1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
COMMISSION FILE NUMBER: 000-23677
NEWMARK HOMES CORP.
(Exact name of Registrant as specified in its charter)
Nevada 76-0460831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Soldiers Field Drive
Sugar Land, TX 77479
(Address of principal executive offices) (Zip code)
281-243-0100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, par value $.01 11,500,000 shares as of October 11, 2000
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NEWMARK HOMES CORP.
INDEX
PAGE
PART I. Financial Information....................................................... 3
ITEM 1. Financial Statements........................................................ 3
Condensed Consolidated Statements of Financial Position..................... 3
Condensed Consolidated Statements of Operations............................. 4
Condensed Consolidated Statements of Stockholders' Equity................... 6
Condensed Consolidated Statements of Cash Flows............................. 7
Notes to the Condensed Consolidated Financial Statements.................... 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 10
ITEM 3. Changes in Information About Market Risk.................................... 15
PART II. Other Information........................................................... 15
ITEM 1. Legal Proceedings........................................................... 15
ITEM 2. Changes in Securities....................................................... 15
ITEM 3. Defaults Upon Senior Securities............................................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 15
ITEM 5. Other Information........................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K............................................ 17
Exhibits.................................................................... 17
Reports on Form 8-K......................................................... 17
Signatures.................................................................. 18
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(unaudited)
Cash ............................................................. $ 5,433 $ 8,080
Receivables ...................................................... 10,482 9,206
Inventory ........................................................ 272,631 255,576
Investment in unconsolidated subsidiaries ........................ 881 640
Other assets, net ................................................ 10,223 9,738
Goodwill, net of accumulated amortization of $1,210 and $67 in
2000 and 1999, respectively ................................. 44,989 45,652
-------- --------
Total assets ................................... $344,639 $328,892
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction loans payable ....................................... $158,433 $149,380
Acquisition notes payable ........................................ 11,055 14,473
Other payables to affiliates ..................................... 7 1,745
Accounts payable and accrued liabilities ......................... 29,050 36,639
Other liabilities ................................................ 18,918 17,037
-------- --------
Total liabilities .............................. 217,463 219,274
-------- --------
Stockholders' equity:
Common stock -- $.01 par value; 30,000,000 shares authorized,
11,500,000 shares issued and outstanding ............ 115 115
Additional paid-in capital .................................. 106,855 106,855
Retained earnings ........................................... 20,206 2,648
-------- --------
Total stockholders' equity ..................... 127,176 109,618
-------- --------
Total liabilities and stockholders' equity ..... $344,639 $328,892
======== ========
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED SEPTEMBER 30,
-------------------
2000 1999
---- ----
Revenues .............................................................. $ 146,207 $ 126,745
Cost of sales ......................................................... 119,627 103,951
------------ ------------
Gross profit .......................................................... 26,580 22,794
Equity in earnings from unconsolidated subsidiaries ................... 222 195
Selling, general and administrative expenses .......................... (16,358) (13,574)
Depreciation and amortization ......................................... (958) (1,010)
------------ ------------
Operating income ................................................. 9,486 8,405
Other income (expense):
Interest expense ................................................. (798) (466)
Other income, net ................................................ 164 315
------------ ------------
Income before income taxes .................................. 8,852 8,254
Income taxes .......................................................... 3,197 2,924
------------ ------------
Net income .................................................. $ 5,655 $ 5,330
============ ============
Earnings per common share:
Basic ............................................................ $ .49 $ .46
============ ============
Diluted .......................................................... $ .49 $ .46
============ ============
Weighted average number of shares of common
stock equivalents outstanding:
Basic ........................................................ 11,500,000 11,500,000
============ ============
Diluted ...................................................... 11,500,000 11,500,000
============ ============
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
2000 1999
---- ----
Revenues .............................................................. $ 447,670 $ 349,957
Cost of sales ......................................................... 369,147 292,518
------------ ------------
Gross profit .......................................................... 78,523 57,439
Equity in earnings from unconsolidated subsidiaries ................... 478 516
Selling, general and administrative expenses .......................... (46,688) (36,761)
Depreciation and amortization ......................................... (2,920) (2,780)
------------ ------------
Operating income ................................................. 29,393 18,414
Other income (expense):
Interest expense ................................................. (2,387) (1,281)
Other income, net ................................................ 458 742
------------ ------------
Income before income taxes .................................. 27,464 17,875
Income taxes .......................................................... 9,906 6,359
------------ ------------
Net income .................................................. $ 17,558 $ 11,516
============ ============
Earnings per common share:
Basic ............................................................ $ 1.53 $ 1.00
============ ============
Diluted .......................................................... $ 1.53 $ 1.00
============ ============
Weighted average number of shares of common
stock equivalents outstanding:
Basic ........................................................ 11,500,000 11,500,000
============ ============
Diluted ...................................................... 11,500,000 11,500,000
============ ============
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ---------- -------- --------
Balance, December 31, 1999 ..................... $ 115 $106,855 $ 2,648 $109,618
Net income ..................................... -- -- 17,558 17,558
-------- -------- -------- --------
Balance, September 30, 2000 .................... $ 115 $106,855 $ 20,206 $127,176
======== ======== ======== ========
Balance, December 31, 1998 ..................... $ 115 $ 73,768 $ 16,229 $ 90,112
Net income ..................................... -- -- 11,516 11,516
-------- -------- -------- --------
Balance, September 30, 1999 ................... $ 115 $ 73,768 $ 27,745 $101,628
======== ======== ======== ========
See accompanying notes to the condensed consolidated financial statements.
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NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
2000 1999
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 17,558 $ 11,516
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization ......................................... 2,920 2,780
Net (gain) on sale of property, premises and equipment ................ (30) (35)
Equity in earnings from unconsolidated subsidiaries ................... (478) (516)
Changes in operating assets and liabilities:
Inventory and land held for development, net ...................... (17,055) (55,211)
Receivables ....................................................... (1,276) (3,420)
Other assets ...................................................... (714) (1,592)
Payable to affiliates ............................................. (1,738) (2,048)
Accounts payable and accrued liabilities .......................... (7,589) 3,932
Other liabilities ................................................. 1,881 6,490
--------- ---------
Net cash used in operating activities ............................. (6,521) (38,104)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, premises and equipment ........................... (1,770) (1,841)
Proceeds from sales of property, premises and equipment ................. 252 129
Increase in goodwill .................................................... (480) --
Investment in unconsolidated subsidiaries ............................... (133) (348)
Distributions from unconsolidated subsidiaries .......................... 370 641
--------- ---------
Net cash used in investing activities ............................. (1,761) (1,419)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from advances on construction loans payable .................... 252,109 263,707
Principal payments on construction loans payable ........................ (243,056) (221,489)
Principal payments on acquisition notes payable ......................... (3,418) (2,468)
--------- ---------
Net cash provided by financing activities ......................... 5,635 39,750
--------- ---------
INCREASE (DECREASE) IN CASH ................................................ (2,647) 227
CASH, beginning of period .................................................. 8,080 5,794
--------- ---------
CASH, end of period ........................................................ $ 5,433 $ 6,021
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest .............................................................. $ 11,780 $ 9,494
========= =========
Income taxes .......................................................... $ 11,983 $ 8,481
========= =========
See accompanying notes to the condensed consolidated financial statements.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Newmark Homes Corp. and subsidiaries (the "Company") is an 80% owned subsidiary
of Technical Olympic USA, Inc. ("TOUSA") as of December 15, 1999. The Company
was formed in December 1994 to serve as a real estate holding company.
The Company's primary subsidiaries are as follows:
SUBSIDIARY NATURE OF BUSINESS
---------- ------------------
Newmark Home Corporation ("Newmark").................. Single-family residential homebuilding in Texas,
Tennessee and North Carolina - formed in 1983.
Westbrooke Communities, Inc. ("Westbrooke") .......... Single-family residential homebuilding and residential
lot developer in South Florida - formed in 1976.
The Adler Companies, Inc. ("Adler")................... Single-family residential homebuilding in South Florida
- formed in 1990.
Pacific United Development Corporation ("PUDC") ...... Residential lot development in Texas and Tennessee
- formed in 1993.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The accounting and reporting policies of the Company conform
to generally accepted accounting principles and general practices within the
homebuilding industry. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INTERIM PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by the Company and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with generally
accepted accounting principles have been omitted from the accompanying
statements. The Company's management believes the disclosures made are adequate
to make the information presented not misleading. However, the financial
statements included as part of this 10-Q filing should be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 1999 Annual Report on Form 10-K.
EARNINGS PER SHARE
Basic Earnings Per Share is computed by dividing earnings attributable to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted Earnings Per Share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. The following table reconciles the
computation of basic and diluted Earnings Per Share for the three months ended
September 30, 2000 and 1999 and for the nine months ended September 30, 2000 and
1999 (in thousands, except per share amounts):
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THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Income available to common shareholders
(Numerator) ..................................... $ 5,655 $ 5,330 $ 17,558 $ 11,516
Weighted average of shares outstanding
(Denominator) ................................... 11,500 11,500 11,500 11,500
Basic and diluted Earnings Per Share ............ $ .49 $ .46 $ 1.53 $ 1.00
---------- ---------- ---------- ----------
Diluted Earnings Per Share ...................... $ .49 $ .46 $ 1.53 $ 1.00
========== ========== ========== ==========
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NOTE 2. INVENTORY
Inventory balances as of September 30, 2000 and December 31, 1999 consist of the
following:
CARRYING VALUE
NUMBER OF HOMES (IN THOUSANDS)
--------------------------- ----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2000 1999 2000 1999
------------ ------------- ------------- ------------
Completed .............................. 188 137 $ 42,309 $ 29,145
Under construction ..................... 1,074 1,038 139,048 142,975
Models ................................. 84 80 19,953 19,763
Residential lots ....................... -- -- 71,321 63,693
-------- -------- -------- --------
Total ................... 1,346 1,255 $272,631 $255,576
======== ======== ======== ========
NOTE 3. CAPITALIZED INTEREST
A summary of interest capitalized in inventory is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
Interest capitalized, beginning of period ................... $ 6,852 $ 5,814 $ 6,266 $ 5,516
Interest incurred ........................................... 3,832 3,197 11,726 9,017
Less interest included in:
Cost of sale ........................................... 2,534 2,544 8,253 7,251
Other income ........................................... 798 466 2,387 1,281
------- ------- ------- -------
Interest capitalized, end of period ......................... $ 7,352 $ 6,001 $ 7,352 $ 6,001
======= ======= ======= =======
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
the Company has meritorious defenses to these matters and that any potential
liability from these matters would not materially affect the Company's
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, Section
21E of the Securities Exchange Act of 1934, as amended and the Private
Securities Litigation Reform Act of 1995. Such matters involve risks and
uncertainties, including the Company's exposure to certain market risks, changes
in economic conditions, tax and interest rates, increases in raw material and
labor costs, weather conditions, and general competitive factors that may cause
actual results to differ materially.
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RESULTS OF OPERATIONS
The following tables set forth certain operating and financial data for the
Company:
NEW SALES CONTRACTS,
NET OF CANCELLATIONS HOME CLOSINGS
-------------------- -------------------
THREE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Houston ...................... 177 149 166 170
Austin ....................... 76 131 123 131
Dallas/Ft. Worth ............. 40 27 35 48
San Antonio .................. 21 -- 14 --
Ft. Lauderdale,
Palm Beach, Miami ...... 280 223 165 120
Nashville .................... 23 27 25 27
Charlotte .................... 4 1 2 2
Greensboro/Winston-
Salem .................. 13 1 9 3
---- ---- ---- ----
Total ........................ 634 559 539 501
==== ==== ==== ====
NEW SALES CONTRACTS, HOMES IN
NET OF CANCELLATIONS HOME CLOSINGS SALES BACKLOG
-------------------- ------------------- ------------------
NINE MONTHS NINE MONTHS AS OF
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------- ------------------
2000 1999 2000 1999 2000 1999
------ ------ ------ ------ ------ -----
Houston ...................... 509 449 461 473 169 151
Austin ....................... 425 455 448 378 272 261
Dallas/Ft. Worth ............. 125 112 108 119 49 50
San Antonio .................. 41 -- 28 -- 14 --
Ft. Lauderdale,
Palm Beach, Miami ...... 701 654 593 368 639 601
Nashville .................... 76 63 67 63 21 22
Charlotte .................... 12 2 8 2 5 --
Greensboro/Winston-
Salem .................. 25 5 22 3 8 2
----- ----- ----- ----- ----- -----
Total ........................ 1,914 1,740 1,735 1,406 1,177 1,087
===== ===== ===== ===== ===== =====
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AS A PERCENTAGE OF REVENUE AS A PERCENTAGE OF REVENUE
THREE MONTHS NINE MONTHS
-------------------------- --------------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
Cost of sales ......................................... 81.8% 82.0% 82.5% 83.6%
Gross profit .......................................... 18.2% 18.0% 17.5% 16.4%
Selling, general and administrative expenses .......... 11.2% 10.7% 10.4% 10.5%
Income before income taxes ............................ 6.1% 6.5% 6.1% 5.1%
Income taxes(1) ....................................... 36.1% 35.4% 36.1% 35.6%
Net income ............................................ 3.9% 4.2% 3.9% 3.3%
(1) As a percent of income before income taxes.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999.
Revenues increased by 15.4% to $146.2 million in the three months ending
September 30, 2000 from $126.7 million in the three months ending September 30,
1999 due to a combination of an increase in units closed and an increase in
average selling price. The number of homes closed by the Company increased by
7.6 % to 539 homes in the three months ending September 30, 2000 from 501 homes
in the three months ending September 30, 1999. The Company's average selling
price of homes closed in the three months ending September 30, 2000 was
$268,463, an increase of 8.6% from the $247,209 average selling price in the
three months ending September 30, 1999 due to product mix within the
subdivisions closing homes. The average selling price of a Newmark(R) home
closed in the three months ending September 30, 2000 was $255,171, an increase
of 2.7% from the $248,469 average selling price in the three months ending
September 30, 1999. The Fedrick, Harris Estate Homes average selling price of
homes closed in the three months ending September 30, 2000 was $508,155, an
increase of 23.0% from the $413,025 average selling price in the three months
ending September 30, 1999. Also, revenues generated from sales of custom homes
under the Fedrick, Harris Estate Homes brand name increased from $17.8 million
in the three months ending September 30, 1999 to $30.5 million in the three
months ending September 30, 2000 primarily due to increased unit sales in
Houston, Austin and Nashville. In the South Florida market, Westbrooke and
Adler's average selling price of homes closed in the three months ending
September 30. 2000 was $206,598, an increase of 12.1% from the $184,244 average
selling price in the three months ending September 30, 1999. In addition,
revenue from land sales in the three months ending September 30, 2000 decreased
to $ 1.5 million from $2.9 million in the three months ending September 30,
1999.
New net sales contracts increased 13.4% to 634 homes for the three months ended
September 30, 2000 from 559 homes for the three months ended September 30, 1999.
The dollar amount of new net sales contracts increased 20.1% to $160.0 million.
The Company was operating in 78 subdivisions at September 30, 2000 compared to
73 subdivisions at September 30, 1999. As of September 30, 2000, the Company's
backlog of sales contracts was 1,177 homes, an 8.3% increase over comparable
figures at September 30, 1999.
Cost of sales increased by 15.1% to $ 119.6 million in the three months ended
September 30, 2000 from $103.9 million in the comparable period of 1999. The
increase was attributable to the increase in revenues from home closings as
described above. Cost of land sales for the three months ended September 30,
2000 decreased to $1.3 million from $2.2 million for the comparable period of
1999. As a percentage of revenues, cost of sales for the three months ended
September 30, 2000 decreased to 81.8% in 2000 from 82.0% in 1999.
Selling, general and administrative ("SG&A") expense increased by 20.5% to $16.4
million in the three months ended September 30, 2000, from $13.6 million in the
comparable period of 1999. The increase was primarily caused by the expansion
into the new markets of Nashville, Tennessee; Charlotte and Greensboro, North
Carolina as well as the expansion in the Company's existing Texas and Florida
markets, as indicated by the 15.4% increase in the Company's revenues and the
8.3% increase in the backlog at the end of September 2000 versus September 1999.
As a percentage of revenues, SG&A expense increased to 11.2% in the three months
ended September 30, 2000 from 10.7% in the comparable period of 1999.
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Interest expense, net of interest capitalized, totaled $.8 million in the three
months ended September 30, 2000 compared to $.5 million in the comparable period
of 1999. The Company follows a policy of capitalizing interest only on inventory
under construction or development. During the three months ended September 30,
2000 and 1999, the Company expensed a portion of interest incurred and other
financing costs on those completed homes held in inventory. This expense
increased due to the increase in the average number of completed homes held in
inventory for the quarter ending September 30, 2000. Capitalized interest and
other financing costs are included in cost of sales at the time of home
closings.
The Company's provision for income taxes increased as a percentage of earnings
before taxes to 36.1% for the three months ended September 30, 2000 compared to
35.4% for the three months ended September 30, 1999. The increase was primarily
a result of increased state taxes resulting from increased earnings in the state
of Florida. However, federal income taxes have decreased as a percentage of
earnings before taxes to 34.4% for the three months ended September 30, 2000
compared to 35.4% due primarily to the increase in deductible amortization of
goodwill resulting from the election of the Internal Revenue Code Section 338
(h)(10). The election of Internal Revenue Code Section 338 (h)(10) was made on
December 15, 1999 when TOUSA acquired 80% of the Company's outstanding common
stock. The Company recognized federal income tax expense amounting to $3.0
million for the three months ended September 30, 2000 compared to $2.9 million
for the three months ended September 30, 1999.
Net income increased by 6.1% to $ 5.7 million in the three months ended
September 30, 2000, from $5.3 million in the comparable period of 1999. The
increase was attributable to the increase in revenues in the Company's most
profitable markets.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999.
Revenues increased by 27.9% to $447.7 million in the nine months ending
September 30, 2000 from $350.0 million in the nine months ending September 30,
1999 due to a combination of an increase in units closed and an increase in
average selling price. The number of homes closed by the Company increased by
23.4 % to 1,735 homes in the nine months ending September 30, 2000 from 1406
homes in the nine months ending September 30, 1999. The Company's average
selling price of homes closed in the nine months ending September 30, 2000 was
$255,529, an increase of 6.3% from the $240,288 average selling price in the
nine months ending September 30, 1999. The Fedrick, Harris Estate Homes average
selling price of homes closed in the nine months ending September 30, 2000 was
$477,603, an increase of 13.9% from the $419,191 average selling price in the
nine months ending September 30, 1999. Also, revenues generated from sales of
custom homes under the Fedrick, Harris Estate Homes brand name increased from
$50.3 million in the nine months ending September 30, 1999 to $75.0 million in
the nine months ending September 30, 2000, primarily due to increased unit sales
in Houston, Austin and Nashville. In the South Florida market, Westbrooke and
Adler's average selling price of homes closed in the nine months ending
September 30, 2000 was $202,641, an increase of 7.2% from the 189,047 average
selling price in the nine months ending September 30, 1999. In addition, revenue
from land sales in the nine months ending September 30, 2000 decreased to $4.3
million from $12.1 million in the nine months ending September 30, 1999.
New net sales contracts increased 10.0% to 1,914 homes for the nine months
ending September 30, 2000 from 1,740 homes for the nine months ending September
30, 1999. The dollar amount of new net sales contracts increased 21.0% to $492.2
million.
Cost of sales increased by 26.2% to $369.1 million in the nine months ending
September 30, 2000 from $292.5 million in the comparable period 1999. The
increase was attributable to the increase in revenues from home closings as
described above. Cost of land sales for the nine months ending September 30,
2000 decreased to $3.9 million from $10.2 million for the comparable period of
1999. As a percentage of revenues, cost of sales for the nine months ending
September 30, 2000 decreased to 82.5% in 2000 from 83.6% in 1999.
Selling, general and administrative expense increased by 27.0% to $46.7 million
in the nine months ending September 30, 2000 from $36.8 million in the
comparable period of 1999. The increase was primarily caused by the expansion
into the new markets of Nashville, Tennessee; Charlotte and Greensboro, North
Carolina as well as the expansion in the Company's existing Texas and Florida
markets, as indicated by the 27.9% increase in the Company's revenues and the
8.3% increase in the backlog at the end of September 2000 as compared to
September 1999. As a percentage of revenues, SG&A expense decreased to 10.4% in
the nine months ending September 30, 2000 from 10.5 % in the comparable period
of 1999.
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Interest expense, net of interest capitalized, totaled $2.4 million in the nine
months ending September 30, 2000 compared to $1.3 million in the comparable
period of 1999. The Company follows a policy of capitalizing interest only on
inventory under construction or development. During the nine months ending
September 30, 2000 and 1999, the Company expensed a portion of interest incurred
and other financing costs on those completed homes held in inventory. This
expense increased due to the increase in the average number of completed homes
held in inventory during the nine months ending September 30, 2000 compared to
the nine months ending September 30, 1999. Capitalized interest and other
financing costs are included in cost of sales at the time of home closings.
The Company's provision for income taxes increased as a percentage of earnings
before taxes to 36.1% for the nine months ending September 30, 2000 compared to
35.6% for the nine months ending September 30, 2000. The increase was primarily
a result of increased state taxes resulting from increased earnings in the state
of Florida. However, federal income taxes have decreased as a percentage of
earnings before taxes to 34.6% for the nine months ending September 30, 2000
compared to 36.0% for the nine months ending September 30, 1999 primarily as a
result of the increase in deductible amortization of goodwill resulting from the
election of the Internal Revenue Code Section 338(h)(10). The Company recognized
federal income tax expense amounting to $9.5 million for the nine months ending
September 30, 2000 compared to $6.4 million for the nine months ending September
30, 1999.
Net income increased by 52.5% to $17.6 million in the nine months ending
September 30, 2000, from $11.5 million in the comparable period of 1999. The
increase was attributable to the increase in revenues in the Company's most
profitable markets.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had available cash and cash equivalents of
$5.4 million. Inventories (including finished homes and construction in
progress, developed residential lots and other land) at September 30, 2000
increased by $17.0 million from $255.6 million at December 31, 1999 due to a
general increase in business activity and the expansion of operations in the
newer market areas. Because of increased funds from earnings, the Company's
ratio of construction loans payable to total capital assets decreased to 56.8%
at September 30, 2000 from 57.1% at December 31, 1999. The equity to total
assets ratio increased during the nine months to 37.0% at September 30, 2000
from 33.3% at December 31, 1999 due to increased earnings as discussed above.
The Company's financing needs depend upon the results of its operations, sales
volume, inventory levels, inventory turnover, and acquisitions. The Company has
financed its operations through borrowings from financial institutions and
through funds from earnings.
At September 30, 2000, the Company had lines of credit commitments for
construction loans totaling approximately $241.2 million, of which $23.2 million
is available to draw down.
The Company's growth requires significant amounts of cash. It is anticipated
that future home construction, lot and land purchases and acquisitions will be
funded through internally generated funds and new and existing borrowing
relationships. The Company continuously evaluates its capital structure and, in
the future, may seek to further increase secured debt and obtain additional
equity to fund ongoing operations as well as to pursue additional growth
opportunities.
Except for ordinary expenditures for the construction of homes and, to a limited
extent, the acquisition of land and lots for development and sale of homes, at
September 30, 2000, the Company had no material commitments for capital
expenditures.
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SEASONALITY AND QUARTERLY RESULTS
The homebuilding industry is seasonal, as generally there are more sales in the
spring and summer months, resulting in more home closings in the fall. The
Company operates in the Southwestern and Southeastern markets of the United
States, where weather conditions are more suitable to a year-round construction
process than other areas. The Company also believes its geographic diversity to
be somewhat counter-cyclical, with adverse economic conditions associated with
certain of its markets often being offset by more favorable economic conditions
in other markets. The seasonality of school terms has an impact on the Company
operations, but it is somewhat mitigated by the fact that many of the Company's
buyers at the higher end of the Company's price range, including Fedrick, Harris
Estate Homes, no longer have children in school. As a result of these factors,
among others, the Company generally experiences more sales in the spring and
summer months, and more closings in the summer and fall months. Likewise,
Westbrooke has experienced seasonality in its revenues, generally completing
more sales in the spring and summer months and more closings in the fourth
quarter.
The Company historically has experienced, and in the future expects to continue
to experience, variability in revenues on a quarterly basis. Factors expected to
contribute to the variability include, among others: (i) the timing of home
closings; (ii) the Company's ability to continue to acquire land and options on
acceptable terms; (iii) the timing of receipt of regulatory approvals for the
construction of homes; (iv) the condition of the real estate market and general
economic conditions; (v) the cyclical nature of the homebuilding industry; (vi)
prevailing interest rates and the availability of mortgage financing; (vii)
pricing policies of the Company's competitors; (viii) the timing of the opening
of new residential projects; (ix) weather; and (x) the cost and availability of
materials and labor. The Company's historical financial performance is not
necessarily a meaningful indicator of future results and the Company expects its
financial results to vary from project to project and from quarter to quarter.
ITEM 3. CHANGES IN INFORMATION ABOUT MARKET RISK.
The Company is exposed to market risk primarily related to potential
adverse changes in interest rates as discussed below. The company does
not enter into, or intend to enter into, derivative financial
instruments for trading or speculative purposes. The Company's exposure
to market risks is changes to interest rates related to the Company's
construction loans. The interest rates relative to the Company's
construction loans fluctuate with the prime and Libor lending rates,
both upwards and downwards.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of the Company's
management, the ultimate disposition of these matters is not expected
to have a material effect on the financial condition or results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES.
None. No disclosure required.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None. No disclosure required
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 2000 Annual Meeting of Shareholders of the Company was held on
July 17, 2000. Proxies were solicited by the Company pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as amended,
(a) to elect directors of the Company for the ensuing year and (b) to
approve the annual bonus plan of the Chief Executive Officer.
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Proxies and shareholders present representing 11,221,284 shares of
stock eligible to vote at the meeting, or 97.6 percent of the
outstanding shares, were voted in connection with the election of
directors, and 11,221,284 shares of stock eligible to vote at the
meeting, or 97.6 percent of the outstanding shares, were voted in
connection with the approval of the annual bonus plan of the Chief
Executive Officer. The following is a separate tabulation with respect
to the vote for each nominee:
Michael Stevens, appointed to the Board of Directors on June 21, 2000,
will continue to serve as a director until the 2001 Annual Meeting of
Shareholders or until his successor is duly elected and qualified.
NOMINEE TOTAL VOTES FOR TOTAL VOTES WITHHELD
------- --------------- --------------------
Constantine Stengos 11,192,875 28,300
Andreas Stengos 11,190,125 31,050
George Stengos 11,190,125 31,050
Yannis Delikanakis 11,192,125 29,050
Larry D. Horner 11,195,525 26,650
William A. Hasler 11,194,525 26,650
Michael J. Poulos 11,194,525 26,650
Lonnie M. Fedrick 11,194,875 26,300
James M. Carr 11,194,525 26,650
The following is a tabulation with respect to the vote on the annual
bonus plan of the Chief Executive Officer:
Total Votes For 10,506,384
Total Votes Against: 27,882
Total Votes Withheld: 4,454
ITEM 5. OTHER INFORMATION.
None. No disclosure required.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) Exhibits.
Exhibit Number Exhibit
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27 Financial Data Schedule
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the quarter ended
September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWMARK HOMES CORP.
November 8, 2000 By: /s/ Terry C. White
- -------------------- -----------------------------------------
Date Terry C. White, Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule