
|
|
|
Vice President and Chief Accounting Officer, TOUSA, Inc.
|
Directors
Konstantinos Stengos has been the Chairman of our Board
since December 15, 1999. Mr. Stengos has served as the
President and Managing Director of Technical Olympic S.A.
(TOSA), our parent company, since he formed TOSA in
1965. Mr. Stengos has also served as Director and President
of Technical Olympic Services, Inc. (TOSI) since
October 2003. Mr. Stengos has been the Chairman and
President of Mochlos S.A., a subsidiary of TOSA, from December
2002 till June 2003 and from May 2004 till today.
Mr. Stengos has been the Chairman, President and Managing
Director of the same company from June 2003 till May 2004.
Mr. Stengos served as Chairman, President and Managing
Director of Porto Carras S.A. from December 1999 to June 2004
and as Chairman and President of the same company from June 2004
to October 2005 and from June 2007 till today.
Antonio B. Mon has been a director of the Company, and
our Executive Vice Chairman, Chief Executive Officer, and
President, since June 25, 2002. From October 2001 to June
2002, Mr. Mon served as the Chief Executive Officer of
Technical Olympic, Inc., our former parent company
(TOI). From May 2001 to October 2001,
Mr. Mon was a consultant to TOI. From 1997 to 2001,
Mr. Mon was the Chairman of Maywood Investment Company,
LLC, a private firm engaged in private equity investments and
general consulting. In 1991, Mr. Mon co-founded Pacific
Greystone Corporation, a west coast homebuilder that merged with
Lennar Corporation in 1997, and served as its Vice Chairman from
1991 to 1997. Prior to 1991,
81
Mr. Mon worked in various positions for The Ryland Group,
Inc. (a national homebuilder), M.J. Brock Corporation (a
California homebuilder), and Cigna Corporation (a financial
services corporation).
Andreas Stengos has been a director of the Company since
1999 and Executive Vice President since May 2006. Since
October 2003, Mr. Stengos has served as a director,
Executive Vice President and Treasurer of TOSI. Mr. Stengos
served as the Managing Director of TOSA from 1989 to 1995 and as
General Manager and Technical Director of TOSA from 1995 through
June 2004. Since June 2004, Mr. Stengos has served as the
Executive Vice President and General Manager of TOSA, and as the
General Manager and Executive Vice President of Mochlos, S.A.
George Stengos has been a director of the Company since
1999, and has served as our Executive Vice President since April
2004. Since October 2003, Mr. Stengos has served as a
director, Vice President, and Secretary of TOSI. From 2001 to
December 2002, Mr. Stengos served as President and Chairman
of the Board of Mochlos S.A., a subsidiary of TOSA, and is
currently Managing Director of Mochlos S.A. From 1993 to 2000,
Mr. Stengos was Executive Vice President of Mochlos S.A.
Mr. Stengos has also served as Managing Director of TOSA
since June 30, 2004. Mr. Stengos was also charged
relating to the 1999 sale of certain shares of TOSA discussed
above and those charges were dismissed in January 2007.
Marianna Stengou has been a director of the Company since
2004. Ms. Stengou has served as Vice President of
Porto Carras Campus Hospitality Studies S.A., an affiliate of
TOSA, since April 2002. Ms. Stengou has served in a variety
of positions at TOSA, including most recently as Director of
Human Resources and Quality, from January 2000 to June 2006.
Ms. Stengou served as President and Managing Director of
Toxotis Construction S.A., a subsidiary of TOSA, from November
1997 to June 2004. Ms. Stengou has been a director of TOSA
since June 2003. Ms. Stengou has also served as Executive
Director of Mochlos S.A., a subsidiary of TOSA, from June 2005
to June 2006 and as Director of the same company from July 2006
till today.
Larry D. Horner has been a director of the Company since
1997. Mr. Horner served as Chairman of Pacific USA Holdings
Corp., a subsidiary of Pacific Electric Wire and Cable Co., a
cable manufacturer, from 1994 to 2001, and was Chairman of the
Board of Asia Pacific Wire & Cable Corporation
Limited, a manufacturer of copper wire, cable and fiber optic
wire products, with operations in Southeast Asia, which was
publicly traded on the New York Stock Exchange until 2001. He is
also a former director of Atlantis Plastics, Inc. (a
manufacturer of plastic films and plastic components), UT
Starcom, Inc. (a provider of wireline, wireless, optical, and
access switching solutions), Clinical Data, Inc.(a provider of
biogenetics), and New River Pharmaceuticals, Inc. ,
Mr. Horner was formerly a director of ConocoPhillips (an
energy company) and American General Corp. (an insurance
company). Mr. Horner was formerly associated with KPMG LLP,
a professional services firm, for 35 years, retiring as
Chairman and Chief Executive Officer of both the U.S. and
International firms in 1991. Mr. Horner is a certified
public accountant.
William A. Hasler has been a director of the Company
since 1998. Mr. Hasler served as Co-Chief Executive Officer
of Aphton Corporation, a biopharmaceutical company, from July
1998 to January 2004. From August 1991 to July 1998,
Mr. Hasler served as Dean of the Haas School of Business at
the University of California at Berkeley. Prior to that, he was
both Vice Chairman and a director of KPMG LLP, a professional
services firm. Mr. Hasler also serves on the boards of
Mission West Properties (a real estate investment trust), DiTech
Networks (a global telecommunications equipment supplier for
voice networks), Schwab Funds (a mutual fund company),
Harris-Stratex Networks (a provider of high-speed wireless
transmission solutions), and Genitope Corporation (a
biopharmaceutical company), Mr. Hasler is a certified
public accountant.
Tommy L. McAden has been a director of the Company since
May 2005. Mr. McAden became our Chief Financial Officer on
January 18, 2008. From April 2004 until then,
Mr. McAden served as our Executive Vice
President Strategy and Operations. Mr. McAden
also served as our Vice President of Finance and Administration,
Chief Financial Officer, and Treasurer from June 2002 to
April 2004. Mr. McAden served as a director,
Vice President, and Chief Financial Officer of TOI from
January 2000 to June 2002. From 1994 to December 1999,
Mr. McAden was Chief Accounting Officer of Pacific USA
Holdings Corp. and Chief Financial Officer of Pacific Realty
Group, Inc., which was our former 80% stockholder.
82
Michael J. Poulos has been a director of the Company
since 2000. Mr. Poulos serves as a director of Forethought
Financial Group, Inc., a privately-held life insurance company,
headquartered in Indianapolis, Indiana. Mr. Poulos served
as Chairman, President, and Chief Executive Officer of Western
National Corporation, a life insurance holding company, from
1993 until 1998 when he retired. Mr. Poulos worked for
American General Corporation, from 1970 to 1993, and served as
its President from 1981 to 1991 and as its Vice Chairman from
1991 to 1993. He also served as a Director of American General
Corporation from 1980 to 1993; and again from 1998 to 2001.
Susan B. Parks has been a director of the Company since
2004. She is the founder and, since September 2003, Chief
Executive Officer of WalkStyles, Inc., a consumer products
company. Prior to becoming an entrepreneur, Ms. Parks was
with Kinkos, a multibillion dollar document solutions and
business services company, from August 2002 until September
2003, where she served as the Executive Vice President of
Operations. From August 2000 to January 2002, Ms. Parks was
with Gateway, a personal computer and related products company,
where she served as Senior Vice President of US Markets for
Gateway, leading their US Market business unit, and Senior Vice
President of the Gateway Business division. Ms. Parks also
spent approximately five years with U.S. West, a
telecommunications company, serving in a succession of senior
positions and has served in various leadership positions at both
Mead Corporation and Avery-Dennison.
J. Bryan Whitworth has been a director of the
Company since January 2005. Mr. Whitworth has been Of
Counsel at Wachtell, Lipton, Rosen & Katz, a leading
corporate and securities law firm, since May 2003. Prior to
joining Wachtell, Lipton, Rosen & Katz,
Mr. Whitworth served as Executive Vice President of
ConocoPhillips, a global integrated petroleum company, from
September 2002 to March 2003. Mr. Whitworth joined
ConocoPhillips in 2002, following the merger of Conoco Inc. and
Phillips Petroleum Company. Prior to the merger,
Mr. Whitworth spent more than 30 years with Phillips
Petroleum Co., most recently serving as the Executive Vice
President and Chief Administrative Officer of that company.
Mr. Whitworth also served as Phillips Petroleums
Senior Vice President of Human Resources, Public Relations and
Government Relations, as well as its General Counsel.
Officers
John R. Boken was appointed TOUSAs Chief
Restructuring Officer in January 2008. Mr. Boken has been
an employee of Kroll Zolfo Cooper LLC, an affiliate of KZC
Services, LLC, (collectively, KZC) for over five
years. Mr. Boken has been a managing director at Kroll
Zolfo Cooper LLC since January 2004. He specializes in providing
restructuring advisory and crisis management services to
financially distressed companies and their creditors. As part of
his employment at KZC, from May 2005 until October 2007,
Mr. Boken was Chief Restructuring Officer of auto supplier
Collins & Aikman Corporation during its
chapter 11 proceeding. From May 2005 through December 2005,
he was Chief Executive Officer of Entegra Power Group upon its
emergence from bankruptcy. From May 2003 through December 2003,
Mr. Boken was President and Chief Operating Officer of NRG
Energy, Inc. in its Chapter 11 case. Prior to joining KZC
in July 2002, Mr. Boken was the managing partner of the Los
Angeles corporate restructuring practice of Arthur Andersen.
Mr. Boken will become our Chief Executive Officer
immediately after the filing of the Annual Report on
Form 10K.
George Yeonas became our Executive Vice President and
Chief Operating Officer of TOUSA, Inc. and President of TOUSA
Homes, Inc. in January 2008. Prior to that, Mr. Yeonas was
Executive Vice President of TOUSA Homes since May 2005. Between
November 2004 and May 2005, Mr. Yeonas provided consulting
services to the Company. Prior to joining TOUSA Homes,
Mr. Yeonas was a partner and chief operating officer of
Rocky Gorge Homes. From 1997 to 2002, he was Chief Operating
Officer, a Board Director and Chief Executive Officer of The
Fortress Group. Before The Fortress Group, he held executive
level positions with Arvida, NVR, and Trammell Crow.
Paul Berkowitz became our Executive Vice President and
Chief of Staff in January 2007. Before joining TOUSA,
Mr. Berkowitz was a principal shareholder at Greenberg
Traurig, LLP, a major international law firm, where he served a
wide variety of clients. Mr. Berkowitz concentrated on
corporate and securities law and has extensive experience in
financing transactions, public and private offerings, and
mergers and acquisitions.
83
Michael Glass became our President of Financial Services
in July 2006, overseeing the operations of Universal Land Title,
Inc., Preferred Home Mortgage Company, and Alliance Insurance
and Information Services, LLC each a subsidiary of TOUSA.
Mr. Glass founded Universal Land Title in 1986. He is
active in local, state, and national organizations to set
industry standards. In addition, he headed the acquisition of
Alliance Insurance and Information Services offering
homeowners insurance products to TOUSA homebuyers.
Angela Valdes became our Chief Accounting Officer in July
2007. Prior to that, Ms. Valdes served as TOUSAs
Corporate Controller since 2002 and Vice President since July
2006. Ms. Valdes oversees TOUSAs accounting and
financial reporting functions. Prior to joining TOUSA,
Ms. Valdes spent 11 years in public accounting at
Ernst & Young LLP, specializing in publicly-traded
companies with a focus on the real estate industry.
Ms. Valdes is a certified public accountant.
Certain
Legal Proceedings
As a result of our Chapter 11 cases, Ms. Stengou,
Ms. Parks and Messrs. Konstantinos Stengos,
George Stengos, Andreas Stengos, Mon, Horner, Hasler,
McAden, Poulos and Whitworth have each served as directors of a
company that filed a petition under the federal bankruptcy laws
within the last five years. Similarly, as officers or directors
of TOUSA
and/or
certain of our subsidiaries, Ms. Valdes and
Messrs. Boken, Yeonas, Berkowitz and Glass have served as
directors or executive officers of a company that filed a
petition under the federal bankruptcy laws within the last five
years.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our directors, executive officers, and persons who own
more than 10% of our outstanding common stock to file with the
Commission reports of changes in their ownership of common
stock. Directors, officers, and greater than 10% stockholders
are also required to furnish us with copies of all forms they
file under this regulation. To our knowledge, based solely on a
review of the copies of such reports furnished to us and
representations that no other reports were required, during the
year ended December 31, 2007, all Section 16(a) filing
requirements applicable to our directors, officers, and greater
than 10% stockholders were satisfied.
Stockholder
Nominees to Board of Directors
We have not adopted procedures by which stockholders may
recommend director candidates for consideration because we do
not intend to hold annual meetings of stockholders during the
pendency of our Chapter 11 cases.
Code of
Business Conduct and Ethics
Our Code of Business Conduct and Ethics covers a wide range of
business practices and procedures. The Code is just one part of
our comprehensive compliance program. It is designed to
supplement, not be a substitute for, other policy statements and
compliance documents which may be published from time to time by
TOUSA and its subsidiaries. The Code applies to all of our
directors, the Principal Executive Officer, the Principal
Financial Officer, the Principal Accounting Officer, the
Controller, and any other officers, associates, agents and
representatives, including consultants. The Code requires that
each individual deal fairly, honestly and constructively with
governmental and regulatory bodies, customers, suppliers, and
competitors, and it prohibits any individuals taking
unfair advantage through manipulation, concealment, abuse of
privileged information, or misrepresentation of material fact.
Further, it imposes an express duty to act in our best interests
and to avoid influences, interests or relationships that could
give rise to an actual or apparent conflict of interest.
Conflicts of interest are prohibited as a matter of policy,
except under guidelines approved by the Board of Directors.
Conflicts of interest may not always be clear-cut, so if there
is ever a question, associates are instructed to consult with
higher levels of management or the Chief of Staff. There can be
no waiver of any part of this Code for any director or officer
except by a vote of the Board of Directors or a designated board
committee that will ascertain whether a waiver is appropriate
under all the circumstances. In case a waiver of this Code is
granted to a director or officer, notice of such waiver will be
posted on our website
84
within five days of the Board of Directors vote or will be
otherwise disclosed as required by applicable law. We granted no
waivers under our Code in 2007. A copy of the Code is posted on
our website at www.tousa.com.
Ethics
Hotline
We strongly encourage our associates to raise possible ethical
issues and offer several channels by which employees and others
may report ethical concerns or incidents, including, without
limitation, concerns about accounting, internal controls or
auditing matters. We provide an Ethics Hotline that is available
24 hours a day, seven days a week. Individuals may choose
to remain anonymous. We prohibit retaliatory actions against
anyone who, in good faith, raises concerns or questions
regarding ethics, discrimination or harassment matters, or
reports suspected violations of other applicable laws,
regulations or policies. Calls to the Ethics Hotline are
received by a vendor, which reports the calls to our Assistant
Vice President of Internal Audit and our Vice President of Human
Resources for review and investigation.
Audit
Committee and Designated Audit Committee Financial
Experts
The Audit Committee consists of Messrs. Hasler, Poulos, and
Whitworth. Our Board of Directors has determined that each of
Messrs. Hasler and Poulos is an audit committee
financial expert as defined by the rules promulgated by
the Securities and Exchange Commission, and that, in the
business judgment of the Board of Directors, Mr. Whitworth
is financially literate. Mr. Hasler serves on the audit
committees of three publicly traded companies in addition to
serving as the chair of the Companys Audit Committee. The
Board of Directors has determined that such simultaneous service
by Mr. Hasler does not impair his ability to serve on the
Companys Audit Committee.
The Audit Committee generally has responsibility for:
|
|
|
|
|
appointing, overseeing, and determining the compensation of our
independent registered public accounting firm;
|
|
|
|
reviewing the plan and scope of the accountants audit;
|
|
|
|
reviewing our audit and internal control functions;
|
|
|
|
approving all permitted non-audit services provided by our
independent registered public accounting firm; and
|
|
|
|
reporting to our full Board of Directors regarding all of the
foregoing.
|
The Audit Committee meets with the independent registered public
accounting firm and our management in connection with its review
and approval of the unaudited financial statements for inclusion
in our Quarterly Reports on
Form 10-Q
and the annual audited financial statements for inclusion in our
Annual Report on
Form 10-K.
Additionally, the Audit Committee provides our Board of
Directors with such additional information and materials as it
may deem necessary to make our Board of Directors aware of
significant financial matters that require its attention. The
Audit Committee held 8 meetings during the year ended
December 31, 2007 and no actions in writing were taken.
Although our shares are no longer listed on the New York
Stock Exchange, we believe that our Audit Committees
financial experts are independent as defined in the New York
Stock Exchange Listing Standards. The Audit Committees
goals and responsibilities are set forth in a written Audit
Committee charter, a copy of which can be found on the
Companys website, www.tousa.com, under
Investor Information Corporate
Governance.
85
|
|
ITEM 11.
|
Executive
Compensation
|
COMPENSATION
COMMITTEE REPORT
The Compensation, Human Resources and Benefits Committee has
reviewed and discussed the Compensation Discussion and Analysis
contained in this Annual Report on
Form 10-K
with members of senior management. Based on these reviews and
discussions, the Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
TOUSAs Annual Report on
Form 10-K.
Compensation, Human Resources and Benefits Committee
Michael J. Poulos Chairman
Larry D. Horner
Susan B. Parks
COMPENSATION
DISCUSSION AND ANALYSIS
This discussion and analysis discusses and analyzes the
objectives and manner of implementation of our executive
compensation programs for our executive officers identified in
the Summary Compensation Table below. This analysis should be
read in conjunction with the compensation related tables that
immediately follow this discussion and analysis. This discussion
and analysis was prepared in cooperation with our Compensation
Committee, the members of which have reviewed this discussion
and analysis.
Compensation
Philosophy
Guiding Principles. Our compensation
philosophy was developed to balance and align the goals of
stockholders and executive management. As noted below, our
compensation philosophy has been modified as a result of the
filing of our Chapter 11 cases. Because a given years
results are seldom the immediate or sole consequence of
executive actions taken in that year, the Human Resources,
Compensation and Benefits Committee pursues a compensation
policy that recognizes efforts, results, and responsibilities
over the long-term. In administering compensation policy, the
Compensation Committee establishes executive officers base
salaries and variable compensation, consisting of cash bonuses
and various types of longer-term incentives.
Traditionally, the Compensation Committees decision making
process encompasses three underlying principles:
|
|
|
|
|
compensation should be adequate to attract and retain qualified
associates;
|
|
|
|
compensation paid to such associates should be based on their
individual duties and responsibilities and their relative
contribution to overall results; and
|
|
|
|
compensation should reflect remuneration levels for comparable
positions inside and outside the organization. The Committee
reviews the Companys compensation policies at least
annually with its overall review of executive compensation.
|
Since the filing of our Chapter 11 cases, to assist in
achieving our objectives, our Compensation Committee has been
engaged in developing, with the assistance of Towers, Perin,
compensation packages that are designed to reward not only
individual contributions but also our corporate achievement of
certain pre-determined milestones in our Chapter 11
restructuring. This program is designed to encourage our
management team to pursue strategic opportunities in the design,
building and marketing of our homes, while effectively managing
the risks and challenges inherent to a company experiencing a
Chapter 11 restructuring.
Our program is intended to attract, motivate, reward and retain
the management talent required to achieve our corporate
objectives. We analyze our competitors compensation
principles. Our philosophy is that we need to pay our senior
associates between the mean and
75th percentile
in order to retain the senior associates in light of intense
competition for senior managers in the homebuilding industry.
Our compensation philosophy
86
puts a strong emphasis on pay for performance to correlate the
long-term growth of value with managements most
significant compensation opportunities. In addition, we support
a performance oriented environment that rewards achievement of
both our internal goals and enhanced Company performance as
measured against performance levels of comparable companies in
the industry. Finally, we believe that the Company must have the
flexibility to deal with market conditions which are outside the
control of management and to establish a compensation program
designed to attract, motivate and retain executive officers,
particularly in light of the severe challenges currently facing
the homebuilding industry. As such, the Company may elect to pay
bonuses related to the achievement of goals that are not tied to
arithmetic formulas.
In the past, the four primary components of compensation for our
senior executives were base salary, annual cash incentive bonus,
our performance unit program, and a stock option and restricted
stock plan. None of the units granted pursuant to the
performance unit program vested. Therefore all of the units
automatically expired on December 31, 2007 and no units
will be granted in the future.
The relative weighting of the four components was designed to
strongly reward long-term performance. Base pay was targeted at
or below median market levels and typically represents (12% to
15%) of total annual compensation. The annual cash incentive
component is targeted at the
60th percentile
of our peer group and depends on the achievement of annual
performance objectives that are established in advance of the
performance year being measured. If performance objectives are
met, this component would represent approximately (20% to 30%)
of total annual compensation. Finally, the long-term equity
component was (55% to 60%) of total annual compensation.
Determination of Compensation. Our
Compensation Committee is composed entirely of independent
outside directors and is responsible for setting our
compensation policy. The Compensation Committee has
responsibility for setting each component of compensation for
the chief executive officer and utilizes the services of Towers
Perrin in developing the CEO Annual Incentive Bonus Plan
described below. The Compensation Committee is also responsible
for setting the total compensation of members of the Board of
Directors. The chief executive officer and the vice president of
human resources develop initial recommendations for all
components of compensation for the direct reports of the chief
executive officer and present their recommendations to the
Compensation Committee for review and approval. Mr. Mon
presents an evaluation of the executive officers who report
directly to him to the Committee. The evaluation was based on
performance by each of the executive officers against certain
criteria. A primary measure was financial performance as against
budget. Review of performance with respect to our strategic
plans was also considered. Rather than employing strictly
formulaic approaches, these factors were considered as a whole
to determine compensation.
Tax Deductibility of Pay. Under
Section 162(m) of the Internal Revenue Code, compensation
in excess of $1 million that is not paid pursuant to a plan
approved by stockholders and does not satisfy the
performance-based exception of Section 162(m) is not
deductible as a compensation expense by us. Compensation
decisions for the executive officers are made with full
consideration of the implications of Section 162(m).
Although the Compensation Committee intends to structure
arrangements in a manner that preserves deductibility under
Section 162(m), it believes that maintaining flexibility is
important and reserves the right to pay amounts or make awards
that are nondeductible.
Recoupment of Annual Incentives. The
Compensation Committee will evaluate the facts and circumstances
surrounding any restatement of earnings (should one occur) and,
in its sole discretion, may accordingly adjust compensation of
the chief executive officer and others as it deems appropriate,
especially related to annual cash incentive awards.
Components
of Our Compensation Program
Base Pay. The base pay component of total
compensation is paid in cash on a semi-monthly basis. The levels
of base salaries are generally targeted at or below the median
level of the peer group, typically around the
45th percentile. The individuals relative position of
the median pay level is based on a variety of factors, including
experience and tenure in a position, scope of responsibilities,
individual performance and personal contributions to corporate
performance. Annual increases, if any, are based on these same
factors. Highly experienced and long-tenured executives would
not typically receive an increase in base pay each year. The
87
median pay levels are determined from survey information
provided by nationally recognized consulting firms that gather
compensation data from many companies. The specific companies
included in the peer group are: WCI Communities, Jim Walter
Homes, Taylor Morrison, Inc., NVR, Meritage, Kimball Hill Homes,
DR Horton, Centex Homes, Pulte, Mercedes Homes, Lennar
Homes, K. Hovnanian Enterprises, Inc. KB Home, M.D.C.
Holdings, Inc., The Ryland Group, Inc., Standard Pacific
Corporation and Taylor Woodrow, Inc.
Cash Incentive Bonus. The bonus formulas
contained in the employment agreements of our senior officers
are designed to reward personal contribution and performance,
measured by reference to performance measures tailored to the
particular responsibilities of the specific senior officer, such
as achievement of specified targets for return on equity, net
income, divisional profit goals, divisional contribution
targets, customer service rankings,
and/or
overall performance. In the budgeting process, a profit goal
contribution target is set and minimum threshold performance
criteria for officers must be reached before any bonus awards
will be granted. In addition, the individual performance of each
senior officer
and/or any
extraordinary or unusual circumstances or events are taken into
consideration in making bonus awards. As a result, the
Compensation Committee has the discretion to and does, from time
to time, grant discretionary bonuses in excess of the amounts
resulting from the bonus formulae contained in the relevant
employment agreements for our senior officers.
Executive Savings Plan. Effective
December 1, 2004, the Company implemented the TOUSA, Inc.
Executive Savings Plan (the Savings Plan). The
Savings Plan allows a select group of management or highly
compensated employees of the Company or certain of the
Companys subsidiaries to elect to defer up to 90% of their
salary and up to 100% of their bonus. The Company credits an
amount equal to the compensation deferred by a participant to
that participants deferral account under the Savings Plan.
Each participants deferral account is credited with
income, gains and losses based on the performance of investment
funds selected by the participant from a list of funds
designated by the Company. Participants are at all times 100%
vested in the amounts that they choose to defer under the
Savings Plan. The deferred compensation credited to a
participants account is payable in cash, commencing upon a
date specified in advance by the participant pursuant to the
terms of the Savings Plan or, if earlier, the termination of the
participants employment with the Company or its
subsidiary, subject to certain provisions allowing accelerated
distributions in the event of disability, certain changes
of control of the Company
and/or
unforeseeable emergencies. The Company does not make any
contributions under the Savings Plan and may terminate the
Savings Plan and discontinue any further deferrals under the
Savings Plan at any time. The obligation to make distributions
from participant accounts under the Savings Plan is an
unsecured, general obligation of the Company.
Health and Insurance Plans. The Named
Executive Officers are eligible to participate in
company-sponsored benefit programs on the same terms and
conditions as those made available to salaried associates
generally. Basic health benefits, life insurance, disability
benefits and similar programs are provided to ensure that
associates have access to healthcare and income protections for
themselves and their family members. Under TOUSAs medical
plans, higher paid associates are required to pay a
significantly higher amount of the total premiums, while the
premiums paid by lower paid associates receive a higher subsidy
from TOUSA.
88
Summary
Compensation Table
The following tables present certain summary information
concerning compensation earned for services rendered by
(i) our Chief Executive Officer, Chief Financial Officer
and our other three most highly compensated executive officers
(the Named Executive Officers). The form of the
tables is set by SEC regulations.
2007
EXECUTIVE COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
NQDC
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Antonio B. Mon
|
|
|
2007
|
|
|
|
1,288,408
|
(1)
|
|
|
898,061
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
654,864
|
(3)
|
|
|
2,841,333
|
|
Chief Executive Officer
|
|
|
2006
|
|
|
|
1,200,562
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,795
|
(4)
|
|
|
2,465,357
|
|
Stephen M. Wagman
|
|
|
2007
|
|
|
|
441,663
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
(5)
|
|
|
778,663
|
|
Executive Vice President &
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George C. Yeonas
|
|
|
2007
|
|
|
|
100,000
|
|
|
|
1,125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700,724
|
(6)
|
|
|
1,925,724
|
|
Exec Vice President
|
|
|
2006
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700,000
|
(6)
|
|
|
800,000
|
|
TOUSA Homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Upton
|
|
|
2007
|
(7)
|
|
|
450,973
|
|
|
|
2,156,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200
|
(5)
|
|
|
2,614,668
|
|
Exec Vice President
|
|
|
2006
|
|
|
|
420,000
|
|
|
|
1,229,900
|
|
|
|
|
|
|
|
|
|
|
|
770,100
|
(8)
|
|
|
|
|
|
|
97,294
|
(9)
|
|
|
2,517,294
|
|
TOUSA Homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Kraynick
|
|
|
2007
|
(7)
|
|
|
544,891
|
|
|
|
1,530,000
|
|
|
|
|
|
|
|
|
|
|
|
1,343,727
|
(10)
|
|
|
|
|
|
|
6,833
|
(11)
|
|
|
3,425,451
|
|
Vice President
|
|
|
2006
|
|
|
|
500,000
|
|
|
|
640,000
|
|
|
|
|
|
|
|
|
|
|
|
1,760,000
|
(10)
|
|
|
|
|
|
|
|
|
|
|
2,900,000
|
|
Harry Engelstein
|
|
|
2007
|
(7)
|
|
|
566,919
|
|
|
|
3,339,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,540
|
(12)
|
|
|
3,936,699
|
|
Chairman TOUSA
|
|
|
2006
|
|
|
|
500,000
|
|
|
|
1,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,940
|
(13)
|
|
|
2,154,940
|
|
Homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Mon waived his contractual right to annual 10% salary
increases effective October 1, 2007. |
|
(2) |
|
Effective October 1, 2007, Mr. Mon waived his
contractual right to an annual bonus of $1 million. |
|
(3) |
|
This amount includes $60,000 paid for life insurance policies,
$51,636 paid in tax
gross-up
payments on such premiums, $36,286 for personal use of a
corporate automobile, $38,065 for personal rental of a corporate
condominium, $422,500 representing the excess of the fair market
value over the purchase price paid by Mr. Mon for the
condominium pursuant to the terms of his amended and restated
employment agreement dated January 27, 2004, $40,437 tax
gross-up on
the automobile and condominium, and the balance represents the
taxable portion of premiums paid by the Company on group term
life insurance and tax
gross-up
payments on them. |
|
(4) |
|
This amount includes $60,000 paid for life insurance policies,
$51,636 paid in tax
gross-up
payments on such premiums, $36,286 for personal use of a
corporate automobile, $54,000 for personal use of a corporate
apartment, $29,287 tax
gross-up on
the automobile and apartment, $25,646 for personal use of a
corporate aircraft, and the balance represents the taxable
portion of premiums paid by the Company on group term life
insurance and tax
gross-up
payments on them. |
|
(5) |
|
This amount is the annual auto allowance received in 2007. |
|
(6) |
|
The $700,000 in 2006 and 2007 represent earnings from consultant
services provided to the Company. The $724 is the taxable
portion of premiums paid by the Company for group term life
insurance in 2007. |
|
(7) |
|
Employment with the Company terminated December 31, 2007. |
|
(8) |
|
The annual bonus was based on the factors described in the
Compensation and Discussion Analysis. |
|
(9) |
|
This amount represents the taxable proceeds from exercise of
Company options and sale of shares. |
|
(10) |
|
The annual bonus was based on the factors described in the
discussion of Mr. Kraynicks employment agreement
below. |
89
|
|
|
(11) |
|
This amount represents $2,763 for personal use of Company
automobile, $2,000 for TOUSA executive physical reimbursement
and $2,070 the taxable portion of premiums paid by the Company
on group term life Insurance. |
|
(12) |
|
This amount represents the auto allowance, $12,000 and the
taxable portion of premiums paid by the Company on group term
life insurance, $18,540. |
|
(13) |
|
This amount represents the taxable proceeds from exercise of
Company options and sale of shares, $74,400, auto allowance,
$12,000 and the taxable portion of premiums paid by the Company
on group term life insurance, $18,540. |
Outstanding
Equity Awards at Fiscal Year-End
The following table shows the unexercised stock options and
unvested restricted stock awards held at the end of fiscal year
2007 by the executive officers named in the Executive
Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number of
|
|
Market Value
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Shares or Units
|
|
of Shares or
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
of Stock Held
|
|
Units of Stock
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
That Have
|
|
That Have
|
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Expiration
|
|
Not Vested
|
|
Not Vested
|
|
|
(#)
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
Antonio B. Mon
|
|
|
246,001
|
(1)(2)
|
|
|
643,160
|
(1)(2)
|
|
|
9.16
|
|
|
|
12/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
428,097
|
(1)(3)
|
|
|
|
|
|
|
9.16
|
|
|
|
12/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
658,636
|
(1)(4)
|
|
|
|
|
|
|
10.08
|
|
|
|
12/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
658,636
|
(1)(5)
|
|
|
|
|
|
|
11.09
|
|
|
|
12/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
658,639
|
(1)(6)
|
|
|
|
|
|
|
12.20
|
|
|
|
12/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
661,970
|
|
|
|
|
|
|
|
23.62
|
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
661,970
|
(7)
|
|
|
23.62
|
|
|
|
12/31/2018
|
|
|
|
|
|
|
|
|
|
Stephen Wagman
|
|
|
|
|
|
|
16,666
|
(8)
|
|
|
10.05
|
|
|
|
02/16/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,666
|
(8)
|
|
|
10.05
|
|
|
|
02/16/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,667
|
(8)
|
|
|
10.05
|
|
|
|
02/16/2019
|
|
|
|
|
|
|
|
|
|
George Yeonas
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
Mark Upton
|
|
|
9,375
|
|
|
|
|
|
|
|
10.08
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
|
|
|
|
|
10.61
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
|
|
|
|
|
11.14
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
|
|
|
|
|
11.67
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
(9)
|
|
|
12.20
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
John Kraynick
|
|
|
9,375
|
|
|
|
|
|
|
|
17.25
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
9,375
|
|
|
|
|
|
|
|
18.98
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
9,375
|
|
|
|
|
|
|
|
20.88
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,375
|
(9)
|
|
|
22.96
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,375
|
(9)
|
|
|
25.25
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
Harry Engelstein
|
|
|
7,500
|
|
|
|
|
|
|
|
10.61
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
11.14
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
11.67
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(9)
|
|
|
12.20
|
|
|
|
03/03/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
|
|
|
|
|
|
|
17.25
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
|
|
|
|
|
|
|
18.98
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
|
|
|
|
|
|
|
20.88
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
(9)
|
|
|
22.96
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
(9)
|
|
|
25.25
|
|
|
|
03/03/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of various gifts and transfers for estate planning
purposes, Mr. Mon has transferred stock options to various
family-controlled entities. The total set forth above includes
(i) 622,749 shares issuable upon exercise of stock
options that have already vested that are beneficially owned by
Maywood Investment Company, LLC (MIC),
(ii) 967,307 shares issuable upon exercise of stock
options that have |
90
|
|
|
|
|
already vested that are beneficially owned by a trust for the
benefit of Mr. Mons adult children (the
Trust), and (iii) 1,059,953 shares
issuable upon exercise of stock options that have already vested
that are beneficially owned by Maywood Capital, LLC
(MC). Mr. Mon is not the managing member of
MIC, nor does he own or control majority of the membership
interests in MIC, and, accordingly, he disclaims beneficial
ownership of the stock options owned by MIC. Mr. Mon
disclaims beneficial ownership of the stock options held by the
Trust, and, although he has a pecuniary interest in MC, he also
disclaims beneficial ownership of the stock options held by MC. |
|
(2) |
|
These options fully vest on December 31, 2009. However,
these options are subject to accelerated vesting, in accordance
with the following schedule, depending on whether and to what
extent the Companys common stock price exceeds the average
common stock price of a specified peer group at the end of each
performance period: 246,000 of 296,387 vested on
December 31, 2004, none of 296,387 vested on
December 31, 2005, and none of 296,387 vested on
December 31, 2006. |
|
(3) |
|
These non-qualified options were immediately available on the
grant date of December 31, 2002. |
|
(4) |
|
These non-qualified options vested on January 1, 2003. |
|
(5) |
|
These non-qualified options vested on January 1, 2004. |
|
(6) |
|
These non-qualified options vested on January 1, 2005. |
|
(7) |
|
These non-qualified stock options vest on December 31, 2008. |
|
(8) |
|
Mr. Wagmans employment was voluntarily terminated on
January 18, 2008. None of Mr. Wagmans shares had
vested as of the date of termination. |
|
(9) |
|
Mr. Upton, Mr. Kraynick and Mr. Engelstein
voluntarily terminated their employment on December 31,
2007. Pursuant to the Amended and Restated Annual Long-Term
Incentive Plan, the terminated optionees have three months from
the date of termination to exercise their vested options. Any
unvested options are cancelled effective the date of termination. |
Employment
Agreements
Antonio
B. Mon
Effective July 26, 2003, Antonio B. Mon and the Company
entered into an Amended and Restated Employment Agreement with a
term ending on December 31, 2008. Pursuant to that
agreement, Mr. Mon serves as our Chief Executive Officer,
President, and Executive Vice Chairman, as well as one of our
directors. The agreement provides that Mr. Mon will receive
an initial base salary of $968,000 with annual increases of a
minimum of 10% per year. Effective October 1, 2007,
Mr. Mon waived his right to these increases and also waived
his right to the remaining balance of $250,000 of his annual
bonus of $1,000,000. Mr. Mon has also agreed to limit his
right to reimbursement for financial and estate planning, tax
advice and related legal costs to $10,000 in 2008 as opposed to
the $42,350 to which he was contractually entitled. The
employment agreement also allows Mr. Mon to use a corporate
automobile and a corporate apartment located in
Fort Lauderdale, Florida. In October 2007, Mr. Mon
exercised his option to purchase the apartment at the
Companys original cost. On January 13, 2006,
Mr. Mons employment agreement was amended (the
Amendment) to replace the provisions in
Mr. Mons then-existing employment agreement that
granted Mr. Mon the right to receive an equity incentive
compensation grant in each of 2007 and 2008 in an amount equal
to one percent (1%) of the Companys then outstanding
shares on a fully-diluted basis. Although the form of the equity
incentive compensation was to be mutually agreed upon by
Mr. Mon and the Company, the employment agreement provided
that the equity incentive compensation grant was to be the
economic equivalent of options to purchase shares of the
Companys common stock with exercise prices (subject to
specified adjustments) of $16.23 for the 2007 grant and $17.85
for the 2008 grant, vesting one year from the grant date and
exercisable for ten years. If the equity incentive compensation
contemplated in Mr. Mons employment agreement were
granted in the form of stock options having the terms described
above, the Companys ability to deduct the compensation
expense associated with such equity incentive compensation could
be limited by the provisions of Section 162(m) of the
Internal Revenue Code.
91
In order to avoid the potential for a loss of deductibility to
the Company, and to address the impact of the provisions of
Section 409A of the Code (which was adopted subsequent to
the Companys agreement to make the equity incentive
compensation grants described above), the Amendment provides
that in lieu of the foregoing equity incentive compensation, the
Company granted Mr. Mon an option to purchase
1,323,940 shares of the Companys common stock (which
equals approximately 2% of the Companys outstanding common
stock on a fully-diluted basis as of December 31, 2005)
(the 2006 Option Grant). The Company also agreed to
pay Mr. Mon an additional cash bonus for 2006 of $8,711,525
(the Additional 2006 Bonus) upon satisfaction of
certain criteria intended to satisfy the requirements of
Section 162(m) of the Code. The criteria were not met and
the payment was not made. The options have an exercise price of
$23.62 per share (which was the closing price of a share of the
Companys common stock on the New York Stock Exchange on
January 13, 2006) and vest in equal installments on
December 31, 2007 and December 31, 2008, subject to
acceleration in the event that Mr. Mon is terminated by the
Company for any reason other than cause or if Mr. Mon
terminates his employment for good reason. The options are
exercisable for ten years from the date of vesting.
On July 24, 2007, the Committee adopted the 2007 CEO Annual
Incentive Bonus Plan which is applicable to Mr. Mon. The
plan is designed to reward, through additional cash
compensation, the CEO for his contributions related to the
Companys recapitalization and restructuring of the
Transeastern Joint Venture. Pursuant to the plan, the target
annual incentive bonus for 2007 is $4.5 million (the
Target Award). Fifty percent of the Target Award is
earned if, and only if, the Committee in good faith determines
that the Company (i) has completed the Transeastern
transactions by December 31, 2007 and (ii) is not, as
of December 31, 2007, in default of a financial covenant or
other material provision under any financing arrangements to
which we are a party as of July 24, 2007 (the
Compliance Target). The other fifty percent of the
Target Award (the EBITDA Target) is earned, if, and
only if, the Committee in good faith determines that the Company
has met a specified EBITDA target for calendar year 2007. In the
event the Committee determines in good faith that the Company
has exceeded the EBITDA Target for 2007, the CEO is entitled to
an additional bonus payment in an amount equal to 1.5% of the
amount by which the Companys EBITDA for 2007 exceeds the
EBITDA Target.
Mr. Mon and the Company have agreed that the Compliance
Target has not been met. The Committee has determined that the
EBITDA target has been met and the Company has recorded the
liability. However, the obligation is prepetition and any
recovery will be part of the bankruptcy claims process.
On May 23, 2008, the Company and Mr. Mon entered into
an Executive Vice Chairman Agreement. Subject to the terms of
the agreement, effective with the filing of this Annual Report
on
Form 10-K,
Mr. Mon has relinquished the position of Chief Executive
Officer and President and will remain in his position as
Executive Vice Chairman of TOUSAs Board of Directors for
so long as he is a director of the Company and until the
earliest to occur of December 31, 2008, the effective date
of the Companys plan of reorganization submitted in
connection with the Companys and its subsidiaries
Chapter 11 cases and thirty (30) days following the
delivery of written notice from the Company or Mr. Mon
indicating an intention to terminate the Agreement. The
agreement provides that Mr. Mons current salary
decreased to $300,000 per annum commencing August 1, 2008.
George
Yeonas
Mr. Yeonas employment with the Company is governed by
an employment agreement dated January 1, 2008. The
agreement provides for an annual salary of seven hundred and
fifty thousand dollars ($750,000) and an annual bonus of one
hundred percent (100%) of Mr. Yeonas annual salary,
subject to the approval of the Board of Directors or relevant
Board Committee. If Mr. Yeonas employment is
terminated by the Company without cause or by Mr. Yeonas
for good reason, Mr. Yeonas will be entitled to receive
(i) his base salary for the greater of one year or the
remainder of the agreement term (as it may be extended from time
to time), (ii) a bonus for the year of termination
calculated in accordance with the terms of the employment
agreement, (iii) an additional bonus for one year equal to
the bonus paid pursuant to (ii) above, (iv) the value
of any benefits and perquisites that would have been provided
during the remainder of the agreement term, and (v) any
Accrued Obligations. If Mr. Yeonas employment is
terminated for cause or if Mr. Yeonas resigns, he
92
is entitled to receive any Accrued Obligations. If
Mr. Yeonas employment is terminated due to disability
or death, he or his estate is entitled to receive any Accrued
Obligations, plus a pro-rated bonus for the year of termination.
In addition, the employment agreement provides Mr. Yeonas
the right to terminate the employment agreement in the event of
a change of control of the Company.
Stephen
Wagman
Mr. Wagman entered into an agreement with the Company to
terminate his existing employment agreement and to act as a
consultant through the end of May 2008. The agreement provides
for mutual releases (including certain amounts otherwise owed to
Mr. Wagman), continuation of confidentiality requirements,
a payment to Mr. Wagman of $212,333 and earned vacation
pay, and COBRA reimbursement during the four month period.
John
Kraynick
On January 13, 2006, the Company entered into a new
employment agreement with John Kraynick pursuant to which he
served as Senior Vice-President of Land for the Companys
homebuilding operations. Pursuant to the agreement,
Mr. Kraynick was entitled to receive an initial annual base
salary of $500,000, subject to adjustment in subsequent years
based on Mr. Kraynicks performance, Company operating
results and industry practices, and was eligible to earn an
annual performance-based bonus. The 2007 bonus target was
$3.0 million comprised of the following four factors and
one discretionary component each worth $600,000:
(1) achieve 80% of annual business plan; (2) achieve
10% Return On Assets; (3) achieve 80% of 2006 sales in
2007; (4) reorganization incentive; and (5) receive
0.1% of pre-tax earnings. For 2006, Mr. Kraynicks
bonus was calculated by multiplying a Bonus Percentage by a
Bonus Factor. The Bonus Factor was determined by multiplying our
annual net income by 0.45%. The Bonus Percentage was based on
our Return on Equity (ROE). ROE was calculated by
dividing our annual net income by the average of our total
stockholder equity as of the beginning of the fiscal year and
the end of each month of the fiscal year, excluding any amounts
raised from a public offering during that year.
On December 31, 2007, the employment agreement with
Mr. Kraynick was terminated. Mr. Kraynick received a
severance payment in 2008 of $111,111 plus earned vacation pay.
He also received title to a Company car with a book value of
$10,000.
Mark
Upton
Effective January 1, 2005 the Company and Mr. Upton
entered an employment agreement pursuant to which he served as
an Executive Vice President of our homebuilding operations. The
agreement expired on, and Mr. Uptons employment with
the Company terminated, December 31, 2007.
Harry
Engelstein
Effective December 1, 2004, the Company and
Mr. Engelstein entered into an employment agreement
pursuant to which he served as Senior Executive Vice President
of our homebuilding operations. The agreement expired on
December 31, 2006 and was automatically renewed for one
year on the same terms and conditions.
Mr. Engelsteins employment with the Company
terminated December 31, 2007. Mr. Engelstein received
a severance payment in 2008 of $130,000 and earned vacation pay.
Provisions
in the Employment Agreements Generally
Each of the employment agreements described above also contains
non-compete and non-disclosure provisions in the event of the
respective officers termination of employment.
Potential
Payments upon Termination or Change in Control
Upon a termination by Mr. Yeonas following a change of
control, Mr. Yeonas will be entitled to receive a
termination payment equal to (a) his base salary for the
greater of one year or the remainder of the agreement
93
term and (b) a bonus payment for the year of termination
calculated in accordance with the terms of the employment
agreement, (c) an additional bonus for one year equal to
the bonus paid pursuant to (b) above, (d) the value of
any benefits and perquisites that would have been provided
during the remainder of the agreement term, and (e) any
Accrued Obligations.
Equity
Compensation Plan Information
The following table gives information about our common stock
that may be issued upon the exercise of options, warrants, and
rights under all existing equity compensation plans as of
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans, Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
in Column (a)
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
7,620,019
|
|
|
$
|
12.89
|
|
|
|
271,609
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,620,019
|
|
|
$
|
12.89
|
|
|
|
271,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
Compensation
During 2007 our outside directors (which we consider to be those
directors who are not officers of the Company, TOSA, or their
affiliates), other than the Senior Outside Director, received an
annual fee of $60,000, an annual equity award of either
nonqualified stock options or restricted stock valued at
$60,000, and reimbursement of reasonable out-of-pocket expenses
incurred for attendance at Board and Board committee meetings.
Effective January 1, 2008, each of our directors, other
than Messrs. Mon and McAden, will receive all of their
compensation in cash payable on a quarterly basis. Neither
Mr. Mon nor Mr. McAden is paid any directors
fees. Under our policy, Mr. Horner, our designated Senior
Outside Director for 2007, received an annual cash retainer of
$120,000, an annual equity award of either nonqualified stock
options or restricted stock valued at $120,000, and
reimbursement of reasonable out-of-pocket expenses incurred for
attendance at Board and Board Committee meetings.
Mr. Horner has been designated our Senior Outside Director
for fiscal year 2008. As chairperson of the Audit Committee for
2007, Mr. Hasler received an additional annual fee of
$20,000, and as chairperson of the Human Resources,
Compensation, and Benefits Committee for 2007, Mr. Poulos
received an additional annual fee of $10,000. The Company owned
and maintained a condominium and leased a car in Miami, Florida
for the exclusive use of the members of the Board of Directors
of the Company in 2007. In 2008, the condominium and car were
sold to an entity controlled by the Stengos family. The
aggregate incremental cost to the Company in 2007 of providing
the condominium and car was approximately $27,000.
The following table shows the compensation of the members of our
Board of Directors during fiscal year 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
Paid in
Cash(1)
|
|
|
Awards(2)
|
|
|
Awards(3)
|
|
|
Total
|
|
|
William Hasler
|
|
$
|
80,000
|
|
|
|
|
|
|
$
|
60,000
|
|
|
$
|
140,000
|
|
Larry D. Horner
|
|
$
|
120,000
|
|
|
|
|
|
|
$
|
120,000
|
|
|
$
|
240,000
|
|
Susan B. Parks
|
|
$
|
60,000
|
|
|
$
|
59,992
|
|
|
|
|
|
|
$
|
119,992
|
|
Michael Poulos
|
|
$
|
70,000
|
|
|
$
|
59,992
|
|
|
|
|
|
|
$
|
129,992
|
|
J. Bryan Whitworth
|
|
$
|
60,000
|
|
|
|
|
|
|
$
|
60,000
|
|
|
$
|
120,000
|
|
94
|
|
|
(1) |
|
With respect to Mr. Horner, includes $60,000 paid for
services as Senior Outside Director of the Board. With respect
to Messrs. Hasler and Poulos, includes $20,000 and $10,000,
respectively, paid to each for service as a committee
chairperson. |
|
(2) |
|
Each of Susan B. Parks and Michael Poulos received
6,825 shares of restricted stock in 2007. Calculation was
based on the $8.79 closing price of our Common Stock on
March 2, 2007, the date of grant. |
|
(3) |
|
Fair value of the stock option grants are estimated using the
Black-Scholes option-pricing model. Mr. Horner received
44,776 options and each of J. Bryan Whitworth and William Hasler
received 22,388 options based on a Black-Scholes value of $2.68
with an exercise price equal to the $8.79 closing price of our
Common Stock on March 2, 2007, the date of grant. Each
stock option grant vests ratably over a 12 month period
beginning on the date of grant. |
The directors held options as of December 31, 2007, as
follows:
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
Unvested
|
|
|
|
Options
|
|
|
Options
|
|
|
William Hasler
|
|
|
46,020
|
|
|
|
5,597
|
|
Larry D. Horner
|
|
|
33,582
|
|
|
|
11,194
|
|
Susan B. Parks
|
|
|
|
|
|
|
|
|
Michael Poulos
|
|
|
|
|
|
|
|
|
J. Bryan Whitworth
|
|
|
32,862
|
|
|
|
5,597
|
|
Compensation
Committee Interlocks and Insider Participation
Messrs. Poulos and Horner, and Ms. Parks comprised the
Human Resources, Compensation, and Benefits Committee during the
fiscal year 2007. None of these persons is currently serving or
has previously served as an officer or employee of ours or any
of our subsidiaries. There were no material transactions between
us and any of the members of the Human Resources, Compensation,
and Benefits Committee during fiscal year 2007.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The following table sets forth certain information as of
March 3, 2008, regarding beneficial ownership of our common
stock by
|
|
|
|
|
each person (or group of affiliated persons) who we know to
beneficially own more than 5% of the outstanding shares of our
common stock;
|
|
|
|
each of our current directors and our Named Executive Officers
(as defined below); and
|
|
|
|
all of our current executive officers and directors as a group.
|
The percentage of beneficial ownership is based on
59,604,169 shares of our common stock outstanding on
March 3, 2008.
95
This table is based on information supplied to us by our
executive officers, directors, and principal stockholders and
information filed with the Commission.
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
|
|
Nature of
|
|
|
|
|
|
|
Beneficial
|
|
|
Percent
|
|
Name and Address of Beneficial
Owner:
|
|
Ownership(1)
|
|
|
Owned(1)
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
Technical Olympic
S.A.(2)
|
|
|
39,899,975
|
|
|
|
66.94
|
%
|
Konstantinos Stengos
|
|
|
338,124
|
(3)
|
|
|
*
|
|
Antonio B. Mon
|
|
|
3,316,979
|
(4)
|
|
|
5.27
|
%
|
Andreas Stengos
|
|
|
291,249
|
(3)
|
|
|
*
|
|
George Stengos
|
|
|
285,249
|
(3)
|
|
|
*
|
|
Marianna Stengou
|
|
|
301,999
|
(3)
|
|
|
*
|
|
Larry D. Horner
|
|
|
70,342
|
(5)
|
|
|
*
|
|
William A. Hasler
|
|
|
54,167
|
(6)
|
|
|
*
|
|
Michael J. Poulos
|
|
|
19,606
|
|
|
|
*
|
|
Susan B. Parks
|
|
|
13,148
|
|
|
|
*
|
|
J. Bryan Whitworth
|
|
|
40,709
|
(7)
|
|
|
*
|
|
Tommy L. McAden
|
|
|
675,224
|
(8)
|
|
|
1.12
|
%
|
John Kraynick
|
|
|
37,500
|
(9)
|
|
|
*
|
|
Mark Upton
|
|
|
37,500
|
(9)
|
|
|
*
|
|
Harry Engelstein
|
|
|
75,000
|
(9)
|
|
|
*
|
|
Stephen Wagman
|
|
|
|
|
|
|
*
|
|
All directors and executive officers as a group (19 persons)
|
|
|
5,579,088
|
|
|
|
8.12
|
%
|
|
|
|
|
|
Except as otherwise indicated, the address of each person named
in this table is
c/o TOUSA,
Inc., 4000 Hollywood Boulevard, Suite 500 N,
Hollywood, Florida 33021. |
|
* |
|
Less than one percent. |
|
(1) |
|
The amounts and percentage of common stock beneficially owned
are reported on the basis of regulations of the Commission.
Under the rules of the Commission, a person is deemed to be a
beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or
direct the voting of the security, or investment
power, which includes the power to dispose of or direct
the disposition of the security. Except as indicated by
footnote, and subject to community property laws where
applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. In addition, in
determining the number and percentage of shares beneficially
owned by each person, shares issuable pursuant to options
exercisable within 60 days after April 9, 2007, are
deemed outstanding for purposes of determining the total number
outstanding for such person and are not deemed outstanding for
such purpose for all other stockholders. Under these rules, more
than one person may be deemed a beneficial owner of the same
securities and a person may be deemed a beneficial owner of
securities as to which he has no economic interest. |
|
(2) |
|
The principal business address of Technical Olympic S.A. is 20
Solomou Street, Alimos, Athens, Greece, 17456.
Mr. Konstantinos Stengos owns more than 5% of the
outstanding stock of Technical Olympic S.A. |
|
(3) |
|
Includes 281,249 shares issuable upon exercise of stock
options that have already vested. |
|
(4) |
|
As a result of various gifts and transfers for estate planning
purposes, Mr. Mon has transferred stock options to various
family-controlled entities. The total set forth above includes
(i) 622,749 shares issuable upon exercise of stock
options that have already vested that are beneficially owned by
Maywood Investment Company, LLC (MIC),
(ii) 967,307 shares issuable upon exercise of stock
options that have already vested that are beneficially owned by
a trust for the benefit of Mr. Mons adult children
(the |
96
|
|
|
|
|
Trust), (iii) 1,059,953 shares issuable
upon exercise of stock options that have already vested that are
beneficially owned by Maywood Capital, LLC (MC), and
(iv) 661,970 shares issuable upon exercise of stock
options that have already vested that are beneficially owned by
Mr. Mon. Mr. Mon is not the managing member of MIC,
nor does he own or control majority of the membership interests
in MIC, and, accordingly, he disclaims beneficial ownership of
the stock options owned by MIC. Mr. Mon disclaims
beneficial ownership of the stock options held by the Trust,
and, although he has a pecuniary interest in MC, he also
disclaims beneficial ownership of the stock options held by MC. |
|
(5) |
|
Includes 44,776 shares issuable upon exercise of stock
options that have already vested. |
|
(6) |
|
Includes 51,617 shares issuable upon exercise of stock
options that have already vested. |
|
(7) |
|
Includes 38,459 shares issuable upon exercise of stock
options that have already vested. |
|
(8) |
|
Includes 675,099 shares issuable upon exercise of stock
options that have already vested. |
|
(9) |
|
All shares issuable upon exercise of stock options that have
already vested. |
Security
Ownership of Principal Stockholders
The following table sets forth information with respect to any
person who is known to be the beneficial owner of more than 5%
of the Companys Common Stock or 8% Series A
Converitble Pay-in-Kind Preferred Stock on March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Number of Shares and Nature of
|
|
Outstanding
|
|
Name and Address
|
|
Beneficial Ownership
|
|
Shares
|
|
|
Technical Olympic S.A.
20 Solomou Street
Athens, Greece 17456
|
|
39,899,975 shares of Common Stock
|
|
|
66.94
|
%
|
8% Series A Convertible
Pay-In-Kind
Preferred Stock:
|
|
|
|
|
|
|
Deutsche Bank Trust Companies of America
|
|
77,200(1)
|
|
|
44.58
|
%
|
|
|
|
(1) |
|
Represents 77,200 shares of 8% Series A Convertible
Pay-In-Kind
Preferred Stock which are convertible into, and have voting
rights equivalent to 47,950,311 shares of our common stock. |
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions
|
Management
Services Agreement
In June 2003, we entered into an Amended and Restated Management
Services Agreement with TOI, our former parent company, and in
connection with an October 2003 restructuring transaction, TOI
assigned its obligations and rights under the Amended and
Restated Management Services Agreement to TOSI, a Delaware
corporation wholly owned by TOSA. Under the Amended and Restated
Management Services Agreement, TOSI provided consultation with
and assistance to our Board of Directors and management in
connection with issues involving our business, as well as other
services requested from time to time by our Board of Directors.
In consideration for providing such services, the agreement
requires us to pay TOSI an annual management fee of $500,000
and, to the extent our net income for any fiscal year meets
established targets, additional annual incentive fees, which may
not exceed $3.0 million. Pursuant to the agreement, we have
agreed to indemnify TOSI for any liability incurred by it as a
result of the performance of its duties other than any liability
resulting from TOSIs gross negligence or willful
misconduct. We may terminate the agreement upon six months
prior written notice. For the years ended December 31, 2006
and December 31, 2007, we have made payments of $500,000
and $500,000, respectively, to TOSI under this agreement. The
agreement expired on December 31, 2007.
97
Purchasing
Agreements
In order to consolidate the purchasing function, we and our
subsidiary TOUSA Homes, Inc. entered into non-exclusive
purchasing agreements with TOSA in November 2000. Under the
purchasing agreements, TOSA would purchase certain materials and
supplies necessary for operations on our respective behalves and
provide them to us at cost. No additional fees or other
consideration are paid to TOSA. These agreements may be
terminated upon 60 days prior notice. TOSA purchased
an aggregate of $304.3 million of materials and supplies on
our behalf for the year ended December 31, 2007.
Certain
Land Bank Transactions
We have sold certain undeveloped real estate parcels to, and
entered into a number of agreements (including option contracts
and construction contracts) with, Equity Investments, LLC, a
limited liability company controlled by Alec Engelstein, Harry
Engelsteins brother. We made payments of approximately
$8.47 million to Equity Investments, LLC pursuant to these
agreements during the year ended December 31, 2007, and, as
of December 31, 2007, had options to purchase from Equity
Investments, LLC additional lots for a total aggregate sum of
approximately $4.1 million. We believe that the terms of
these various agreements approximate those that we would have
received in transactions with unrelated third parties.
Other
Transactions
During 2007, Design Center, Inc., Coverall Interiors, LLC and
Coverall of North Florida have provided the Company with
materials and interior design services for our model homes at a
cost of $1,274,080. The owner of Design Center, Inc., Coverall
Interiors, LLC and Coverall of North Florida is the daughter of
Mr. Harry Engelstein, the former Chairman of TOUSA
Homes, Inc. through December 31, 2007. We believe that all
transactions with Design Center, Inc., Coverall Interiors, LLC
and Coverall of North Florida have been on reasonable commercial
terms.
Pursuant to the terms of his 2003 employment agreement, on
October 17, 2007, Antonio B. Mon, our President and Chief
Executive Officer, exercised his option to purchase the
condominium in Fort Lauderdale, Florida that was provided
to him under his agreement. The purchase price was $950,000, as
set forth in his employment agreement.
On January 9, 2008, an entity controlled by the Stengos
family, certain of whom are directors of our company, acquired a
condominium owned by the Company in Miami, Florida. The
condominium unit has an appraised value of $1.3 million. In
light of the absence of any brokers commission and an
immediate cash closing, we sold the condominium for
$1.2 million.
Code of
Business Conduct and Ethics
Our Code of Business Conduct and Ethics covers a wide range of
business practices and procedures. The Code is just one part of
our comprehensive compliance program. It is designed to
supplement, not be a substitute for, other policy statements and
compliance documents which may be published from time to time by
TOUSA and its subsidiaries. The Code applies to all of our
directors, the Principal Executive Officer, the Principal
Financial Officer, the Principal Accounting Officer, the
Controller, and any other officers, associates, agents and
representatives, including consultants. The Code requires that
each individual deal fairly, honestly and constructively with
governmental and regulatory bodies, customers, suppliers, and
competitors, and it prohibits any individuals taking
unfair advantage through manipulation, concealment, abuse of
privileged information, or misrepresentation of material fact.
Further, it imposes an express duty to act in our best interests
and to avoid influences, interests or relationships that could
give rise to an actual or apparent conflict of interest.
Conflicts of interest are prohibited as a matter of policy,
except under guidelines approved by the Board of Directors.
Conflicts of interest may not always be clear-cut, so if there
is ever a question, associates are instructed to consult with
higher levels of management or the Chief of Staff. There can be
no waiver of any part of this Code for any director or officer
except by a vote of the Board of Directors or a designated board
committee that will ascertain whether a waiver is appropriate
under all the circumstances. In case a waiver of this Code is
granted to a director or officer, notice of such waiver will be
posted on our website
98
within five days of the Board of Directors vote or will be
otherwise disclosed as required by applicable law. We granted no
waivers under our Code in 2007. A copy of the Code is posted on
our website at www.tousa.com.
Independence
As of the record date, TOSA owned 67% of our outstanding common
stock. Although our securities will no longer list on the New
York Stock Exchange as of May 13, 2008, under its corporate
governance standards, we would be a controlled
company. In the past, we elected to take advantage of the
controlled company exemption as permitted under
Section 303A.00 of the NYSE Listed Company Manual. As a
controlled company, we were not currently required
to have independent directors comprise a majority of our Board
of Directors, nor were we required to have a
nominating/corporate governance committee and compensation
committee comprised entirely of independent directors. The Board
of Directors has determined, however, that Messrs. Horner,
Hasler, Poulos, and Whitworth, and Ms. Parks each meet the
standards of independence set forth in the corporate
governance standards of the NYSE.
Family
Relationships
Konstantinos Stengos is the father of Andreas Stengos, George
Stengos, and Marianna Stengou. We have no other familial
relationships among the executive officers and directors.
|
|
ITEM 14.
|
Principal
Accounting Fees and Services
|
Independent
Registered Public Accounting Firm Fees
The aggregate fees billed to TOUSA for the years ended
December 31, 2006 and 2007, by our independent registered
public accounting firm, Ernst & Young LLP, are as
follows:
Audit Fees: The aggregate fees for
professional services rendered by Ernst & Young LLP in
connection with (i) the audit of our annual consolidated
financial statements
(Form 10-K),
(ii) the audit of the Companys internal controls over
financial reporting in compliance with Section 404 of the
Sarbanes Oxley Act of 2002 (Section 404),
(iii) reviews of our quarterly financial statements
(Forms 10-Q),
(iv) assisting us with the preparation and review of our
various documents relating to securities offerings, including
the preparation of comfort letters, (v) evaluating the
effects of various accounting issues and changes in professional
standards, (vi) statutory audit of a subsidiary and
unconsolidated Engle/Sunbelt Holdings, LLC joint venture, and
(vii) assistance with the review of documents filed with
the Securities and Exchange Commission including staff comment
letters and Securities and Exchange Act of 1934 amended filings
were approximately $2.5 million and $3.8 million,
respectively.
Audit Related Fees: The aggregate fees for
professional services rendered by Ernst & Young LLP
for services reasonably related to the performance of the audit
and review of our financial statements, including
(i) providing us accounting consultations and
(ii) assisting us in documenting internal control policies
with respect to information systems and other business processes
during the years ended December 31, 2006 and 2007, were
approximately $100,000 and $40,000, respectively.
Tax Fees: The aggregate fees for professional
services rendered by Ernst & Young LLP for tax
compliance, tax advice, and tax planning during the years ended
December 31, 2006 and 2007 were approximately $500,000 and
$1.4 million, respectively.
All Other Fees: No other fees for professional
services, not included in audit fees, audit related fees and tax
fees above, were paid to Ernst & Young LLP during the
fiscal years ended December 31, 2006 and December 31,
2007.
Ernst & Young LLP advised the Audit Committee that it
did not believe its independence was impaired by providing such
services. As a result, Ernst & Young LLP confirmed
that, as of December 31, 2007, it was independent with
respect to the Company within the meaning of the Securities Act
of 1933 and the requirements of the Independence Standards Board.
99
Pre-Approval
Policies and Procedures for Audit and Permitted Non-Audit
Services
The Audit Committee has developed policies and procedures
requiring the Audit Committees pre-approval of all audit
and permitted non-audit services to be rendered by
Ernst & Young LLP. These policies and procedures are
intended to ensure that the provision of such services does not
impair Ernst & Youngs independence. These
services may include audit services, audit related services, tax
services, and other services. Pre-approval is generally provided
for a period of a fiscal year and any pre-approval is detailed
as to the particular service or category of service approved and
is generally subject to a specific cap on professional fees for
such services.
The Audit Committee has delegated to the Chairman of the Audit
Committee the authority to pre-approve services to be rendered
by Ernst & Young LLP and requires that the Chairman
report to the Audit Committee any pre-approval decisions made by
him at the next scheduled meeting of the Audit Committee. In
connection with making any pre-approval decisions, the Audit
Committee and the Chairman must consider whether the provision
of such permitted non-audit services by Ernst & Young
LLP is consistent with maintaining Ernst &
Youngs status as our independent registered public
accounting firm.
Consistent with these policies and procedures, the Audit
Committee approved all of the services rendered by
Ernst & Young LLP during fiscal year 2007, as
described above.
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
Documents filed as part of this report:
(1) Financial Statements
See Item 8. Financial Statements and Supplementary
Data for Financial Statements included with this Annual
Report on
Form 10-K.
(2) Financial Statement Schedules
Schedules are omitted because they are not applicable; not
required or the information required to be set forth therein is
included in the consolidated financial statements referenced
above in section (1) of this Item 15.
(3) Exhibits
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
3
|
.1
|
|
Certificate of Incorporation of Newark Homes Corp. (incorporated
by reference to the Form 8-K, dated March 23, 2001, previously
filed by the Registrant).
|
|
3
|
.2
|
|
Certificate of Amendment to the Certificate of Incorporation
(incorporated by reference to the Registration Statement on Form
S-4 previously filed by the Registrant (Registration Statement
No. 333-100013)).
|
|
3
|
.3
|
|
Amended and Restated Bylaws (incorporated by reference to the
Registration Statement on Form S-4 previously filed by the
Registrant. (Registration Statement No. 333-100013)).
|
|
3
|
.4
|
|
Certificate of Amendment to the Certificate of Incorporation,
dated April 28, 2004 (incorporated by reference to the Form 10-Q
for the quarter ended March 31, 2004, previously filed by the
Registrant).
|
|
3
|
.5
|
|
Certificate of Amendment to the Certificate of Incorporation,
dated July 30, 2007 (incorporated by reference to the Form 10-Q
for the quarter ended June 30, 2007, previously filed by the
Registrant).
|
|
3
|
.6
|
|
Certificate of Designation, Powers, Preferences and Rights of 8%
Series A Convertible
Pay-In-Kind
Preferred Stock, dated as of July 31, 2007 (incorporated by
reference to the Form 10-Q for the quarter ended June 30,
2007, previously filed by the Registrant).
|
|
3
|
.7
|
|
Amendment No. 1 to the Bylaws of TOUSA, Inc. (incorporated by
reference to the Form 10-Q, for the quarter ended September 30,
2007, previously filed by the Registrant).
|
100
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
4
|
.1
|
|
Indenture, dated as of June 25, 2002, by and among TOUSA, Inc.
and the subsidiaries named therein and Wells Fargo Bank
Minnesota, National Association, as Trustee covering up to
$200,000,000 9% Senior Notes due 2010 (incorporated by
reference to the Form 8-K, dated July 9, 2002, previously
filed by the Registrant).
|
|
4
|
.2
|
|
Indenture, dated as of June 25, 2002, by and among TOUSA, Inc.,
the subsidiaries name therein and Wells Fargo Bank Minnesota,
National Association, as Trustee covering up to $150,000,000
103/8% Senior
Subordinated Notes due 2012 (incorporated by reference to the
Form 8-K, dated July 9, 2002, previously filed by the
Registrant).
|
|
4
|
.3
|
|
Form of TOUSA, Inc. 9% Senior Note due 2010 (included in
Exhibit A to Exhibit 4.1) (incorporated by reference to the Form
8-K, dated July 9, 2002, previously filed by the Registrant).
|
|
4
|
.4
|
|
Form of TOUSA, Inc.
103/8% Senior
Subordinated Note due 2012 (included in Exhibit A of Exhibit
4.2) (incorporated by reference to the Form 8-K, dated July 9,
2002, previously filed by the Registrant).
|
|
4
|
.6
|
|
Specimen of Stock Certificate of TOUSA, Inc. (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form
S-8 previously filed by the Registrant (Registration No.
333-99307)).
|
|
4
|
.7
|
|
Indenture for the 9% Senior Notes due 2010, dated as of
February 3, 2003, among TOUSA, Inc., the subsidiaries named
therein, Salomon Smith Barney Inc., Deutsche Bank Securities
Inc., Fleet Securities, Inc. and Credit Lyonnais Securities
(USA) Inc. (incorporated by reference to Exhibit 4.13 to the
Form 10-K for the year ended December 31, 2002, previously filed
by the Registrant).
|
|
4
|
.8
|
|
Form of TOUSA, Inc. 9% Senior Note due 2010 (included in
Exhibit A to Exhibit 4.7) (incorporated by reference to Exhibit
4.13 to the Form 10-K for the year ended December 31, 2002,
previously filed by the Registrant).
|
|
4
|
.9
|
|
TOUSA, Inc.
103/8% Senior
Subordinated Note due 2012, dated as of April 22, 2003, in the
amount of $35,000,000 (incorporated by reference to Exhibit 4.19
to the Registration Statement on Form S-1 previously filed by
the Registrant (Registration Statement No. 333-106537)).
|
|
4
|
.10
|
|
Indenture for the
71/2% Senior
Subordinated Notes due 2011, dated as of March 17, 2004, among
TOUSA, Inc., the subsidiaries named therein and Wells Fargo
Bank, N.A., as Trustee (incorporated by reference to Exhibit
4.24 to the Registration Statement on Form S-4 previously filed
by the Registrant (Registration Statement No. 333-114587)).
|
|
4
|
.11
|
|
Form of TOUSA, Inc.
71/2% Senior
Subordinated Note due 2011 (included in Exhibit A to Exhibit
4.10) (incorporated by reference to Exhibit 4.24 to the
Registration Statement on Form S-4 previously filed by the
Registrant (Registration Statement No. 333-114587)).
|
|
4
|
.12
|
|
Indenture for the
71/2% Senior
Subordinated Notes due 2015, dated as of December 21, 2004,
among TOUSA, Inc., the subsidiaries named therein and Wells
Fargo Bank, N.A., as Trustee (incorporated by reference to the
Registration Statement on Form S-4 previously filed by the
Registrant (Registration Statement No. 333-122450)).
|
|
4
|
.13
|
|
Form of TOUSA, Inc.
71/2% Senior
Subordinated Note due 2015 (included in Exhibit A to Exhibit
4.12) (incorporated by reference to the Registration Statement
on Form S-4 previously filed by the Registrant (Registration
Statement No. 333-122450)).
|
|
4
|
.14
|
|
Indenture for the 14.75% Senior Subordinated PIK Election
Notes due 2015, dated as of July 31, 2007, among TOUSA, Inc.,
the subsidiaries named therein and Wells Fargo Bank, N.A., as
Trustee (included in Exhibit A to Exhibit 4.14) (incorporated by
reference to the Form 10-Q for the quarter ended June 30, 2007,
previously filed by the Registrant).
|
|
4
|
.15
|
|
Form of TOUSA, Inc. Senior Subordinated PIK Election Notes due
2015 (incorporated by reference to the Form 10-Q for the quarter
ended June 30, 2007, previously filed by the Registrant).
|
|
4
|
.16
|
|
Stock Purchase Warrant dated July 31, 2007 (incorporated by
reference to the Form 10-Q for the quarter ended June 30, 2007,
previously filed by the Registrant).
|
|
4
|
.17
|
|
Registration Rights Agreement dated July 31, 2007 (8% Series A
Convertible Pay-In-Kind Preferred Stock) (incorporated by
reference to the Form 10-Q for the quarter ended June 30, 2007,
previously filed by the Registrant).
|
101
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
4
|
.18
|
|
Registration Rights Agreement dated July 31, 2007
(14.75% Senior Subordinated PIK Election Notes due 2015)
(incorporated by reference to the Form 10-Q for the quarter
ended June 30, 2007, previously filed by the Registrant).
|
|
4
|
.19
|
|
Registration Rights Agreement dated July 31, 2007 (Stock
Purchase Warrant) (incorporated by reference to the Form 10-Q
for the quarter ended June 30, 2007, previously filed by the
Registrant).
|
|
10
|
.1(1)
|
|
Form of Indemnification Agreement (incorporated by reference to
the Form 10-K for the year ended December 31, 2003, previously
filed by the Registrant).
|
|
10
|
.2(1)
|
|
Amended and Restated Employment Agreement between TOUSA, Inc.
and Antonio B. Mon dated January 27, 2004, effective as of July
26, 2003 (incorporated by reference to Exhibit 10.9 to the Form
10-K for the year ended December 31, 2003, previously filed by
the Registrant).
|
|
10
|
.3(1)
|
|
Employment Agreement between TOUSA, Inc. and Tommy L. McAden
dated July 12, 2002, effective June 25, 2002 (incorporated by
reference to Exhibit 10.10 to the Form 10-Q for the quarter
ended June 30, 2002, previously filed by the Registrant).
|
|
10
|
.4(1)
|
|
TOUSA, Inc. Annual and Long-Term Incentive Plan, as amended and
restated (incorporated by reference to Exhibit 10.5 to the Form
10-K for the fiscal year ended December 31, 2004, previously
filed by the Registrant).
|
|
10
|
.5
|
|
Contractor Agreement, effective as of November 6, 2000, between
TOUSA, Inc. (f/k/a Newmark Homes Corp.) and Technical Olympic
S.A. (incorporated by reference to Exhibit 10.26 to the
Registration Statement on Form S-1 previously filed by the
Registrant (Registration No. 333-106537)).
|
|
10
|
.6
|
|
Supplemental Contractor Agreement, effective as of January 4,
2001, between TOUSA, Inc. (f/k/a Newmark Homes Corp.) and
Technical Olympic S.A. (incorporated by reference to Exhibit
10.27 to the Registration Statement on Form S-1 previously filed
by the Registrant (Registration Statement No. 333-106537)).
|
|
10
|
.7
|
|
Contractor Agreement, effective as of November 22, 2000, between
TOUSA Homes, Inc. (f/k/a Engle Homes, Inc.) and Technical
Olympic S.A. (incorporated by reference to Exhibit 10.28 to the
Registration Statement on Form S-1 previously filed by the
Registrant (Registration Statement No. 333-106537)).
|
|
10
|
.8
|
|
Supplemental Contractor Agreement, effective as of January 3,
2001, between TOUSA Homes, Inc. (f/k/a Engle Homes Inc.) and
Technical Olympic S.A. (incorporated by reference to Exhibit
10.29 to the Registration Statement on Form S-1 previously filed
by the Registrant (Registration Statement No. 333-106537)).
|
|
10
|
.9
|
|
Amended and Restated Management Services Agreement, dated as of
June 13, 2003, between TOUSA, Inc. and Technical Olympic, Inc.
(incorporated by reference to Exhibit 10.33 to the Registration
Statement on Form S-1 previously filed by the Registrant
(Registration Statement No. 333-106537)).
|
|
10
|
.10(1)
|
|
Employment Agreement, dated as of May 1, 2004, between David J.
Keller and TOUSA, Inc. (incorporated by reference to Exhibit
10.44 to the Form 10-Q for the quarter ended June 30, 2004,
previously filed by the Registrant).
|
|
10
|
.12
|
|
Revolving Credit and Security Agreement, dated as of October 22,
2004, among Preferred Home Mortgage Company and Countrywide
Warehouse Lending (incorporated by reference to Exhibit 10.46 to
the Form 10-Q for the quarter ended December 31, 2004,
previously filed by the Registrant).
|
|
10
|
.13(1)
|
|
TOUSA, Inc. Executive Savings Plan, effective as of December 1,
2004, comprised of the Basic Plan Document and the Adoption
Agreement (incorporated by reference to Exhibit 99.1 to the Form
8-K, dated November 30, 2004, previously filed by the
Registrant).
|
|
10
|
.14(1)
|
|
Addendum to TOUSA, Inc. Executive Savings Plan, effective as of
December 1, 2004 (incorporated by reference to Exhibit 99.2 to
the Form 8-K, dated November 30, 2004, previously filed by the
Registrant).
|
|
10
|
.15(1)
|
|
Term Sheet for the Performance Unit Program under the TOUSA,
Inc. Annual and Long-Term Incentive Plan, as amended and
restated (incorporated by reference to Exhibit 10.21 to the
Form 10-K, dated March 11, 2005, previously filed by
the Registrant).
|
102
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.16(1)
|
|
Employment Agreement, dated as of February 16, 2005, by and
between TOUSA Associates Services Company and Harry Engelstein
(incorporated by reference to Exhibit 10.22 to the
Form 8-K, dated February 16, 2005, previously filed by the
Registrant).
|
|
10
|
.17(1)
|
|
Employment Agreement, dated as of February 16, 2005, by and
between TOUSA Associates Services Company and Mark Upton
(incorporated by reference to Exhibit 10.23 to the Form 8-K,
dated February 16, 2005, previously filed by the Registrant).
|
|
10
|
.19(1)
|
|
Employment Agreement, dated as of January 1, 2004, between TOUSA
Associates Services Company and John Kraynick (incorporated by
reference to Exhibit 10.25 to the Form 10-K for the fiscal year
ended December 31, 2004, previously filed by the Registrant).
|
|
10
|
.20(1)
|
|
Form of Director Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.26 to the Form 8-K,
dated March 3, 2005, previously filed by the Registrant).
|
|
10
|
.21(1)
|
|
Form of Director Restricted Stock Grant Agreement (incorporated
by reference to Exhibit 10.27 to the Form 10-K for the fiscal
year ended December 31, 2004, previously filed by the
Registrant).
|
|
10
|
.22(1)
|
|
Form of Associate Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.28 to the Form 10-K for
the fiscal year ended December 31, 2004, previously filed by the
Registrant).
|
|
10
|
.23(1)
|
|
Policy for Compensation of Outside Directors of TOUSA, Inc.
(incorporated by reference to Exhibit 10.30 to the Form 10-Q for
the quarter ended March 31, 2005, previously filed by the
Registrant).
|
|
10
|
.24
|
|
Asset Purchase Agreement, dated as of June 6, 2005, among
EH/Transeastern, LLC, Transeastern Properties, Inc. and the
other sellers identified therein, Arthur J. Falcone and Edward
W. Falcone (incorporated by reference to Exhibit 10.31 to the
Form 10-Q for the quarter ended June 30, 2005, previously filed
by the Registrant).
|
|
10
|
.26
|
|
Commitment Letter for Revolving Credit and Security Agreement,
dated December 9, 2005, by and between Preferred Home Mortgage
Company and Countrywide Warehousing Lending, amending that
certain Revolving Credit and Security Agreement, dated as of
October 22, 2004, by and between Preferred Home Mortgage Company
and Countrywide Warehousing Lending (portions of this exhibit
have been omitted pursuant to a request for confidential
treatment).
|
|
10
|
.27(1)
|
|
Amendment to the Amended and Restated Employment Agreement,
dated January 13, 2006, by and between TOUSA, Inc. and Antonio
B. Mon (incorporated by reference to Exhibit 10.27 to the Form
10-K for the fiscal year ended December 31, 2005, previously
filed by the Registrant).
|
|
10
|
.28(1)
|
|
Employment Agreement, dated as of January 13, 2006, by and
between TOUSA, Inc. and Tommy L. McAden (incorporated by
reference to Exhibit 10.28 to the Form 10-K for the fiscal year
ended December 31, 2005, previously filed by the Registrant).
|
|
10
|
.29(1)
|
|
Employment Agreement, dated as of January 13, 2006, by and
between TOUSA, Inc. and John Kraynick (incorporated by
reference to Exhibit 10.29 to the Form 10-Q for the fiscal year
ended December 31, 2005, previously filed by the Registrant).
|
|
10
|
.32
|
|
$450,000,000 Credit Agreement dated as of August 1, 2005, by and
among EH/Transeastern, LLC and TE/TOUSA Senior, LLC, as the
Borrowers, Deutsche Bank Trust Company Americas and the
Institutions from time to time party thereto, as Lenders,
Deutsche Bank Trust Company Americas, as Administrative Agent
and Deutsche Bank Securities, Inc., as sole Lead Arranger and
Sole Book Running Manager (incorporated by reference to Exhibit
10.2 to the Form 10-Q for the quarter ended December 31, 2006,
previously filed by the Registrant).
|
|
10
|
.33
|
|
$137,500,000 Senior Mezzanine Credit Agreement dated as of
August 1, 2005, by and among EH/TOUSA Mezzanine, LLC, as the
Borrowers, Deutsche Bank Trust Company Americas and the
Institutions from time to time party thereto, as Lenders,
Deutsche Bank Trust Company Americas, as Administrative Agent
and Deutsche Bank Securities, Inc., as sole Lead Arranger and
Sole Book Running Manager (incorporated by reference to Exhibit
10.3 to the Form 10-Q for the quarter ended December 31, 2006,
previously filed by the Registrant).
|
|
10
|
.34
|
|
$87,500,000 Junior Mezzanine Credit Agreement dated as of August
1, 2005, by and among EH/TOUSA Mezzanine Two, LLC, as the
Borrowers, Deutsche Bank Trust Company Americas and the
Institutions from time to time party thereto, as Lenders,
Deutsche Bank Trust Company Americas, as Administrative Agent
and Deutsche Bank Securities, Inc., as sole Lead Arranger and
Sole Book Running Manager (incorporated by reference to Exhibit
10.4 to the Form 10-Q for the quarter ended December 31, 2006,
previously filed by the Registrant).
|
103
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.35
|
|
Completion Guaranty dated as of August 1, 2005, by and Tousa
Homes, L.P. and TOUSA, Inc. in favor of Deutsche Bank Trust
Company Americas, as Administrative Agent. (Additional
guaranties of the same obligations in substantially identical
forms were executed in connection with the $137,500,000 Senior
Mezzanine Credit Agreement and the $87,500,000 Junior Mezzanine
Credit Agreement) (incorporated by reference to Exhibit 10.5 to
the Form 10-Q for the quarter ended December 31, 2006,
previously filed by the Registrant).
|
|
10
|
.36
|
|
Carve-out Guaranty dated as of August 1, 2005, made by Tousa
Homes, L.P. and TOUSA, Inc. in favor of Deutsche Bank Trust
Company Americas as Administrative Agent. (Additional guaranties
of the same obligations in substantially identical forms were
executed in connection with the $137,500,000 Senior Mezzanine
Credit Agreement and the $87,500,000 Junior Mezzanine Credit
Agreement) (incorporated by reference to Exhibit 10.6 to the
Form 10-Q for the quarter ended December 31, 2006, previously
filed by the Registrant).
|
|
10
|
.37(1)
|
|
Employment Agreement, dated January 3, 2007, by and between
TOUSA, Inc. and Stephen M. Wagman (incorporated by reference to
Exhibit 10.1 to the Form 8-K dated as of January 4, 2007,
previously filed by the Registrant).
|
|
10
|
.38
|
|
Amended and Restated Credit Agreement dated as of January 30,
2007 among TOUSA, Inc., its subsidiaries parties thereto, the
Lenders party thereto and Citicorp North America as
Administrative Agent (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K dated February 1, 2007,
previously filed by the Registrant).
|
|
10
|
.39
|
|
Security Agreement dated October 23, 2006 among TOUSA, Inc., its
subsidiaries parties thereto and Citicorp North America as
Administrative Agent (incorporated by reference to Exhibit 10.2
to the Current Report on Form 8-K dated February 1, 2007,
previously filed by the Registrant).
|
|
10
|
.40
|
|
Amendment No. 1 to Security Agreement dated January 30, 2007
among TOUSA, Inc., its subsidiaries parties thereto and Citicorp
North America as Administrative Agent (incorporated by reference
to Exhibit 10.3 to the Current Report on Form 8-K dated February
1, 2007, previously filed by the Registrant).
|
|
10
|
.41
|
|
Pledge and Security Agreement dated as of February 6, 2007
between TOUSA, Inc. and Citicorp North America, Inc.
(incorporated by reference to Exhibit 10.1 of the Current Report
on
Form 8-K
dated February 6, 2007, previously filed by the Registrant).
|
|
10
|
.42
|
|
Amendment No. 1 to Amended and Restated Credit Agreement entered
into among TOUSA, Inc., certain of its subsidiaries and the
lenders parties thereto, dated as of March 13, 2007
(incorporated by reference to Exhibit 10.42 of the Annual
Report on Form 10-K dated March 20, 2007, previously
filed by the Registrant).
|
|
10
|
.43
|
|
Settlement and Release Agreement dated as of May 30, 2007, by
and among: (i) TOUSA, Inc., f/k/a Technical Olympic USA, Inc.;
(ii) TOUSA LLC; (iii) TOUSA Homes, L.P.; (iv) TOI, LLC; (v)
TE/TOUSA, LLC; (vi) TE/TOUSA Mezzanine Two, LLC; (vii) TE/TOUSA
Mezzanine, LLC; (viii) TE/TOUSA Senior, LLC; (ix)
EH/Transeastern, LLC; (x) Falcone/TEP Holdings, LLC, f/k/a
Falcone/Ritchie LLC; (xi) TEP Holdings, Inc., f/k/a Transeastern
Properties, Inc.; (xii) Arthur J. Falcone; (xiii) Edward W.
Falcone; and (xiv) those certain entities identified and listed
on Schedule 1 thereto (incorporated by reference to the Form
10-Q for the quarter ended June 30, 2007, previously filed by
the Registrant).
|
|
10
|
.44
|
|
Mutual Release and Consent Agreement dated as of July 31, 2007,
by and among EH/Transeastern, LLC, TE/TOUSA Senior, LLC, TOUSA,
Inc. (f/k/a Technical Olympic USA, Inc.), TOUSA Homes, LP,
TE/TOUSA LLC, TE/TOUSA Mezzanine Two, LLC, TE/TOUSA Mezzanine,
LLC, the lenders party to that certain $450,000,000 Senior
Credit Agreement dated as of August 1, 2005, by and among
EH/Transeastern, LLC, and TE/TOUSA Senior, LLC, as Borrowers,
CIT Group/Business Credit, Inc., as successor Administrative
Agent, and the lenders a party thereto (incorporated by
reference to the Form 10-Q for the quarter ended June 30, 2007,
previously filed by the Registrant).
|
104
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.45
|
|
Settlement and Release Agreement dated as of June 29, 2007, by
and among: (i) Technical Olympic S.A.; (ii) TOUSA, Inc. f/k/a
Technical Olympic USA, Inc.; (iii) TOUSA, LLC; (iv) TOI, LLC.;
(v) TOUSA Homes, L.P.; (vi) TE/TOUSA, LLC; (vii) TE/TOUSA
Mezzanine Two, LLC; (viii) TE/TOUSA Mezzanine, LLC; (ix)
TE/TOUSA Senior, LLC; (x) EH/Transeastern, LLC; and (xi) the
lenders party to that certain $137,500,000 Senior Mezzanine
Credit Agreement dated as of August 1, 2005, by and among
TE/TOUSA Mezz, as Borrower, Deutsche Bank Trust Company
Americas, as Administrative Agent, the lenders now or hereafter
a party thereto, and Deutsche Bank Securities Inc., as Sole Lead
Arranger and Sole Book Running Manager (incorporated by
reference to the Form 10-Q for the quarter ended June 30, 2007,
previously filed by the Registrant).
|
|
10
|
.46
|
|
Settlement and Release Agreement dated as of June 29, 2007, by
and among: (i) Technical Olympic S.A.; (ii) TOUSA, Inc. f/k/a
Technical Olympic USA, Inc.; (iii) TOUSA, LLC; (iv) TOI, LLC;
(v) TOUSA Homes, L.P.; (vi) TE/TOUSA, LLC; (vii) TE/TOUSA
Mezzanine Two, LLC; (viii) TE/TOUSA Mezzanine, LLC; (ix)
TE/TOUSA Senior, LLC; (x) EH/Transeastern, LLC; and (xi) the
lenders party to that certain $87,500,000 Junior Mezzanine
Credit Agreement dated as of August 1, 2005, by and among
TE/TOUSA Mezz Two, as Borrower, Deutsche Bank Trust Company
Americas as Administrative Agent, the lenders party thereto, and
Deutsche Bank Securities Inc., as Sole Lead Arranger and Sole
Book Running Manager (incorporated by reference to the Form 10-Q
for the quarter ended June 30, 2007, previously filed by the
Registrant).
|
|
10
|
.47
|
|
Intercreditor agreement among Citicorp North America, Inc. and
itself in its capacity as agents for the lenders, dated July 31,
2007 (incorporated by reference to Exhibit 99.2 to the Current
Report on Form 8-K dated November 14, 2007, previously filed by
the Registrant).
|
|
10
|
.48
|
|
Instrument of Resignation, Appointment and Acceptance, dated
November 15, 2007, among TOUSA, Inc., Wells Fargo Bank, National
Association, and Wilmington Trust Company (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
dated November 15, 2007, previously filed by the
Registrant).
|
|
10
|
.49
|
|
Instrument of Resignation, Appointment and Acceptance, dated
November 20, 2007, among TOUSA, Inc., Wells Fargo Bank, National
Association, and HSBC Bank USA, National Association
(incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K dated November 21, 2007, previously filed by the
Registrant).
|
|
10
|
.50(1)
|
|
Amendment to Employment Agreement, dated December 10th, 2007,
between TOUSA, Inc. and Stephen Wagman (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
dated December 10, 2007, previously filed by the Registrant).
|
|
10
|
.51
|
|
Amendment No. 2 to the First Lien Term Loan Credit Agreement
(incorporated by reference to Exhibit 99.1 to the Current Report
on Form 8-K dated December 11, 2007, previously filed by the
Registrant).
|
|
10
|
.52
|
|
Amendment No. 2 to the Second Amended and Restated Revolving
Credit Agreement (incorporated by reference to Exhibit 99.2 to
the Current Report on Form 8-K dated December 14, 2007,
previously filed by the Registrant).
|
|
10
|
.53
|
|
Senior Secured Super-Priority Debtor In Possession Credit and
Security Agreement, dated as of January 29, 2008, by and among
TOUSA, Inc., and certain of its subsidiaries party thereto, and
the Lenders and Issuers party thereto, Citicorp North America,
Inc., as Administrative Agent and Citigroup Global Markets Inc.
as Sole Lead Arranger and Bookrunner (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K dated February
5, 2008, previously filed by the Registrant).
|
|
10
|
.54
|
|
Consent to Termination of Restructuring Support Agreement
(incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K dated February 13, 2008, previously filed by the
Registrant).
|
|
10
|
.55
|
|
Amendment No. 1 to Senior Secured Super-Priority Debtor In
Possession Credit and Security Agreement (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
dated March 21, 2008, previously filed by the Registrant).
|
|
10
|
.56(1)(2)
|
|
Employment Agreement, dated January 1, 2008, by and between
TOUSA, Inc. and George Yeonas.
|
105
|
|
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.57(1)(2)
|
|
Amendment to Employment Agreement, dated January 18, 2008, by
and between TOUSA, Inc. and Tommy McAden.
|
|
10
|
.58
|
|
Letter Agreement between TOUSA, Inc., as Administrative
Borrower, and Citicorp North America, Inc., dated April 22, 2008
(incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K dated April 23, 2008, previously filed by the
Registrant).
|
|
10
|
.59
|
|
Amendment No. 1 to Senior Secured Super-Priority Debtor In
Possession Credit and Security Agreement (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
dated May 5, 2008, previously filed by the Registrant).
|
|
10
|
.60(1)
|
|
Executive Vice-Chairman Agreement, dated May 23, 2008, between
TOUSA, Inc. and Antonio B. Mon (incorporated by reference
to Exhibit 99.1 to the Current Report on Form 8-K dated May 27,
2008, previously filed by the Registrant).
|
|
10
|
.61
|
|
Order Further Extending Interim Termination Date Under the
Senior Secured Super-Priority Debtor-In-Possession Credit and
Security Agreement (incorporated by reference to Exhibit 99.1 to
the Current Report on Form 8-K dated May 28, 2008, previously
filed by the Registrant).
|
|
10
|
.62
|
|
Second Order Further Extending Interim Termination Date Under
the Senior Secured
Super-Priority
Debtor-In-Possession Credit and Security Agreement (incorporated
by reference to Exhibit 99.1 to the Current Report on Form 8-K
dated June 12, 2008, previously filed by the Registrant).
|
|
10
|
.63
|
|
Third Order Further Extending Interim Termination Date Under the
Senior Secured
Super-Priority
Debtor-In-Possession Credit and Security Agreement (incorporated
by reference to Exhibit 99.1 to the Current Report on Form 8-K
dated June 17, 2008, previously filed by the Registrant).
|
|
10
|
.64
|
|
Stipulated Final Order (I) Authorizing Limited Use of Cash
Collateral Pursuant to Sections 105, 361 and 363 of the
Bankruptcy Code, and (II) Granting Replacement Liens, Adequate
Protection and Super Priority Administrative Expense priority to
Secured Lenders (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K dated June 24, 2008, previously
filed by the Registrant).
|
|
21
|
.0(2)
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1(2)
|
|
Consent of Ernst & Young LLP Independent Registered Public
Accounting Firm.
|
|
23
|
.2(2)
|
|
Consent of Ernst & Young LLP Independent Certified Public
Accountants.
|
|
31
|
.1(2)
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2(2)
|
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1(2)
|
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2(2)
|
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
99
|
.1(2)
|
|
Consolidated financial statements of TE/TOUSA, LLC and
Subsidiaries for the years ended November 30, 2006 and the
period from inception (July 1, 2005) to November 30,
2005.
|
|
99
|
.2(2)
|
|
Unaudited consolidated financial statements for TE/TOUSA, LLC
and subsidiaries for the eight months ended July 30, 2007.
|
|
99
|
.3(2)
|
|
Financial statements of Engle/Sunbelt Holdings, LLC for the
years ended December 31, 2007 and 2006.
|
|
|
|
(1) |
|
Management contract or compensatory plan or arrangement. |
|
(2) |
|
Filed herewith. |
106
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TOUSA, Inc.
Antonio B. Mon
President and Chief Executive Officer
Date: August 12, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Antonio
B. Mon
Antonio
B. Mon
|
|
Executive Vice Chairman, President,
Chief Executive Officer
(Principal Executive Officer) and Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Tommy
L. McAden
Tommy
L. McAden
|
|
Executive Vice President and Director,
Chief Financial Officer
(Principal Financial Officer)
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Angela
F. Valdes
Angela
F. Valdes
|
|
Vice President & Chief
Accounting Officer
(Principal Accounting Officer)
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Konstantinos
Stengos
Konstantinos
Stengos
|
|
Chairman of the Board and Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Andreas
Stengos
Andreas
Stengos
|
|
Executive Vice President and Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ George
Stengos
George
Stengos
|
|
Executive Vice President and Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Marianna
Stengou
Marianna
Stengou
|
|
Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Larry
D. Horner
Larry
D. Horner
|
|
Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ William
A. Hasler
William
A. Hasler
|
|
Director
|
|
August 12, 2008
|
107
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
J. Poulos
Michael
J. Poulos
|
|
Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ Susan
B. Parks
Susan
B. Parks
|
|
Director
|
|
August 12, 2008
|
|
|
|
|
|
/s/ J.
Bryan Whitworth
J.
Bryan Whitworth
|
|
Director
|
|
August 12, 2008
|
108
TOUSA,
INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
F-1
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rules 13a-15(f)
of the Securities Exchange Act of 1934. Under the supervision
and with the participation of management, including our
principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based upon the framework in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in
Internal Control Integrated Framework, our
management concluded that our internal control over financial
reporting was effective as of December 31, 2007. The
effectiveness of our internal control over financial reporting
as of December 31, 2007 has been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included
herein. That report expresses an unqualified opinion on the
effectiveness of our internal control over financial reporting.
TOUSA, Inc.
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of TOUSA, Inc.
We have audited the accompanying consolidated statements of
financial condition of TOUSA, Inc. and subsidiaries (the
Company) as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders equity
(deficit), and cash flows for each of the three years in the
period ended December 31, 2007. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial
statements of TE/Tousa, LLC and Subsidiaries (a corporation in
which the Company, through July 31, 2007, had a 50%
interest and which was accounted for under the equity method),
as of and for the year ended December 31, 2006, have been
audited by other auditors whose report, which has been furnished
to us, included an explanatory paragraph that, as more fully
described in Note 4, there is substantial doubt about
TE/Tousa, LLC and Subsidiaries ability to continue as a
going concern. Our opinion on the consolidated financial
statements, insofar as it relates to the amounts included for
TE/Tousa, LLC and Subsidiaries as of and for the year ended
December 31, 2006, is based solely on the report of the
other auditors. In the consolidated financial statements, the
Companys investment in TE/Tousa, LLC and Subsidiaries is
stated at $0 at December 31, 2006, and the Companys
equity in the net loss of TE/Tousa, LLC and Subsidiaries is
stated at $145.1 million for the year then ended. On
July 31, 2007, the Company consummated transactions to
settle the disputes regarding the TE/Tousa, LLC and Subsidiaries
which resulted in the TE/Tousa, LLC and Subsidiaries becoming a
wholly-owned subsidiary of the Company by merger into one of its
subsidiaries.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the
report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of TOUSA, Inc. as of December 31, 2007 and 2006,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that TOUSA, Inc. will continue as a going concern. As
more fully described in Note 1, the Company filed a
voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code on January 29, 2008,
which raises substantial doubt about the Companys ability
to continue as a going concern. Managements plans in
regard to this matter are also described in Note 1. The
consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this
uncertainty. Also, the consolidated financial statements of
TE/Tousa, LLC and Subsidiaries, as of and for the year ended
December 31, 2006, have been audited by other auditors
whose report, which has been furnished to us, included an
explanatory paragraph that, as more fully described in
Note 4, there is substantial doubt about
TE/Tousa,
LLC and Subsidiaries ability to continue as a going
concern.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment. In addition, as discussed in
Note 9 to the consolidated financial statements, effective
January 1, 2007, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
TOUSA, Inc.s internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated August 6, 2008 expressed an unqualified
opinion thereon.
Certified Public Accountants
West Palm Beach, Florida
August 6, 2008
F-3
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of TOUSA, Inc.
We have audited TOUSA, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). TOUSA, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, TOUSA, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of TOUSA, Inc. as
of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity (deficit),
and cash flows for each of the three years in the period ended
December 31, 2007 of TOUSA, Inc. and our report dated
August 6, 2008 expressed an unqualified opinion thereon and
included explanatory paragraphs related to (i) the
Companys ability to continue as a going concern and
(ii) changes in accounting for income taxes and share-based
compensation.
Certified Public Accountants
West Palm Beach, Florida
August 6, 2008
F-4
TOUSA,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions,
|
|
|
|
except par value)
|
|
|
ASSETS
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
$
|
67.2
|
|
|
$
|
47.4
|
|
Restricted
|
|
|
5.1
|
|
|
|
3.8
|
|
Inventory:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
56.9
|
|
|
|
216.6
|
|
Homesites and land under development
|
|
|
633.0
|
|
|
|
725.6
|
|
Residences completed and under construction
|
|
|
555.9
|
|
|
|
835.7
|
|
Inventory not owned
|
|
|
26.0
|
|
|
|
300.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,271.8
|
|
|
|
2,078.5
|
|
Property and equipment, net
|
|
|
24.6
|
|
|
|
28.5
|
|
Investments in unconsolidated joint ventures
|
|
|
9.0
|
|
|
|
129.0
|
|
Receivables from unconsolidated joint ventures, net of allowance
of $0 and $54.8 million at December 31, 2007 and 2006,
respectively
|
|
|
0.3
|
|
|
|
27.2
|
|
Other assets
|
|
|
330.0
|
|
|
|
236.6
|
|
Goodwill
|
|
|
11.2
|
|
|
|
100.9
|
|
Assets held for sale
|
|
|
6.1
|
|
|
|
124.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,725.3
|
|
|
|
2,776.7
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
|
9.3
|
|
|
|
6.8
|
|
Restricted
|
|
|
5.6
|
|
|
|
4.2
|
|
Mortgage loans held for sale
|
|
|
15.0
|
|
|
|
41.9
|
|
Other assets
|
|
|
6.8
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.7
|
|
|
|
65.5
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,762.0
|
|
|
$
|
2,842.2
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
401.8
|
|
|
$
|
554.2
|
|
Customer deposits
|
|
|
33.9
|
|
|
|
62.6
|
|
Obligations for inventory not owned
|
|
|
32.0
|
|
|
|
300.6
|
|
Notes payable
|
|
|
1,585.3
|
|
|
|
1,060.7
|
|
Bank borrowings
|
|
|
168.5
|
|
|
|
|
|
Liabilities associated with assets held for sale
|
|
|
0.9
|
|
|
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,222.4
|
|
|
|
2,025.9
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
7.3
|
|
|
|
6.0
|
|
Bank borrowings
|
|
|
7.8
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
41.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,237.5
|
|
|
|
2,067.3
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value;
3,000,000 shares authorized; 117,500 and none issued and
outstanding at December 31, 2007 and 2006, respectively
|
|
|
3.9
|
|
|
|
|
|
Common stock $0.01 par value; 975,000,000 and
97,000,000 shares authorized and 59,604,169 and
59,590,519 shares issued and outstanding at
December 31, 2007 and 2006, respectively
|
|
|
0.6
|
|
|
|
0.6
|
|
Additional paid-in capital
|
|
|
570.7
|
|
|
|
481.2
|
|
Retained earnings (accumulated deficit)
|
|
|
(1,050.7
|
)
|
|
|
293.1
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(475.5
|
)
|
|
|
774.9
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
1,762.0
|
|
|
$
|
2,842.2
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
TOUSA,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions, except
|
|
|
|
per share amounts)
|
|
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
$
|
2,049.4
|
|
|
$
|
2,309.4
|
|
|
$
|
2,174.4
|
|
Land sales
|
|
|
109.4
|
|
|
|
131.9
|
|
|
|
186.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,158.8
|
|
|
|
2,441.3
|
|
|
|
2,360.5
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
1,681.8
|
|
|
|
1,745.1
|
|
|
|
1,622.4
|
|
Land sales
|
|
|
137.4
|
|
|
|
135.1
|
|
|
|
143.1
|
|
Inventory impairments and abandonment costs
|
|
|
852.7
|
|
|
|
153.2
|
|
|
|
6.7
|
|
Other
|
|
|
(5.7
|
)
|
|
|
(10.0
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,666.2
|
|
|
|
2,023.4
|
|
|
|
1,769.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(507.4
|
)
|
|
|
417.9
|
|
|
|
591.0
|
|
Selling, general and administrative expenses
|
|
|
362.7
|
|
|
|
358.3
|
|
|
|
309.1
|
|
(Income) loss from unconsolidated joint ventures, net
|
|
|
14.9
|
|
|
|
(104.7
|
)
|
|
|
(45.7
|
)
|
Impairments of investments in and receivables from
unconsolidated joint ventures and related accrued obligations
|
|
|
194.1
|
|
|
|
152.8
|
|
|
|
|
|
Provision for settlement of loss contingency
|
|
|
151.6
|
|
|
|
275.0
|
|
|
|
|
|
Goodwill impairments
|
|
|
89.7
|
|
|
|
5.7
|
|
|
|
|
|
Interest expense
|
|
|
31.6
|
|
|
|
0.6
|
|
|
|
0.4
|
|
Other income, net
|
|
|
(2.7
|
)
|
|
|
(4.7
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income (loss)
|
|
|
(1,349.3
|
)
|
|
|
(265.1
|
)
|
|
|
336.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
36.5
|
|
|
|
63.3
|
|
|
|
47.5
|
|
Expenses
|
|
|
36.3
|
|
|
|
41.8
|
|
|
|
39.0
|
|
Goodwill impairment
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services pretax income (loss)
|
|
|
(3.7
|
)
|
|
|
21.5
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(1,353.0
|
)
|
|
|
(243.6
|
)
|
|
|
344.6
|
|
Provision (benefit) for income taxes
|
|
|
(33.3
|
)
|
|
|
(42.8
|
)
|
|
|
126.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
|
(1,319.7
|
)
|
|
|
(200.8
|
)
|
|
|
218.1
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
(17.0
|
)
|
|
|
(0.6
|
)
|
|
|
0.3
|
|
Loss from disposal of discontinued operations
|
|
|
(13.6
|
)
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
(7.8
|
)
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
(22.8
|
)
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,342.5
|
)
|
|
|
(201.2
|
)
|
|
|
218.3
|
|
Dividends and accretion of discount on preferred stock
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(1,347.2
|
)
|
|
$
|
(201.2
|
)
|
|
$
|
218.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON SHARE, BASIC:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations (net of preferred
stock dividends and accretion of discount)
|
|
$
|
(22.22
|
)
|
|
$
|
(3.37
|
)
|
|
$
|
3.82
|
|
Loss from discontinued operations
|
|
|
(0.38
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(22.60
|
)
|
|
$
|
(3.38
|
)
|
|
$
|
3.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON SHARE, DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations (net of preferred
stock dividends and accretion of discount)
|
|
$
|
(22.22
|
)
|
|
$
|
(3.37
|
)
|
|
$
|
3.68
|
|
Loss from discontinued operations
|
|
|
(0.38
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(22.60
|
)
|
|
$
|
(3.38
|
)
|
|
$
|
3.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
59,601,887
|
|
|
|
59,582,697
|
|
|
|
57,120,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
59,601,887
|
|
|
|
59,582,697
|
|
|
|
59,359,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER COMMON SHARE
|
|
$
|
|
|
|
$
|
0.060
|
|
|
$
|
0.057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
TOUSA,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Unearned
|
|
|
(Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit)
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
|
|
|
$
|
|
|
|
|
56,070,510
|
|
|
$
|
0.6
|
|
|
$
|
388.3
|
|
|
$
|
(9.0
|
)
|
|
$
|
282.8
|
|
|
$
|
662.7
|
|
Common stock issued to directors
|
|
|
|
|
|
|
|
|
|
|
10,842
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Stock option exercises
|
|
|
|
|
|
|
|
|
|
|
115,625
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
(3.2
|
)
|
Sale of common stock
|
|
|
|
|
|
|
|
|
|
|
3,358,000
|
|
|
|
|
|
|
|
89.2
|
|
|
|
|
|
|
|
|
|
|
|
89.2
|
|
Unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
1.3
|
|
|
|
|
|
|
|
2.1
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218.3
|
|
|
|
218.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
59,554,977
|
|
|
|
0.6
|
|
|
|
480.5
|
|
|
|
(7.7
|
)
|
|
|
497.9
|
|
|
|
971.3
|
|
Common stock issued to directors
|
|
|
|
|
|
|
|
|
|
|
11,792
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Stock option exercises
|
|
|
|
|
|
|
|
|
|
|
23,750
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Excess income tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Transfer of unearned compensation upon adoption of
SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
Modification of stock rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
(3.6
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201.2
|
)
|
|
|
(201.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
59,590,519
|
|
|
|
0.6
|
|
|
|
481.2
|
|
|
|
|
|
|
|
293.1
|
|
|
|
774.9
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
(1.3
|
)
|
Common stock issued to directors
|
|
|
|
|
|
|
|
|
|
|
13,650
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
Transeastern settlement, net of costs associated with issuance
of equity instruments of $2.9 million
|
|
|
117,500
|
|
|
|
81.7
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
89.3
|
|
Recognition of beneficial conversion feature of preferred stock
|
|
|
|
|
|
|
(82.5
|
)
|
|
|
|
|
|
|
|
|
|
|
82.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of discount on preferred stock
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,342.5
|
)
|
|
|
(1,342.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
117,500
|
|
|
$
|
3.9
|
|
|
|
59,604,169
|
|
|
$
|
0.6
|
|
|
$
|
570.7
|
|
|
$
|
|
|
|
$
|
(1,050.7
|
)
|
|
$
|
(475.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
TOUSA,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,342.5
|
)
|
|
$
|
(201.2
|
)
|
|
$
|
218.3
|
|
(Income) loss from discontinued operations
|
|
|
22.8
|
|
|
|
0.4
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(1,319.7
|
)
|
|
|
(200.8
|
)
|
|
|
218.1
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash used in operating activities, net of
effects of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14.8
|
|
|
|
13.8
|
|
|
|
12.7
|
|
Non-cash compensation expense
|
|
|
4.1
|
|
|
|
8.7
|
|
|
|
3.7
|
|
Non-cash interest expense
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
Loss on early termination of debt
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Provision for settlement of loss contingency
|
|
|
151.6
|
|
|
|
275.0
|
|
|
|
|
|
Inventory impairments and abandonment costs
|
|
|
852.7
|
|
|
|
153.2
|
|
|
|
6.7
|
|
Goodwill impairments
|
|
|
93.6
|
|
|
|
5.7
|
|
|
|
|
|
Deferred income taxes
|
|
|
(160.6
|
)
|
|
|
(155.6
|
)
|
|
|
2.0
|
|
Equity in (earnings) losses from unconsolidated joint ventures
|
|
|
14.9
|
|
|
|
(59.8
|
)
|
|
|
(18.5
|
)
|
Distributions of earnings from unconsolidated joint ventures
|
|
|
0.9
|
|
|
|
73.9
|
|
|
|
0.4
|
|
Impairment of investments in/receivables from unconsolidated
joint ventures and related accrued obligations
|
|
|
194.1
|
|
|
|
152.8
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
25.6
|
|
|
|
(1.8
|
)
|
|
|
4.0
|
|
Inventory
|
|
|
(10.6
|
)
|
|
|
(387.0
|
)
|
|
|
(454.0
|
)
|
Receivables from unconsolidated joint ventures
|
|
|
5.2
|
|
|
|
(10.2
|
)
|
|
|
(37.1
|
)
|
Other assets
|
|
|
99.0
|
|
|
|
52.1
|
|
|
|
(67.7
|
)
|
Mortgage loans held for sale
|
|
|
26.9
|
|
|
|
2.0
|
|
|
|
31.9
|
|
Accounts payable and other liabilities
|
|
|
(63.0
|
)
|
|
|
(53.1
|
)
|
|
|
128.2
|
|
Customer deposits
|
|
|
(30.6
|
)
|
|
|
(15.8
|
)
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(79.4
|
)
|
|
|
(146.9
|
)
|
|
|
(159.7
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
Earn-out consideration paid for acquisitions
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
Net additions to property and equipment
|
|
|
(8.9
|
)
|
|
|
(16.4
|
)
|
|
|
(13.0
|
)
|
Loans to unconsolidated joint ventures
|
|
|
|
|
|
|
(11.3
|
)
|
|
|
(20.0
|
)
|
Investments in unconsolidated joint ventures
|
|
|
(31.8
|
)
|
|
|
(32.1
|
)
|
|
|
(176.1
|
)
|
Capital distributions from unconsolidated joint ventures
|
|
|
14.3
|
|
|
|
52.9
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(34.0
|
)
|
|
|
(7.8
|
)
|
|
|
(199.2
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings from revolving credit facilities
|
|
|
168.5
|
|
|
|
(65.0
|
)
|
|
|
65.0
|
|
Principal payments on notes payable
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
Net proceeds from notes offering
|
|
|
|
|
|
|
248.8
|
|
|
|
|
|
Net proceeds from (repayments of) Financial Services bank
borrowings
|
|
|
(27.6
|
)
|
|
|
0.3
|
|
|
|
(13.9
|
)
|
Payments for deferred financing costs
|
|
|
(42.6
|
)
|
|
|
(5.5
|
)
|
|
|
(0.3
|
)
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
89.2
|
|
Payments for issuance costs associated with convertible
preferred stock and stock warrants
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
Excess income tax benefit from exercise of stock options
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
0.2
|
|
|
|
1.8
|
|
Dividends paid
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
94.4
|
|
|
|
175.3
|
|
|
|
138.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
(19.0
|
)
|
|
|
20.6
|
|
|
|
(220.3
|
)
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(15.2
|
)
|
|
|
2.1
|
|
|
|
(14.7
|
)
|
Net cash provided by (used in) financing activities
|
|
|
56.5
|
|
|
|
(0.8
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
41.3
|
|
|
|
1.3
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
22.3
|
|
|
|
21.9
|
|
|
|
(236.2
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
54.2
|
|
|
|
32.3
|
|
|
|
268.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
76.5
|
|
|
$
|
54.2
|
|
|
$
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in inventory not owned
|
|
$
|
(274.6
|
)
|
|
$
|
207.7
|
|
|
$
|
(34.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in obligations for inventory not owned
|
|
$
|
(268.6
|
)
|
|
$
|
207.7
|
|
|
$
|
(34.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
20.2
|
|
|
$
|
200.4
|
|
|
$
|
61.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 3 for the consolidation of other variable
interest entities in accordance with FIN 46R
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 4 for the settlement of the Transeastern JV
and related acquisition of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
TOUSA,
INC. AND SUBSIDIARIES
December 31,
2007
|
|
1.
|
Business
and Organization
|
Business
TOUSA, Inc. (hereinafter referred to as TOUSA, the
Company, we, us and
our) is a homebuilder with a geographically
diversified national presence. We operate in various
metropolitan markets in nine states, located in four major
geographic regions: Florida, the Mid-Atlantic, Texas, and the
West. We design, build, and market detached single-family
residences, town homes and condominiums. We also provide title
insurance and mortgage brokerage services to our homebuyers and
others. Generally, we do not retain or service the mortgages
that we originate but, rather, sell the mortgages and related
servicing rights.
Organization
Technical Olympic S.A. owns approximately 67% of our outstanding
common stock. Technical Olympic S.A. is a publicly-traded Greek
company whose shares are traded on the Athens Stock Exchange.
Our ownership could change if the holders of our convertible
preferred stock exercise their conversion rights. Our equity
structure is likely to change as a result of our Chapter 11
filings. See Note 12.
Chapter 11
Cases
On January 29, 2008, TOUSA, Inc. and certain of our
subsidiaries (excluding our financial services subsidiaries and
joint ventures) filed voluntary petitions for reorganization
relief under the provisions of Chapter 11 of Title 11
of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida,
Fort Lauderdale Division. The Chapter 11 cases have
been consolidated solely on an administrative basis and are
pending as Case
No. 08-10928-JKO.
We continue to operate our businesses and manage our properties
as debtors and
debtors-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders
of the Bankruptcy Court. As part of the first day
relief, we sought from the Bankruptcy Court in the
Chapter 11 cases, we obtained Bankruptcy Court approval to,
among other things, continue to pay certain critical vendors and
vendors with lien rights, meet our pre-petition payroll
obligations, maintain our cash management systems, sell homes
free and clear of liens, pay our taxes, continue to provide
employee benefits and maintain our insurance programs. In
addition, the Bankruptcy Court has approved certain trading
notification and transfer procedures designed to allow us to
restrict trading in our common stock (and related securities)
and has also provided for potentially retroactive application of
notice and sell-down procedures for trading in claims against
the debtors estates (in the event that such procedures are
approved in the future) which could negatively impact our
accumulated net operating losses and other tax attributes. The
Bankruptcy Court has also entered orders to establish procedures
for the purchase and disposition of real property by us subject
to certain monetary limits without specific approval for each
transaction.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, we entered into
the Senior Secured Super-Priority Debtor in Possession Credit
and Security Agreement. The agreement provided for a first
priority and priming secured revolving credit interim commitment
of up to $134.6 million. The agreement was subsequently
amended to extend it to June 19, 2008. No funds were drawn
under the agreement. The agreement was subsequently terminated
and we entered into an agreement with our secured lenders to use
cash collateral on hand (cash generated by our operations,
including the sale of excess inventory and the proceeds of our
federal tax refund of $207.3 million received in April
2008). Under the Bankruptcy Court order dated June 20,
2008, we are authorized to use cash collateral of our first lien
and second lien lenders (approximately $358.0 million at
the time of the order) for a period of six months in a manner
consistent with a budget negotiated by the parties. The order
further provides for the paydown of
F-9
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$175.0 million to our first lien term loan facility secured
lenders, subject to disgorgement provisions in the event that
certain claims against the lenders are successful and repayment
is required. The order also reserves our sole right to paydown
an additional $15.0 million to our fist lien term loan
facility secured lenders. We are permitted under the order to
incur liens and enter into sale/leaseback transactions for model
homes subject to certain limitations. As part of the order, we
have granted the prepetition agents and the lenders various
forms of protection, including liens and claims to protect
against any diminution of the collateral value, payment of
accrued, but unpaid interest on the first priority indebtedness
at the non-default rate and the payment of reasonable fees and
expenses of the agents under our secured facilities.
We have the exclusive right to file a Chapter 11 plan or
plans prior to October 25, 2008 and the exclusive right to
solicit acceptance thereof until December 24, 2008.
Pursuant to section 1121 of the Bankruptcy Code, the
exclusivity periods may be expanded or reduced by the Bankruptcy
Court, but in no event can the exclusivity periods to file and
solicit acceptance of a plan or plans of reorganization be
extended beyond 18 months and 20 months, respectively.
As a result of our Chapter 11 cases and other matters
described herein, including uncertainties related to the fact
that we have not yet had time to complete and obtain
confirmation of a plan or plans of reorganization, there is
substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern, including
our ability to meet our ongoing operational obligations, is
dependent upon, among other things:
|
|
|
|
|
our ability to generate and maintain adequate cash;
|
|
|
|
the cost, duration and outcome of the restructuring process;
|
|
|
|
our ability to comply with the terms of our cash collateral
order and, if necessary, seek further extensions of our ability
to use cash collateral;
|
|
|
|
our ability to achieve profitability following a restructuring
given housing market challenges; and
|
|
|
|
our ability to retain key employees.
|
These challenges are in addition to those operational and
competitive challenges that we face in connection with our
business. In conjunction with our advisors, we are implementing
strategies to aid our liquidity and our ability to continue as a
going concern. However, such efforts may not be successful.
We have taken and will continue to take aggressive actions to
maximize cash receipts and minimize cash expenditures with the
understanding that certain of these actions may make us less
able to take advantage of future improvements in the
homebuilding market. We continue to take steps to reduce our
general and administrative expenses by streamlining activities
and increasing efficiencies, which have led and will continue to
lead to major reductions in the workforce. However, much of our
efforts to reduce general and administrative expenses are being
offset by professional and consulting fees associated with our
Chapter 11 cases. In addition, we are working with our
existing suppliers and seeking new suppliers, through
competitive bid processes, to reduce construction material and
labor costs. We have and will continue to analyze each community
based on anticipated sales absorption rates, net cash flows and
financial returns taking into consideration current market
factors in the homebuilding industry such as the oversupply of
homes available for sale in most of our markets, less demand,
decreased consumer confidence, tighter mortgage loan
underwriting criteria and higher foreclosures. In order to
generate cash and to reduce our inventory to levels consistent
with our business plan, we have taken and will continue to take
the following actions, to the extent possible given the
limitations resulting from our Chapter 11 cases:
|
|
|
|
|
limiting new arrangements to acquire land (by submitting
proposals to increased review);
|
|
|
|
engaging in bulk sales of land and unsold homes;
|
F-10
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
reducing the number of unsold homes under construction and
limiting
and/or
curtailing development activities in any development where we do
not expect to deliver homes in the near future;
|
|
|
|
renegotiating terms or abandoning our rights under option
contracts;
|
|
|
|
considering other asset dispositions including the possible sale
of underperforming assets, communities, divisions and joint
venture interests (see Note 15 regarding the June 2007 sale
of our Dallas/Fort Worth division and Note 14
regarding the September 2007 bulk sale of homesites in our
Mid-Atlantic (excluding Nashville) region);
|
|
|
|
reducing our speculative home levels; and
|
|
|
|
pursuing other initiatives designed to monetize our assets.
|
The foregoing discussion provides general background information
regarding our Chapter 11 Cases, and is not intended to be
an exhaustive description. Additional information regarding our
Chapter 11 Cases, including access to court documents and
other general information about the Chapter 11 Cases, is
available at www.kccllc.net/tousa. Financial information on the
website is prepared according to requirements of federal
bankruptcy law and the local Bankruptcy Court. While such
financial information accurately reflects information required
under federal bankruptcy law, such information may be
unconsolidated, unaudited and prepared in a format different
than that used in our consolidated financial statements prepared
in accordance with generally accepted accounting principles in
the United States and filed under the securities laws. Moreover,
the materials filed with the Bankruptcy Court are not prepared
for the purpose of providing a basis for investment decisions
relating to our stock or debt or for comparison with other
financial information filed with the Securities and Exchange
Commission.
Mortgage
Joint Venture
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a committee composed of six members, three from
Preferred Home Mortgage Company and three from Wells Fargo. The
venture entered into a revolving credit agreement with Wells
Fargo Bank, N.A. providing for advances of up to
$20.0 million. Wells Fargo Home Mortgage provides the
general and administrative support (as well as all loan related
processing, underwriting and closing functions), and is the end
investor for the majority of the loans closed through the joint
venture. Prior to the joint venture, Preferred Home Mortgage
Company had a centralized operations center that provided those
support functions. The majority of these support functions
ceased in June 2008.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Our accounting and reporting policies conform to accounting
principles generally accepted in the United States and general
practices within the homebuilding industry. The following
summarizes the more significant of these policies.
Principles
of Consolidation and Basis of Presentation
The consolidated financial statements include our accounts and
those of our subsidiaries. All significant intercompany balances
and transactions have been eliminated in the consolidated
financial statements. For the
F-11
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
year ended December 31, 2007, 2006, and 2005, we have
eliminated inter-segment Financial Services revenues of
$15.1 million, $4.8 million, and $9.8 million,
respectively.
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) on a
going concern basis. This contemplates the realization of assets
and satisfaction of liabilities in the ordinary course of
business. Accordingly, we do not include any adjustments
relating to the recoverability of assets and classification of
liabilities that might be necessary should we be unable to
continue as a going concern.
The preparation of financial statements in accordance with GAAP
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. Those estimates and assumptions which, in the opinion
of management, are both significant to the underlying amounts
included in the financial statements and as to which future
events or information could change those estimates include:
|
|
|
|
|
impairment assessments of investments in unconsolidated joint
ventures, long-lived assets, including our inventory, and
goodwill;
|
|
|
|
loss exposures associated with the abandonment of our rights
under option contracts, the relinquishment of our rights under
certain joint ventures and obligations under joint venture debt
agreements and under performance bonds;
|
|
|
|
realization of amounts due from unconsolidated joint ventures;
|
|
|
|
insurance and litigation related contingencies;
|
|
|
|
realization of deferred income tax assets and liability for
unrecognized tax benefits; and
|
|
|
|
estimated costs associated with construction and development
activities in connection with our homebuilding operations.
|
The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of our
Chapter 11 cases. In particular, the financial statements
do not purport to show (1) as to assets, their realizable
value on a liquidation basis or their availability to satisfy
liabilities; (2) as to stockholders equity accounts,
the effect of any changes that may be made in our
capitalization; or (3) as to operations, the effect of any
changes that may be made to our business. In addition, the
financial statements do not reflect the amounts that may be
allowed with respect to prepetition claims and liabilities which
may, as a result of the filing of proofs of claims by our
creditors, result in liabilities in excess of those estimated by
us in preparing the accompanying consolidated financial
statements.
Due to our normal operating cycle being in excess of one year,
we present unclassified consolidated statements of financial
condition.
Certain amounts in the consolidated financial statements of
prior periods have been reclassified to conform to current year
classifications. Certain operations have been classified as
discontinued. Associated results of operations and financial
position are separately reported for all periods presented. For
additional information, refer to Note 15. Information in
these notes to consolidated financial statements, unless
otherwise noted, does not include the accounts of discontinued
operations.
Homebuilding
Inventory
Inventory is stated at the lower of cost or fair value.
Inventory under development or held for development is stated at
an accumulated cost unless such cost would not be recovered from
the cash flows generated by future disposition. In this
instance, such inventories are recorded at fair value. Inventory
to be
F-12
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
disposed of is carried at the lower of cost or fair value less
cost to sell. We utilize the specific identification method of
charging construction costs to cost of sales as homes are
delivered. Common construction project costs are allocated to
each individual home in the various communities based upon the
total number of homes to be constructed in each community.
Interest, real estate taxes, and certain development costs are
capitalized to land and construction costs during the
development and construction period and are amortized to costs
of sales as deliveries occur.
Inventory
Not Owned and Obligations for Inventory Not Owned
Homebuilders may enter into option contracts for the purchase of
land or homesites with land sellers and third-party financial
entities, some of which qualify as Variable Interest Entities
(VIEs) under Financial Accounting Standards Board
(FASB) Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities
(FIN 46(R)). FIN 46(R) addresses
consolidation by business enterprises of VIEs in which an entity
absorbs a majority of the expected losses, receives a majority
of the entitys expected residual returns, or both, as a
result of ownership, contractual or other financial interests in
the entity. Obligations for inventory not owned in our
consolidated statements of financial condition represent
liabilities associated with our land banking and similar
activities, including obligations in VIEs which have been
consolidated by us and in which we have a less than 50%
ownership interest, and the creditors have no recourse against
us. As a result, the obligations have been specifically excluded
from the calculation of leverage ratios pursuant to the terms of
our revolving credit facility.
In applying FIN 46(R) to our homesite option contracts and
other transactions with VIEs, we make estimates regarding cash
flows and other assumptions. We believe that our critical
assumptions underlying these estimates are reasonable based on
historical evidence and industry practice. Based on our analysis
of transactions entered into with VIEs, we determined that we
are the primary beneficiary of certain of these homesite option
contracts. Consequently, FIN 46(R) requires us to
consolidate the assets (homesites) at their fair value, although
(1) we have no legal title to the assets; (2) our
maximum exposure to loss is generally limited to the deposits or
letters of credits placed with these entities; and
(3) creditors, if any, of these entities have no recourse
against us.
In addition to land options recorded pursuant to FIN 46(R),
we evaluate land options in accordance with the provisions of
SFAS No. 49, Product Financing Arrangements.
When our deposits and pre-acquisition development costs exceed
certain thresholds, or we have determined that we are compelled
to exercise our option, we record the remaining purchase price
of the land in the consolidated statements of financial
condition under inventory not owned and
obligations for inventory not owned.
Investments
in Joint Ventures
We analyze our homebuilding and land development joint ventures
under FIN 46(R) and Emerging Issues Task Force
(EITF) Issue
No. 04-5,
Determining Whether a General Partner, or General Partners as
a Group, Controls a Limited Partnership or Similar Entity When
the Limited Partners Have Certain Rights
(EITF 04-5).
The scope of
EITF 04-5
is limited to limited partnerships or similar entities (such as
limited liability companies that have governing provisions that
are the functional equivalent of a limited partnership) that are
not VIEs under FIN 46(R) and provides a framework for
addressing when a general partner in a limited partnership, or
managing member in the case of a limited liability company,
controls the entity.
EITF 04-5
was effective after June 29, 2005 for new entities formed
after such date and for existing entities for which agreements
were subsequently modified and was effective for us on
January 1, 2006 for all other entities. The adoption of
EITF 04-5
did not have a material effect on our consolidated financial
statements.
Investments in our unconsolidated homebuilding and land
development joint ventures are accounted for under the equity
method of accounting. Under the equity method, we recognize our
proportionate share of earnings and losses generated by the
joint venture upon the delivery of homes or homesites to third
parties.
F-13
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All joint venture profits generated from land sales to us are
deferred and recorded as a reduction of the cost basis in the
homesites purchased until the homes are ultimately sold by us to
third parties. Our ownership interests in our unconsolidated
joint ventures vary, but are generally less than or equal to
50%. We account for these investments under the equity method
because: (1) the entities are not VIEs in accordance with
FIN 46(R); (2) for those entities determined to be
VIEs, we are not considered the primary beneficiary; (3) we
do not have the voting control, and/or, in the case of joint
ventures where we are the general partner or managing member,
the limited partners (or non-managing members) have substantive
participatory rights in accordance with
EITF 04-5.
We evaluate our investments in and receivables from our
unconsolidated joint ventures in accordance with the provisions
of Accounting Principles Board Opinion No. 18, The
Equity Method of Accounting for Investments in Common Stock,
Statement of Position
78-9,
Accounting for Investments in Real Estate Ventures, and
Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan.
Recoverability of our investments in and receivables from
unconsolidated joint ventures are measured by comparing the
carrying amount of the assets to future undiscounted net cash
flows expected to be generated by the assets. These evaluations
for impairment are significantly impacted by estimates of future
revenues, costs and expenses and other factors involving some
amount of uncertainty. Therefore, due to uncertainties in the
estimation process, actual results could differ from such
estimates.
In some instances, we are liable under the joint venture credit
agreements and we have agreed to: complete certain property
development commitments in the event the joint ventures default;
pay an amount necessary to decrease the principal balance of the
joint ventures loans to achieve a certain loan to value
ratio; and, to indemnify the lenders for losses resulting from
fraud, misappropriation and similar acts. We evaluate our
obligations related to these commitments under Statement of
Financial Accounting Standards No. 5, Accounting for
Contingencies. Because of the high degree of judgment
required in determining these estimated obligations, actual
amounts could differ from our current estimates.
Revenue
Recognition
Our primary source of revenue is the sale of homes to
homebuyers. To a lesser degree, we engage in the sale of land to
other homebuilders. Revenue is recognized on home sales and land
sales at closing when title passes to the buyer and all of the
following conditions are met: a sale is consummated, a
significant down payment is received, the earnings process is
complete and the collection of any remaining receivables is
reasonably assured.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 66, Accounting for the Sales of
Real Estate (SFAS 66), at December 31,
2007 and 2006, we deferred approximately $1.0 million and
$1.7 million, respectively, in profit related to certain
homes that were delivered for which our mortgage subsidiary
originated interest-only loans or loans with high
loan-to-value
ratios which did not meet the initial and continuing investment
requirements under SFAS 66, and the loans were still held
for sale at the respective balance sheet dates. This profit will
be recognized upon the sale of the loans to a third party, with
non-recourse provisions (except for customary early payment
default provisions), which generally occurs within 30 days
from the date the loan is originated.
Warranty
Costs
We provide homebuyers with a limited warranty of workmanship and
materials from the date of sale for up to two years. We
generally have recourse against the subcontractors for claims
relating to workmanship and materials. We also provide up to a
ten-year homebuyers warranty which covers major structural
defects. Estimated warranty costs are recorded at the time of
sale based on historical experience and current factors, and are
included in cost of sales in the accompanying consolidated
statements of operations.
F-14
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
To address homebuyer concerns regarding our fulfillment of
warranty obligations at the inception of our Chapter 11
cases, we entered into an agreement with an affiliate of Zurich
Financial Services Group, which guarantees our warranty
obligations for the first ten years and assumes all liability
for structural claims in years three through ten. The agreement
covered all homes in backlog on January 21, 2008 and homes
sold or delivered between January 21, 2008 and
June 30, 2008.
Advertising
Costs
Advertising costs, consisting primarily of newspaper and trade
publications, and the cost of maintaining an internet web-site,
are expensed as incurred. Advertising expense included in
selling, general and administrative expenses for the years ended
December 31, 2007, 2006, and 2005 were $23.5 million,
$19.7 million, and $9.1 million, respectively.
Financial
Services
Title Company
Escrow Deposits
As a service to its customers, our title company subsidiary,
Universal Land Title, administers escrow and trust deposits
which totaled approximately $27.7 million and
$102.1 million at December 31, 2007 and 2006,
respectively, representing undisbursed amounts received for
settlements of mortgage loans, payments on mortgage loans, and
indemnities against specific title risks. These escrow funds are
not considered our assets and, therefore, are excluded from the
accompanying consolidated statements of financial condition.
Mortgage
Loans Held for Sale
Mortgage loans held for sale are stated at the lower of
aggregate cost or fair value based upon such commitments for
loans to be delivered or prevailing market rates for uncommitted
loans. The estimated fair value is determined on a loan by loan
basis based on the coupon rate and underlying characteristics of
each loan. Substantially all of the loans originated by us are
sold to private investors within 30 days of origination. In
addition, the Company has the ability to sell mortgage loans
under an early purchase program based on the delivery of
mortgage collateral, which is generally less than five days from
closing.
Interest
Rate Lock Commitments
Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities and
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS No. 133), requires companies to recognize
all of their derivative instruments as either assets or
liabilities in the balance sheets at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been properly
designated by a company as a hedging relationship
and is determined to qualify for hedge accounting. To qualify
for hedge accounting under SFAS No. 133, at the
inception of a hedge, a company must formally document the
relationship between the derivative instrument and the hedged
item, as well as the risk management objective, the strategy for
undertaking the hedge transactions, and the method the company
will use to assess the hedges effectiveness in achieving
offsetting changes in fair value. In addition, the company must
document the results of the method used to assess hedge
effectiveness on an ongoing basis.
If a company either does not properly designate the
hedging relationship or subsequently determines that
the derivative instruments do not qualify for hedge accounting,
the derivative instruments are considered free standing
derivatives. Free standing derivatives are
marked-to-market
and included in the balance sheet as either derivative assets or
liabilities with corresponding changes in fair value recorded in
income as they occur.
F-15
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We utilize certain derivative instruments in the normal course
of operations. These instruments include private investor sales
commitments and commitments to originate mortgage loans
(interest rate lock commitments or locked pipeline), all of
which typically are short-term in nature. Private investor sales
commitments are utilized to hedge changes in fair value of
mortgage loan inventory and commitments to originate mortgage
loans.
We did not designate our derivatives as hedging instruments and
applied the
lower-of-cost-or-market
method to account for mortgage loan inventory in accordance with
SFAS No. 65, Accounting for Certain Mortgage
Banking Activities.
Staff Accounting Bulletin 105, Application of Accounting
Principles to Loan Commitments (SAB 105)
provides guidance regarding interest rate lock commitments
(IRLCs) that are accounted for as derivative
instruments under SFAS 133. In SAB 105, the SEC stated
that the value of expected future cash flows related to
servicing rights and other intangible components should be
excluded when determining the fair value of the derivative IRLCs
and such value should not be recognized until the underlying
loans are sold. Our IRLCs were directly offset by forward trades
and the valuation of the derivatives did not have a material
impact on the Companys financial position or results of
operations.
We entered into three separate builder forward commitments in
2007 for an option to fill a commitment of up to
$75.0 million of loans at
agreed-upon
rates. The purpose of these builder forward commitments was to
increase the volume of customers by offering below market
mortgage interest rates. The builder forward commitments were
accounted for as a reduction of revenue and were immaterial to
the consolidated financial statements. The total commitment fee
paid for the year ended December 31, 2007 was
$0.6 million.
Early
Payment Default Reserve
At December 31, 2007, we are obligated under loan purchase
agreements (LPAs) with third-party investors to
repurchase loans if certain terms and conditions defined in the
LPAs are not met, and that repurchase risk is primarily related
to early payment default. It is our policy to provide for
estimated losses related to repurchase risk based on delinquency
trends and historical experience. At December 31, 2007 and
2006, we recorded a $0.6 million and $0.1 million,
respectively, early payment default reserve. During the year
ended December 31, 2007 and 2006, we made indemnification
payments of $0.5 million and $0.1 million,
respectively. No indemnification payments were made during 2005.
In July 2008, we entered into a settlement agreement whereby we
paid $2.9 million to be released from all current and
future LPA obligations.
Revenue
Recognition
Loan origination revenues, net of direct origination costs, and
loan discount points are deferred and recorded as an adjustment
to the carrying value of the related mortgage loans held for
sale, and are recognized as income when the related loans are
sold to third-party investors. Gains and losses from the sale of
loans are recognized to the extent that the sales proceeds
exceed, or are less than, the carrying value of the loans. The
Company sells all loans on a servicing released basis. Mortgage
interest income is earned during the interim period before
mortgage loans are sold and is accrued as earned.
Fees derived from our title services are recognized as revenue
in the month of closing of the underlying sale transaction.
General
Cash and
Supplemental Cash Flow Information
Cash includes amounts in transit from title companies for home
deliveries and highly liquid investments with an initial
maturity of three months or less.
F-16
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted cash consists of amounts held in escrow as required
by purchase contracts and reserve requirements of certain debt
facilities.
Accounting
for the Impairment of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS 144), we carry long-lived assets at
the lower of the carrying amount or fair value. Impairment is
evaluated by estimating future undiscounted cash flows expected
to result from the use of the asset and its eventual
disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the assets, an
impairment loss is recognized. Fair value, for purposes of
calculating impairment, is measured based on estimated future
cash flows, discounted at a market rate of interest. During the
years ended December 31, 2007, 2006, and 2005, we recorded
impairment losses on active communities of $180.8 million,
$81.9 million and $6.5 million, respectively. In
addition, during the years ended December 31, 2007, 2006,
and 2005, we also recorded a charges of $671.9 million,
$71.3 million and $0.2 million, respectively, for
deposits and abandonment costs related to land that we no longer
intend to purchase or build on. These losses are included in
cost of sales inventory impairments and abandonment
costs in the accompanying consolidated statements of operations.
Concentration
of Credit Risk
We conduct business primarily in four geographical regions:
Florida, the Mid-Atlantic, Texas, and the West. Accordingly, the
market value of our inventory is susceptible to changes in
market conditions that may occur in these locations. With
regards to the mortgage loans held for sale, we will generally
only originate loans which have met underwriting criteria
required by purchasers of our loan portfolios. Additionally, we
generally sell our mortgage loans held for sale within
30 days which minimizes our credit risk. We are exposed to
credit risk as our mortgage loans held for sale are sold
primarily to one investor.
Property
and Equipment
Property and equipment, consisting primarily of office premises,
transportation equipment, office furniture and fixtures,
capitalized software costs, and model home furniture, are stated
at cost net of accumulated depreciation. Repairs and maintenance
are expensed as incurred.
Depreciation generally is provided using the straight-line
method over the estimated useful life of the asset, which ranges
from 3 to 31 years. At December 31, 2007 and 2006,
accumulated depreciation approximated $35.5 million and
$28.3 million, respectively.
Deferred
Finance Costs
Costs incurred in connection with the issuance of our borrowings
are capitalized and amortized using the effective interest
method over the life of the related borrowing.
Goodwill
Goodwill represents the excess of the purchase price of our
acquisitions over the fair value of the net assets acquired.
Additional consideration paid in subsequent periods under the
terms of purchase agreements is included as acquisition costs.
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, we test goodwill for impairment annually
or more frequently if certain impairment indicators are present.
For purposes of the impairment test, we consider each
homebuilding and financial services entity a reporting unit. Our
impairment test is based on discounted cash flows derived from
internal projections. This process requires us to make
assumptions on future revenues, costs, and timing of expected
cash flows. Due to the degree of judgment
F-17
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
required and uncertainties surrounding such estimates, actual
results could differ from such estimates. To the extent
additional information arises or our strategies change, it is
possible that our conclusion regarding goodwill impairment could
change, which could have a material adverse effect on our
financial position and results of operations.
During the years ending December 31, 2007 and 2006, we
determined that the challenging housing market and the asset
impairments taken in certain of our homebuilding divisions were
indicators of impairment. We performed our interim impairment
tests during 2007 and 2006, and our annual impairment tests as
of December 31, 2007 and 2006. As a result, we recorded
homebuilding goodwill impairment charges of $89.7 million
and $5.7 million for the years ended December 31, 2007
and 2006, respectively.
The change in homebuilding goodwill for the years ended
December 31, 2007 and 2006 is as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at January 1
|
|
$
|
100.9
|
|
|
$
|
105.7
|
|
Earn-out consideration paid on acquisitions
|
|
|
|
|
|
|
0.9
|
|
Impairments:
|
|
|
|
|
|
|
|
|
Florida
|
|
|
(45.9
|
)
|
|
|
|
|
Mid-Atlantic
|
|
|
(27.6
|
)
|
|
|
|
|
Texas(1)
|
|
|
(0.8
|
)
|
|
|
|
|
West
|
|
|
(15.4
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
Total impairments
|
|
|
(89.7
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December
31(2)
|
|
$
|
11.2
|
|
|
$
|
100.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas Region excludes the Dallas division, which is now
classified as a discontinued operation. |
|
(2) |
|
The balance at December 31, 2007 consists of
$1.6 million related to the Mid-Atlantic region and
$9.6 million related to the Texas region. |
Additionally, during the year ended December 31, 2007, we
wrote-off $3.9 million of goodwill associated with our
Financial Services subsidiaries and $3.1 million of
goodwill related to our former Dallas division that has been
accounted for as discontinued operations.
Insurance
and Litigation Reserves
Insurance and litigation reserves have been established for
estimated amounts based on an analysis of past history of
claims. We have, and require the majority of our subcontractors
to have, general liability insurance that protects us against a
portion of our risk of loss from construction-related claims. We
reserve for costs to cover our self-insured retentions and
deductible amounts under these policies and for any costs in
excess of our coverage limits. Because of the high degree of
judgment required in determining these estimated reserve
amounts, actual future claim costs could differ from our
currently estimated amounts.
Income
Taxes
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109), as interpreted by FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48), whereby, income
taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial
F-18
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. FIN 48, which became effective for us on
January 1, 2007, prescribed the minimum threshold a tax
position is required to meet before being recognized in the
consolidated financial statements and provided guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, transition and
disclosures. See Note 9, Income Taxes, for additional
discussion.
Earnings
(Loss) Per Share
Basic earnings (loss) per share is computed by dividing income
(loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings (loss) per share is computed based on the weighted
average number of shares of common stock and dilutive securities
outstanding during the period. Dilutive securities are options
or other common stock equivalents that are freely exercisable
into common stock at less than market prices or otherwise dilute
earnings if converted. Dilutive securities are not included in
the weighted average number of shares when inclusion would
increase the earnings per share or decrease the loss per share.
The following table represents a reconciliation of the weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Basic weighted average shares outstanding
|
|
|
59,601,887
|
|
|
|
59,582,697
|
|
|
|
57,120,031
|
|
Net effect of common stock equivalents assumed to be exercised
|
|
|
|
|
|
|
|
|
|
|
2,239,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
59,601,887
|
|
|
|
59,582,697
|
|
|
|
59,359,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The shares issued and outstanding and the earnings per share
amounts in the consolidated financial statements have been
adjusted to reflect a
five-for-four
stock split affected in the form of a 25% stock dividend paid on
March 31, 2005.
On September 13, 2005, pursuant to an underwritten public
offering, we sold 3,358,000 shares of our common stock at a
price of $28.00 per share. The net proceeds of the offering to
us were $89.2 million, after deducting offering costs and
underwriting fees of $4.8 million. The offering proceeds
were used to pay outstanding indebtedness under our revolving
credit facility.
For the year ended December 31, 2007 and 2006, the
convertible preferred stock, stock warrants, stock options and
restricted stock, as applicable, have not been included in
diluted earnings per share as their effect is anti-dilutive (see
Note 12).
Stock-Based
Compensation
Prior to January 1, 2006, we accounted for stock option
awards granted under our share-based payment plan in accordance
with the recognition and measurement provisions of Accounting
Principles Board Opinions No. 25, Accounting for Stock
Issued to Employees (APB 25) and related
Interpretations, as permitted by SFAS 123, Accounting
for Stock-Based Compensation. Share-based employee
compensation expense was not recognized in our consolidated
statement of operations prior to January 1, 2006, except
for certain options with performance-based accelerated vesting
criteria and certain outstanding common stock purchase rights,
as all other stock option awards granted under the plan had an
exercise price equal to or greater than the market value of the
common stock on the date of the grant.
F-19
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2006, we adopted the provisions of
SFAS 123(R), Share-Based Payment, including Staff
Accounting Bulletin No. 107
(SAB 107), which provided supplemental
implementation guidance for SFAS 123(R), using the
modified-prospective-transition method. Under this transition
method, compensation expense recognized for the year ended
December 31, 2006 included: (a) compensation expense
for all share-based awards granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS 123 and (b) compensation expense for all
share-based awards granted subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with
the provisions of SFAS 123(R). In accordance with the
modified-prospective-transition method, results for prior
periods were not restated. Additionally, in connection with the
adoption of SFAS 123(R) we recognized a cumulative change
in accounting principle of $2.0 million, net of tax,
related to certain common stock purchase rights that were
accounted for under the variable accounting method. The pre-tax
cumulative effect of the change in accounting principle of
$3.2 million was not material and therefore was included in
selling, general and administrative expenses with the related
tax effect of $1.2 million included in the provision for
income taxes rather than displayed separately as a cumulative
change in accounting principle in the consolidated statement of
operations. The adoption of SFAS 123(R) resulted in a
charge of $11.3 million and $7.4 million to income
(loss) before provision for income taxes and net income,
respectively, for the year ended December 31, 2006. The
impact of adopting SFAS 123(R) on both basic and diluted
earnings was $0.13 per share.
Under the provisions of SFAS 123(R), the unearned
compensation caption in our consolidated statement of financial
condition, a contra-equity caption representing the amount of
unrecognized share-based compensation costs, is no longer
presented. The amount that had been previously shown as unearned
compensation was reversed through the additional paid-in capital
caption in our consolidated statement of financial condition.
In accordance with SFAS 123(R), we present the tax benefits
resulting from the exercise of share-based awards as financing
cash flows. Prior to the adoption of SFAS 123(R), we
reported the tax benefits resulting from the exercise of
share-based awards as operating cash flows. The effect of this
change was not material to our consolidated statement of cash
flows.
If the methodologies of SFAS 123(R) were applied to
determine compensation expense for our stock options based on
the fair value of our common stock at the grant dates for awards
under our option plan, our net income and earnings per share for
the year ended December 31, 2005 would have been adjusted
to the pro forma amounts indicated below (dollars in millions,
except per share amounts):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Net income as reported
|
|
$
|
218.3
|
|
Add: Stock-based employee compensation included in reported net
income, net of tax
|
|
|
2.2
|
|
Deduct: Stock-based employee compensation expense determined
under the fair value method, net of tax
|
|
|
(2.7
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
217.8
|
|
|
|
|
|
|
Reported basic earnings per share
|
|
$
|
3.82
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$
|
3.81
|
|
|
|
|
|
|
Reported diluted earnings per share
|
|
$
|
3.68
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$
|
3.67
|
|
|
|
|
|
|
F-20
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values of options granted were estimated on their grant
dates using the Black-Scholes option pricing model based on the
following assumptions:
|
|
|
Expected volatility
|
|
0.33 to 0.42
|
Expected dividend yield
|
|
0.00%
|
Risk-free interest rate
|
|
1.47% - 4.85%
|
Expected life
|
|
3 - 10 years
|
Fair
Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, requires companies to disclose the
estimated fair value of their financial instrument assets and
liabilities. Fair value estimates are made at a specific point
in time, based upon relevant market information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
our entire holdings of a particular instrument. The carrying
values of cash and mortgage loans held for sale approximate
their fair values due to their short-term nature. The fair value
of mortgage loans held for sale approximates $15.0 million
which includes the unpaid balance, net of loan loss reserves,
and the service release premium that is received when the loans
are sold. The carrying value of the financial services
borrowings, the revolving loan facility, first and second lien
term facilities and obligations for inventory not owned
approximate their fair value as substantially all have a
fluctuating interest rate based upon current market indices. The
fair value of the $20.0 million Senior Subordinated PIK
Notes is $0.2 million at December 31, 2007, as
estimated by reference to similar instruments with quoted market
prices. The fair value of the $550.0 million senior notes
and $510.0 million senior subordinated notes at
December 31, 2007 is $231.6 million and
$23.6 million, respectively, as determined by quoted market
prices.
Recent
Accounting Pronouncements
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets
(SFAS 156), which provides an approach to
simplify efforts to obtain hedge-like (offset) accounting. This
new statement amends SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing
liabilities. SFAS 156 is effective for all separately
recognized servicing assets and liabilities as of the beginning
of an entitys fiscal year that begins after
September 15, 2006, with earlier adoption permitted in
certain circumstances. We adopted SFAS 156 effective
January 1, 2007. Due to the short period of time our
servicing rights are held, the adoption did not have a
significant impact on our consolidated financial statements.
We adopted FIN 48 effective January 1, 2007. See
Note 9 of the consolidated financial statements for
discussion of income taxes.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 (our fiscal
year beginning January 1, 2008), and interim periods within
those fiscal years. In February 2008, the FASB issued a final
Staff Position to allow a one-year deferral of adoption of
SFAS 157 for nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The FASB also decided to
amend SFAS 157 to exclude SFAS 13, Accounting for
Leases, and its related interpretive accounting
pronouncements that address leasing transactions. We are
currently reviewing the effect of this statement on our
consolidated financial statements.
F-21
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2006, the FASB issued EITF
No. 06-8,
Applicability of the Assessment of a Buyers Continuing
Investment under FASB Statement No. 66, Accounting for
Sales of Real Estate, for Sales of Condominiums ,
(EITF 06-8).
EITF 06-8
establishes that a company should evaluate the adequacy of the
buyers continuing investment in determining whether to
recognize profit under the
percentage-of-completion
method.
EITF 06-8
is effective for the first annual reporting period beginning
after March 15, 2007 (January 1, 2008 for us). The
effect of
EITF 06-8
is not expected to be material to our consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, (SFAS 159). SFAS 159
permits companies to measure many financial instruments and
certain other items at fair value. This statement is effective
for fiscal years beginning after November 15, 2007
(January 1, 2008 for us). The adoption of SFAS 159 is
not expected to be material to our consolidated financial
statements.
EITF Topic D-109, Determining the Nature of a Host Contract
Related to a Hybrid Financial Instrument Issued in the Form of a
Share under FASB Statement No. 133, addresses the
determination of whether the characteristics of a host contract
related to a hybrid financial instrument issued in the form of a
share are more akin to a debt instrument or more akin to an
equity instrument. EITF D-109 indicates that the determination
of the nature of the host contract for a hybrid financial
instrument issued in the form of a share (that is, whether the
nature of the host contract is more akin to a debt instrument or
more akin to an equity instrument) should be based on a
consideration of economic characteristics and risks of the host
contract including all of the stated or implied substantive
terms and features of the hybrid financial instrument. Although
the consideration of an individual term or feature may be
weighted more heavily in the evaluation, judgment is required
based upon an evaluation of all the relevant terms and features.
The application of this guidance was considered and evaluated in
light of the Preferred Stock issued by us on July 31, 2007
(refer to Note 12) but did not have a material effect
on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the
acquiree, and the goodwill acquired. SFAS No. 141(R)
also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business
combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. Adoption is prospective,
and early adoption is not permitted. Adoption of
SFAS 141(R) will apply to any business combination
beginning January 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of retained,
noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for
fiscal years beginning after December 15, 2008. We are
currently reviewing the effect of this statement on our
consolidated financial statements.
On February 20, 2008, the FASB issued FASB Staff Position
(FSP)
SFAS No. 140-3,
Accounting for Transfers of Financial Assets and Repurchase
Financing Transactions. The FSP addresses whether there are
circumstances that would permit a transferor and a transferee to
evaluate the accounting for the transfer of a financial asset
separately from a repurchase financing when the counterparties
to the two transactions are the same. The FSP presumes that the
initial transfer of a financial asset and a repurchase financing
are considered part of the same arrangement (a linked
transaction) under FASB Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
(SFAS No. 140). However, if
certain
F-22
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
criteria specified in the FSP are met, the initial transfer and
repurchase financing may be evaluated separately under
SFAS No. 140. The FSP is effective for fiscal years
beginning after November 15, 2008, and interim periods
within those fiscal years. Earlier application is not permitted.
Adoption of the FSP is not expected to have a material effect on
our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures regarding
derivative instruments and hedging activities to enable
investors to better understand their effects on a companys
financial position, financial performance and cash flows. These
requirements include the disclosure of the fair values of
derivative instruments and their gains and losses in a tabular
format. SFAS No. 161 is effective for fiscal years
beginning after November 15, 2008. We are currently
evaluating the impact SFAS No. 161 will have on our
consolidated financial statements.
A summary of homebuilding interest capitalized in inventory is
as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest capitalized, beginning of period
|
|
$
|
68.7
|
|
|
$
|
44.2
|
|
|
$
|
32.6
|
|
Interest
incurred(1)
|
|
|
154.8
|
|
|
|
98.5
|
|
|
|
79.3
|
|
Less interest included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
112.8
|
|
|
|
72.6
|
|
|
|
63.0
|
|
Interest expense
|
|
|
31.6
|
|
|
|
0.6
|
|
|
|
0.4
|
|
Other
adjustments(2)
|
|
|
1.3
|
|
|
|
0.8
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized, end of period
|
|
$
|
77.8
|
|
|
$
|
68.7
|
|
|
$
|
44.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in interest incurred is the amortization of deferred
finance costs which totaled $11.0 million,
$3.7 million and $3.3 million for the years ended
December 31, 2007, 2006 and 2005, respectively. |
|
(2) |
|
Included in other adjustments above for the year ended
December 31, 2005 is interest which was capitalized to
inventory that was subsequently contributed to an unconsolidated
joint venture. |
In the ordinary course of business, we enter into option
contracts to purchase homesites and land held for development.
At December 31, 2007 and 2006, we had non-refundable cash
deposits totaling $56.9 million and $216.6 million,
respectively, included in inventory in the accompanying
consolidated statements of financial condition. Under these
option contracts, we have the right to buy homesites at
predetermined prices on a predetermined takedown schedule
anticipated to be commensurate with home starts. Option
contracts generally require the payment of a cash deposit
and/or the
posting of a letter of credit, which is typically less than 20%
of the underlying purchase price, and may require monthly
maintenance payments. These option contracts are either with
land sellers or third party financial entities who have acquired
the land to enter into the option contract with us. Homesite
option contracts are generally non-recourse, thereby limiting
our financial exposure for non-performance to our cash deposits
and/or
letters of credit. In certain instances, we have entered into
development agreements in connection with option contracts which
require us to complete the development of the land, at a fixed
reimbursable amount, even if we choose not to exercise our
option and forfeit our deposit and even if our costs exceed the
reimbursable amount. During the year ended December 31,
2007, we abandoned our rights under certain option contracts
that require us to complete the development of land for a fixed
reimbursable amount. We recorded losses totaling
$10.3 million for our estimated obligations under these
development agreements which are included in accounts payable
and other liabilities at December 31, 2007.
F-23
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition, certain of these option contracts give the other
party the right to require us to purchase homesites or guarantee
certain minimum returns. During the year ended December 31,
2007, we abandoned our rights under certain option contracts
that give the other party the right to require us to purchase
the homesites. Some of these parties have given notice
exercising their right to require us to purchase the homesites.
We do not have the ability to comply with these notices due to
liquidity constraints. These option contracts were previously
consolidated and the inventory was included in inventory not
owned and the corresponding liability was included in
obligations for inventory not owned. As we do not have the
intent or the ability to comply with the requirement to purchase
the property, we have deconsolidated these option contracts at
December 31, 2007. Impairment charges related to
capitalized pre-acquisition costs associated with these option
contracts of $10.6 million were written off during the year
ended December 31, 2007. In addition, at December 31,
2007, we recorded a loss accrual of $20.1 million, in
connection with the abandonment of these option contracts, for
our estimated obligations under these option contracts,
including $10.5 million for letters of credit which we
anticipated would be drawn due to nonperformance under such
contracts. This amount was computed based on estimated
deficiency between the fair value of the underlying inventory
compared to our required purchase price under the option
contract. This accrual is included in accounts payable and other
liabilities in the accompanying consolidated statement of
financial condition at December 31, 2007. As of
December 31, 2007, the total required purchase price under
these option contracts was $25.0 million.
Some of these option contracts for the purchase of land or
homesites are with land sellers and third party financial
entities, which qualify as variable interest entities
(VIEs) under FASB Interpretation No. 46
(Revised), Consolidation of Variable Interest Entities
(FIN 46(R)). FIN 46(R) addresses
consolidation by business enterprises of VIEs in which an entity
absorbs a majority of the expected losses, receives a majority
of the entitys expected residual returns, or both, as a
result of ownership, contractual or other financial interests in
the entity. Obligations for inventory not owned in our
consolidated statements of financial condition represent
liabilities associated with our land banking and similar
activities, including obligations in VIEs which have been
consolidated by us and in which we have a less than 50%
ownership interest, and the creditors have no recourse against
us. As a result, the obligations have been specifically excluded
from the calculation of leverage ratios pursuant to the terms of
our revolving credit facility.
In applying FIN 46(R) to our homesite option contracts and
other transactions with VIEs, we make estimates regarding cash
flows and other assumptions. We believe that our critical
assumptions underlying these estimates are reasonable based on
historical evidence and industry practice. Based on our analysis
of transactions entered into with VIEs, we determined that we
are the primary beneficiary of certain of these homesite option
contracts. Consequently, FIN 46(R) requires us to
consolidate the assets (homesites) at their fair value, although
(1) we have no legal title to the assets, (2) our
maximum exposure to loss is generally limited to the deposits or
letters of credit placed with these entities, and
(3) creditors, if any, of these entities have no recourse
against us.
The effect of FIN 46(R) at December 31, 2007 was to
increase inventory by $16.2 million, excluding cash
deposits of $3.8 million, which had been previously
recorded, with a corresponding increase to obligations for
inventory not owned of $16.2 million in the accompanying
consolidated statement of financial condition. Additionally, we
have entered into arrangements with VIEs to acquire homesites in
which our variable interest is insignificant and, therefore, we
have determined that we are not the primary beneficiary and are
not required to consolidate the assets of such VIEs. Our
potential exposure to loss in VIEs where we are not the primary
beneficiary would primarily be the forfeiture of our deposit
and/or
letters of credit placed on land purchase and option contracts.
At December 31, 2007 and December 31, 2006, our
non-refundable cash deposits placed on land purchase and option
contracts amounted to $56.9 million and
$216.6 million, respectively, and our letters of credit
placed on land purchase and option contracts amounted to
$44.9 million and $257.8 million, respectively.
F-24
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
From time to time, we transfer title to certain parcels of land
to unrelated third parties and enter into options with the
purchasers to acquire fully developed homesites. As we have
continuing involvement in these properties, in accordance with
SFAS 66, we have accounted for these transactions as
financing arrangements. At December 31, 2007,
$9.8 million (net of $6.0 million in impairments) of
inventory not owned and $15.8 million of obligations for
inventory not owned relates to sales where we have continuing
involvement.
During the year ended December 31, 2007, additional equity
contributions in the form of gap loans were made to an
unconsolidated joint venture, which was a VIE. The additional
equity contributions constituted reconsideration events under
FIN 46(R). Based on an analysis under FIN 46(R), we
absorb the majority of expected losses and are the primary
beneficiary of this entity. Therefore, in accordance with
FIN 46(R), we consolidated this entity as of the period
beginning October 1, 2007, resulting in additional revenue
of $4.0 million in our consolidated statement of
operations. The consolidation also resulted in additional assets
of $5.7 million and liabilities of $0.7 million in our
consolidated statement of financial condition as of
December 31, 2007.
In accordance with SFAS No. 144, we carry long-lived
assets held for sale at the lower of the carrying amount or fair
value. For active communities (communities under development and
construction), we evaluate an asset for impairment when events
and circumstances indicate that they may be impaired. Impairment
is evaluated by estimating future undiscounted cash flows
expected to result from the use of the asset and its eventual
disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the assets, an
impairment loss is recognized. Fair value, for purposes of
calculating impairment, is measured based on estimated future
cash flows, discounted at a market rate of interest. During the
years ended December 31, 2007, 2006 and 2005, we recorded
impairment losses of $180.8 million, $81.9 million and
$6.5 million, respectively, on active communities, which
are included in cost of sales inventory impairments
and abandonment costs in the accompanying consolidated
statements of operations. Included in the impairment charges on
active communities for years ended December 31, 2007 is
$6.0 million of inventory impairments recognized on
properties accounted for as financing arrangements under
SFAS 66 for which we do not have title to the underlying
asset.
In accordance with SFAS No. 144, we performed an
evaluation of impairment on a large land parcel with a carrying
value of $92.3 million as of December 31, 2007. As of
December 31, 2007, this parcel is not impaired as the
future undiscounted cash flows expected to result from the use
of the asset and its eventual disposition exceed the carrying
value. Changes in the timing or amounts of these cash flows
could result in a material impairment charge.
F-25
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the years ended December 31, 2007, 2006 and 2005, we
also recorded charges of $671.9 million, $71.3 million
and $0.2 million, respectively, in write-offs of deposits
and abandonment costs which is included in cost of
sales inventory impairments and abandonment costs in
the accompanying consolidated statements of operations, related
to land that we have determined is not probable that we will
purchase or build on. The following table summarizes information
related to impairment charges on active communities and
write-offs of deposits and abandonment costs by region (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Impairment charges on active communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
95.8
|
|
|
$
|
13.2
|
|
|
$
|
1.8
|
|
Mid-Atlantic
|
|
|
16.0
|
|
|
|
26.2
|
|
|
|
0.8
|
|
Texas(1)
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
|
|
West
|
|
|
68.0
|
|
|
|
41.9
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180.8
|
|
|
|
81.9
|
|
|
|
6.5
|
|
Write-offs of deposits and abandonment costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
370.1
|
|
|
|
8.3
|
|
|
|
|
|
Mid-Atlantic
|
|
|
63.3
|
|
|
|
11.8
|
|
|
|
|
|
Texas(1)
|
|
|
5.3
|
|
|
|
0.2
|
|
|
|
0.2
|
|
West
|
|
|
233.2
|
|
|
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
671.9
|
|
|
|
71.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments and abandonment costs
|
|
$
|
852.7
|
|
|
$
|
153.2
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
|
|
4.
|
Transeastern
Joint Venture Settlement and Acquisition
|
We acquired our 50% interest in the Transeastern Joint Venture
(Transeastern JV) on August 1, 2005, when the
Transeastern JV acquired substantially all of the homebuilding
assets and operations of Transeastern Properties, Inc. including
work in process, finished lots and certain land option rights.
The Transeastern JV paid approximately $826.2 million for
these assets and operations (which included the assumption of
$127.1 million of liabilities and certain transaction
costs, net of $30.1 million of cash). The other member of
the joint venture was an entity controlled by the former
majority owners of Transeastern Properties, Inc. We functioned
as the managing member of the Transeastern JV through a
wholly-owned subsidiary.
When the Transeastern JV was initially formed, it had more than
3,000 homes in backlog and projected 2006 deliveries of
approximately 3,500 homes. While management of the Transeastern
JV began to curtail sales in its communities at the end of 2005,
these actions were taken not in anticipation of a declining home
sales market but rather in an attempt to address the
Transeastern JVs backlog until there was a balance among
sales, construction and deliveries. Both our management and the
management of the Transeastern JV anticipated increased sales by
the close of the summer of 2006.
After experiencing several months of continuous declines in
deliveries as compared to forecasted amounts due to higher than
expected cancellations and lower than expected gross sales, in
early September 2006, management of the Transeastern JV
finalized and distributed to its members six-year financial
projections based on the build-out and sale of its current
controlled land positions. These revised projections from the
Transeastern JV indicated that the joint venture would report a
loss in the fourth quarter and would not have the liquidity to
meet its debt obligations. As a result of these and other
factors, in September 2006, we
F-26
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
evaluated the recoverability of our investment in the joint
venture under APB 18, The Equity Method of Accounting for
Investments in Common Stock (APB 18), and
determined our investment to be fully impaired. As of
September 30, 2006, we wrote off $143.6 million
related to our investment in the Transeastern JV, which included
$35.0 million of our member loans receivable and
$16.2 million of receivables for management fees, advances
and interest due to us from the joint venture.
On October 31, 2006 and November 1, 2006, we received
demand letters from the administrative agent for the lenders to
the Transeastern JV demanding payment under certain guarantees.
The demand letters alleged that potential defaults and events of
default had occurred under the credit agreements and that such
potential defaults or events of default had triggered our
obligations under the guarantees. The lenders claimed that our
guarantee obligations equaled or exceeded all of the outstanding
obligations under each of the credit agreements and that we were
liable for default interest, costs and expenses.
On July 31, 2007, we consummated transactions to settle the
disputes regarding the Transeastern JV with the lenders to the
Transeastern JV, its land bankers and our joint venture partner
in the Transeastern JV. Pursuant to the settlement, among other
things,
|
|
|
|
|
the Transeastern JV became a wholly-owned subsidiary of ours by
merger into one of our subsidiaries, which became a guarantor on
our credit facilities and note indentures (the acquisition was
accounted for using the purchase method of accounting and
results of operations have been included in our consolidated
results beginning on July 31, 2007);
|
|
|
|
the senior secured lenders of the Transeastern JV were repaid in
full, including accrued interest (approximately
$400.0 million in cash);
|
|
|
|
the senior mezzanine lenders to the Transeastern JV received
$20.0 million in aggregate principal amount of
14.75% Senior Subordinated PIK Election Notes due 2015 and
$117.5 million in initial aggregate liquidation preference
of 8% Series A Convertible Preferred PIK Preferred Stock;
|
|
|
|
the junior mezzanine lenders to the Transeastern JV received
warrants to purchase shares of our common stock which had an
estimated fair value of $8.2 million at issuance (based on
the Black-Scholes option pricing model and before issuance
costs);
|
|
|
|
we entered into settlement and release agreements with the
senior mezzanine lenders and the junior mezzanine lenders to the
Transeastern JV which released us from our potential obligations
to them; and
|
|
|
|
we entered into a settlement and mutual release agreement with
Falcone/Ritchie LLC and certain of its affiliates (the
Falcone Entities) concerning the Transeastern JV,
one of which owned 50% of the equity interests in the
Transeastern JV and, among other things, released the Falcone
Entities from claims under the 2005 asset purchase agreement
pursuant to which we acquired our interest in the Transeastern
JV. Pursuant to the settlement agreement, we remain obligated on
certain indemnification obligations, including, without
limitation, related to certain land bank arrangements.
|
To effect the settlement of the Transeastern JV dispute, on
July 31, 2007, we also entered into:
|
|
|
|
|
an amendment to our $800.0 million revolving loan facility,
dated January 30, 2007;
|
|
|
|
a new $200.0 million aggregate principal amount first lien
term loan facility; and
|
|
|
|
a new $300.0 million aggregate principal amount second lien
term loan facility.
|
The proceeds from the first and second lien term loans were used
to satisfy claims of the senior secured lenders against the
Transeastern JV, and to pay related expenses. Our existing
$800.0 million revolving loan facility was amended and
restated to reduce the revolving commitments thereunder by
$100.0 million and permit the incurrence of the first and
second lien term loan facilities (and make other conforming
changes
F-27
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
relating to the facilities). Net proceeds from these financings
at closing were $470.6 million which is net of a 1%
discount and transaction costs.
We also paid:
|
|
|
|
|
$50.2 million in cash to purchase land under existing land
bank arrangements with the former Transeastern JV
partner; and
|
|
|
|
$33.5 million in interest and expenses.
|
Additional descriptions of the facilities, preferred stock and
the warrants are provided in Notes 8 and 12 to the
consolidated financial statements.
In accordance with SFAS No. 5, Accounting for
Contingencies (SFAS 5), and other authoritative
guidance, through June 30, 2007, we accrued
$385.9 million for settlement of loss contingency
(determined by computing the difference between the estimated
fair market value of the consideration paid in connection with
the global settlement less the estimated fair market value of
the business we acquired) of which, $275.0 million was
accrued at December 31, 2006 (included in accounts payable
and other liabilities in our consolidated statement of financial
condition) and $110.9 million was accrued during the six
months ended June 30, 2007 based on the final settlement
terms. During the three months ended September 30, 2007 we
recorded an additional $40.7 million upon completion of the
purchase price allocation based on the estimated fair market of
the consideration paid and the net assets acquired.
In connection with the Transeastern JV settlement, we recognized
a loss of $426.6 million, of which $151.6 million was
recognized during the year ended December 31, 2007 and
$275.0 million was recognized during the year ended
December 31, 2006.
The consideration paid by us in connection with the TE
Acquisition approximated $586.8 million, at the time of
settlement, which included (dollars in millions):
|
|
|
|
|
Purchase price:
|
|
|
|
|
Cash consideration paid to Senior Lenders of the Transeastern JV
|
|
$
|
400.0
|
|
Fair value of convertible preferred stock issued
|
|
|
84.0
|
|
Fair value of senior subordinated notes issued
|
|
|
10.9
|
|
Fair value of common stock warrants issued
|
|
|
8.2
|
|
Payment to purchase land under existing land bank arrangements
|
|
|
50.2
|
|
Transaction costs including accrued interest paid to the Senior
Lenders
|
|
|
33.5
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
586.8
|
|
|
|
|
|
|
Allocation of purchase consideration:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10.3
|
|
Restricted cash
|
|
|
28.4
|
|
Inventory(1)
|
|
|
149.8
|
|
Property and equipment
|
|
|
1.0
|
|
Accounts payable and other liabilities
|
|
|
(27.4
|
)
|
Customer deposits
|
|
|
(1.9
|
)
|
Previously accrued loss
contingency(2)
|
|
|
385.9
|
|
Additional loss on TE
Acquisition(3)
|
|
|
40.7
|
|
|
|
|
|
|
|
|
$
|
586.8
|
|
|
|
|
|
|
F-28
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
The fair value of the inventory was determined by estimating
future cash flows expected to result from the use of the asset
and its eventual disposition, discounted at a market rate of
interest. |
|
(2) |
|
In accordance with SFAS 5 and other authoritative guidance,
as of June 30, 2007, the Company accrued
$385.9 million for settlement of a loss contingency
(determined by computing the difference between the estimated
fair market value of the consideration paid in connection with
the global settlement less the estimated fair market value of
the business acquired). |
|
(3) |
|
There were no identifiable intangible assets or goodwill
associated with the TE Acquisition. |
The following unaudited pro forma consolidated results of
operations assume that the acquisition of Transeastern was
completed as of January 1 for each of the periods shown below
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Homebuilding revenues
|
|
$
|
2,333.6
|
|
|
$
|
3,088.6
|
|
Loss from continuing operations
|
|
|
(1,379.6
|
)
|
|
|
(638.8
|
)
|
Net loss available to common stockholders
|
|
|
(1,390.0
|
)
|
|
|
(648.4
|
)
|
EARNINGS (LOSS) PER COMMON SHARE, DILUTED:
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations, net of preferred
stock dividends and accretion of discount
|
|
|
(23.32
|
)
|
|
|
(10.88
|
)
|
Earnings (loss) from discontinued operations
|
|
|
(0.38
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(23.70
|
)
|
|
$
|
(10.89
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma data may not be indicative of the results that would
have been obtained had these events actually occurred at the
beginning of the periods presented, nor does it intend to be a
projection of future results.
|
|
5.
|
Investments
in Unconsolidated Joint Ventures
|
We have entered into strategic joint ventures that acquire and
develop land for our Homebuilding operations
and/or that
also build and market homes for sale to third parties. Our
partners in these joint ventures generally are unrelated
homebuilders, land sellers, financial investors or other real
estate entities. In some cases our Chapter 11 filings have
constituted an event of default under the joint venture lender
agreements which have resulted in the debt becoming immediately
due and payable, limiting the joint ventures access to
future capital. In joint ventures where the assets are being
financed with debt, the borrowings are non-recourse to us except
that in certain instances we have agreed to complete certain
property development commitments in the event the joint ventures
default and to indemnify the lenders for losses resulting from
fraud, misappropriation and similar acts. In some cases, we have
agreed to make capital contributions to the joint venture
sufficient to comply with a specified debt to value ratio. Our
obligations become full recourse upon certain bankruptcy events
with respect to the joint venture. At December 31, 2007 and
2006, we had investments in unconsolidated joint ventures of
$9.0 million and $129.0 million, respectively. We
account for these investments under the equity method of
accounting. These unconsolidated joint ventures are limited
liability companies or limited partnerships in which we have a
limited partnership interest and a minority interest in the
general partner. At December 31, 2007 and 2006, we had
receivables of $0.3 million and $27.2 million net of
allowances, respectively, from these joint ventures due to loans
and advances, unpaid management fees and other items.
In many instances, we are appointed as the day-to-day manager of
the unconsolidated entities and receive management fees for
performing this function. We earned management fees from these
unconsolidated entities of $9.9 million,
$32.1 million, and $25.3 million for the years ended
December 31, 2007, 2006, and 2005,
F-29
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. These fees are included in income (loss) from
unconsolidated joint ventures in the accompanying consolidated
statements of operations. In the aggregate, these joint ventures
delivered 927, 1,778, and 1,319 homes for the years ended
December 31, 2007, 2006 and 2005, respectively.
As further discussed in Note 4 and below, we evaluated the
recoverability of our investments in and receivables from
unconsolidated joint ventures under APB 18 and SFAS 114,
and recorded total impairments of investments in unconsolidated
joint ventures of $194.1 million and $152.8 million
during the years ended December 31, 2007 and 2006,
respectively.
Engle/Sunbelt
Joint Venture
In December 2004, we entered into a joint venture agreement with
Suntous Investors, LLC (Suntous) to
form Engle/Sunbelt Holdings, LLC
(Engle/Sunbelt). Engle/Sunbelt was formed to develop
finished homesites and to build and deliver homes in the
Phoenix, Arizona market. Upon its inception, the venture
acquired eight of our existing communities in Phoenix, Arizona.
We and Suntous contributed capital of approximately
$28.0 million and $3.2 million, respectively, and the
joint venture itself obtained financing arrangements with an
aggregate borrowing capacity of $180.0 million, of which
$150.0 million related to a revolving loan and
$30.0 million related to a mezzanine financing instrument.
In July 2005, we contributed assets to Engle/Sunbelt resulting
in a net capital contribution by us of $5.4 million. At
that time, Engle/Sunbelt amended its financing arrangements to
increase the revolving loan to $250.0 million. On
April 30, 2007, Engle/Sunbelt amended its revolving loan to
reduce the aggregate commitment of the lenders from
$250.0 million to $200.0 million and extended the
maturity date to March 17, 2008. In addition, the amendment
increased the minimum adjusted tangible net worth covenant and
reduced the minimum interest coverage ratio covenant. On
January 16, 2008, the facility was further amended to
reduce the revolving loan limit to $115.0 million and
terminate the mezzanine financing instrument. In addition, the
amendment reduced the minimum interest coverage ratio covenant.
While the borrowings by Engle/Sunbelt were non-recourse to us,
we had obligations to complete construction of certain
improvements and housing units in the event Engle/Sunbelt
defaults. Additionally, we agreed to indemnify the lenders for,
among other things, potential losses resulting from fraud,
misappropriation, bankruptcy filings and similar acts by
Engle/Sunbelt.
In connection with the July 2005 contribution of assets to
Engle/Sunbelt, we realized a gain of $42.6 million, of
which $36.3 million was deferred due to our continuing
involvement with these assets through our investment. In March
2006, we assigned to Engle/Sunbelt our rights under a contract
to purchase approximately 539 acres of raw land for a price
of $18.7 million with a corresponding gain of
$15.8 million, of which $13.5 million was deferred. In
January 2007, we assigned to Engle/Sunbelt our rights under an
option contract for $5.1 million, all of which was
deferred, payable in the form of a note with a one year term,
bearing interest at 10% per annum. These deferrals were being
recognized in the consolidated statement of operations as homes
were delivered by the joint venture. During the years ended
December 31, 2007, 2006 and 2005, we recognized revenue
previously of $5.7 million, $10.0 million and
$2.7 million, respectively, related to these transactions
which is included in cost of sales-other in the accompanying
consolidated statements of operations. At December 31,
2006, $22.8 million was deferred and included in accounts
payable and other liabilities in the accompanying consolidated
statement of financial condition. There were no amounts deferred
at December 31, 2007 due to the write-off of our investment
in the joint venture as discussed below.
Although Engle/Sunbelt was not included in our Chapter 11
filings, our Chapter 11 filings constituted an event of
default under the financing arrangements and
Engle/Sunbelts debt became immediately due and payable.
In April 2008, we entered into a settlement agreement with the
lenders pursuant to which Engle/Sunbelt has agreed to the
appointment of a receiver and further agreed to either, at the
election of the lenders, deliver
F-30
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a deed in lieu of foreclosure to its assets or consent to a
judicial foreclosure. We have also agreed to assist the lenders
in their efforts to complete certain construction for which we
will receive arms length compensation. Upon transfer of
title to the lenders, we will be relieved from our obligations
under the completion and indemnity agreements. The Bankruptcy
Court entered an order approving the settlement agreement.
During the year ended December 31, 2007, we evaluated the
recoverability of our investment in and receivables from
Engle/Sunbelt for impairment under APB 18 and SFAS 114
respectively, and recorded an impairment charge of
$60.7 million representing the full carrying value our
investment in and receivables from Engle/Sunbelt, net of
deferred gains of $22.5 million. No completion obligation
accrual has been established at December 31, 2007 with
respect to Engle/Sunbelt due to the settlement agreement reached
with the lenders to the joint venture.
Summarized in the tables below is condensed combined financial
information of Engle/Sunbelt (dollars in millions).
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3.5
|
|
|
$
|
22.5
|
|
Inventories
|
|
|
193.2
|
|
|
|
246.6
|
|
Other assets
|
|
|
2.3
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
199.0
|
|
|
$
|
271.9
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
70.2
|
|
|
$
|
44.8
|
|
Notes payable
|
|
|
85.4
|
|
|
|
161.3
|
|
Equity of:
|
|
|
|
|
|
|
|
|
TOUSA, Inc.
|
|
|
37.6
|
|
|
|
56.6
|
|
Others
|
|
|
5.8
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
43.4
|
|
|
|
65.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
199.0
|
|
|
$
|
271.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
230.1
|
|
|
$
|
511.1
|
|
Costs and expenses
|
|
|
252.4
|
|
|
|
449.2
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(22.3
|
)
|
|
$
|
61.9
|
|
|
|
|
|
|
|
|
|
|
TOUSA/Kolter
Joint Venture
In January 2005, we entered into a joint venture with Kolter
Real Estate Group LLC to form
TOUSA/Kolter
Holdings, LLC (TOUSA/Kolter) for the purpose of
acquiring, developing and selling approximately 1,900 homesites
and commercial property in a master planned community in South
Florida. The joint venture obtained senior and senior
subordinated term loans (the term loans) of which
$47.0 million and $7.0 million, respectively, were
outstanding as of December 31, 2007. We entered into a
Performance and Completion Agreement in favor of the lenders
under which we agreed, among other things, to construct and
complete the horizontal development of the lots and commercial
property and related infrastructure in accordance with certain
agreed plans. The term loans required, among other things,
TOUSA/Kolter to have
F-31
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completed the development of certain lots by January 7,
2007. Due to unforeseen and unanticipated delays in the
entitlement process and additional development requests by the
county and water management district, TOUSA/Kolter was unable to
complete the development of these certain lots by the required
deadline. On June 21, 2007, and in response to missing the
development deadline, TOUSA/Kolter amended the existing term
loan agreements and we amended the Performance and Completion
Agreement to extend the Performance and Completion Agreement
development deadline to May 31, 2008. The amendments to the
term loan agreements increased the interest rate on the senior
term loan by 100 basis points to LIBOR plus 3.25% and by
50 basis points to LIBOR plus 8.5% for the senior
subordinated term loan. As a condition to the amendment, we
agreed to be responsible for the additional 150 basis
points; accordingly, this would be a cost of the lots we
acquired from TOUSA/Kolter. The amendment also required us to
increase the existing letter of credit by an additional
$1.8 million to $12.1 million and place an additional
$3.0 million cash deposit on the remaining lots under
option. The $3.0 million was used by TOUSA/Kolter to pay
down a portion of the senior term loan.
As we have abandoned our rights under the option contract due to
non-performance, at December 31, 2007, we recorded an
obligation of $12.1 million for the letter of credit we
anticipated would be drawn, wrote-off the $3.0 million cash
deposit and $1.0 million in capitalized pre-acquisition
costs. These costs are included in inventory impairments and
abandonment costs in the accompanying consolidated statements of
operations.
The lenders to the joint venture have declared the loan to the
venture to be in default, but have not demanded performance of
our obligations under either the Performance and Completion
Agreement or the Remargining Agreement. The Remargining
Agreement requires us to pay to the Administrative Agent, upon
default of the joint venture, an amount necessary to decrease
the principal balance of the loan so that the outstanding
balance does not exceed 70% of the value of the joint
ventures assets. Based on the estimated fair value of the
assets of the joint venture, we recorded a $54.0 million
obligation (which includes the $12.1 million letter of
credit accrual), as of December 31, 2007, in connection
with our obligation under the re-margining provisions of the
loan agreement. We did not record any additional contingent
liability under the completion guarantee as the
$54.0 million accrual represents the full debt obligation
of the joint venture.
During the year ended December 31, 2007, we evaluated the
recoverability of our investment and receivables from
TOUSA/Kolter for impairment under APB 18 and SFAS 114
respectively, and recorded an impairment charge of
$58.8 million representing the full carrying value of our
investment in and receivables from TOUSA/Kolter, net of deferred
gains of $12.8 million, which were deferred as a result of
the contributed assets and contract assignments to TOUSA/Kolter.
Additionally, we recorded an obligation of $18.9 million
for performance bonds and letters of credit that we placed on
behalf of the joint venture, as we consider it probable that we
will be required to reimburse these amounts for development
remaining to be completed.
Centex/TOUSA
at Wellington, LLC
In December 2005, we entered into a joint venture with Centex
Corporation to form Centex/TOUSA at Wellington, LLC
(Centex/TOUSA at Wellington) for the purpose of
acquiring, developing and selling approximately 264 homesites in
a community in South Florida. The joint venture obtained a term
loan of which $31.0 million was outstanding as of
December 31, 2007. The credit agreement requires us to
construct and complete the horizontal development of the lots
and related infrastructure in accordance with certain agreed
upon plans. On August 31, 2007, Centex/TOUSA at Wellington
received a notice from the lender requiring the joint venture
members to contribute approximately $10.0 million to the
joint venture to reduce the outstanding term loan in order to
comply with the 60% loan-to-value ratio covenant. We have not
made the required equity contribution.
We evaluated the recoverability of our investment in and
receivables from Centex/TOUSA at Wellington for impairment under
APB 18 and SFAS 114 respectively, and recorded an
impairment of $27.0 million
F-32
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
representing the full carrying value of our investment in and
receivables from Centex/TOUSA during the year ended
December 31, 2007. Based on the estimated fair value of the
assets of the joint venture, we recorded a $15.5 million
obligation, as of December 31, 2007, in connection with our
obligation under the re-margining provisions of the loan
agreement which represents our portion of the joint
ventures outstanding debt. We did not record any
additional contingent liability under the completion guarantee
as the $15.5 million accrual represents our portion of the
full joint venture debt obligation.
Layton
Lakes Joint Venture
In connection with our joint venture with Lennar Corporation
(the Layton Lakes Joint Venture) to acquire and
develop land, townhome properties and commercial property in
Arizona, we entered into a Completion and Limited Indemnity
Agreement for the benefit of the lender to the joint venture.
The agreement required us to maintain a tangible net worth of
$400.0 million. As a result of the decrease in our tangible
net worth, this covenant has been breached and the outstanding
$60.0 million loan to the joint venture is in default. The
default has not been cured and the lender, in its discretion,
may accelerate the loan, foreclose on its liens, and exercise
all other contractual remedies, including our completion
guaranty. In addition, the operating agreement of the joint
venture states that a breach by a member of any covenant of such
member contained in any loan agreement entered into in
connection with the financing of the property is an event of
default. Under the operating agreement, a defaulting member does
not have the right to vote or otherwise participate in the
management of the joint venture until the default is cured. A
defaulting member may not take down any lots from the joint
venture.
Additionally, the joint ventures loan requires that the
outstanding loan balance may not exceed 65% of the value of the
joint ventures assets. Based on an appraisal obtained by
the bank, the joint venture has been notified that a principal
payment is required in order to maintain the specified loan to
value ratio. The joint venture has failed to make such principal
payment.
We evaluated the recoverability of our investment in and
receivables from Layton Lakes Joint Venture for impairment under
APB 18 and SFAS 114 respectively, and recorded an
impairment charge of $24.9 million representing the full
carrying value our investment in and receivables from Layton
Lakes Joint Venture during the year ended December 31,
2007. We did not record any obligation under the re-margining
provision as we are not a party to the re-margining agreement.
Additionally, we recorded an obligation of $4.4 million for
performance bonds that we placed on behalf of the joint venture,
as we consider it probable that we will be required to reimburse
these amounts for development remaining to be completed. We did
not record any additional contingent liability under the
completion guarantee as based on the estimated fair value of the
assets of the joint venture, we do not believe that it is
probable that we will called to perform under the completion
obligation. Should we be called to perform under the completion
agreement in the future, we estimate that our portion of the
costs to be incurred approximate $26.6 million.
Other
During the year ended December 31, 2007, we evaluated the
recoverability of our investment in and receivables from an
unconsolidated joint venture located in Colorado, under APB 18
and SFAS 114 respectively, and recorded an impairment of
$2.8 million, which is included in loss from unconsolidated
joint ventures in the accompanying consolidated statements of
operations.
Certain of our unconsolidated joint venture agreements require
the ventures to allocate earnings to the members using preferred
return levels based on actual and expected cash flows throughout
the life of the venture. Accordingly, determination of the
allocation of the members earnings in these joint ventures
can only be certain at or near the completion of the project and
upon agreement of the partners. In order to allocate earnings,
the members of the joint venture must make estimates based on
expected cash flows throughout the life of the venture. During
the year ended December 31, 2006, two of our unconsolidated
joint ventures neared
F-33
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completion, which allowed the joint venture to adjust the income
allocation to its members based on the final cash flow
projections. The reallocation of earnings resulted in the
recognition of an additional $5.9 million in income from
unconsolidated joint ventures during the year ended
December 31, 2006. We have evaluated these revisions in
earnings allocations under SFAS No. 154, Accounting
Changes and Error Corrections, a replacement of Opinion
No. 20 and FASB Statement No. 3, and have
appropriately accounted for this change in estimate in our
December 31, 2006 consolidated financial statements.
On August 30, 2006, we terminated one of our unconsolidated
joint ventures that was formed to purchase land, construct and
develop a condominium project in Northern Virginia. As part of
the agreement, we purchased our partners interest in the
venture for $32.6 million. After purchasing our
partners interest, we became the sole member of the entity
as a consolidated subsidiary. The purchase price was allocated
to the net assets of the venture, which were comprised primarily
of inventory.
During the year ended December 31, 2006, we evaluated the
recoverability of our investment in and receivables from an
unconsolidated joint venture located in Southwest Florida, under
APB 18 and SFAS 114 respectively, and recorded an
impairment of $7.7 million, which is included in loss from
unconsolidated joint ventures in the accompanying consolidated
statements of operations.
Summarized in the tables below is condensed combined financial
information related to our ongoing unconsolidated land
development joint ventures, for which we have investments that
are accounted for under the equity method of accounting,
excluding those joint ventures discussed above in which we have
written off our investment (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3.2
|
|
|
$
|
0.9
|
|
Inventories
|
|
|
39.0
|
|
|
|
46.4
|
|
Other assets
|
|
|
0.9
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
43.1
|
|
|
$
|
47.6
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
5.1
|
|
|
$
|
2.1
|
|
Notes payable
|
|
|
20.6
|
|
|
|
24.3
|
|
Equity of:
|
|
|
|
|
|
|
|
|
TOUSA, Inc.
|
|
|
7.9
|
|
|
|
10.7
|
|
Others
|
|
|
9.5
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
17.4
|
|
|
|
21.2
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
43.1
|
|
|
$
|
47.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
29.0
|
|
|
$
|
19.3
|
|
Costs and expenses
|
|
|
27.7
|
|
|
|
17.4
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.3
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
Our share of net income
|
|
$
|
1.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-34
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other assets consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
$
|
|
|
|
$
|
160.6
|
|
Income taxes receivable
|
|
|
218.4
|
|
|
|
12.9
|
|
Accounts receivable
|
|
|
34.7
|
|
|
|
37.0
|
|
Deferred finance costs, net
|
|
|
55.8
|
|
|
|
16.1
|
|
Prepaid expenses
|
|
|
20.3
|
|
|
|
7.4
|
|
Other assets
|
|
|
0.8
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
330.0
|
|
|
$
|
236.6
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Accounts
Payable and Other Liabilities
|
Accounts payable and other liabilities consist of the following
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Accrual for settlement of loss contingency (Note 4)
|
|
$
|
|
|
|
$
|
275.0
|
|
Accounts payable
|
|
|
41.8
|
|
|
|
70.2
|
|
Interest
|
|
|
48.4
|
|
|
|
39.4
|
|
Compensation
|
|
|
14.8
|
|
|
|
27.8
|
|
Taxes, including income and real estate
|
|
|
22.6
|
|
|
|
10.4
|
|
Accrual for unpaid invoices on delivered homes
|
|
|
27.9
|
|
|
|
23.6
|
|
Accrued expenses
|
|
|
90.7
|
|
|
|
42.4
|
|
Community development district bond obligations
|
|
|
29.6
|
|
|
|
7.3
|
|
Obligations related to unconsolidated joint ventures
|
|
|
74.6
|
|
|
|
|
|
Accrued letters of credit expected to be drawn
|
|
|
43.6
|
|
|
|
|
|
Warranty costs
|
|
|
5.0
|
|
|
|
7.4
|
|
Deferred revenue
|
|
|
2.8
|
|
|
|
50.7
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and other liabilities
|
|
$
|
401.8
|
|
|
$
|
554.2
|
|
|
|
|
|
|
|
|
|
|
In connection with the development of certain of our
communities, community development or improvement districts may
utilize tax-exempt bond financing to fund construction or
acquisition of certain
on-site and
off-site infrastructure improvements. Some bonds are repaid
directly by us while other bonds only require us to pay non-ad
valorem assessments related to lots not yet delivered to
residents. These bonds are typically secured by the property and
are repaid from assessments levied on the property over time. We
also guarantee district shortfalls under certain bond debt
service agreements when the revenues, fees and assessments,
which are designed to cover principal, interest and other
operating costs of the bonds that are insufficient. In
accordance with
EITF 91-10,
Accounting for Special Assessments and Tax Increment
Financing, we record a liability for future assessments,
which are fixed and determinable for a fixed or determinable
period. In addition and in accordance with SFAS No. 5,
we evaluate whether it is contingently liable for any of the
debt
F-35
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to the bond issuance. Community development district
bond obligations were $29.6 million and $7.3 million
at December 31, 2007 and 2006, respectively.
At December 31, 2007, we have total outstanding
performance / surety bonds of $207.3 million
related to land development activities and have estimated our
exposure on our outstanding surety bonds to be
$116.9 million based on land development remaining to be
completed. At December 31, 2007, we recorded an accrual
totaling $48.0 million for surety bonds where we consider
it probable that we will be required to reimburse the surety for
amounts drawn related to defaulted agreements.
|
|
8.
|
Homebuilding
and Financial Services Borrowings
|
Homebuilding
Borrowings
Homebuilding borrowings consisted of the following (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revolving Loan Facility (11.25% at December 31, 2007)
|
|
$
|
168.5
|
|
|
$
|
|
|
First Lien Term Loan Facility due 2012 (9.81% at December 31,
2007)
|
|
|
199.0
|
|
|
|
|
|
Discount on First Lien Term Loan Facility
|
|
|
(1.8
|
)
|
|
|
|
|
Second Lien Term Loan Facility due 2013 (12.81% at December 31,
2007)
|
|
|
317.1
|
|
|
|
|
|
Discount on Second Lien Term Loan Facility
|
|
|
(2.8
|
)
|
|
|
|
|
Senior notes due 2010, at 9%
|
|
|
300.0
|
|
|
|
300.0
|
|
Senior notes due 2011, at
81/4%
|
|
|
250.0
|
|
|
|
250.0
|
|
Discount on senior notes
|
|
|
(2.5
|
)
|
|
|
(3.5
|
)
|
Senior subordinated notes due 2012, at
103/8%
|
|
|
185.0
|
|
|
|
185.0
|
|
Senior subordinated notes due 2011, at
71/2%
|
|
|
125.0
|
|
|
|
125.0
|
|
Senior subordinated notes due 2015, at
71/2%
|
|
|
200.0
|
|
|
|
200.0
|
|
Premium on senior subordinated notes
|
|
|
3.7
|
|
|
|
4.2
|
|
Senior Subordinated PIK Notes due 2015, at
143/4%
|
|
|
21.3
|
|
|
|
|
|
Discount on Senior Subordinated PIK Notes
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,753.8
|
|
|
$
|
1,060.7
|
|
|
|
|
|
|
|
|
|
|
The filing of the Chapter 11 cases triggered repayment
obligations under a number of instruments and agreements
relating to our direct and indirect financial obligations. As a
result, all our obligations under the notes became automatically
and immediately due and payable. We believe that any efforts to
enforce the payment obligations are stayed as a result of the
filing of the Chapter 11 cases in the Bankruptcy Court.
On February 5, 2008, pursuant to an interim order from the
Bankruptcy Court dated January 31, 2008, we entered into
the Senior Secured Super-Priority Debtor in Possession Credit
and Security Agreement. The agreement provided for a first
priority and priming secured revolving credit interim commitment
of up to $134.6 million. The agreement was subsequently
amended to extend it to June 19, 2008. No funds were drawn
under the agreement. The agreement was subsequently terminated
and we entered into an agreement with our secured lenders to use
cash collateral on hand (cash generated by our operations,
including the sale of excess inventory and the proceeds of our
federal tax refund of $207.3 million received in April
2008). Under the Bankruptcy Court order dated June 20,
2008, we are authorized to use cash collateral of our first lien
and second lien lenders (approximately $358.0 million at
the time of the order) for a period of six months in a manner
consistent with a budget negotiated by the parties. The order
further provides for the paydown of $175.0 million to our
first lien term loan facility secured lenders, subject to
disgorgement provisions in the
F-36
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
event that certain claims against the lenders are successful and
repayment is required. The order also reserves our sole right to
paydown an additional $15.0 million to our fist lien term
loan facility secured lenders. We are permitted under the order
to incur liens and enter into sale/leaseback transactions for
model homes subject to certain limitations. As part of the
order, we have granted the prepetition agents and the lenders
various forms of protection, including liens and claims to
protect against any diminution of the collateral value, payment
of accrued, but unpaid interest on the first priority
indebtedness at the non-default rate and the payment of
reasonable fees and expenses of the agents under our secured
facilities.
Revolving
Loan Facility and First and Second Lien Term Loan
Facilities
To effect the TE Acquisition, on July 31, 2007, we entered
into (1) the $200.0 million aggregate principal amount
first lien term loan facility (the First Lien Term Loan
Facility) and (2) the $300.0 million aggregate
principal amount second lien term loan facility (the
Second Lien Term Loan Facility), (First and Second
Lien Term Loan Facilities taken together, the
Facilities). The proceeds from the credit facilities
were used to satisfy claims of the senior lenders against the
Transeastern JV. Our existing $800.0 million revolving loan
facility (the Revolving Loan Facility) was amended
and restated to (1) reduce the revolving commitments
thereunder by $100.0 million and (2) permit the
incurrence of the Facilities (and make other conforming changes
relating to the Facilities). Collectively, these transactions
are referred to as the Financing. Net proceeds from
the Financing at closing were $470.6 million which is net
of a 1% discount and transaction costs. The Revolving Loan
Facility expires on March 9, 2010. The First Lien Term Loan
Facility expires on July 31, 2012 and the Second Lien Term
Loan Facility expires on July 31, 2013.
On October 25, 2007, our Revolving Loan Facility was
amended by Amendment No. 1 to the Second Amended and
Restated Revolving Credit Agreement. Among other things, the
existing agreement was amended with respect to (1) the
pricing of loans, (2) limiting the amounts which may be
borrowed prior to December 31, 2007 to $130.0 million,
including draws under outstanding letters of credit,
(3) modifying the definition of a Material Adverse
Effect, (4) waiving compliance with certain
representations and financial covenants, (5) establishing
minimum operating cash flow requirements, (6) requiring
compliance with weekly budgets, (7) inclusion of a five
week operating cash flow covenant at the end of November,
(8) requiring the payment of certain fees, and
(9) reducing the Lenders commitments by
$50.0 million.
On October 25, 2007, the First Lien Term Loan Facility was
also amended by Amendment No. 1 to the First Lien Term Loan
Credit Agreement to amend certain terms including (1) the
pricing of loans, (2) the definition of Material
Adverse Effect, and (3) waiving compliance with
certain financial covenants.
On December 14, 2007, we entered into further amendments to
our First Lien Term Loan Credit Agreement and our Revolving Loan
Facility to, among other things, (1) extend through
February 1, 2008, the waiver of the financial covenants set
forth in Amendment No. 1 to the First Lien Term Loan Credit
Agreement and the Revolving Loan Facility, (2) revise the
material adverse change representation with respect to matters
disclosed in our quarterly report on
Form 10-Q
for the nine months ended September 30, 2007,
(3) modify a provision regarding the obligation to pay
amounts owed in connection with certain land banking
arrangements, and (4) seek waivers of the cross-default
provision resulting from any breach of a covenant regarding the
matters described in (3) above. In addition, the amendments
require us to adhere to a cash flow budget, which has been
prepared by us, which does not provide for current payments on
our long-term indebtedness including the interest payment due on
January 1, 2008 with respect to our
103/8% Senior
Subordinated Notes due 2012.
The interest rates on the Facilities and the Revolving Loan
Facility are based on LIBOR plus a margin or an alternate base
rate plus a margin, at our option. For the Revolving Loan
Facility, the LIBOR rates are increased by between 2.50% and
5.25% depending on our leverage ratio (as defined in the
Agreement) and credit ratings. Loans bearing interest at the
base rate (the rate announced by Citibank as its base rate or
0.50% above the Federal Funds Rate) increase between 1.00% and
5.25% in accordance with the same criteria. Based on our current
leverage ratio and credit ratings, our LIBOR loans bear interest
at LIBOR plus 5.25% and our
F-37
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
base rate loans bear interest at the Federal Funds Rate plus
5.25%. For the First Lien Term Loan Facility, the interest rate
is LIBOR plus 5.00% or base rate plus 4.00%. For the Second Lien
Term Loan Facility, the interest rate is LIBOR plus 7.25% or
base rate plus 6.25%. The Second Lien Term Loan Facility allows
us to pay interest, at our option, (1) in cash,
(2) entirely by increasing the principal amount of the
Second Lien Term Loan Facility, or (3) a combination
thereof. The Facilities and the New Revolving Loan Facility are
guaranteed by substantially all of our domestic subsidiaries
(the Guarantors). The obligations are secured by
substantially all of our assets, including those of our
Guarantors. Our mortgage and title subsidiaries are not
Guarantors.
Senior
Notes and Senior Subordinated Notes
Our outstanding senior notes are guaranteed, on a joint and
several basis, by the Guarantor Subsidiaries, which are all of
our material domestic subsidiaries, other than our mortgage and
title subsidiaries (the Non-Guarantor Subsidiaries). Our
outstanding senior subordinated notes are guaranteed on a senior
subordinated basis by all of the Guarantor Subsidiaries. The
senior notes rank pari passu in right of payment with all
of our existing and future unsecured senior debt and senior in
right of payment to our senior subordinated notes and any future
subordinated debt. The senior subordinated notes rank pari
passu in right of payment with all of our existing and
future unsecured senior subordinated debt. The indentures
governing the senior notes and senior subordinated notes
generally require us to maintain a minimum consolidated net
worth and place certain restrictions on our ability, among other
things, to incur additional debt, pay or declare dividends or
other restricted payments, sell assets, enter into transactions
with affiliates, invest in joint ventures above specified
amounts, and merge or consolidate with other entities. Interest
on our outstanding senior notes and senior subordinated notes is
payable semi-annually.
Special
Interest
On April 12, 2006, we issued $250.0 million of the
81/4% senior
notes due 2011 for net proceeds of $248.8 million. In
connection with the issuance of the
81/4% senior
notes, we filed within 90 days of the issuance a
registration statement with the SEC covering a registered offer
to exchange the notes for exchange notes of ours having terms
substantially identical in all material respects to the notes
(except that the exchange notes will not contain terms with
respect to special interest or transfer restrictions). The
registration statement has not been declared effective within
the required 180 days of issuance and, as a result, on
October 9, 2006, in accordance with their terms, the notes
became subject to special interest which accrues at a rate of
0.25% per annum during the
90-day
period immediately following the occurrence of such default, and
shall increase by 0.25% per annum at the end of each
90-day
period, up to a maximum of 1.0% per annum. For the year ended
December 31, 2007, we incurred $2.0 million of
additional interest expense as a result of such default. In
addition, we accrued a contingency reserve of $2.5 million
for such interest expected to be incurred in future periods.
Senior
Subordinated PIK Notes
As part of the transactions to settle the disputes regarding the
Transeastern JV, on July 31, 2007, the senior mezzanine
lenders to the Transeastern JV received $20.0 million in
aggregate principal amount of 14.75% Senior Subordinated
PIK Election Notes (PIK Notes) due 2015.
Interest on the PIK Notes is payable semi-annually. The PIK
Notes are unsecured senior subordinated obligations of ours, and
are guaranteed on an unsecured senior subordinated basis by each
of our existing and future subsidiaries that guarantee our
7.5% Senior Subordinated Notes due 2015 (the Existing
Notes). We are required to pay 1% of the interest in cash
and the remaining 13.75%, at our option, (i) in cash,
(ii) entirely by increasing the principal amount of the PIK
Notes or issuing new notes, or (iii) a combination thereof.
The PIK Notes will mature on July 1, 2015. The indenture
governing the PIK Notes contains the same covenants
F-38
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as contained in the indenture governing the Existing Notes and
is subject, in most cases, to any change to such covenants made
to the indenture governing the Existing Notes. The PIK Notes are
redeemable by us at redemption prices greater than their
principal amount. The PIK Notes contain an optional redemption
feature that allows us to redeem up to a maximum of 35% of the
aggregate principal amount of the PIK Notes using the proceeds
of subsequent sales of its equity interest at 114.75% of the
aggregate principal amount of the PIK Notes then outstanding,
plus accrued and unpaid interest. Additionally, after
July 1, 2012, subject to certain terms of our other debt
agreements, we may redeem the PIK Notes at a premium to the
principal amount as follows: 2012 107.375%;
2013 103.688%; 2014 and thereafter
100.000%. The call options exercisable at anytime after
July 1, 2012 at a premium do not require bifurcation under
SFAS 133 because they are only exercisable by us and they
are not contingently exercisable. The redemption option
conditionally exercisable based on the proceeds raised from an
equity offering at 114.75% of up to 35% of the aggregate
outstanding PIK Notes principal represents an embedded call
option that must be bifurcated from the PIK Notes; however, the
fair value of this call option is not material and has not been
bifurcated from the host instrument at December 31, 2007.
The PIK Notes provide for registration rights for the holders
whereby the interest rate shall increase by 0.25% per annum for
the first 90 days of a registration default, as defined,
which amount shall increase by an additional 0.25% every
90 days a registration default is continuing, not to exceed
1.0% in the aggregate, from and including the date of the
registration default to and excluding the date on which the
registration default is cured. Registration default payments
shall be paid, at our option, in (i) cash,
(ii) additional Notes, or (iii) a combination thereof.
Financial
Services Borrowings
Our mortgage subsidiary has two warehouse lines of credit in
place to fund the origination of residential mortgage loans. The
revolving warehouse line of credit (the Warehouse Line of
Credit), which was entered into on December 5, 2007,
provides for revolving loans of up to $25.0 million. The
Warehouse Line of Credit replaced the $100.0 million
revolving warehouse line of credit that expired on
December 8, 2007. From January 25, 2008 through
December 4, 2008, the availability under the Warehouse Line
of Credit is reduced to $15.0 million. The
$150.0 million mortgage loan purchase facility
(Purchase Facility) was amended to decrease the size
of the facility to $75.0 million. From January 25,
2008 through December 4, 2008 the availability under the
Purchase Facility is reduced to $40.0 million. At no time
may the amount outstanding under the Warehouse Line of Credit
and the purchased loans pursuant to the Purchase Facility exceed
$55.0 million. Both the Warehouse Line of Credit and
Purchase Facility expire on December 4, 2008. The Warehouse
Line of Credit bears interest at the
30-day LIBOR
rate plus a margin of 2.0%, and is secured by funded mortgages,
which are pledged as collateral, and requires our mortgage
subsidiary to maintain certain financial ratios and minimums.
The Warehouse Line of Credit also places certain restrictions
on, among other things, our mortgage subsidiarys ability
to incur additional debt, create liens, pay or make dividends or
other distributions, make equity investments, enter into
transactions with affiliates, and merge or consolidate with
other entities. Our mortgage subsidiary was in compliance with
all covenants and restrictions at December 31, 2007. At
December 31, 2007, our mortgage subsidiary had
$7.8 million in borrowings under its Warehouse Line of
Credit, and had the capacity to borrow an additional
$17.2 million, subject to our mortgage subsidiary
satisfying the relevant borrowing conditions. As discussed
above, the borrowing capacity changed on January 25, 2008.
On January 28, 2008, Preferred Home Mortgage Company, our
wholly-owned residential mortgage lending subsidiary, entered
into an Amended and Restated Agreement of Limited Liability
Company with Wells Fargo Ventures, LLC. The limited liability
company is known as PHMCWF, LLC but does business as
Preferred Home Mortgage Company, an affiliate of Wells
Fargo. Preferred Home Mortgage Company owns 49.9% of the
venture with the balance owned by Wells Fargo. Effective
April 1, 2008, the venture began to carry on the mortgage
business of Preferred Home Mortgage Company. The venture is
managed by a
F-39
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
committee composed of six members, three from Preferred Home
Mortgage Company and three from Wells Fargo. The venture entered
into a revolving credit agreement with Wells Fargo Bank, N.A.
providing for advances of up to $20.0 million. Wells Fargo
Home Mortgage provides the general and administrative support
(as well as all loan related processing, underwriting and
closing functions), and is the end investor for the majority of
the loans closed through the joint venture. Prior to the joint
venture, Preferred Home Mortgage Company had a centralized
operations center that provided those support functions. The
majority of these support functions ceased in June 2008.
Components of income tax expense (benefit) attributable to
continuing operations consist of the following (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(195.1
|
)
|
|
$
|
106.5
|
|
|
$
|
119.9
|
|
State
|
|
|
1.2
|
|
|
|
6.3
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193.9
|
)
|
|
|
112.8
|
|
|
|
124.5
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
159.2
|
|
|
|
(150.6
|
)
|
|
|
2.0
|
|
State
|
|
|
1.4
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160.6
|
|
|
|
(155.6
|
)
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
(33.3
|
)
|
|
$
|
(42.8
|
)
|
|
$
|
126.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between total reported income taxes and expected
income tax expense (benefit) attributable to continuing
operations computed by applying the federal statutory income tax
rate of 35% and our effective income tax rate of 2.4% for 2007,
17.6% for 2006, and 36.7% for 2005, respectively, to income
before provision for income taxes is reconciled as follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Computed income tax expense (benefit) at statutory rate
|
|
$
|
(473.5
|
)
|
|
$
|
(85.3
|
)
|
|
$
|
120.0
|
|
State income taxes
|
|
|
(31.1
|
)
|
|
|
1.2
|
|
|
|
5.8
|
|
Change in valuation allowance
|
|
|
463.5
|
|
|
|
42.1
|
|
|
|
|
|
Liability for unrecognized tax benefits (FIN 48)
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
Non-deductible items
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(1.2
|
)
|
|
|
(0.8
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
(33.3
|
)
|
|
$
|
(42.8
|
)
|
|
$
|
126.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily as a result of the change in our valuation allowance
during the year ended December 31, 2007, the effective tax
rate applied to our losses is below the federal statutory rate
of 35%.
We have a federal net operating loss of $83.5 million which
will expire in 2027. We also have various state net operating
losses that expire in years 2022 through 2027.
F-40
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant temporary differences that give rise to the deferred
tax assets and liabilities are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
4.4
|
|
|
$
|
|
|
Warranty, legal and insurance reserves
|
|
|
6.6
|
|
|
|
6.7
|
|
Inventory
|
|
|
384.9
|
|
|
|
48.6
|
|
Goodwill write-off
|
|
|
15.2
|
|
|
|
|
|
Accrued compensation
|
|
|
12.0
|
|
|
|
7.9
|
|
Investments in unconsolidated entities
|
|
|
13.5
|
|
|
|
150.6
|
|
Federal and state net operating loss carryforwards
|
|
|
57.1
|
|
|
|
2.7
|
|
Alternative minimum tax carryforwards
|
|
|
12.5
|
|
|
|
|
|
Other
|
|
|
3.9
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
510.1
|
|
|
|
220.1
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
(1.8
|
)
|
Amortizable intangibles
|
|
|
|
|
|
|
(13.1
|
)
|
Prepaid expenses
|
|
|
(3.8
|
)
|
|
|
(0.1
|
)
|
Prepaid commissions and differences in reporting selling and
marketing
|
|
|
(0.7
|
)
|
|
|
(2.4
|
)
|
Investment in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4.5
|
)
|
|
|
(17.4
|
)
|
Valuation allowance
|
|
|
(505.6
|
)
|
|
|
(42.1
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
160.6
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax assets included in other assets in the
accompanying consolidated statements of financial condition at
December 31, 2006 was $160.6 million (net of valuation
allowances) and resulted primarily from deductible temporary
differences. There were no net deferred tax assets at
December 31, 2007. Valuation allowances are established and
maintained for deferred tax assets on a more likely than
not threshold. We have considered the following possible
sources of taxable income when assessing the realization of the
deferred tax assets: (1) future reversals of existing
taxable temporary differences; (2) taxable income in prior
carryback years; (3) tax planning strategies; and
(4) future taxable income exclusive of reversing temporary
differences and carryforwards. The valuation allowance at
December 31, 2007 primarily relates to inventory
impairments recognized during the year ended December 31,
2007. The majority of the valuation allowance at
December 31, 2006 relates to a portion of the settlement
offer in connection with the $275.0 million loss
contingency recognized (see Note 4 to the consolidated
financial statements). The net change in the valuation allowance
for the years ended December 31, 2007 and 2006 was
$463.5 million and $42.1 million, respectively, with
the majority at December 31, 2007 relating to inventory
impairments.
As a result of generating taxable income during 2005 and 2006,
we have carried back $643.4 million in taxable losses to
prior years and have recognized the portion of our deferred tax
assets which we have realized through the carrybacks. Due to our
cumulative losses in recent years, we have not relied upon
future taxable income exclusive of reversing temporary
differences and carryforwards for the realization of any of our
deferred tax assets. Reliance on future taxable income as a
source is difficult when there is negative evidence such as in
our situation where we have cumulative losses. Cumulative losses
weigh heavily in our overall assessment. We determine cumulative
losses on a rolling twelve-quarter basis. Income forecasts were
F-41
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
considered in conjunction with other positive and negative
evidence, including our current financial performance, the
financial impact of the Transeastern JV settlement, our market
environment and other factors. As a result, the conclusion was
made that there was not sufficient positive evidence to enable
us to conclude that it was more likely than not that the
remaining deferred tax assets, after reduction through
carrybacks, would be realized. Therefore, we have provided a
valuation allowance on our net deferred tax assets. This
assessment will continue to be undertaken in the future. Our
results of operations may be impacted in the future by our
inability to realize a tax benefit for future tax losses or for
items that will generate additional deferred tax assets. Our
results of operations might be favorably impacted in the future
by reversals of valuation allowances if we are able to
demonstrate sufficient positive evidence that our deferred tax
assets will be realized. In addition, there could be
restrictions on the amount of the carryforwards that can be
utilized if certain changes in our ownership should occur. In
light of the above, we believe that it is more likely than not
that we will not realize our net deferred tax asset of
$505.6 million.
We are subject to U.S. federal income tax as well as to
income tax in multiple state jurisdictions. We have effectively
closed all U.S. federal income tax matters for years
through 2004. The Internal Revenue Service has concluded its
examination of our consolidated tax return for fiscal year 2004,
resulting in insignificant changes to our tax liability.
Management believes that the tax liabilities recorded for the
remaining open periods are adequate and the tax receivables
recorded properly reflect the amounts due to us from the
applicable taxing authorities. However, a significant assessment
against us for additional tax liabilities or reduction of tax
refunds received could have a material adverse effect on our
financial position, results of operations or cash flows.
As a result of the implementation of FIN 48, we recognized
an increase of approximately $1.3 million in the liability
for unrecognized tax benefits which was accounted for as a
reduction to retained earnings at January 1, 2007. After
this adjustment, we had a $5.1 million liability recorded
for unrecognized tax benefits as of January 1, 2007, which
included interest and penalties of $0.4 million.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits (exclusive of interest and penalties)
is as follows (dollars in millions):
|
|
|
|
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
4.7
|
|
Additions based on tax positions related to the current year
|
|
|
2.7
|
|
Additions for tax positions of prior years
|
|
|
2.5
|
|
Reductions for tax positions of prior years
|
|
|
(1.2
|
)
|
Settlements
|
|
|
(1.7
|
)
|
Lapse of statute of limitations
|
|
|
(0.4
|
)
|
|
|
|
|
|
Balance at December 31
|
|
$
|
6.6
|
|
|
|
|
|
|
As of December 31, 2007, we have accumulated interest and
penalties associated with these unrecognized tax benefits of
$0.9 million, of which $0.5 million of interest was
accrued during the year ended December 31, 2007. The gross
unrecognized tax benefits, interest and penalties, is
$7.5 million, which if resolved favorably (in whole or in
part) would reduce our effective tax rate. The unrecognized tax
benefits, associated interest, penalties, and deferred tax asset
are included as components of other assets and accounts payable
and other liabilities in the consolidated statements of
financial condition.
It is our continuing policy to account for interest and
penalties associated with income tax obligations as a component
of income tax expense. During the year ended December 31,
2007, we recognized $0.5 million of interest and no
penalties as part of the provision for income taxes in the
consolidated statements of operations.
F-42
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the twelve months beginning January 1, 2008, it is
reasonably possible that we will reduce unrecognized tax
benefits, including interest and penalties by approximately
$0.8 million to $0.9 million primarily as a result of
the expiration of certain statutes of limitations.
In April 2008, we received a $207.3 million refund of
previously paid income taxes for 2005 and 2006 through the
carryback of our taxable loss from 2007. As with any refund in
excess of $2.0 million, this refund is subject to review by
the Joint Committee on Taxation of Congress.
|
|
10.
|
Commitments
and Contingencies
|
We are involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters are not expected to
have a material adverse effect on our consolidated financial
position or results of operations.
Warranty
We provide homebuyers with a limited warranty of workmanship and
materials from the date of sale for up to two years. We
generally have recourse against our subcontractors for claims
relating to workmanship and materials. We also provide up to a
ten-year homeowners warranty which covers major structural
and design defects related to homes sold by us during the policy
period, subject to a significant self-insured retention per
occurrence. Estimated warranty costs are recorded at the time of
sale based on historical experience and current trends. Warranty
costs are included in accounts payable and other liabilities in
the accompanying consolidated statements of financial condition.
During the year ended December 31, 2007 and 2006, the
activity in our warranty cost accrual consisted of the following
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accrued warranty costs at January 1
|
|
$
|
7.4
|
|
|
$
|
6.6
|
|
Liability recorded for warranties issued during the period
|
|
|
4.8
|
|
|
|
6.9
|
|
Warranty work performed
|
|
|
(9.5
|
)
|
|
|
(8.4
|
)
|
Transeastern warranty obligation acquired
|
|
|
2.0
|
|
|
|
|
|
Adjustments
|
|
|
0.3
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty costs at December 31
|
|
$
|
5.0
|
|
|
$
|
7.4
|
|
|
|
|
|
|
|
|
|
|
Letters
of Credit and Performance Bonds
We are subject to the normal obligations associated with
entering into contracts for the purchase, development and sale
of real estate in the routine conduct of our business. We are
committed under various letters of credit and performance bonds
which are required for certain development activities, deposits
on land and deposits on homesite purchase contracts. Under these
arrangements, we had total outstanding letters of credit of
$115.5 million as of December 31, 2007. As a result of
abandoning our rights under option contracts, as of
December 31, 2007, we accrued $43.6 million for
letters of credit which we anticipated would be drawn due to
nonperformance under such contracts. In addition,
$98.5 million of letters of credit were drawn as of
December 31, 2007 and have increased our borrowings
outstanding under our Revolving Loan Facility. Through
June 30, 2008 an additional $72.8 million of letters
of credit have been drawn related to the abandonment of option
contracts. In certain instances, we have entered into
development agreements in connection with option contracts which
require us to complete the development of the land, at a fixed
F-43
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reimbursable amount, even if we choose not to exercise our
option and forfeit our deposit and even if our costs exceed the
reimbursable amount.
At December 31, 2007, we have total outstanding
performance/surety bonds of $207.3 million and have
estimated our exposure on our outstanding surety bonds to be
$116.9 million based on development remaining to be
completed. At December 31, 2007, we recorded an accrual
totaling $48.0 million for surety bonds where we consider
it probable that we will be required to reimburse the surety for
amounts drawn related to defaulted agreements. We have been
experiencing a reduction in availability of security bond
capacity. If we are unable to secure such bonds, we may elect to
post alternative forms of collateral with government entities or
escrow agents, including letters of credit. Other forms of
collateral, if available, may result in higher costs to us.
Exposure
on Abandoned Homesite Option Contracts
As of December 31, 2007, we have abandoned our rights under
option contracts that require us to complete the development of
land for a fixed reimbursable amount. At December 31, 2007,
we recorded a loss accrual of $10.3 million, in connection
with the abandonment of these option contracts, for our
estimated obligations under the development agreements. This
accrual is included in accounts payable and other liabilities in
the accompanying consolidated statement of financial condition
at December 31, 2007.
In addition, certain of these option contracts give the other
party the right to require us to purchase homesites or guarantee
certain minimum returns. As of December 31, 2007, we have
abandoned our rights under option contracts that give the other
party the right to require us to purchase the homesites. On some
of these option contracts, we have received notices in which the
other party is exercising their right to require us to purchase
the homesites under this provision of the option contracts. We
do not have the ability to comply with these notices due to
liquidity constraints. These option contracts were previously
consolidated and the inventory was included in inventory not
owned and the corresponding liability was included in
obligations for inventory not owned. As we do not have the
intent or the ability to comply with the requirement to purchase
the property, we have deconsolidated these option contracts at
December 31, 2007. Capitalized pre-acquisition costs
associated with these option contracts are impaired and
$10.6 million was written off during the year ended
December 31, 2007. In addition, at December 31, 2007,
we recorded a loss accrual of $20.1 million, in connection
with the abandonment of these option contracts, for our
estimated obligations under these option contracts.
Chapter 11
Cases
On January 29, 2008, TOUSA, Inc. and certain of our
subsidiaries (excluding our financial services subsidiaries and
joint ventures) filed voluntary petitions for reorganization
relief under the provisions of Chapter 11 of Title 11
of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida,
Fort Lauderdale Division. The Chapter 11 cases have
been consolidated solely on an administrative basis and are
pending as Case
No. 08-10928-JKO.
See Note 1 of the consolidated financial statements for
additional discussion.
Pursuant to an order of the Bankruptcy Court, our creditors were
required to file proofs of claim with the Bankruptcy Court by
May 19, 2008 with respect to and all claims that arose
before the Petition Date against any of the debtors. The process
of reviewing these claims is on-going. These claims may result
in future obligations to the Company.
Class Action
Lawsuit
TOUSA, Inc. is a defendant in a class action lawsuit pending in
the United States District Court for the Southern District of
Florida. The name and case number of the class action suit is
Durgin, et al., v. TOUSA, Inc., et al.,
No. 06-61844-CIV.
F-44
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Beginning in December 2006, various stockholder plaintiffs
brought lawsuits seeking class action status in the
U.S. District Court for the Southern District of Florida.
At a hearing held on March 29, 2007, the Court consolidated
the actions and heard arguments on the appointment of lead
plaintiff and counsel. On September 7, 2007, the Court
appointed Diamondback Capital Management, LLC as the lead
plaintiff and approved Diamondbacks selection of counsel.
Pursuant to a scheduling order, the lead plaintiff filed a
Consolidated Complaint on November 2, 2007.
The Consolidated Complaint names TOUSA, all of TOUSAs
directors, David Keller, Randy Kotler, Beatriz Koltis, Lonnie
Fedrick, Technical Olympic, S.A., UBS Securities LLC, Citigroup
Global Markets Inc., Deutsche Bank Securities Inc. and JMP
Securities LLC as defendants. The alleged class period is
August 1, 2005 to March 19, 2007. The Consolidated
Complaint alleges that TOUSAs public filings and other
public statements that described the financing for the
Transeastern Joint Venture as non-recourse to TOUSA were false
and misleading. The Consolidated Complaint also alleges that
certain public filings and statements were misleading or
suffered from material omissions in failing to fully disclose or
describe the Completion and Carve-Out Guaranties that TOUSA
executed in support of the Transeastern Joint Venture financing.
The Consolidated Complaint asserts claims under Section 11
of the Securities Act against all defendants other than
Ms. Koltis for strict liability and negligence regarding
the registration statements and prospectus associated with the
September 2005 offering of 4 million shares of stock.
Plaintiffs contend that the registration statements and
prospectus contained material misrepresentations and suffered
from material omissions in the description of the Transeastern
Joint Venture financing and TOUSAs related obligations.
The Consolidated Complaint asserts related claims against
Technical Olympic, S.A. and Messrs. Konstantinos Stengos,
Antonio B. Mon, David Keller and Tommy L. McAden as controlling
persons responsible for the statements in the registration
statements and prospectus. The Consolidated Complaint also
alleges claims under Section 10(b) of the Exchange Act for
fraud with respect to various public statements about the
non-recourse nature of the Transeastern debt and alleged
omissions in disclosing or describing the Guaranties. These
claims are alleged against TOUSA, Messrs. Mon, McAden,
Keller and Kotler and Ms. Koltis. Finally, the Consolidated
Complaint asserts related claims against Messrs. Mon,
Keller, Kotler and McAden as controlling persons responsible for
the various alleged false disclosures. Plaintiffs seek
compensatory damages, plus fees and costs, on behalf of
themselves and the putative class of purchasers of TOUSA common
stock and purchasers and sellers of options on TOUSA common
stock.
On January 30, 2008 TOUSA filed a Motion to Dismiss
Plaintiffs Consolidated Complaint. TOUSA moved to dismiss
plaintiffs claims on the grounds that plaintiffs:
(a) could not establish materially false or misleading
statements or omissions; (b) could not establish loss
causation; (c) failed to plead with particularity facts
giving rise to a strong inference of scienter; and
(d) lacked standing to pursue a section 11 claim. Many
of the other defendants also filed motions to dismiss
and/or
signed on to TOUSAs Motion to Dismiss.
On February 4, 2008 TOUSA filed a Notice of Suggestion of
Bankruptcy notifying the Court that TOUSA filed for bankruptcy
on January 29, 2008. On February 5, 2008 the Court
entered an order staying the action as to TOUSA pursuant to
Section 362 of the United States Bankruptcy Code. The
action continues with respect to defendants other than TOUSA.
On April 30, 2008, lead plaintiff Diamondback Capital
Management moved to withdraw as lead plaintiff. On May 22,
2008, the Court entered an order: granting Diamondback Capital
Managements motion to withdraw as lead plaintiff;
establishing a procedure pursuant to which a new lead plaintiff
will be appointed; extending the time for plaintiffs to respond
to the motions to dismiss until a new lead plaintiff is
selected; and acknowledging that the Court may need to set a
time for the filing of an amended complaint, if requested by the
new lead plaintiff.
On June 6, 2008, two prospective lead plaintiffs filed
motions to be appointed the new lead plaintiff. On July 15,
2008, the Court entered an Order appointing the
Bricklayers & Trowel Trades International Pension Fund
as the new lead plaintiff. The Court further ordered that,
within 15 days of the entry of the Order, the
F-45
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
new plaintiff must either respond to the previously filed
Motions to Dismiss, or file a notice of intent to file an
amended complaint. On July 30, 2008, the new plaintiff
filed a notice of intent to file an amended complaint. On
July 31, 2008, following the notice of intent to file an
amended complaint, the Court denied as moot, without prejudice,
the defendants previously filed motion to dismiss the
consolidated complaint. Under the current schedule set by the
Court, the plaintiff must file its amended complaint by
August 29, 2008.
Based upon the early stage of the litigation we are unable to
evaluate the likelihood of an unfavorable outcome or the range
of liability in such event.
Proceeding
by Official Committee of Unsecured Creditors
In re TOUSA, Inc., Docket
No. 08-10928-JKO;
Adv. Pro
No. 08-1435-JKO.
TOUSA and certain of our subsidiaries are non-parties in an
adversary proceeding brought as part of our Chapter 11
proceedings. This adversary proceeding was brought by the
Official Committee of Unsecured Creditors of TOUSA, Inc. on
behalf of our bankruptcy estates. The adversary proceeding seeks
to avoid certain allegedly fraudulent and preferential
pre-petition transfers of up to $800.0 million made in
connection with the settlement of litigation related to the
Transeastern Joint Venture (the Transeastern
Settlement), and further seeks to avoid as a preferential
transfer any security interest that may have been granted to
certain lenders in a tax refund of approximately
$210.0 million that the Debtors received in June 2008. The
Committees complaint names over 60 defendants including
the lenders under the credit agreements funding the Transeastern
Joint Venture as well as the original lenders (and their
successors and assigns) and administrators under the credit
agreements entered into as a result of the Transeastern
Settlement. We are not defendants in the adversary proceeding.
The complaint alleges that, in order to resolve certain
prepetition litigation regarding the Transeastern Joint Venture,
the parties to that litigation entered into a series of
settlement agreements releasing all claims relating to the
Transeastern acquisition. The complaint alleges that, as part of
these settlement agreements, certain TOUSA entities agreed to
pay over $420.0 million to the administrator of the
Transeastern loans and to issue approximately
$135.0 million in notes and warrants. The complaint further
alleges that to fund these payments, TOUSA, TOUSA Homes, LP and
certain of their subsidiaries (the Conveying
Subsidiaries) entered into the three new credit
agreements. According to the complaint, the loans issued under
these new credit agreements were secured by liens on the
property and assets of all of the debtors, including the
Conveying Subsidiaries. The complaint alleges that the Conveying
Subsidiaries were not defendants in the prepetition Transeastern
litigation and were not obligated on the Transeastern debt that
was released in connection with the Transeastern Settlement.
Therefore, the complaint alleges, the Conveying Subsidiaries did
not receive reasonably equivalent value for the secured debt
obligations that they incurred. The complaint also alleges that
the Conveying Subsidiaries were either insolvent at the time of
the Transeastern Settlement or became insolvent as a result of
it, and that the Conveying Subsidiaries were left with
unreasonably small capital as a result of the new credit
agreements. Based on these allegations, the Committee seeks to
have the liens established under the new credit agreements
voided and all amounts already repaid under the new credit
agreements returned. The Committee also seeks to have the
security interest granted on the Debtors tax refund voided
and the new lenders claims seeking allowance of the full
amount of the new loans disallowed in their entirety or reduced.
Proofs of
Claims
The Bankruptcy Court established May 19, 2008 as the bar
date for filing proofs of claim against the Debtors relating to
obligations arising before January 29, 2008. To date,
approximately 4,130 claims have been filed against us totaling
approximately $7.0 billion in asserted liabilities. These
claims are comprised of approximately $1.0 million in
administrative claims, $182.0 million in secured claims,
$73.0 million in priority claims and $6.7 billion in
unsecured claims. There are many claims (at least 1,418) that
have been asserted in unliquidated amounts or that
contain an unliquidated component. Notably, among the
unliquidated claims
F-46
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are the claims of our secured first and second lien lenders. In
addition, the indenture trustees under our approximately
$1.1 billion of our unsecured debentures each filed an
unliquidated claim with respect to such obligations.
Vista
Lakes
Plaintiffs, purchasers of homes in the Vista Lakes community
near Orlando, filed a class action complaint alleging that their
homes were built on the site of a former bombing range. The
plaintiffs seek recovery under theories of fraud, breach of
contract, strict liability, negligence, and civil conspiracy.
Because the plaintiffs named debtor defendants Tousa, Inc.,
Tousa Homes, Inc., d/b/a Engle Homes Orlando and Tousa Homes, LP
as defendants in this action, the action was removed to federal
court. The plaintiffs then agreed to dismiss the debtor
defendants and the parties entered into a stipulation for
remand. The state court case has been re-opened and the parties
still remaining as defendants include Tousa Financial Services
(which has not been served) and Universal Land Title, Inc.
Plaintiffs have granted an extension on the response to the
complaint and the discovery requests up to and including
August 18, 2008 in order to re-evaluate their claims
against the defendants and amend their complaint.
Based upon the early stage of the litigation we are unable to
evaluate the likelihood of an unfavorable outcome or the range
of liability in such event.
Other
Litigation
We are also involved in various other claims and legal actions
arising in the ordinary course of business. We do not believe
that the ultimate resolution of these other matters will have a
material adverse effect on our financial condition or results of
operations. As of the date of the Chapter 11 filing, then
pending litigation was generally stayed, and absent further
order of the Bankruptcy Court, most parties may not take any
action to recover on prepetition claims against us.
Unresolved
Staff Comments
In the Matter of TOUSA, Inc. SEC Inquiry, File
No. FL-3310.
In June of 2007, the Company was contacted by the Miami Regional
Office of the SEC requesting the voluntary provision of
documents, and other information from the Company, relating
primarily to corporate and financial information and
communications related to the Transeastern JV. The SEC has
advised the Company that this inquiry should not be construed as
an indication that any violations of law have occurred, nor
should it be considered a reflection upon any person, entity, or
security. The Company is cooperating with the inquiry.
One-Time
Termination Benefits
During the year ended December 31, 2007 and 2006, we
recorded $0.6 million and $11.5 million, respectively,
of one-time termination benefits and contract termination costs
which are included in selling, general and administrative
expenses in the accompanying consolidated statement of
operations. The termination benefits related to employees that
were involuntarily terminated and are no longer providing
services. The contract termination costs related to costs that
will continue to be incurred under consulting contracts for
their remaining terms for which we are not receiving economic
benefit.
PHMC
Settlement
On July 10, 2008, PHMC entered into a settlement agreement
with one of its primary purchasers of its mortgage loans for
$2.9 million. The settlement agreement releases PHMC of all
its known and unknown obligations under the Loan Purchase
Agreement.
F-47
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Operating
Leases
At December 31, 2007, we are obligated under
non-cancellable operating leases of office space, model homes
and equipment. For the years ended December 31, 2007, 2006,
and 2005 rent expense under operating leases was
$25.0 million, $17.5 million, and $13.6 million,
respectively. Certain of our leases have renewal periods
and/or
escalation clauses. Minimum annual lease payments under these
leases at December 31, 2007 are as follows (dollars in
millions):
|
|
|
|
|
2008
|
|
$
|
9.3
|
|
2009
|
|
|
5.7
|
|
2010
|
|
|
4.0
|
|
2011
|
|
|
3.0
|
|
2012
|
|
|
2.2
|
|
Thereafter
|
|
|
5.8
|
|
|
|
|
|
|
|
|
$
|
30.0
|
|
|
|
|
|
|
|
|
11.
|
Related
Party Transactions
|
In 2000, we entered into a purchasing agreement with our
ultimate parent, Technical Olympic S.A. The agreement provided
that Technical Olympic S.A. would purchase certain of the
materials and supplies necessary for operations and sell them to
our entities, all in an effort to consolidate the purchasing
function. Although Technical Olympic S.A. would incur certain
franchise tax expense, we would not be required to pay such
additional purchasing liability. Technical Olympic S.A.
purchased $304.3 million, $366.9 million, and
$347.1 million of materials and supplies on our behalf
during the years ended December 31, 2007, 2006, and 2005,
respectively. These materials and supplies bought by Technical
Olympic S.A. under the purchasing agreement are provided to us
at Technical Olympic S.A.s cost. We do not pay a fee or
other consideration to Technical Olympic S.A. under the
purchasing agreement. We may terminate the purchasing agreement
upon 60 days prior notice.
In 2000, we entered into a management services agreement with
Technical Olympic, Inc., whereby Technical Olympic, Inc.
provided certain advisory, administrative and other services.
The management services agreement was amended and restated on
June 13, 2003. Technical Olympic, Inc. assigned its
obligations and rights under the amended and restated management
agreement to Technical Olympic Services, Inc., a Delaware
corporation wholly-owned by Technical Olympic S.A., effective as
of October 29, 2003. For the years ended December 31,
2007, 2006, and 2005, charges totaled $0.5 million,
$0.5 million, and $3.5 million, respectively. These
expenses are included in selling, general and administrative
expenses in the accompanying consolidated statements of
operations. The agreement expired on December 31, 2007.
We have sold certain undeveloped real estate tracts to, and
entered into a number of agreements (including option contracts
and construction contracts) with, Equity Investments LLC, a
limited liability company controlled by the brother of one of
our executives. We made payments of $8.5 million
$15.1 million and $11.8 million to this entity
pursuant to these agreements during the years ended
December 31, 2007, 2006, and 2005, respectively and, as of
December 31, 2007, had options to purchase from Equity
Investments LLC additional lots for a total aggregate sum of
approximately $4.1 million. We believe that the terms of
these agreements include purchase prices that approximate fair
market values.
In November 2005, we purchased the right to acquire land from
the Transeastern JV that was controlled by the joint venture
pursuant to an option arrangement. The owner of the land was a
related entity of our former joint venture partner in the
Transeastern JV. We paid a net $7.8 million assignment fee
to Transeastern for this right. We subsequently exercised our
option and purchased the property for $78.2 million.
F-48
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2005, we acquired $15.5 million in work in process
inventory from Transeastern Properties, Inc. and simultaneously
entered into an agreement to sell the inventory to the
Transeastern JV at a future date. In December 2006, the
Transeastern JV purchased the inventory for approximately
$16.6 million. We deferred the $1.1 million gain on
the transaction all of which was recognized during the year
ended December 31, 2006.
During 2006, we entered into compensation arrangements with two
board members that are affiliated with our majority shareholder.
These arrangements provide for annual compensation of $300,000
for each board member and for a term of one year with automatic
annual renewals. We are no longer making payments under these
agreements.
During November 2006, we purchased homes in backlog inventory
with a total sales value of approximately $17.6 million
from the Transeastern JV for a purchase price of
$15.2 million, of which $0.2 million has been held in
escrow pending the completion of work.
During 2007, Design Center, Inc., Coverall Interiors, LLC and
Coverall of North Florida have provided the Company with
materials and interior design services for our model homes at a
cost of $1.3 million. The owner of Design Center, Inc.,
Coverall Interiors, LLC and Coverall of North Florida is the
daughter of Mr. Harry Engelstein, the former Chairman of
TOUSA Homes, Inc. through December 31, 2007. We believe
that all transactions with Design Center, Inc., Coverall
Interiors, LLC and Coverall of North Florida have been on
reasonable commercial terms.
Pursuant to the terms of his employment agreement, on
October 17, 2007, Antonio B. Mon, our President and Chief
Executive Officer, exercised his option to purchase the
condominium in Fort Lauderdale, Florida that was provided
to him under his agreement. The purchase price was
$1.0 million, as set forth in his employment agreement.
On January 9, 2008, an entity controlled by the Stengos
family, certain of whom are directors of our company, acquired a
condominium owned by the Company in Miami, Florida. The
condominium unit has an appraised value of $1.3 million. In
light of the absence of any brokers commission and an
immediate cash closing, we sold the condominium for
$1.2 million.
|
|
12.
|
Stockholders
Equity (Deficit)
|
On September 13, 2005, pursuant to an underwritten public
offering, we sold 3,358,000 shares of our common stock at a
price of $28.00 per share. The net proceeds of the offering to
us were $89.2 million, after deducting offering costs and
underwriting fees of $4.8 million. The offering proceeds
were used to pay outstanding indebtedness under our revolving
credit facility.
At December 31, 2005, our chief executive officer had the
right to purchase 1% of our outstanding common stock on
January 1, 2007 for $16.23 per share and an additional 1%
on January 1, 2008 for $17.85 per share. These rights were
being accounted for under the variable accounting method as
provided by APB No. 25. In connection with these
rights, we recognized compensation expense of $1.3 million
during the year ended December 31, 2005 which is included
in selling, general and administrative expenses in the
accompanying consolidated statement of operations.
On January 13, 2006, our chief executive officers
employment agreement was amended to grant him 1,323,940 options
at an exercise price of $23.62 per share and provide for a bonus
award of $8.7 million in lieu of the common stock purchase
rights described above (see Note 13 to consolidated
financial statements).
Convertible
PIK Preferred Stock
The preferred stock ranks senior to all of our capital stock
with respect to liquidation and dividends and has an initial
aggregate liquidation preference of $117.5 million and
accrues dividends semi-annually at 8% per annum as follows:
(i) 1% payable in cash; (ii) the remaining 7% payable,
at our option, in cash, additional
F-49
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
preferred stock, or a combination thereof. The preferred stock
is mandatorily redeemable on July 1, 2015 in, at our
option, cash, common stock or a combination thereof. The
preferred stock is convertible into our common stock, at a
conversion price which initially equals the 20-trading day
average common stock closing price commencing 60 days
immediately after the closing of the settlement (the
Measurement Period) multiplied by 1.40. The
Measurement Period has ended and the resulting conversion price
is $1.61 per share. As a result, if all of the holders of the
preferred stock exercised the conversion feature, the Company
would have to issue approximately 73.0 million shares of
its common stock. The conversion price of the preferred stock
will be adjusted for certain anti-dilution events including
below market price or below the conversion price issuances by us
of our common stock, subject to certain exceptions. We believe
the preferred stock conversion feature is substantive. The fair
value of the preferred stock was $84.0 million on the date
of issuance.
Since the redemption of the preferred stock is contingently or
optionally redeemable and therefore not certain to occur and the
conversion feature is substantive, the preferred stock is not
required to be classified as a liability under SFAS 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. The
preferred stock is redeemable in cash solely at the
Companys option, except in normal liquidation. As there
are no situations whereby this option is outside of the
Companys control, we believe that the preferred stock
meets the requirements of permanent equity classification
pursuant to Accounting Series Releases 268. While the
preferred stock is redeemable for cash, redemption is not
(1) at a fixed or determinable price on a fixed or
determinable date, (2) at the option of the holder, or
(3) upon the occurrence of an event that is not solely
within our control. We believe that cash would only be required
to be paid to the preferred stock in a liquidation event and,
therefore, the criteria for permanent equity classification
pursuant to EITF Topic D-98, Classification and Measurement
of Redeemable Securities, have been met. In addition, based
on analyses of the requirements of paragraphs 12 through 32
of
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock, the
settlement of the conversion and redemption features in shares
are within the Companys control. Therefore, the preferred
stock has been classified as a component of stockholders
equity.
As of December 31, 2007, the preferred stock redemption
amount includes amounts representing dividends not currently
declared or paid but which will be payable under the redemption
features. The preferred stock is currently redeemable because
redemption of the instrument, absent the existence of the share
settled conversion option, is certain to occur at maturity. As
of December 31, 2007, $0.8 million of the redemption
amount was accreted to the Preferred Stock and recognized as a
reduction to additional paid-in capital, consistent with EITF
Topic D-98.
The preferred stock contains a contingent dividend feature,
which provides for an increase in the dividend rate of 0.25%
during the period in which the Company fails to register the
underlying common stock. This increase in the dividend rate
becomes effective after 270 days. The contingent dividend
feature constitutes an obligation to make future payments or
otherwise transfer consideration under a registration payment
arrangement. In accordance with FSP
EITF 00-19-2,
Accounting for Registration Payment Arrangements, the
contingent dividend feature should be separately recognized and
measured in accordance with SFAS 5. As of December 31,
2007, there was no amount accrued for the Companys
obligation under the registration payment arrangement.
In accordance with
EITF 98-5,
the intrinsic value of the beneficial conversion feature
required measurement at the commitment date by comparing the
Companys stock price at date of closing to the conversion
price, which is determinable at the end of the 20 trading days
commencing 60 calendar days after closing. The value
attributable to the beneficial conversion features has been
recognized and measured by allocating a portion of the proceeds
to additional
paid-in-capital
(since there are no retained earnings) and a discount to the
preferred stock. In accordance with
EITF 00-27,
Application of Issue
No. 98-5
to Certain Convertible Instruments, $84.0 million,
representing the maximum intrinsic value of the beneficial
conversion feature, is amortized from additional-paid in capital
to preferred stock from October 26, 2007 to July 1,
2015.
F-50
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Dividends and amortization of the discount of the preferred
stock are recorded as charges to retained earnings or additional
paid in capital, if no retained earnings, and reduce net income
in the determination of income available to shareholders for the
purposes of computing basic and diluted earnings per share.
We will determine and, if required, measure a beneficial
conversion feature based on the fair value of our stock price on
the date dividends are declared on the convertible preferred
shares and will be recognized as a reduction to retained
earnings (or additional paid in capital if no retained earnings)
and the convertible preferred shares newly issued if the fair
value of the stock on the declaration date is below the
contractual conversion price. The discount on the
convertible preferred shares issued as PIK dividends will then
be accreted through the contractual maturity of the instrument.
The preferred stock is not a participating security, as defined
in SFAS 128, Earnings per Share, and
EITF 03-6,
Participating Securities and the Two-Class Method under
FASB Statement No. 128, and, therefore, does not
require the two-class method of calculating EPS. The preferred
stock provides for the adjustment to the conversion price for
common stock dividends declared. The common shares underlying
the convertible preferred stock have not been included in
diluted EPS as its effect is anti-dilutive.
Warrants
The warrants are exercisable for a term of five years from the
date of issuance. The warrants had an estimated fair value of
$8.2 million at issuance (based on the Black-Scholes option
pricing model and certain agreed upon inputs). The warrants were
issued in two tranches with exercise prices to be based on the
Measurement Period multiplied by 1.25 or 1.50, respectively. The
Measurement Period has ended. As a result, the warrants are
exercisable as follows (i) 5,045,662 shares of common
stock can be purchased at $5.31 per share, and
(ii) 5,045,662 shares of common stock can be purchased
at $6.38 per share. The exercise prices of the warrants will be
adjusted for certain anti-dilution events including below market
price or below the conversion price issuances by the Company of
its common stock, subject to certain exceptions. Upon exercise
of the warrants by the holders thereof, we may, in our sole
discretion, satisfy our obligations under any warrant being
exercised by: (i) paying the holder the value of the common
stock to be delivered in cash less the exercise price;
(ii) paying such amount in common stock rather than cash;
(iii) delivering shares of common stock upon receiving the
cash exercise price therefore; or (iv) any combination of
the foregoing.
The
Charter Amendment
In connection with the closing of the Transeastern JV
settlement, we increased the authorized shares of common stock
in our Certificate of Incorporation to 975,000,000 to provide
sufficient shares for, among other things, the maximum amount of
shares of common stock to be delivered upon full exercise of the
warrants and full conversion of shares of the preferred stock.
We currently have approximately 60 million shares of common
stock outstanding. We made the amendment pursuant to the written
consent of our controlling stockholder, which was effective on
July 30, 2007.
NYSE
Delisting
Effective November 19, 2007, NYSE Regulation, Inc.
suspended our common stock and debt securities from trading on
the NYSE. We appealed the suspension. Following our suspension
from the NYSE, we began trading on the Pink Sheet Electronic
Quotation Service. On February 15, 2008, the NYSE denied
our appeal and affirmed the decision to suspend trading in our
common stock and debt securities on the NYSE and commenced
delisting procedures. On March 3, 2008, the NYSE filed
Forms 25, Notification of Removal of Listing
and/or
Registration under Section 12(b) of the Securities Exchange
Act of 1934, with the SEC of its intention to remove our common
stock, 9% Senior Notes due July 1, 2010,
9% Senior Notes due July 1, 2010,
71/2% Senior
Subordinated Notes due March 15, 2011,
71/2% Senior
Subordinated Notes due January 15, 2015 and the
103/8% Senior
Subordinated Notes due July 1, 2012 at the opening of
business May 13, 2008.
F-51
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Stock-Based
Compensation
|
Under the TOUSA, Inc. Annual and Long-Term Incentive Plan (the
Plan) employees, consultants and directors of ours,
our subsidiaries and affiliated entities, (as defined in the
Plan), are eligible to receive options to purchase shares of
common stock. Each stock option expires on a date determined
when the options are granted, but not more than ten years after
the date of grant. Stock options granted have a vesting period
ranging from immediate vesting to a graded vesting over five
years. Under the Plan, subject to adjustment as defined, the
maximum number of shares with respect to which awards may be
granted is 8,250,000.
Activity under the Plan for the years ended December 31,
2007, 2006, and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options outstanding at beginning of year
|
|
|
7,712,574
|
|
|
$
|
13.04
|
|
|
|
6,606,611
|
|
|
$
|
11.06
|
|
|
|
6,827,755
|
|
|
$
|
11.12
|
|
Granted
|
|
|
189,552
|
|
|
$
|
9.45
|
|
|
|
1,339,708
|
|
|
$
|
23.58
|
|
|
|
16,374
|
|
|
$
|
24.19
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(23,750
|
)
|
|
$
|
10.84
|
|
|
|
(115,625
|
)
|
|
$
|
10.43
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(147,250
|
)
|
|
$
|
17.30
|
|
|
|
(209,995
|
)
|
|
$
|
18.37
|
|
|
|
(121,893
|
)
|
|
$
|
16.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
7,754,876
|
|
|
$
|
12.87
|
|
|
|
7,712,574
|
|
|
$
|
13.04
|
|
|
|
6,606,611
|
|
|
$
|
11.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
6,428,847
|
|
|
$
|
13.51
|
|
|
|
4,964,676
|
|
|
$
|
10.83
|
|
|
|
4,881,757
|
|
|
$
|
10.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for grant at end of year
|
|
|
271,609
|
|
|
|
|
|
|
|
327,561
|
|
|
|
|
|
|
|
719,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair market value per share of options granted
during the year under SFAS No. 123(R)
|
|
$
|
3.40
|
|
|
|
|
|
|
$
|
7.90
|
|
|
|
|
|
|
$
|
7.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no aggregate intrinsic value of options outstanding
and exercisable at December 31, 2007 since the stock was
trading at less than the exercise price.
The following table summarizes information about stock options
outstanding at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
Range of Exercise Prices
|
|
Options
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
$8.33 - $10.08
|
|
|
3,710,203
|
|
|
|
5.21
|
|
|
$
|
9.47
|
|
|
|
2,454,298
|
|
|
$
|
9.59
|
|
|
|
|
|
$10.61 - $12.20
|
|
|
2,519,842
|
|
|
|
5.01
|
|
|
$
|
11.61
|
|
|
|
2,490,967
|
|
|
$
|
11.61
|
|
|
|
|
|
$17.25 - $19.35
|
|
|
84,375
|
|
|
|
6.17
|
|
|
$
|
18.13
|
|
|
|
84,375
|
|
|
$
|
18.13
|
|
|
|
|
|
$20.35 - $21.29
|
|
|
58,893
|
|
|
|
6.50
|
|
|
$
|
20.74
|
|
|
|
58,893
|
|
|
$
|
20.74
|
|
|
|
|
|
$22.96 - $25.25
|
|
|
1,381,563
|
|
|
|
2.22
|
|
|
$
|
23.64
|
|
|
|
1,340,314
|
|
|
$
|
23.63
|
|
|
|
|
|
F-52
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of non-vested stock option transactions is as follows
for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Granted-Date
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
(Per Share)
|
|
|
Nonvested at January 1, 2007
|
|
|
2,747,898
|
|
|
$
|
5.92
|
|
Granted
|
|
|
189,552
|
|
|
$
|
9.45
|
|
Vested
|
|
|
(1,497,046
|
)
|
|
$
|
7.51
|
|
Forfeited
|
|
|
(114,375
|
)
|
|
$
|
5.72
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
1,326,029
|
|
|
$
|
3.78
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2007 and 2006, we
recognized compensation expense related to stock options of
$3.9 million (no tax impact) and $11.3 million
($7.4 million net of taxes), respectively. As of
December 31, 2007, we had $2.7 million of total
unrecognized compensation expense related to unvested stock
option awards. This expense is expected to be recognized over a
weighted average period of 1.2 years. The aggregate grant
date fair market value of options vested during the year ended
December 31, 2007 was $11.2 million.
We use the Black-Scholes valuation model to determine
compensation expense and amortize compensation expense over the
requisite service period of the grants on a straight-line basis.
The following table summarizes the assumptions used:
|
|
|
Expected volatility
|
|
0.33 - 0.42
|
Expected dividend yield
|
|
0.00%
|
Risk-free interest rate
|
|
1.47% - 4.85%
|
Expected life
|
|
3 - 10 years
|
The risk-free interest rate is based on the U.S. Treasury
yield curve at the time of the grant. The expected term of stock
options granted is derived from historical data and represents
the period of time that stock options are expected to be
outstanding. The expected volatility is based on historical
volatility, implied volatility, and other factors impacting us.
Our chief executive officer had the right to purchase 1% of our
outstanding common stock on January 1, 2007 for $16.23 per
share and an additional 1% on January 1, 2008 for $17.85
per share. On January 13, 2006, our chief executive
officers employment agreement was amended primarily to
grant him 1,323,940 options at an exercise price of $23.62 per
share and provided for a special bonus award of
$8.7 million in lieu of the common stock purchase rights
provided certain performance criteria were met as of
December 31, 2006. The criteria were not met and no amounts
were paid.
|
|
14.
|
Operating
and Reportable Segments
|
Our operating segments are aggregated into reportable segments
in accordance with SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, based
primarily upon similar economic characteristics, product type,
geographic areas, and information used by the chief operating
decision maker to allocate resources and assess performance. Our
reportable segments consist of our four major Homebuilding
geographic regions (Florida, Mid-Atlantic, Texas and West) and
our Financial Services operations.
Through our four homebuilding regions, we design, build and
market detached single-family residences, town homes and
condominiums in various metropolitan markets in nine states,
located as follows:
Florida: Central Florida, Jacksonville,
Southeast Florida, Southwest Florida, Tampa/St. Petersburg
F-53
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mid-Atlantic: Baltimore / Southern
Pennsylvania, Nashville, Northern Virginia (on September 25,
2007 we sold in bulk, home sites in our Mid-Atlantic (excluding
Nashville) and Virginia divisions)
Texas: Austin, Houston, San Antonio (on
June 6, 2007, we sold substantially all of our
Dallas/Fort Worth division)
West: Colorado, Las Vegas, Phoenix
Evaluation of segment performance is based on the segments
results of operations without consideration of income taxes.
Results of operations for our four homebuilding segments consist
of revenues generated from the sales of homes and land, equity
in earnings from unconsolidated joint ventures, and other
income / expense less the cost of homes and land sold
and selling, general and administrative expenses. The results of
operations for our Financial Services segment consists of
revenues generated from mortgage financing, title insurance and
other ancillary services less the cost of such services and
certain selling, general and administrative expenses.
The operational results of each of our segments are not
necessarily indicative of the results that would have occurred
had each segment been an independent, stand-alone entity during
the periods presented. The following tables set forth the
financial information relating to our operations, presented by
segment (dollars in millions).
F-54
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
891.9
|
|
|
$
|
1,018.0
|
|
|
$
|
859.2
|
|
Mid-Atlantic
|
|
|
265.0
|
|
|
|
306.0
|
|
|
|
290.9
|
|
Texas(1)
|
|
|
635.0
|
|
|
|
602.3
|
|
|
|
415.4
|
|
West
|
|
|
366.9
|
|
|
|
515.0
|
|
|
|
795.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding
|
|
|
2,158.8
|
|
|
|
2,441.3
|
|
|
|
2,360.5
|
|
Financial Services
|
|
|
36.5
|
|
|
|
63.3
|
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,195.3
|
|
|
$
|
2,504.6
|
|
|
$
|
2,408.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
2.1
|
|
|
$
|
(9.7
|
)
|
|
$
|
7.2
|
|
Mid-Atlantic
|
|
|
(2.2
|
)
|
|
|
(7.4
|
)
|
|
|
(5.8
|
)
|
Texas
|
|
|
(0.5
|
)
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
West
|
|
|
15.5
|
|
|
|
(86.4
|
)
|
|
|
(46.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.9
|
|
|
$
|
(104.7
|
)
|
|
$
|
(45.7
|
)
|
Impairments on unconsolidated joint ventures and related
accrued obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
90.6
|
|
|
$
|
152.8
|
|
|
$
|
|
|
Mid-Atlantic
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
West
|
|
|
99.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
194.1
|
|
|
$
|
152.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) Loss from unconsolidated joint ventures after
impairments and related accrued obligations
|
|
$
|
209.0
|
|
|
$
|
48.1
|
|
|
$
|
(45.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
(543.6
|
)
|
|
$
|
11.8
|
|
|
$
|
138.1
|
|
Mid-Atlantic
|
|
|
(119.0
|
)
|
|
|
(20.9
|
)
|
|
|
38.1
|
|
Texas(1)
|
|
|
52.4
|
|
|
|
59.4
|
|
|
|
33.6
|
|
West
|
|
|
(473.1
|
)
|
|
|
26.4
|
|
|
|
186.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding
|
|
|
(1,083.3
|
)
|
|
|
76.7
|
|
|
|
396.2
|
|
Financial Services
|
|
|
(0.8
|
)
|
|
|
21.5
|
|
|
|
8.5
|
|
Corporate and unallocated
|
|
|
(268.9
|
)
|
|
|
(341.8
|
)
|
|
|
(60.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from continuing operations before income
taxes
|
|
$
|
(1,353.0
|
)
|
|
$
|
(243.6
|
)
|
|
$
|
344.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
F-55
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
631.3
|
|
|
$
|
892.9
|
|
Mid-Atlantic
|
|
|
73.0
|
|
|
|
230.4
|
|
Texas(1)
|
|
|
220.0
|
|
|
|
210.6
|
|
West
|
|
|
381.3
|
|
|
|
721.4
|
|
Assets held for
sale(1)
|
|
|
6.1
|
|
|
|
124.8
|
|
Financial Services
|
|
|
36.7
|
|
|
|
65.5
|
|
Corporate and unallocated
|
|
|
413.6
|
|
|
|
596.6
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,762.0
|
|
|
$
|
2,842.2
|
|
|
|
|
|
|
|
|
|
|
Investments in Unconsolidated Joint Ventures:
|
|
|
|
|
|
|
|
|
Florida
|
|
$
|
|
|
|
$
|
29.4
|
|
Mid-Atlantic
|
|
|
0.1
|
|
|
|
5.3
|
|
Texas
|
|
|
8.6
|
|
|
|
6.8
|
|
West
|
|
|
0.3
|
|
|
|
87.5
|
|
|
|
|
|
|
|
|
|
|
Total Investments in Unconsolidated Joint Ventures
|
|
$
|
9.0
|
|
|
$
|
129.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Texas region excludes the Dallas division, which is now
classified as a discontinued operation. |
As part of our asset management initiatives, on
September 25, 2007, we sold 317 homesites to an unrelated
homebuilder. Additionally, as part of the transaction, in the
fourth quarter of 2007, the unrelated homebuilder purchased an
option interest to acquire 250 homesites as well as 34 owned
homesites. The total purchase price for these transactions was
$31.3 million and we realized a pre-tax loss of
$12.5 million. In July 2008, we received a letter of intent
from a party interested in purchasing the remaining assets in
our Pennsylvania, Maryland, Delaware and Virginia divisions. The
letter of intent is subject to a number of conditions.
|
|
15.
|
Discontinued
Operations
|
On June 6, 2007, we sold substantially all of our
Dallas/Fort Worth division to an unrelated third-party for
$56.5 million and realized a pre-tax loss on disposal of
$13.6 million. Certain communities were not part of the
sale. We are actively marketing these communities for sale and
it is our intention to exit these communities within a year.
During the three months ended March 31, 2007, we determined
that the pending sale of our
Dallas/Fort Worth
division at a price below the carrying value was an indicator of
impairment. We performed an interim goodwill impairment test as
of March 31, 2007 and, at that time, determined that the
goodwill recorded in our Dallas/Fort Worth division was
impaired; accordingly, we wrote off $3.1 million of
goodwill which is included in loss from discontinued operations
for the year ended December 31, 2007.
In accordance with SFAS 144, results of our
Dallas/Fort Worth division have been classified as
discontinued operations, and prior periods have been restated to
be consistent with the December 31, 2007, presentation.
Discontinued operations include Dallas/Fort Worth division
revenues of $47.9 million, $132.7 million, and
$101.0 million for the years ended December 31, 2007,
2006, and 2005, respectively. For the year ended
December 31, 2007, the Dallas/Fort Worth division had
a net loss of $22.8 million (including
F-56
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
an $13.6 million after-tax loss on disposal) as compared to
a net loss of $0.4 million and net income of $0.2 for the
years ended December 31, 2006 and 2005, respectively.
Included in the net loss of the Dallas/Fort Worth division
for the year ended December 31, 2007 is $9.5 million
of inventory impairments and abandonment costs and a
$3.1 million of goodwill impairment.
Assets held for sale, as shown on the consolidated statements of
financial condition, consist primarily of $6.1 million and
$124.8 million of inventory at December 31, 2007 and
2006, respectively.
|
|
16.
|
Employee
Benefit Plans
|
We have a defined contribution plan established pursuant to
Section 401(k) of the Internal Revenue Code. Employees
contribute to the plan a percentage of their salaries, subject
to certain dollar limitations, and we match a portion of the
employees contributions. Our contributions to the plan for
the years ended December 31, 2007, 2006, and 2005, amounted
to $2.2 million, $2.7 million, and $2.7 million,
respectively.
As a result of the reduction of the Companys workforce,
there will be a deemed partial termination of the plan in 2008
as required by the IRS which will result in the acceleration of
benefit vesting. The additional cost to the Company of the
acceleration is estimated to be approximately $0.1 million.
|
|
17.
|
Quarterly
Results (Unaudited)
|
The homebuilding industry tends to be seasonal, as generally
there are more homes sold in the spring and summer months when
the weather is milder, although the number of sales contracts
for new homes is highly dependent on the number of active
communities and the timing of new community openings. Because
new home deliveries trail new home contracts by a number of
months, we typically have the greatest percentage of home
deliveries in the fall and winter, and slow sales in the spring
and summer months could negatively affect our full year results.
F-57
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Quarterly results for the years ended December 31, 2007 and
2006, which have been restated for discontinued operations in
conformity with the year end presentation, are reflected below
(dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
572.7
|
|
|
$
|
576.7
|
|
|
$
|
501.2
|
|
|
$
|
544.7
|
|
Inventory impairments and abandonment
costs(1)
|
|
$
|
(39.1
|
)
|
|
$
|
(84.8
|
)
|
|
$
|
(504.5
|
)
|
|
$
|
(224.3
|
)
|
Homebuilding gross margin (loss)
|
|
$
|
79.9
|
|
|
$
|
17.8
|
|
|
$
|
(437.4
|
)
|
|
$
|
(167.7
|
)
|
Provision for settlement of loss contingency related to
Transeastern JV
|
|
$
|
(78.9
|
)
|
|
$
|
(32.0
|
)
|
|
$
|
(40.7
|
)
|
|
$
|
|
|
Net loss
|
|
$
|
(66.0
|
)
|
|
$
|
(132.0
|
)
|
|
$
|
(619.7
|
)
|
|
$
|
(524.8
|
)
|
Net loss available to common
stockholders(2)
|
|
$
|
(66.0
|
)
|
|
$
|
(132.0
|
)
|
|
$
|
(621.9
|
)
|
|
$
|
(527.3
|
)
|
Basic loss per common share from continuing operations
|
|
$
|
(1.05
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(10.36
|
)
|
|
$
|
(8.76
|
)
|
Diluted loss per common share from continuing operations
|
|
$
|
(1.05
|
)
|
|
$
|
(2.04
|
)
|
|
$
|
(10.36
|
)
|
|
$
|
(8.76
|
)
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
598.6
|
|
|
$
|
638.8
|
|
|
$
|
592.6
|
|
|
$
|
674.6
|
|
Inventory impairments and abandonment
costs(1)
|
|
$
|
(5.8
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(49.8
|
)
|
|
$
|
(95.8
|
)
|
Homebuilding gross margin
|
|
$
|
145.8
|
|
|
$
|
159.2
|
|
|
$
|
79.7
|
|
|
$
|
33.2
|
|
Provision for settlement of loss contingency related to
Transeastern JV
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(275.0
|
)
|
Net income (loss)
|
|
$
|
55.0
|
|
|
$
|
67.6
|
|
|
$
|
(80.0
|
)
|
|
$
|
(243.8
|
)
|
Basic earnings (loss) per common share from continuing operations
|
|
$
|
0.91
|
|
|
$
|
1.12
|
|
|
$
|
(1.34
|
)
|
|
$
|
(4.07
|
)
|
Diluted earnings (loss) per common share from continuing
operations
|
|
$
|
0.89
|
|
|
$
|
1.09
|
|
|
$
|
(1.35
|
)
|
|
$
|
(4.06
|
)
|
|
|
|
(1) |
|
Inventory impairments and abandonment costs are a component of
cost of sales. |
|
(2) |
|
Net of preferred stock dividends starting in the third quarter
of 2007. |
Quarterly and year-to-date computations of per share amounts are
made independently. Therefore, the sum of per share amounts for
the quarters may not agree with the per share amounts for the
year.
During the fourth quarter of 2007 and 2006, we recognized
$463.5 million and $42.1 million of valuation
allowances, respectively, for deferred tax assets that we do not
believe are more likely than not that we will
realize the benefit.
|
|
18.
|
Summarized
Financial Information
|
Our outstanding senior notes and senior subordinated notes are
fully and unconditionally guaranteed, on a joint and several
basis, by the Guarantor Subsidiaries, which are all of the
Companys material direct and indirect subsidiaries, other
than our mortgage and title operations subsidiaries (the
Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries
is directly or indirectly 100% owned by the Company. In lieu of
providing separate audited financial statements for the
Guarantor Subsidiaries, consolidated condensed financial
statements are presented below. Separate financial statements
and other disclosures concerning the Guarantor Subsidiaries are
not presented because management has determined that they are
not material to investors.
F-58
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Financial Condition
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
81.3
|
|
|
$
|
(9.0
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
72.3
|
|
Inventory
|
|
|
|
|
|
|
1,271.8
|
|
|
|
|
|
|
|
|
|
|
|
1,271.8
|
|
Property and equipment, net
|
|
|
3.3
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
24.6
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
9.0
|
|
Receivables from unconsolidated joint ventures, net
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Investments in/advances to consolidated subsidiaries
|
|
|
989.7
|
|
|
|
(372.5
|
)
|
|
|
(5.5
|
)
|
|
|
(611.7
|
)
|
|
|
|
|
Other assets
|
|
|
287.7
|
|
|
|
42.3
|
|
|
|
|
|
|
|
|
|
|
|
330.0
|
|
Goodwill
|
|
|
|
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
11.2
|
|
Assets held for sale
|
|
|
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,362.0
|
|
|
|
980.5
|
|
|
|
(5.5
|
)
|
|
|
(611.7
|
)
|
|
|
1,725.3
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
14.9
|
|
|
|
|
|
|
|
14.9
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
15.0
|
|
|
|
|
|
|
|
15.0
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
6.8
|
|
|
|
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.7
|
|
|
|
|
|
|
|
36.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,362.0
|
|
|
$
|
980.5
|
|
|
$
|
31.2
|
|
|
$
|
(611.7
|
)
|
|
$
|
1,762.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
83.7
|
|
|
$
|
318.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
401.8
|
|
Customer deposits
|
|
|
|
|
|
|
33.9
|
|
|
|
|
|
|
|
|
|
|
|
33.9
|
|
Obligations for inventory not owned
|
|
|
|
|
|
|
32.0
|
|
|
|
|
|
|
|
|
|
|
|
32.0
|
|
Notes payable
|
|
|
1,585.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,585.3
|
|
Bank borrowings
|
|
|
168.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168.5
|
|
Liabilities associated with assets held for sale
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837.5
|
|
|
|
384.9
|
|
|
|
|
|
|
|
|
|
|
|
2,222.4
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
(0.7
|
)
|
|
|
7.3
|
|
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8
|
|
|
|
(0.7
|
)
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,837.5
|
|
|
|
384.9
|
|
|
|
15.8
|
|
|
|
(0.7
|
)
|
|
|
2,237.5
|
|
Total stockholders equity (deficit)
|
|
|
(475.5
|
)
|
|
|
595.6
|
|
|
|
15.4
|
|
|
|
(611.0
|
)
|
|
|
(475.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
1,362.0
|
|
|
$
|
980.5
|
|
|
$
|
31.2
|
|
|
$
|
(611.7
|
)
|
|
$
|
1,762.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Financial Condition
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
53.6
|
|
|
$
|
(2.4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51.2
|
|
Inventory
|
|
|
|
|
|
|
2,078.5
|
|
|
|
|
|
|
|
|
|
|
|
2,078.5
|
|
Property and equipment, net
|
|
|
6.5
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
28.5
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
129.0
|
|
|
|
|
|
|
|
|
|
|
|
129.0
|
|
Receivables from unconsolidated joint ventures, net
|
|
|
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
27.2
|
|
Investments in/advances to consolidated subsidiaries
|
|
|
1,933.4
|
|
|
|
(188.9
|
)
|
|
|
8.2
|
|
|
|
(1,752.7
|
)
|
|
|
|
|
Other assets
|
|
|
190.1
|
|
|
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
236.6
|
|
Goodwill
|
|
|
|
|
|
|
100.9
|
|
|
|
|
|
|
|
|
|
|
|
100.9
|
|
Assets held for sale
|
|
|
|
|
|
|
124.8
|
|
|
|
|
|
|
|
|
|
|
|
124.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,183.6
|
|
|
|
2,337.6
|
|
|
|
8.2
|
|
|
|
(1,752.7
|
)
|
|
|
2,776.7
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
11.0
|
|
|
|
|
|
|
|
11.0
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
41.9
|
|
|
|
|
|
|
|
41.9
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65.5
|
|
|
|
|
|
|
|
65.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,183.6
|
|
|
$
|
2,337.6
|
|
|
$
|
73.7
|
|
|
$
|
(1,752.7
|
)
|
|
$
|
2,842.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
348.0
|
|
|
$
|
206.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
554.2
|
|
Customer deposits
|
|
|
|
|
|
|
62.6
|
|
|
|
|
|
|
|
|
|
|
|
62.6
|
|
Obligations for inventory not owned
|
|
|
|
|
|
|
300.6
|
|
|
|
|
|
|
|
|
|
|
|
300.6
|
|
Notes payable
|
|
|
1,060.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,060.7
|
|
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities associated with assets held for sale
|
|
|
|
|
|
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,408.7
|
|
|
|
617.2
|
|
|
|
|
|
|
|
|
|
|
|
2,025.9
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
|
|
6.0
|
|
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
35.4
|
|
|
|
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.4
|
|
|
|
|
|
|
|
41.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,408.7
|
|
|
|
617.2
|
|
|
|
41.4
|
|
|
|
|
|
|
|
2,067.3
|
|
Total stockholders equity
|
|
|
774.9
|
|
|
|
1,720.4
|
|
|
|
32.3
|
|
|
|
(1,752.7
|
)
|
|
|
774.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
2,183.6
|
|
|
$
|
2,337.6
|
|
|
$
|
73.7
|
|
|
$
|
(1,752.7
|
)
|
|
$
|
2,842.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Operations
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,158.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,158.8
|
|
Cost of sales
|
|
|
|
|
|
|
2,666.2
|
|
|
|
|
|
|
|
|
|
|
|
2,666.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
|
|
|
|
(507.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(507.4
|
)
|
Selling, general and administrative expenses
|
|
|
91.2
|
|
|
|
286.6
|
|
|
|
|
|
|
|
(15.1
|
)
|
|
|
362.7
|
|
Loss from unconsolidated joint ventures, net
|
|
|
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
14.9
|
|
Impairments of investments in and receivables from
unconsolidated joint ventures and related accrued obligations
|
|
|
|
|
|
|
194.1
|
|
|
|
|
|
|
|
|
|
|
|
194.1
|
|
Provision for settlement of loss contingency
|
|
|
151.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151.6
|
|
Goodwill impairments
|
|
|
|
|
|
|
89.7
|
|
|
|
|
|
|
|
|
|
|
|
89.7
|
|
Interest expense
|
|
|
31.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
31.6
|
|
Other (income) expenses, net
|
|
|
1,078.5
|
|
|
|
55.6
|
|
|
|
|
|
|
|
(1,136.8
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income (loss)
|
|
|
(1,352.4
|
)
|
|
|
(1,148.8
|
)
|
|
|
|
|
|
|
1,151.9
|
|
|
|
(1,349.3
|
)
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
51.6
|
|
|
|
(15.1
|
)
|
|
|
36.5
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
41.2
|
|
|
|
(4.9
|
)
|
|
|
36.3
|
|
Goodwill Impairment
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services pretax income (loss)
|
|
|
|
|
|
|
|
|
|
|
6.5
|
|
|
|
(10.2
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(1,352.4
|
)
|
|
|
(1,148.8
|
)
|
|
|
6.5
|
|
|
|
1,141.7
|
|
|
|
(1,353.0
|
)
|
Provision (benefit) for income taxes
|
|
|
(9.9
|
)
|
|
|
(29.8
|
)
|
|
|
6.4
|
|
|
|
|
|
|
|
(33.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss ) from continuing operations, net of taxes
|
|
|
(1,342.5
|
)
|
|
|
(1,119.0
|
)
|
|
|
0.1
|
|
|
|
1,141.7
|
|
|
|
(1,319.7
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(17.0
|
)
|
Loss from disposal of discontinued operations
|
|
|
|
|
|
|
(13.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(13.6
|
)
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
(22.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(22.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,342.5
|
)
|
|
|
(1,141.8
|
)
|
|
|
0.1
|
|
|
|
1,141.7
|
|
|
|
(1,342.5
|
)
|
Dividends and accretion of discount on preferred stock
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(1,347.2
|
)
|
|
$
|
(1,141.8
|
)
|
|
$
|
0.1
|
|
|
$
|
1,141.7
|
|
|
$
|
(1,347.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Operations
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,441.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,441.3
|
|
Cost of sales
|
|
|
|
|
|
|
2,023.4
|
|
|
|
|
|
|
|
|
|
|
|
2,023.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
417.9
|
|
|
|
|
|
|
|
|
|
|
|
417.9
|
|
Selling, general and administrative expenses
|
|
|
71.2
|
|
|
|
291.9
|
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
358.3
|
|
Income from unconsolidated joint ventures, net
|
|
|
|
|
|
|
(104.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(104.7
|
)
|
Impairments of investments in and receivables from
unconsolidated joint ventures and related accrued obligations
|
|
|
|
|
|
|
152.8
|
|
|
|
|
|
|
|
|
|
|
|
152.8
|
|
Provision for settlement of loss contingency
|
|
|
275.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275.0
|
|
Goodwill impairments
|
|
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
Interest expense
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Other (income) expenses, net
|
|
|
(79.3
|
)
|
|
|
28.2
|
|
|
|
|
|
|
|
46.4
|
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income (loss)
|
|
|
(267.2
|
)
|
|
|
43.7
|
|
|
|
|
|
|
|
(41.6
|
)
|
|
|
(265.1
|
)
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
68.1
|
|
|
|
(4.8
|
)
|
|
|
63.3
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
50.9
|
|
|
|
(9.1
|
)
|
|
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services pretax income
|
|
|
|
|
|
|
|
|
|
|
17.2
|
|
|
|
4.3
|
|
|
|
21.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(267.2
|
)
|
|
|
43.7
|
|
|
|
17.2
|
|
|
|
(37.3
|
)
|
|
|
(243.6
|
)
|
Provision (benefit) for income taxes
|
|
|
(66.0
|
)
|
|
|
15.1
|
|
|
|
8.1
|
|
|
|
|
|
|
|
(42.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
|
(201.2
|
)
|
|
|
28.6
|
|
|
|
9.1
|
|
|
|
(37.3
|
)
|
|
|
(200.8
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(201.2
|
)
|
|
|
28.2
|
|
|
|
9.1
|
|
|
|
(37.3
|
)
|
|
|
(201.2
|
)
|
Dividends and accretion of discount on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(201.2
|
)
|
|
$
|
28.2
|
|
|
$
|
9.1
|
|
|
$
|
(37.3
|
)
|
|
$
|
(201.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Operations
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,360.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,360.5
|
|
Cost of sales
|
|
|
|
|
|
|
1,769.5
|
|
|
|
|
|
|
|
|
|
|
|
1,769.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
591.0
|
|
|
|
|
|
|
|
|
|
|
|
591.0
|
|
Selling, general and administrative expenses
|
|
|
75.3
|
|
|
|
243.6
|
|
|
|
|
|
|
|
(9.8
|
)
|
|
|
309.1
|
|
Income from unconsolidated joint ventures, net
|
|
|
|
|
|
|
(45.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(45.7
|
)
|
Interest (income) expense
|
|
|
(0.1
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Other (income) expenses, net
|
|
|
(281.7
|
)
|
|
|
29.9
|
|
|
|
|
|
|
|
242.9
|
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income
|
|
|
206.5
|
|
|
|
362.7
|
|
|
|
|
|
|
|
(233.1
|
)
|
|
|
336.1
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
57.3
|
|
|
|
(9.8
|
)
|
|
|
47.5
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
44.8
|
|
|
|
(5.8
|
)
|
|
|
39.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services pretax income
|
|
|
|
|
|
|
|
|
|
|
12.5
|
|
|
|
(4.0
|
)
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
206.5
|
|
|
|
362.7
|
|
|
|
12.5
|
|
|
|
(237.1
|
)
|
|
|
344.6
|
|
Provision (benefit) for income taxes
|
|
|
(11.8
|
)
|
|
|
133.4
|
|
|
|
4.9
|
|
|
|
|
|
|
|
126.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes
|
|
|
218.3
|
|
|
|
229.3
|
|
|
|
7.6
|
|
|
|
(237.1
|
)
|
|
|
218.1
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Provision for income taxes
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
218.3
|
|
|
|
229.5
|
|
|
|
7.6
|
|
|
|
(237.1
|
)
|
|
|
218.3
|
|
Dividends and accretion of discount on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
218.3
|
|
|
$
|
229.5
|
|
|
$
|
7.6
|
|
|
$
|
(237.1
|
)
|
|
$
|
218.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Cash Flows
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(1,037.3
|
)
|
|
$
|
(200.5
|
)
|
|
$
|
17.4
|
|
|
$
|
1,141.0
|
|
|
$
|
(79.4
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(7.6
|
)
|
Earn-out consideration paid for acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net additions to property and equipment
|
|
|
0.1
|
|
|
|
(8.0
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(8.9
|
)
|
Loans to unconsolidated joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(31.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(31.8
|
)
|
Capital distributions from unconsolidated joint ventures
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
0.1
|
|
|
|
(33.1
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(34.0
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings from revolving credit facilities
|
|
|
168.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168.5
|
|
Principal payments on notes payable
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
Net proceeds from notes offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of Financial Services bank borrowings
|
|
|
|
|
|
|
|
|
|
|
(27.6
|
)
|
|
|
|
|
|
|
(27.6
|
)
|
Payments for deferred financing costs
|
|
|
(42.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42.6
|
)
|
Payments for issuance of convertible preferred stock and warrants
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.9
|
)
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in intercompany transactions
|
|
|
943.7
|
|
|
|
183.6
|
|
|
|
13.7
|
|
|
|
(1,141.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,065.7
|
|
|
|
183.6
|
|
|
|
(13.9
|
)
|
|
|
(1,141.0
|
)
|
|
|
94.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
28.5
|
|
|
|
(50.0
|
)
|
|
|
2.5
|
|
|
|
|
|
|
|
(19.0
|
)
|
Net cash provided by (used in) discontinued operations
|
|
|
|
|
|
|
(41.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(41.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
28.5
|
|
|
|
(8.7
|
)
|
|
|
2.5
|
|
|
|
|
|
|
|
22.3
|
|
Cash and cash equivalents at beginning of year
|
|
|
50.6
|
|
|
|
(3.2
|
)
|
|
|
6.8
|
|
|
|
|
|
|
|
54.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
79.1
|
|
|
$
|
(11.9
|
)
|
|
$
|
9.3
|
|
|
$
|
|
|
|
$
|
76.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Cash Flows
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(155.4
|
)
|
|
$
|
34.2
|
|
|
$
|
11.6
|
|
|
$
|
(37.3
|
)
|
|
$
|
(146.9
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn-out consideration paid for acquisitions
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
Net additions to property and equipment
|
|
|
(2.6
|
)
|
|
|
(12.0
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(16.4
|
)
|
Loans to unconsolidated joint ventures
|
|
|
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.3
|
)
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(32.1
|
)
|
Capital distributions from unconsolidated joint ventures
|
|
|
|
|
|
|
52.9
|
|
|
|
|
|
|
|
|
|
|
|
52.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2.6
|
)
|
|
|
(3.4
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(7.8
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings from revolving credit facilities
|
|
|
(65.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65.0
|
)
|
Net proceeds from notes offering
|
|
|
248.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248.8
|
|
Net proceeds from Financial Services bank borrowings
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
Payments for deferred financing costs
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.5
|
)
|
Excess income tax benefit from exercise of stock options
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Proceeds from stock option exercises
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Dividends paid
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
Increase (decrease) in intercompany transactions
|
|
|
13.4
|
|
|
|
(38.7
|
)
|
|
|
(12.0
|
)
|
|
|
37.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
188.4
|
|
|
|
(38.7
|
)
|
|
|
(11.7
|
)
|
|
|
37.3
|
|
|
|
175.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
30.4
|
|
|
|
(7.9
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
20.6
|
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
30.4
|
|
|
|
(6.6
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
21.9
|
|
Cash and cash equivalents at beginning of year
|
|
|
20.2
|
|
|
|
3.4
|
|
|
|
8.7
|
|
|
|
|
|
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
50.6
|
|
|
$
|
(3.2
|
)
|
|
$
|
6.8
|
|
|
$
|
|
|
|
$
|
54.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
TOUSA,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Cash Flows
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
TOUSA,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
309.7
|
|
|
$
|
(272.9
|
)
|
|
$
|
40.6
|
|
|
$
|
(237.1
|
)
|
|
$
|
(159.7
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net additions to property and equipment
|
|
|
(4.4
|
)
|
|
|
(6.7
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(13.0
|
)
|
Loans to unconsolidated joint ventures
|
|
|
|
|
|
|
(20.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(20.0
|
)
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(176.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(176.1
|
)
|
Capital distributions from unconsolidated joint ventures
|
|
|
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4.4
|
)
|
|
|
(192.9
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(199.2
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings from revolving credit facilities
|
|
|
65.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65.0
|
|
Net repayments of Financial Services bank borrowings
|
|
|
|
|
|
|
|
|
|
|
(13.9
|
)
|
|
|
|
|
|
|
(13.9
|
)
|
Payments for deferred financing costs
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
Net proceeds from sale of common stock
|
|
|
89.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.2
|
|
Proceeds from stock option exercises
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
Dividends paid
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
(8.0
|
)
|
|
|
8.0
|
|
|
|
(3.2
|
)
|
Increase (decrease) in intercompany transactions
|
|
|
(596.9
|
)
|
|
|
426.8
|
|
|
|
(59.0
|
)
|
|
|
229.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(444.4
|
)
|
|
|
426.8
|
|
|
|
(80.9
|
)
|
|
|
237.1
|
|
|
|
138.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(139.1
|
)
|
|
|
(39.0
|
)
|
|
|
(42.2
|
)
|
|
|
|
|
|
|
(220.3
|
)
|
Net cash used in discontinued operations
|
|
|
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(139.1
|
)
|
|
|
(54.9
|
)
|
|
|
(42.2
|
)
|
|
|
|
|
|
|
(236.2
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
159.3
|
|
|
|
58.3
|
|
|
|
50.9
|
|
|
|
|
|
|
|
268.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
20.2
|
|
|
$
|
3.4
|
|
|
$
|
8.7
|
|
|
$
|
|
|
|
$
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66