Technical Olympic USA, Inc.
We will amend
and complete the information in this prospectus supplement. This
prospectus supplement and the prospectuses are part of effective
registration statements filed with the SEC. This prospectus
supplement and the prospectuses are not offers to sell these
securities or our solicitation of your offer to buy these
securities in any jurisdiction where that would not be permitted
or legal.
|
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-122451
and 333-126727
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PRELIMINARY PROSPECTUS SUPPLEMENT |
Subject to completion, dated August 2, 2005 |
(To prospectus dated February 23, 2005
and prospectus dated August 1, 2005)
5,500,000 Shares
TECHNICAL OLYMPIC USA, INC.
Common Stock
We are offering 4,000,000 shares of our common stock and
Technical Olympic S.A., our majority stockholder and the selling
stockholder, is offering 1,500,000 shares of our common
stock. We will not receive any proceeds from the sale of any
shares of common stock sold by the selling stockholder.
Our common stock is traded on the New York Stock Exchange under
the symbol TOA. On August 1, 2005, the last
reported sale price of our common stock reported on the New York
Stock Exchange was $28.80.
Investing in our common stock involves risks. See Risk
Factors beginning on page S-9 of this prospectus
supplement for a discussion of certain factors you should
consider before you buy our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the accompanying prospectuses. Any
representation to the contrary is a criminal offense.
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Per share | |
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Total | |
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Public offering price
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$ |
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$ |
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Underwriting discounts and commissions
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$ |
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$ |
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Proceeds, before expenses, to Technical Olympic USA, Inc.
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$ |
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$ |
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Proceeds to selling stockholder
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$ |
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$ |
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The underwriters may also purchase up to an additional
825,000 shares of common stock from us and the selling
stockholder, at the public offering price, less the underwriting
discounts and commissions payable by us, to cover
over-allotments, if any, within 30 days from the date of
this prospectus supplement. If the underwriters exercise the
option in full, the total underwriting discounts and commissions
will be
$ ,
the total proceeds to us will be
$ and
the total proceeds to the selling stockholder will be
$ .
Delivery of the shares will be made on or about
August , 2005.
Joint Book-Running Managers
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UBS Investment Bank |
Citigroup |
Deutsche Bank Securities
Wachovia
Securities
JMP Securities
The date of this prospectus supplement is
August , 2005
About this prospectus supplement
This prospectus supplement supplements two different
prospectuses, which are separately included as part of two
different registration statements. The prospectus dated
February 23, 2005, which is a part of Registration
Statement No. 333-122451 and which we refer to as the
company prospectus, relates to the offering by us of up to
$500 million of the securities described in the company
prospectus. The prospectus dated August 1, 2005, which is a
part of Registration Statement No. 333-126727 and which we
refer to as the selling stockholder prospectus, relates to the
offering of up to 2 million shares of common stock by the
selling stockholder. We refer collectively to the company
prospectus and the selling stockholder prospectus as the
accompanying prospectuses.
This document has three parts. The first part is the prospectus
supplement, which describes the specific terms of this offering
and also adds to and updates information contained in the
accompanying prospectuses and the documents incorporated by
reference. The second and third parts are the two accompanying
prospectuses, which give more general information, some of which
may not apply to this offering. TO THE EXTENT THERE IS A
CONFLICT BETWEEN THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, THE INFORMATION CONTAINED IN THE ACCOMPANYING
PROSPECTUSES OR THE INFORMATION CONTAINED IN ANY DOCUMENT
INCORPORATED BY REFERENCE HEREIN OR THEREIN, THE INFORMATION
CONTAINED IN THE MOST RECENTLY DATED DOCUMENT SHALL CONTROL.
It is important for you to read and consider all information
contained in this prospectus supplement and each accompanying
prospectus, including the documents incorporated by reference
herein and therein, in making your investment decision. This
prospectus supplement and the accompanying prospectuses
incorporate important business and financial information about
us and our subsidiaries that is not included in or delivered
with these documents. This information is available without
charge upon written or oral request. See Where You Can
Find More Information.
You should rely only on the information contained, incorporated
or deemed incorporated by reference in this prospectus
supplement and the accompanying prospectuses. We have not
authorized anyone to give any information or to make any
representation not contained, incorporated or deemed
incorporated by reference in this prospectus supplement or the
applicable accompanying prospectuses in connection with the
offering of shares of common stock in this offering. You should
not assume that the information contained in this prospectus
supplement and the accompanying prospectuses is correct as of
any date after the respective dates of this prospectus
supplement and the accompanying prospectuses, even though this
prospectus supplement and the accompanying prospectuses are
delivered or these shares of common stock are offered or sold on
a later date.
This prospectus supplement is not, and neither of the
accompanying prospectuses are, an offer to sell any security
other than the common stock and they are not soliciting an offer
to buy any security other than the common stock. This prospectus
supplement is not, and neither of the accompanying prospectuses
are, an offer to sell this common stock to any person, and they
are not soliciting an offer from any person to buy the common
stock, in any jurisdiction where the offer or sale to that
person is not permitted.
TABLE OF CONTENTS
Prospectus Supplement
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S-1 |
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S-9 |
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S-17 |
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S-20 |
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S-21 |
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S-22 |
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S-25 |
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S-39 |
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S-51 |
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S-54 |
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S-56 |
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S-58 |
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S-60 |
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S-61 |
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S-64 |
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S-66 |
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S-66 |
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S-67 |
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F-1 |
Prospectus dated February 23, 2005
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31 |
Prospectus dated August 1, 2005
S-i
Prospectus supplement summary
This summary is not complete and does not contain all of the
information that you should consider before investing in our
common stock. You should read the entire prospectus supplement
and the accompanying prospectuses carefully, especially the
risks discussed under the Risk Factors section
beginning on page S-9 of this prospectus supplement and our
consolidated financial statements and the notes to those
statements included herein. Unless the context otherwise
requires, all references to we, our,
us or TOUSA refer to Technical Olympic
USA, Inc. and its subsidiaries. The term selling
stockholder or TOSA as used in this prospectus
supplement refers to Technical Olympic S.A. Unless indicated
otherwise, all information in this prospectus supplement assumes
that the underwriters do not exercise the over-allotment option
described in Underwriting.
THE COMPANY
We design, build and market high quality detached single-family
residences, townhomes and condominiums. We operate in markets
characterized by strong population and income growth. Currently,
we conduct homebuilding operations in 16 metropolitan markets,
located in four major geographic regions: Florida, the
Mid-Atlantic, Texas and the West.
For the year ended December 31, 2004, we delivered 7,221
homes, with an average sales price of $275,000, and generated
approximately $2.1 billion in homebuilding revenues and
$119.6 million in net income, or $2.08 per diluted
share. Our unconsolidated joint ventures delivered an additional
116 homes, with an average sales price of $299,000.
For the six months ended June 30, 2005, we delivered 3,879
homes, with an average sales price of $282,000 and our
unconsolidated joint ventures delivered an additional 344 homes,
with an average sales price of $301,000. This represented an
increase in homebuilding revenues of 25% to approximately
$1,149.4 million for the six months ended June 30,
2005, from $923.2 million for the six months ended
June 30, 2004. At June 30, 2005, our homebuilding
operations had a backlog of 6,335 homes under contract, with
sales value of $2.1 billion, and our unconsolidated joint
ventures had a backlog of 1,125 homes under contract, with sales
value of $0.4 billion. Net income increased to
$72.1 million, or $1.24 per diluted share, for the six
months ended June 30, 2005 from $42.2 million, or
$0.74 per diluted share, for the six months ended
June 30, 2004.
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). We market our homes under
various brand names, including Engle Homes, Newmark Homes,
Trophy Homes and Gilligan Homes.
As of June 30, 2005, we controlled approximately
74,000 homesites (including through our unconsolidated
joint ventures), of which 81% were controlled through various
option arrangements, and we were actively selling homes in
228 communities (including 20 through our unconsolidated
joint ventures).
As part of our objective to provide homebuyers a seamless home
purchasing experience, we have developed our complementary
financial services business. As part of this business, we
provide mortgage financing, closing and settlement services and
offer title, homeowners and other 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 party
investors. Our mortgage financing services are used primarily by
buyers of our homes, although we also offer these services to
existing homeowners. By comparison, our closing services and our
insurance agency operations are used by our homebuyers as well
as a broad range of other clients purchasing or refinancing
residential or commercial real estate.
S-1
COMPETITIVE STRENGTHS
High growth markets
We believe that by focusing our homebuilding operations in high
growth markets, we are well positioned to expand our business
and maximize our financial returns. We operate in five of the
eight fastest growing states in the United States, based on
population growth from 1990 to 2000. The average median
population growth in the eight states where we have divisions
was 28.1% from 1990 to 2000, as compared to the
U.S. average of 13.1%. In addition, each of the states in
which we operate has demonstrated a history of solid economic
growth. These eight states had an average median income growth
of 13.3%, as compared to the U.S. average of 4.0%, from
1989 to 1999. We expect that these growth trends will increase
future housing demand in our markets. Additionally, based on our
relative position in each of these markets, we believe we have
the opportunity to expand our operations.
Geographic and customer diversification
We operate in 16 geographically diverse markets. For the year
ended December 31, 2004, none of the metropolitan markets
in which we operated during such period represented more than
16% of our total revenues. Within our markets, we target a
diverse customer base including first-time, move-up, relocating,
active-adult and empty-nester homebuyer segments. For the year
ended December 31, 2004, we generated 37% of our revenues
from home sales from homes in the $200,000 to $300,000 price
range, 22% of our revenues from home sales from homes in the
$300,000 to $400,000 price range, 29% of our revenues from home
sales from homes in the under $200,000 price range and 12% of
our revenues from home sales from homes in the over $400,000
price range. We believe that this diversification protects us
from downturns in any one market or price segment and provides
us with additional growth opportunities.
Experienced management team
We balance our local expertise and focus with a seasoned and
professional senior management team. Our regional and divisional
managers have an average of 20 years of homebuilding
experience in their local markets. As a result, they have
developed in-depth market expertise and familiarity with their
customers and subcontractors. In addition, as a result of their
long-standing relationships with local land sellers and
developers, our regional and divisional managers are
well-positioned to acquire premium land and homesites. Our
senior corporate managers have an average of more than
18 years of experience in the homebuilding business and
have a successful track record of delivering strong results in
varying homebuilding cycles. The experience and depth of our
management team provides us the capability to quickly evaluate
and successfully capitalize on market opportunities and adjust
to changing national, regional and local business conditions.
Strong land positions and disciplined acquisition strategy
Land is our key raw material and one of our most valuable
assets. We believe that by acquiring land and homesites in
premier locations, we enhance our competitive standing and
reduce our exposure to economic downturns. We believe that homes
in premier locations continue to attract homebuyers in both
strong and weak economic conditions. We consider that our
disciplined acquisition strategy of balancing homesites and land
we own and those we can acquire under option contracts and
through joint ventures provides us access to a substantial
supply of quality homesites and land while conserving our
invested capital and optimizing our returns. Generally, we
acquire only homesites and land suitable for homesite
development and residential construction.
S-2
Strong brand recognition and customer service
We market our homes under various brand names, including Engle
Homes, Newmark Homes, Trophy Homes and Gilligan Homes. We
believe our brands are widely recognized in the markets in which
we operate for providing quality homes in desirable locations
and enjoy a solid reputation among potential homebuyers. We
believe that customer satisfaction enhances our reputation for
quality and service and leads to significant repeat and referral
business. In our industry, customer satisfaction is based in
large part on our ability to respond promptly and courteously to
homebuyers before, during and after the sale of our homes. As
part of our customer service program, we conduct home
orientations and pre-delivery inspections to promptly address
any outstanding construction issues and, in most of our markets,
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.
BUSINESS STRATEGIES
Capitalize on growth potential in our current markets
We believe that a significant portion of our future growth will
stem from our ability to increase our homes sales and capture
additional market share within our current markets. Currently,
we conduct homebuilding operations in 16 metropolitan markets,
each of which is highly fragmented with other homebuilders. Our
reputation as a high quality homebuilder combined with our
financial resources gives us an advantage over many smaller
homebuilders with whom we compete. Consequently, we have an
opportunity to significantly strengthen our market position by
expanding our product offerings and increasing the number of our
active selling communities. Generally, our current markets have
demonstrated solid income and population growth trends. As a
result, we expect that strong demand for new housing in our
current markets will also contribute to our growth. By
leveraging our current operations, we believe that we will, over
time, maximize our financial returns, strengthen our margins and
increase our revenues and profitability.
Expand our use of joint ventures and option contracts to
maximize our return on assets
We have entered into, and expect to expand our use of, joint
ventures that acquire and develop land for our homebuilding
operations and/or joint ventures that develop land and also
build and market homes. We believe that these joint ventures
help us acquire attractive land positions, mitigate and share
the risk associated with land ownership and development,
increase our return on assets and extend our capital resources.
In addition, we seek to use option contracts to acquire land
whenever feasible. Option contracts allow us to control
significant homesite positions with minimal capital investment
and substantially reduce the risks associated with land
ownership and development. At June 30, 2005, we controlled
approximately 74,000 homesites (including through our
unconsolidated joint ventures) of which approximately 81% were
controlled through various option arrangements.
Grow our financial services business
Our financial services operations require minimal capital
investment and are financially advantageous because of the cost
savings resulting from using our affiliated mortgage financing
operation and the earnings generated by the high volume of
transactions completed by our title insurance and closing
services operations. We believe that these financial services
complement our homebuilding operations and provide homebuyers a
seamless home purchasing experience. For the six months ended
June 30, 2005, approximately 10% of our homebuyers paid in
cash and 61% of our non-cash homebuyers used
S-3
the services of our mortgage business, while 84% of our
homebuyers used our title and closing services. We believe that
we have an opportunity to grow our financial services business
by:
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4 |
increasing the percentage of our homebuyers who use our
financial services; |
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4 |
marketing our financial services more actively to buyers of
homes built by other homebuilders, including smaller
homebuilders that do not provide their own financial
services; and |
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4 |
offering additional services that complement our existing
financial services in all our markets. |
Selectively expand into new markets
We intend to supplement our primary growth strategy of expansion
in our current markets with a disciplined, financial return
oriented approach to entering new markets. We will focus on
entering metropolitan areas that have favorable homebuilding
characteristics, including availability of strong management
with local market expertise as well as solid income and
population growth trends, significant single-family home permit
activity, a diversified economy and an adequate supply of
obtainable homesites. We believe this long-term emphasis on
geographic diversification across a range of growing markets
with strong fundamentals will enable us to minimize our exposure
to adverse economic conditions, seasonality and housing cycles
in individual local markets. We will enter new markets through
strategic acquisitions of other homebuilders and through
initiating operations using our existing management expertise
and resources.
Recent developments
On August 1, 2005, we completed the acquisition of the
homebuilding assets and operations of Transeastern Properties,
Inc. (Transeastern), headquartered in Coral Springs,
Florida, through a joint venture (the Transeastern
acquisition). The joint venture was formed between us and
an entity (the Falcone Entity) controlled by Arthur
Falcone and Edward Falcone, Co-Chairmen of The Falcone Group,
and majority owners of Transeastern Homes (the
Transeastern JV). The Transeastern JV acquired
Transeasterns homebuilding assets, including work in
process, finished lots and certain land option rights, for
approximately $826.2 million (which includes the assumption
of $112.0 million of liabilities). An earnout of up to an
additional $75.0 million will be paid if certain conditions
are met, such as achieving predetermined quarterly EBITDA
targets and delivery of entitlement on certain tracts of land
currently held under lot option contracts. In addition to the
assets acquired in the transaction, the Transeastern JV will
have a right of first offer on land developed by The Falcone
Group in the joint ventures existing markets for a period
of five years.
We are the managing member of the Transeastern JV. We and the
Falcone Entity each hold a 50% voting interest in the joint
venture. The Transeastern JV is funded with $675.0 million
of third party debt capacity (of which $560.0 million was
drawn), a $20.0 million subordinated bridge loan from us
and $165.0 million of equity, of which $90.0 million
was contributed by us. The third party debt is secured by the
joint ventures assets and ownership interests and is
non-recourse to us.
EXECUTIVE OFFICES
Our executive offices are located at 4000 Hollywood Blvd.,
Suite 500 N, Hollywood, Florida 33021, and our
telephone number is (954) 364-4000. Our web address is
http://www.tousa.com. We do not intend the information on our
website to constitute part of this prospectus supplement and the
accompanying prospectuses.
S-4
The offering
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Common stock offered by us |
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4,000,000 shares |
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Common stock offered by the selling stockholder |
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1,500,000 shares |
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Common stock outstanding after this offering |
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60,093,602 shares |
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Use of Proceeds |
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We intend to use the net proceeds to us from this offering to
repay amounts outstanding under our revolving credit facility.
Borrowings under the credit facility were used to finance
working capital, including land acquisitions and joint venture
investments. We will not receive any of the proceeds from the
sale of common stock by the selling stockholder. See Use
of Proceeds. |
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Risk Factors |
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You should carefully consider the information set forth in the
section entitled Risk Factors and the other
information included in this prospectus supplement and the
accompanying prospectuses in deciding whether to purchase our
common stock. |
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Our New York Stock Exchange symbol |
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TOA |
The number of shares of our common stock that will be
outstanding after this offering is based on the number of shares
outstanding as of July 27, 2005. However, it does not
include 6,084,152 shares of common stock issuable upon
exercise of options outstanding as of July 27, 2005.
We and the selling stockholder have agreed to sell up to an
aggregate of 825,000 shares of our common stock (of which
up to 600,000 may be sold by us and 225,000 may be sold by the
selling stockholder) if the underwriters exercise in full their
over-allotment option, which we describe in
Underwriting. We will not receive any proceeds from
any shares of common stock sold by the selling stockholder
pursuant to the over-allotment option.
S-5
Summary financial and operating data
The following summary financial data has been derived from our
consolidated financial statements and the related notes included
herein. You should read these consolidated financial statements
and the related notes as well as the sections entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31,
2004 and our Quarterly Report on Form 10-Q for the period
ended June 30, 2005, which are incorporated by reference in
this prospectus supplement. These historical results are not
necessarily indicative of the results of operations or financial
condition to be expected in the future.
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Three months ended | |
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Six months ended | |
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Year ended December 31, | |
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June 30, | |
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June 30, | |
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2002(1)(2) | |
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2003 | |
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2004 | |
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2004 | |
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2005 | |
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2004 | |
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2005 | |
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(dollars in millions except average sales price in thousands | |
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and share and per share amounts) | |
Statement of Income Data:
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Homebuilding:
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Revenues
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$ |
1,377.7 |
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$ |
1,642.6 |
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$ |
2,100.8 |
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$ |
498.3 |
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$ |
615.8 |
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$ |
923.2 |
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$ |
1,149.4 |
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Cost of sales
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1,101.6 |
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1,319.4 |
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1,672.4 |
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402.5 |
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478.1 |
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746.8 |
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895.9 |
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Gross profit
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276.1 |
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323.2 |
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428.4 |
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95.8 |
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137.7 |
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176.4 |
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253.5 |
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Selling, general and administrative expenses
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187.5 |
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212.1 |
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251.6 |
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59.4 |
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77.1 |
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115.7 |
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156.5 |
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(Income) from joint ventures, net
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(3.2 |
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(8.1 |
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(10.7 |
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Other (income) expense, net
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(2.6 |
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(3.6 |
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(1.7 |
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0.7 |
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(2.3 |
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(0.5 |
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(4.2 |
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Homebuilding pretax income
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91.2 |
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114.7 |
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181.7 |
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35.7 |
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71.0 |
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61.2 |
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111.9 |
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Financial services:
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Revenues
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30.7 |
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38.1 |
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34.5 |
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9.4 |
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11.4 |
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18.2 |
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21.4 |
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Expenses
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15.0 |
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22.5 |
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26.2 |
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6.9 |
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9.0 |
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12.5 |
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17.7 |
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Financial services pretax income
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15.7 |
|
|
|
15.6 |
|
|
|
8.3 |
|
|
|
2.5 |
|
|
|
2.4 |
|
|
|
5.7 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
106.9 |
|
|
|
130.3 |
|
|
|
190.0 |
|
|
|
38.2 |
|
|
|
73.4 |
|
|
|
66.9 |
|
|
|
115.6 |
|
Provision for income taxes
|
|
|
39.9 |
|
|
|
47.6 |
|
|
|
70.4 |
|
|
|
14.1 |
|
|
|
27.7 |
|
|
|
24.7 |
|
|
|
43.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
67.0 |
|
|
$ |
82.7 |
|
|
$ |
119.6 |
|
|
$ |
24.1 |
|
|
$ |
45.7 |
|
|
$ |
42.2 |
|
|
$ |
72.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Data:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.28 |
|
|
$ |
1.57 |
|
|
$ |
2.13 |
|
|
$ |
0.43 |
|
|
$ |
0.82 |
|
|
$ |
0.75 |
|
|
$ |
1.29 |
|
|
Diluted
|
|
$ |
1.28 |
|
|
$ |
1.56 |
|
|
$ |
2.08 |
|
|
$ |
0.42 |
|
|
$ |
0.79 |
|
|
$ |
0.74 |
|
|
$ |
1.24 |
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,272,726 |
|
|
|
52,720,185 |
|
|
|
56,060,371 |
|
|
|
56,060,228 |
|
|
|
56,083,450 |
|
|
|
56,053,078 |
|
|
|
56,078,578 |
|
|
Diluted
|
|
|
52,272,726 |
|
|
|
53,180,190 |
|
|
|
57,410,700 |
|
|
|
57,195,224 |
|
|
|
58,189,548 |
|
|
|
57,053,943 |
|
|
|
58,157,052 |
|
Cash dividends per share
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.036 |
|
|
$ |
0.012 |
|
|
$ |
0.015 |
|
|
$ |
0.012 |
|
|
$ |
0.027 |
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deliveries
|
|
|
5,085 |
|
|
|
6,135 |
|
|
|
7,337 |
(4) |
|
|
1,684 |
(5) |
|
|
2,215 |
(5) |
|
|
3,201 |
(6) |
|
|
4,223 |
(6) |
Average sales price, per delivery(7)
|
|
$ |
266 |
|
|
$ |
262 |
|
|
$ |
275 |
|
|
$ |
275 |
|
|
$ |
289 |
|
|
$ |
272 |
|
|
$ |
282 |
|
Net sales orders (net of cancellations)
|
|
|
5,009 |
|
|
|
6,835 |
|
|
|
9,933 |
(4) |
|
|
2,783 |
(5) |
|
|
3,185 |
(5) |
|
|
5,604 |
(6) |
|
|
5,920 |
(6) |
Backlog at end of period, number of homes
|
|
|
2,280 |
|
|
|
3,128 |
|
|
|
5,763 |
(4) |
|
|
5,531 |
(5) |
|
|
7,460 |
(5) |
|
|
5,531 |
(6) |
|
|
7,460 |
(6) |
Backlog at end of period, sales value(8)
|
|
$ |
636.9 |
|
|
$ |
855.4 |
|
|
$ |
1,567.0 |
|
|
$ |
1,537.8 |
|
|
$ |
2,101.9 |
|
|
$ |
1,537.8 |
|
|
$ |
2,101.9 |
|
S-6
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
As of | |
|
|
December 31, | |
|
June 30, | |
|
|
2004 | |
|
2005 | |
| |
|
|
(dollars in millions) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
$ |
268.5 |
|
|
$ |
77.5 |
|
|
Restricted(9)
|
|
$ |
77.1 |
|
|
$ |
72.9 |
|
Inventories
|
|
$ |
1,281.2 |
|
|
$ |
1,518.3 |
|
Total assets
|
|
$ |
1,987.5 |
|
|
$ |
2,063.6 |
|
Total homebuilding borrowings(10)
|
|
$ |
811.4 |
|
|
$ |
811.5 |
|
Total borrowings(10)(11)
|
|
$ |
860.4 |
|
|
$ |
860.9 |
|
Stockholders equity
|
|
$ |
662.7 |
|
|
$ |
736.3 |
|
|
|
|
|
(1) |
On June 25, 2002, we completed the merger with Engle
Holdings Corp., which we refer to as Engle. As both entities
were under the common control of Technical Olympic, Inc., our
parent company at the time, the merger was accounted for as a
reorganization of entities under common control. In accordance
with Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, we
recognized the acquired assets and liabilities of Engle at their
historical carrying amounts. As both entities became under
common control of Technical Olympic, Inc. on November 22,
2000, our financial statements and other operating data have
been restated to include the operations of Engle from
November 22, 2000. See note 1 to our consolidated
financial statements for the year ended December 31, 2004,
included herein. |
|
|
(2) |
On April 15, 2002, we completed the sale of Westbrooke
Acquisition Corp., formerly one of our Florida homebuilding
subsidiaries. In accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, the
results of Westbrookes operations have been classified as
discontinued operations and prior periods have been restated.
See note 9 to our consolidated financial statements for the
year ended December 31, 2004, included herein. |
|
|
(3) |
All share data has 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) |
For the year ended December 31, 2004, this amount
includes, (A) on a consolidated basis, (i) 7,221
deliveries, (ii) 9,543 net sales orders and
(iii) a backlog of 5,094 homes and (B) from our
unconsolidated joint ventures, (i) 116 deliveries,
(ii) 390 net sales orders and (iii) a backlog of
669 homes. |
|
|
(5) |
For the three months ended June 30, 2004, this amount
includes, (A) on a consolidated basis, (i) 1,682
deliveries, (ii) 2,645 net sales orders and
(iii) a backlog of 5,303 homes and (B) from our
unconsolidated joint ventures, (i) 2 deliveries,
(ii) 138 net sales orders and (iii) a backlog of
228 homes. For the three months ended June 30, 2005, this
amount includes, (A) on a consolidated basis,
(i) 2,012 deliveries, (ii) 2,699 net sales orders
and (iii) a backlog of 6,335 homes and (B) from our
unconsolidated joint ventures, (i) 203 deliveries,
(ii) 486 net sales orders and (iii) a backlog of
1,125 homes. |
|
|
(6) |
For the six months ended June 30, 2004, this amount
includes, (A) on a consolidated basis, (i) 3,199
deliveries, (ii) 5,374 net sales orders and
(iii) a backlog of 5,303 homes and (B) from our
unconsolidated joint ventures, (i) 2 deliveries,
(ii) 230 net sales orders and (iii) a backlog of
228 homes. For the six months ended June 30, 2005, this
amount includes, (A) on a consolidated basis,
(i) 3,879 deliveries, (ii) 5,120 net sales orders
and (iii) a backlog of 6,335 homes and (B) from our
unconsolidated joint ventures, (i) 344 deliveries,
(ii) 800 net sales orders and (iii) a backlog of
1,125 homes. |
S-7
|
|
|
|
(7) |
The average sales price per delivery excludes the effect of
our unconsolidated joint ventures. The average sales price per
delivery for our unconsolidated joint ventures was: $299,000 for
the year ended December 31, 2004; $309,000 for the three
months ended June 30, 2004; $321,000 for the three months
ended June 30, 2005; $309,000 for the six months ended
June 30, 2004; and $301,000 for the six months ended
June 30, 2005. |
|
|
(8) |
The sales value in backlog excludes the sales value of
backlog attributable to our unconsolidated joint ventures. The
sales value in backlog for our unconsolidated joint ventures
was: $210.4 million at December 31, 2004;
$69.6 million at June 30, 2004; and
$389.1 million at June 30, 2005. |
|
|
(9) |
Consists of amounts held in escrow by our title subsidiaries
pursuant to purchase contracts or as required by law. |
|
|
(10) |
Does not include obligations for inventory not owned of
(A) $136.2 million as of December 31, 2004 and
(B) $103.6 million as of June 30, 2005, all of
which are non-recourse to us. |
|
(11) |
Total borrowings includes Homebuilding borrowings and
Financial Services borrowings. |
S-8
Risk factors
RISKS RELATED TO OUR BUSINESS
Economic downturns in the geographic areas in which we
operate could adversely affect demand and prices for new homes
in those areas and could have an adverse effect on our revenues
and earnings.
Although we operate in 16 major metropolitan markets, our
operations are currently concentrated in the southwestern and
southeastern United States and, as a result of our joint
ventures acquisition of Transeasterns homebuilding
operations, our operations in Florida have significantly
increased. Adverse economic or other business conditions in
these regions or in the particular markets in which we operate,
all of which are outside of our control, could have an adverse
effect on our revenues and earnings.
We may not be able to acquire suitable land at reasonable
prices, which could increase our costs and reduce our earnings
and profit margins.
We have experienced an increase in competition for available
land and developed homesites in most of our markets as a result
of the strength of the economy in many of these markets over the
past few years and the availability of more capital to major
homebuilders. Our ability to continue our development activities
over the long-term depends upon our ability to locate and
acquire suitable parcels of land or developed homesites to
support our homebuilding operations. As competition for land
increases, the cost of acquiring it may rise and the
availability of suitable parcels at acceptable prices may
decline. If we are unable to acquire suitable land or developed
homesites at reasonable prices, it could limit our ability to
develop new projects or result in increased land costs that we
may not be able to pass through to our customers. Consequently,
it could reduce our earnings and profit margins.
Our significant level of debt could adversely affect our
financial condition and prevent us from fulfilling our debt
service obligations.
We currently have a significant amount of debt and our ability
to meet our debt service obligations will depend on our future
performance. Numerous factors outside of our control, including
changes in economic or other business conditions generally, or
in the markets or industry in which we do business, may
adversely affect our operating results and cash flows, which in
turn may affect our ability to meet our debt service
obligations. As of June 30, 2005, on a consolidated basis,
we had approximately $859.4 million aggregate principal
amount of debt outstanding (excluding obligations for inventory
not owned of $103.6 million and the impact of original
issue discounts and premiums), of which $810.0 million in
aggregate principal amount matures in 2010 through 2015. As of
June 30, 2005, we would have had the ability to borrow an
additional $460.0 million under our revolving credit
facility, subject to our satisfying the relevant borrowing
conditions in that facility. In addition, subject to
restrictions in our financing documents, we may incur additional
debt.
If we are unable to meet our debt service obligations, we may
need to restructure or refinance our debt, seek additional
equity financing or sell assets. We may be unable to restructure
or refinance our debt, obtain additional equity financing or
sell assets on satisfactory terms or at all.
S-9
Risk factors
Our debt instruments impose significant operating and
financial restrictions, which may limit our ability to finance
future operations or capital needs and pursue business
opportunities, thereby limiting our growth.
The indentures governing our outstanding notes and our revolving
credit facility impose significant operating and financial
restrictions on us. These restrictions limit our ability to,
among other things:
|
|
4 |
incur additional debt; |
|
4 |
pay dividends or make other restricted payments; |
|
4 |
create or permit certain liens, other than customary and
ordinary liens; |
|
4 |
sell assets other than in the ordinary course of our business; |
|
4 |
invest in joint ventures above those amounts established in such
instruments; |
|
4 |
create or permit restrictions on the ability of our restricted
subsidiaries to pay dividends or make other distributions to us; |
|
4 |
engage in transactions with affiliates; and |
|
4 |
consolidate or merge with or into other companies or sell all or
substantially all of our assets. |
These restrictions could limit our ability to finance our future
operations or capital needs, make acquisitions or pursue
available business opportunities. In addition, our revolving
credit facility requires us to maintain specified financial
ratios and satisfy certain financial covenants, the indentures
governing our outstanding notes require us to maintain a
specified minimum consolidated net worth, and our warehouse
lines of credit require us to maintain the collateral value of
our borrowing base. We may be required to take action to reduce
our debt or to act in a manner contrary to our business
objectives to meet these ratios and satisfy these covenants. A
breach of any of the covenants in, or our inability to maintain
the required financial ratios under, our revolving credit
facility and warehouse lines of credit would prevent us from
borrowing additional money under those facilities and could
result in a default under those facilities and our other debt
obligations. Our failure to maintain the specified minimum
consolidated net worth under the indentures will require us to
offer to purchase a portion of our outstanding notes. If we fail
to purchase these notes, it would result in a default under the
indentures and may result in a default under other debt
facilities.
We may not be successful in our effort to identify, complete,
integrate or manage acquisitions, which could adversely affect
our results of operations and future growth.
A principal component of our strategy is to continue to grow
profitably in a controlled manner, including, where appropriate,
by acquiring other property developers or homebuilders. We may
not be successful in implementing our acquisition strategy, and
our growth may not continue at historical levels or at all. The
failure to identify or complete business acquisitions, or
successfully integrate the businesses we acquire or otherwise
realize the expected benefits of any acquisitions, could
adversely affect our results of operations and future growth.
Specifically, any delays or difficulties in converting our
various information systems or implementing our internal
policies and procedures could increase costs and otherwise
affect our results of operations. Even if we overcome these
challenges and risks, we may not realize the expected benefits
of our acquisitions, if any.
S-10
Risk factors
We may need additional financing to fund our operations or
for the expansion of our business, and if we are unable to
obtain sufficient financing or such financing is obtained on
adverse terms, we may not be able to operate or expand our
business as planned, which could adversely affect our results of
operations and future growth.
Our operations require significant amounts of cash. If our
business does not achieve the levels of profitability or
generate the amount of cash that we anticipate, or if we expand
through acquisitions or organic growth faster than anticipated,
we may need to seek additional debt or equity financing to
operate and expand our business. If we are unable to obtain
sufficient financing to fund our operations or expansion, it
could adversely affect our results of operations and future
growth. We may be unable to obtain additional financing on
satisfactory terms or at all. If we raise additional funds
through the incurrence of debt, we will incur increased debt
service costs and may become subject to additional restrictive
financial and other covenants.
Our future expectations for growth depend on the successful
operation of our joint ventures; if they were dissolved, it
could negatively impact our financial condition and results of
operations.
We have entered into, and expect to expand our use of, joint
ventures to acquire and develop land and build and market homes.
We expect these joint ventures to materially contribute to our
future operational and revenue growth. In connection with the
formation of each of these joint ventures, we have entered into
a contractual agreement with our third party joint venture
partner(s). Generally, these agreements provide for us, or one
of our affiliates, to manage the operations of the joint
venture; however, the other party will generally have the
ability to approve material changes to the purpose of the joint
venture, significant additional capital contributions to the
joint venture, the transfer of rights or interests to an
unaffiliated third party and/or any change in the distribution
of profits or losses. If we were unable to reach an agreement
with respect to any of these types of matters, or other matters
which required approval of our joint venture partner(s), it
could lead to the dissolution of such joint venture. If a joint
venture were dissolved, it could cause a disruption in the
operations of such joint venture, reduce or delay the
development of land, or negatively impact the number of homes
sold and/or delivered by such joint venture. Any of these
factors could adversely affect our anticipated growth, financial
condition and/ or results of operations.
In the event that tax liabilities arise in connection with
the October 2003 restructuring, there can be no assurance that
we will not be liable for such amounts.
Prior to a restructuring transaction which occurred in
October 2003, Technical Olympic, Inc., which we refer to as
Technical Olympic, was the parent of our consolidated tax
reporting group, and we were jointly and severally liable for
any U.S. federal income tax owed by Technical Olympic or
any other member of the consolidated group. As part of the
restructuring, Technical Olympic was merged into TOI, LLC,
a newly-formed limited liability company of which we are the
sole member, and we became the parent of our consolidated tax
reporting group. Also, as part of the restructuring, Technical
Olympic Services, Inc., which we refer to as TOSI, a
newly-formed corporation wholly-owned by Technical Olympic S.A.,
assumed all liabilities of Technical Olympic. We do not believe
that any material tax liabilities will arise by reason of the
restructuring. However, there can be no assurance that material
tax liabilities will not arise in connection with the
restructuring, that we will not be held liable for such amounts
or that we will be able to collect from TOSI any amounts for
which they may have assumed liability. The assessment of
material tax liabilities in connection with the restructuring
could have an adverse effect on our financial condition and
results of operations.
S-11
Risk factors
RISKS RELATED TO OUR INDUSTRY
Changes in economic or other business conditions could
adversely affect demand and prices for new homes, which could
decrease our revenues.
The homebuilding industry historically has been cyclical and is
affected significantly by adverse changes in general and local
economic conditions, such as:
|
|
4 |
employment levels; |
|
4 |
population growth; |
|
4 |
consumer confidence and stability of income levels; |
|
4 |
availability of financing for land and homesite acquisitions and
the availability of construction and permanent mortgages; |
|
4 |
interest rates; |
|
4 |
inventory levels of both new and existing homes; |
|
4 |
supply of rental properties; and |
|
4 |
conditions in the housing resale market. |
Adverse changes in one or more of these conditions, all of which
are outside of our control, could reduce demand and/or prices
for new homes in some or all of the markets in which we operate.
A decline in demand or the prices we can obtain for our homes
could decrease our revenues.
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 approximately
one to two 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. Because of these
factors, we may be forced to sell homes or other property at a
loss or for prices that generate lower profit margins than we
anticipate. We may also be required to make material write-downs
of the book value of our real estate assets in accordance with
generally accepted accounting principles if values decline.
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:
|
|
4 |
shortages of qualified trades people and other labor; |
S-12
Risk factors
|
|
4 |
inadequately capitalized local subcontractors; |
|
4 |
shortages of materials; and |
|
4 |
volatile increases in the cost of certain materials, including
lumber, framing and cement, which are significant components of
home construction costs. |
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 recent
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 one year in advance of the delivery
of the home. Furthermore, sustained increases in construction
costs may, over time, erode our profit margins. 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 may restrict our ability to pass on any additional
costs, and we may not be able to achieve sufficient operating
efficiencies to maintain our current profit margins.
Future increases in interest rates or a decrease in the
availability of government-sponsored mortgage financing could
prevent potential customers from purchasing our homes, which
would adversely affect our revenues and profitability.
Almost all 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 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. Increased interest rates can also limit our
ability to realize our backlog because our sales contracts
typically provide our customers with a financing contingency.
Financing contingencies allow customers to cancel their home
purchase contracts in the event they cannot arrange for
financing. Even if our potential customers do not need
financing, changes in interest rates and mortgage availability
could make it harder for them to sell their existing homes to
potential buyers who need financing. Interest rates currently
are at one of their lowest levels in decades, and any future
increases in interest rates could adversely affect our revenues
and profitability.
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:
|
|
4 |
increase our costs and reduce our revenues and/or profit margins; |
|
4 |
make it difficult for us to acquire suitable land or homesites
at acceptable prices; |
|
4 |
require us to increase selling commissions and other incentives; |
S-13
Risk factors
|
|
4 |
result in delays in construction if we experience a delay in
procuring materials or hiring laborers; and |
|
4 |
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 ability
to sell homes profitably.
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.
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 product liability and home warranty claims. We
provide our homebuyers with a one-year or two-year limited
warranty covering workmanship and materials and an eight-year or
ten-year limited warranty covering major structural defects.
Claims arising under these warranties and general product
liability claims are common in the homebuilding industry and can
be costly. Although we maintain product liability insurance, the
coverage offered by, and availability of, product liability
insurance for construction defects is currently limited and,
where coverage is available, it may be costly. We currently have
a homebuilder protective policy which covers 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 product liability
insurance and homebuilder protective policies contain
limitations with respect to coverage, and there can be no
assurance that these insurance rights will be adequate to cover
all product liability and warranty claims for which we may be
liable or that coverage will not be further restricted and
become more costly. In addition, 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 product liability and warranty claims, as well as
the cost of product liability insurance and our homebuilder
protective policy, could adversely affect our results of
operations.
We are subject to mold litigation and claims arising in the
ordinary course of business that could adversely affect our
results of operations.
Recently, lawsuits have been filed against homebuilders and
insurers asserting claims of property damages and personal
injury caused by the presence of mold in residential dwellings.
Some of these lawsuits have resulted in substantial monetary
judgments or settlements. Many insurance carriers, including our
insurance carriers to some extent, exclude coverage for claims
arising from the presence of mold. Uninsured mold liability and
claims could adversely affect our results of operations.
Historically, we have had a low level of mold litigation and
mold related claims and expenses related to any such litigation
or claims have been immaterial to our net income. However, there
can be no assurance that the amount of mold litigation and
claims brought against us will not increase and adversely affect
our net income in the future.
States, cities and counties in which we operate have, or may
adopt, slow or no growth initiatives that would reduce our
ability to build in these areas and could adversely affect our
future revenues.
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
S-14
Risk factors
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.
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.
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 loss of required licenses and claims for monetary
damages.
Our business 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 the 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. 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.
RISKS RELATED TO OUR COMMON STOCK
Technical Olympic S.A., our majority stockholder, can cause
us to take certain actions or preclude us from taking actions
without the approval of the other stockholders and may have
interests that could conflict with the interests of our other
stockholders.
As of July 27, 2005, TOSA owned 73.35% of our common stock
and will own 65.97% of our common stock after this offering or
64.94% if the over-allotment option is exercised in full. As a
result, TOSA has, and will continue to have, the ability to
control the outcome of virtually all corporate actions requiring
stockholder approval, including the election of a majority of
our directors, the approval of any merger and other significant
corporate actions. TOSA may authorize actions or have interests
that could conflict with those of our other stockholders.
S-15
Risk factors
Control of our company by Technical Olympic S.A. could make
it difficult for a third party to acquire us, which could affect
the trading price of our common stock.
Through its ownership of voting control of our common stock,
TOSA can prevent a change in control of us and may be able to
prevent or discourage certain other transactions, such as tender
offers or stock repurchases, that could give holders of our
common stock the opportunity to realize a premium over the
then-prevailing market price for their shares of common stock.
TOSAs ability to prevent these transactions could make our
stock a less attractive investment.
Our issuance of preferred stock could make it difficult for
another company to acquire us, which could depress the price of
our common stock.
Our board of directors has the authority to issue preferred
stock and to determine the preferences, limitations and relative
rights of shares of preferred stock and to fix the number of
shares constituting any series and the designation of such
series, without any further vote or action by our stockholders.
The preferred stock could be issued with voting, liquidation,
dividend and other rights superior to the rights of our common
stock. The potential issuance of preferred stock may delay or
prevent a change in control of us, discourage bids for the
common stock at a premium over the market price, and adversely
affect the market price and the voting and other rights of the
holders of our common stock.
Our issuance of common stock could result in a lowering of
our stock price.
The offering by us and our majority stockholder will, and future
sales may, materially increase the amount of shares available
for purchase in the market which could result in a decrease in
our market price. Furthermore, the potential for future sales of
additional shares by us or our majority stockholder could create
a market overhang that results in a lower price for our common
stock.
Our common stock price has been and could continue to be
volatile, which could result in substantial losses for investors
purchasing shares in this offering.
Our common stock price has been, and could continue to be,
volatile. These price fluctuations may be rapid and severe and
may leave investors little time to react. Factors that affect
the market price of our common stock include:
|
|
4 |
the limited amount of our common stock held by our
non-affiliates; |
|
4 |
quarterly variations in our operating results; |
|
4 |
general conditions in the homebuilding industry; |
|
4 |
changes in the markets expectations about our earnings; |
|
4 |
changes in financial estimates and recommendations by securities
analysts concerning our company or the homebuilding industry in
general; |
|
4 |
operating and stock price performance of other companies that
investors deem comparable to us; |
|
4 |
material announcements by us or our competitors; |
|
4 |
news reports relating to trends in our markets; |
|
4 |
changes in laws and regulations affecting our business; |
|
4 |
sales of substantial amounts of common stock by our directors,
executive officers or majority stockholder, TOSA, or the
perception that such sales could occur; and |
|
4 |
general economic and political conditions such as recessions and
acts of war or terrorism. |
Any of these factors could have a material adverse effect on
your investment in our common stock and our common stock may
trade at prices significantly below the offering price. As a
result, you could lose all or part of your investment.
S-16
Forward looking statements
This prospectus supplement and the documents incorporated by
reference in this prospectus supplement contain
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. These statements concern expectations, beliefs,
projections, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not
historical facts. Specifically, this prospectus supplement and
the documents incorporated by reference in this prospectus
supplement contain forward-looking statements including those
regarding:
|
|
4 |
our expectations regarding growth opportunities in the
homebuilding industry and our ability to successfully take
advantage of such opportunities to expand our operations and
maximize our financial returns; |
|
4 |
our expectations regarding population growth and median income
growth trends and their impact on future housing demand in our
markets; |
|
4 |
our expectation regarding the impact of geographic and customer
diversification; |
|
4 |
our expectation that strong demand for new housing in our
current markets will contribute to our growth; |
|
4 |
our belief that by leveraging our current operations, we will,
over time, maximize our financial returns, strengthen our
margins and increase our revenues and profitability; |
|
4 |
our ability to successfully integrate our current operations and
any future acquisitions, and to recognize anticipated operating
efficiencies, cost savings and revenue increases; |
|
4 |
our expectations regarding our land and homesite acquisition
strategy and its impact on our business, including our estimate
of the number of years our supply of homesites affords us; |
|
4 |
our belief that homes in premier locations will continue to
attract homebuyers in both strong and weak economic conditions; |
|
4 |
our intention to make improvement of our operating margin a high
priority for 2005; |
|
4 |
our expectations regarding future land sales; |
|
4 |
our intention to grow the financial services business; |
|
4 |
our belief regarding growth opportunities within our financial
services business; |
|
4 |
our expectations regarding the impact of our business
initiatives on our ability to capture repeat business, to
minimize our exposure to adverse economic conditions and to
increase our revenue; |
|
4 |
our belief that we have adequate financial resources to meet our
current and anticipated working capital, including our annual
debt service payments, and land and homesite acquisition and
development needs; |
|
4 |
our expectations regarding compensation charges for 2005
relating to certain outstanding stock options and common stock
purchase rights; |
|
4 |
our expectation that our rate of converting backlog units to
home deliveries will improve in the last half of 2005; |
|
4 |
our expectations regarding the implementation of certain recent
accounting pronouncements; |
|
4 |
the impact of inflation on our future results of operations; |
S-17
Forward looking statements
|
|
4 |
our ability to pass through to our customers any increases in
our costs; |
|
4 |
our expectations regarding our continued use of option
contracts, investments in unconsolidated joint ventures and
other off-balance sheet arrangements to control homesites and
manage our business and their effect on our business; |
|
4 |
our expectations regarding the labor and supply shortages in
Florida resulting from the recent hurricanes; |
|
4 |
our expectations regarding our use of cash in operations; and |
|
4 |
our expectations regarding the impact on our business and
profits of phasing sales in some of our high demand markets. |
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 those expressed in or implied by those
forward-looking statements include, but are not limited to the
following:
|
|
4 |
our significant level of debt and the impact of the restrictions
imposed on us by the terms of this debt; |
|
4 |
our ability to borrow or otherwise finance our business in the
future; |
|
4 |
our ability to identify and acquire, at anticipated prices,
additional homebuilding opportunities and/or to effect our
growth strategies; |
|
4 |
our relationship with TOSA and its control over our business
activities; |
|
4 |
our ability to successfully integrate and to realize the
expected benefits of any acquisitions; |
|
4 |
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 or
unemployment rates or decline in consumer confidence or the
demand for, or the prices of, housing; |
|
4 |
events which would impede our ability to open new communities
and/or deliver homes within anticipated timeframes and/or within
anticipated budgets; |
|
4 |
any unexpected delays in the opening of new communities in 2005
and 2006, including those due to delays in governmental
approvals; |
|
4 |
our ability to successfully utilize and recognize the
anticipated benefits of joint venture and option contracts; |
|
4 |
a decline in the demand for, or the prices of, housing; |
|
4 |
a decline in the value of the land and home inventories we
maintain; |
|
4 |
an increase in the cost of, or shortages in the availability of,
skilled labor or construction materials; |
|
4 |
an increase in interest rates; |
S-18
Forward looking statements
|
|
4 |
our ability to successfully dispose of developed properties or
undeveloped land or homesites at expected prices and within
anticipated time frames; |
|
4 |
our ability to compete in our existing and future markets; |
|
4 |
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; and |
|
4 |
an increase or change in government regulations, or in the
interpretation and/or enforcement of existing government
regulations; and |
|
4 |
the impact of any or all of the above risks on the operations or
financial results of our unconsolidated joint ventures. |
S-19
Use of proceeds
We will receive net proceeds of approximately
$109.2 million from the sale of our common stock after
deducting the underwriting discounts and commissions and
estimated offering expenses payable by us (based on the closing
price of $28.80 on August 1, 2005). We will not receive any
proceeds from shares of common stock sold by the selling
stockholder.
We intend to use the net proceeds to us from this offering to
repay amounts outstanding under our revolving credit facility.
Borrowings under the credit facility were used to finance
working capital, including land acquisitions and joint venture
investments. As of August 1, 2005, we had
$135.0 million outstanding under our revolving credit
facility which accrued interest at a rate of 6.45% per
annum. Our revolving credit facility expires on October 26,
2008.
S-20
Capitalization
The following table sets forth our cash and cash equivalents and
our consolidated capitalization as of June 30, 2005 on a
historical basis and as adjusted for this offering and the
application of the estimated net proceeds therefrom. You should
read this table in conjunction with Selected Historical
Financial Information and our consolidated financial
statements and the related notes for the six months ended
June 30, 2005, included herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
June 30, 2005(1) | |
|
|
| |
|
|
|
|
As | |
|
|
Actual | |
|
adjusted | |
| |
|
|
(dollars in millions) | |
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
$ |
77.5 |
|
|
$ |
186.7 |
|
|
Restricted(2)
|
|
|
72.9 |
|
|
|
72.9 |
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$ |
150.4 |
|
|
$ |
259.6 |
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
Revolving credit facility(3)
|
|
$ |
|
|
|
$ |
|
|
|
Senior notes due 2010, at 9%
|
|
|
296.5 |
|
|
|
296.5 |
|
|
Senior subordinated notes due 2012, at
103/8%
|
|
|
184.6 |
|
|
|
184.6 |
|
|
Senior subordinated notes due 2011, at
71/2%
|
|
|
125.0 |
|
|
|
125.0 |
|
|
Senior subordinated notes due 2015, at
71/2%
|
|
|
205.4 |
|
|
|
205.4 |
|
|
|
Total homebuilding borrowings(4)
|
|
|
811.5 |
|
|
|
811.5 |
|
|
Financial services borrowings(5)
|
|
|
49.4 |
|
|
|
49.4 |
|
|
|
|
|
|
|
|
|
|
Total debt(5)
|
|
$ |
860.9 |
|
|
$ |
860.9 |
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Common stock $.01 par value (97,000,000 shares
authorized; 56,093,602 shares issued and outstanding,
actual and 60,093,602 shares issued and outstanding, as
adjusted)
|
|
|
0.6 |
|
|
|
0.6 |
|
Additional paid-in capital
|
|
|
393.3 |
|
|
|
502.5 |
|
Unearned compensation
|
|
|
(11.0 |
) |
|
|
(11.0 |
) |
Retained earnings
|
|
|
353.4 |
|
|
|
353.4 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
736.3 |
|
|
|
845.5 |
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
1,597.2 |
|
|
$ |
1,706.4 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes an aggregate impact of $1.5 million for
original issue discounts and premiums. |
|
(2) |
Represents deposits held in escrow by our title subsidiaries
pursuant to purchase contracts or as required by law. |
|
(3) |
As of August 1, 2005, we had $135.0 million
outstanding under our revolving credit facility, of which
approximately $109.2 million will be repaid with proceeds
from the offering. |
|
(4) |
Does not include obligations for inventory not owned of
$103.6 million, all of which are non-recourse to us. |
|
(5) |
Represents amounts outstanding under our warehouse lines of
credit used to provide financing for the origination of mortgage
loans. |
S-21
Selected historical financial information
The following selected financial data has been derived from our
consolidated financial statements and the related notes included
herein. You should read these consolidated financial statements
and the related notes as well as the sections entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31,
2004 and our Quarterly Report on Form 10-Q for the period
ended June 30, 2005, incorporated by reference in this
prospectus supplement. These historical results are not
necessarily indicative of the results of operations or financial
condition to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
Six months ended June 30, | |
|
|
| |
|
| |
|
|
2000(1)(2) | |
|
2001(1)(2) | |
|
2002(1)(2) | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(dollars in millions except average sales price in thousands and share and per share amounts) | |
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
546.6 |
|
|
$ |
1,392.9 |
|
|
$ |
1,377.7 |
|
|
$ |
1,642.6 |
|
|
$ |
2,100.8 |
|
|
$ |
923.2 |
|
|
$ |
1,149.4 |
|
|
Cost of sales
|
|
|
440.9 |
|
|
|
1,108.3 |
|
|
|
1,101.6 |
|
|
|
1,319.4 |
|
|
|
1,672.4 |
|
|
|
746.8 |
|
|
|
895.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
105.7 |
|
|
|
284.6 |
|
|
|
276.1 |
|
|
|
323.2 |
|
|
|
428.4 |
|
|
|
176.4 |
|
|
|
253.5 |
|
|
Selling, general and administrative expenses
|
|
|
66.9 |
|
|
|
160.0 |
|
|
|
187.5 |
|
|
|
212.1 |
|
|
|
251.6 |
|
|
|
115.7 |
|
|
|
156.5 |
|
|
(Income) from joint ventures, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
|
|
(10.7 |
) |
|
Other (income) expense, net
|
|
|
2.3 |
|
|
|
(3.9 |
) |
|
|
(2.6 |
) |
|
|
(3.6 |
) |
|
|
(1.7 |
) |
|
|
(0.5 |
) |
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income
|
|
|
36.5 |
|
|
|
128.5 |
|
|
|
91.2 |
|
|
|
114.7 |
|
|
|
181.7 |
|
|
|
61.2 |
|
|
|
111.9 |
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.5 |
|
|
|
29.1 |
|
|
|
30.7 |
|
|
|
38.1 |
|
|
|
34.5 |
|
|
|
18.2 |
|
|
|
21.4 |
|
|
Expenses
|
|
|
1.6 |
|
|
|
17.6 |
|
|
|
15.0 |
|
|
|
22.5 |
|
|
|
26.2 |
|
|
|
12.5 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
0.9 |
|
|
|
11.5 |
|
|
|
15.7 |
|
|
|
15.6 |
|
|
|
8.3 |
|
|
|
5.7 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
37.4 |
|
|
|
140.0 |
|
|
|
106.9 |
|
|
|
130.3 |
|
|
|
190.0 |
|
|
|
66.9 |
|
|
|
115.6 |
|
Provision for income taxes
|
|
|
13.6 |
|
|
|
52.2 |
|
|
|
39.9 |
|
|
|
47.6 |
|
|
|
70.4 |
|
|
|
24.7 |
|
|
|
43.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
23.8 |
|
|
$ |
87.8 |
|
|
$ |
67.0 |
|
|
$ |
82.7 |
|
|
$ |
119.6 |
|
|
$ |
42.2 |
|
|
$ |
72.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Data:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.96 |
|
|
$ |
1.68 |
|
|
$ |
1.28 |
|
|
$ |
1.57 |
|
|
$ |
2.13 |
|
|
$ |
0.75 |
|
|
$ |
1.29 |
|
|
|
Diluted
|
|
$ |
0.96 |
|
|
$ |
1.68 |
|
|
$ |
1.28 |
|
|
$ |
1.56 |
|
|
$ |
2.08 |
|
|
$ |
0.74 |
|
|
$ |
1.24 |
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,843,866 |
|
|
|
52,272,726 |
|
|
|
52,272,726 |
|
|
|
52,720,185 |
|
|
|
56,060,371 |
|
|
|
56,053,078 |
|
|
|
56,078,578 |
|
|
|
Diluted
|
|
|
24,843,866 |
|
|
|
52,272,726 |
|
|
|
52,272,726 |
|
|
|
53,180,190 |
|
|
|
57,410,700 |
|
|
|
57,053,943 |
|
|
|
58,157,052 |
|
Cash dividends per share
|
|
$ |
|
|
|
$ |
0.119 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.036 |
|
|
$ |
0.012 |
|
|
$ |
0.027 |
|
S-22
Selected historical financial information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
Six months ended June 30, | |
|
|
| |
|
| |
|
|
2000(1)(2) | |
|
2001(1)(2) | |
|
2002(1)(2) | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(dollars in millions except average sales price in thousands and share and per share amounts) | |
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deliveries
|
|
|
1,994 |
|
|
|
5,304 |
|
|
|
5,085 |
|
|
|
6,135 |
|
|
|
7,337 |
(4) |
|
|
3,201 |
(5) |
|
|
4,223 |
(5) |
Average sales price, per delivery(6)
|
|
$ |
271 |
|
|
$ |
259 |
|
|
$ |
266 |
|
|
$ |
262 |
|
|
$ |
275 |
|
|
$ |
272 |
|
|
$ |
282 |
|
Net sales orders (net of cancellations)
|
|
|
1,819 |
|
|
|
4,967 |
|
|
|
5,009 |
|
|
|
6,835 |
|
|
|
9,933 |
(4) |
|
|
5,604 |
(5) |
|
|
5,920 |
(5) |
Backlog at end of period, number of homes
|
|
|
2,486 |
|
|
|
2,149 |
|
|
|
2,280 |
|
|
|
3,128 |
|
|
|
5,763 |
(4) |
|
|
5,531 |
(5) |
|
|
7,460 |
(5) |
Backlog at end of period, sales value(7)
|
|
$ |
629.3 |
|
|
$ |
573.4 |
|
|
$ |
636.9 |
|
|
$ |
855.4 |
|
|
$ |
1,567.0 |
|
|
$ |
1,537.8 |
|
|
$ |
2,101.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
As of | |
|
|
December 31, 2004 | |
|
June 30, 2005 | |
| |
|
|
(dollars in millions) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
$ |
268.5 |
|
|
$ |
77.5 |
|
|
Restricted(8)
|
|
$ |
77.1 |
|
|
$ |
72.9 |
|
Inventories
|
|
$ |
1,281.2 |
|
|
$ |
1,518.3 |
|
Total assets
|
|
$ |
1,987.5 |
|
|
$ |
2,063.6 |
|
Total homebuilding borrowings(9)
|
|
$ |
811.4 |
|
|
$ |
811.5 |
|
Total borrowings(9)(10)
|
|
$ |
860.4 |
|
|
$ |
860.9 |
|
Stockholders equity
|
|
$ |
662.7 |
|
|
$ |
736.3 |
|
|
|
(1) |
On June 25, 2002, we completed the merger with Engle. As
both entities were under the common control of Technical
Olympic, the merger was accounted for as a reorganization of
entities under common control. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 141,
Business Combinations, we recognized the acquired
assets and liabilities of Engle at their historical carrying
amounts. As both entities became under common control of
Technical Olympic on November 22, 2000, our financial
statements and other operating data have been restated to
include the operations of Engle from November 22, 2000. See
note 1 to our consolidated financial statements for the
year ended December 31, 2004, included herein. |
|
(2) |
On April 15, 2002, we completed the sale of Westbrooke
Acquisition Corp., formerly one of our Florida homebuilding
subsidiaries. In accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, the
results of Westbrookes operations have been classified as
discontinued operations, and prior periods have been restated.
See note 9 to our consolidated financial statements for the
year ended December 31, 2004, included herein. |
|
(3) |
All share data has 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.
Cash dividends per share have also been restated to reflect the
total shares outstanding as a result of the merger with Engle in
June 2002. |
S-23
Selected historical financial information
|
|
(4) |
For the year ended December 31, 2004, this amount
includes, (A) on a consolidated basis, (i) 7,221
deliveries, (ii) 9,543 net sales orders and
(iii) a backlog of 5,094 homes and (B) from our
unconsolidated joint ventures, (i) 116 deliveries,
(ii) 390 net sales orders and (iii) a backlog of
669 homes. |
|
(5) |
For the six months ended June 30, 2004, this amount
includes, (A) on a consolidated basis, (i) 3,199
deliveries, (ii) 5,374 net sales orders and
(iii) a backlog of 5,303 homes and (B) from our
unconsolidated joint ventures, (i) 2 deliveries,
(ii) 230 net sales orders and (iii) a backlog of
228 homes. For the six months ended June 30, 2005, this
amount includes, (A) on a consolidated basis,
(i) 3,879 deliveries, (ii) 5,120 net sales orders
and (iii) a backlog of 6,335 homes and (B) from our
unconsolidated joint ventures, (i) 344 deliveries,
(ii) 800 net sales orders and (iii) a backlog of
1,125 homes. |
|
(6) |
The average sales price per delivery excludes the effect of
our unconsolidated joint ventures. The average sales price per
delivery for our unconsolidated joint ventures was: $299,000 for
the year ended December 31, 2004; $309,000 for the six
months ended June 30, 2004; and $301,000 for the six months
ended June 30, 2005. |
|
(7) |
The sales value in backlog excludes the sales value of
backlog attributable to our unconsolidated joint ventures. The
sales value in backlog for our unconsolidated joint ventures
was: $210.4 million at December 31, 2004;
$69.6 million at June 30, 2004; and
$389.1 million at June 30, 2005. |
|
(8) |
Consists of amounts held in escrow by our title subsidiaries
pursuant to purchase contracts or as required by law. |
|
(9) |
Does not include obligations for inventory not owned of
(A) $136.2 million as of December 31, 2004 and
(B) $103.6 million as of June 30, 2005, all of
which are non-recourse to us. |
|
|
(10) |
Total borrowings includes Homebuilding borrowings and
Financial Services borrowings. |
S-24
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
Selected Financial Data and the consolidated
financial statements and related notes included herein.
EXECUTIVE SUMMARY
We generate revenues from our homebuilding operations
(Homebuilding) and financial services operations
(Financial Services), which comprise our operating
segments. Through our Homebuilding operations we design, build
and market high-quality detached single-family residences,
townhomes and condominiums in 16 metropolitan markets located in
four major geographic regions: Florida, the Mid-Atlantic, Texas
and the West.
|
|
|
|
|
|
|
Florida |
|
Mid-Atlantic |
|
Texas |
|
West |
|
Jacksonville
|
|
Baltimore/Southern Pennsylvania |
|
Austin |
|
Central Colorado |
Orlando
|
|
Delaware |
|
Dallas/Ft. Worth |
|
Las Vegas |
Southeast Florida
|
|
Nashville |
|
Houston |
|
Phoenix |
Southwest Florida
|
|
Northern Virginia |
|
San Antonio |
|
|
Tampa/St. Petersburg
|
|
|
|
|
|
|
We build homes for inventory and on a pre-sold basis. At
June 30, 2005, we had 5,138 homes completed or under
construction (including unconsolidated joint ventures), of which
approximately 15% were unsold. At June 30, 2005, we had 128
completed unsold homes in our inventory (including
unconsolidated joint ventures), of which approximately 19% had
been completed for more than 90 days. Our completed unsold
homes have decreased by 37% from 203 at December 31, 2004;
however, they are up slightly from 106 at March 31, 2005.
At June 30, 2005, our completed unsold homes in inventory
represent under 3% of the total homes completed or under
construction (and average less than one per active community) as
compared to 5% at December 31, 2004. We are actively
working to reduce our finished speculative home inventory to
reduce carrying costs and to increase our available capital.
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. At closing, title
passes to the buyer and a home is considered to be
delivered and is removed from backlog. Revenue 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 six to twelve
months for presold homes; however, this varies by market. The
principal expenses of our Homebuilding operations are
(i) cost of sales and (ii) 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. 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.
S-25
Managements discussion and analysis of financial
condition and results of operations
We were actively selling homes in 228 communities
(including 20 through our unconsolidated joint ventures) and
253 communities at June 30, 2005 and 2004,
respectively. The decline in active communities is due to delays
associated with bringing new communities on line and the
completion of sales activities in other communities. For the
three months ended June 30, 2005, total revenues increased
24%, net income increased 90%, net sales orders (including
unconsolidated joint ventures) increased 14% and home deliveries
(including unconsolidated joint ventures) increased 32% as
compared to the same period in the prior year. For the six
months ended June 30, 2005, total revenues increased 24%,
net income increased 71%, net sales orders (including
unconsolidated joint ventures) increased 6% and home deliveries
(including unconsolidated joint ventures) increased 32% as
compared to the same period in the prior year. Sales value in
backlog at June 30, 2005 as compared to June 30, 2004
increased by 37% to $2.1 billion. Our joint ventures had an
additional $0.4 billion in sales backlog at June 30,
2005. Our home cancellation rate was approximately 14% for both
the three and six months ended June 30, 2005. Our
percentage of converting backlog units at the beginning of the
quarter to deliveries during the quarter was 34%, which is
consistent with the first quarter of 2005. We anticipate that
this conversion rate will begin to improve in the last half of
the year as a result of our efforts to reduce our sales to
delivery timeline. We continue to be impacted by labor and
supply shortages and increases in the cost of materials caused
by the Florida hurricanes in 2004 and 2005 and expect them to
continue for some time.
We have entered into, and expect to expand our use of, joint
ventures that acquire and develop land for our Homebuilding
operations and/or joint ventures that additionally build and
market homes. The majority of these joint ventures are not
consolidated. At June 30, 2005, our investment in these
unconsolidated joint ventures was $82.4 million, and we had
made short term advances of $15.4 million to these joint
ventures. In addition, we seek to use option contracts to
acquire land whenever feasible. Option contracts allow us to
control significant homesite positions with minimal capital
investment and substantially reduce the risks associated with
land ownership and development. At June 30, 2005, we
controlled approximately 74,000 homesites (including through our
unconsolidated joint ventures) of which 81% were controlled
through various option arrangements.
To provide homebuyers with a seamless home purchasing
experience, we have a complementary financial services business
where we provide mortgage financing and closing services and
offer 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 closing 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 the mortgages. Our title
operations revenues consist primarily of title insurance
and closing 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.
S-26
Managements discussion and analysis of financial
condition and results of operations
RESULTS OF OPERATIONS
Selected homebuilding operating data
The following tables set forth certain operating and financial
data for our homebuilding operations in our four major
geographic regions, Florida, the Mid-Atlantic, Texas and the
West (dollars in millions, except average price in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
Six months ended June 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Deliveries: |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
| |
Florida
|
|
|
2,024 |
|
|
$ |
497.0 |
|
|
|
2,311 |
|
|
$ |
562.5 |
|
|
|
2,361 |
|
|
$ |
632.8 |
|
|
|
1,100 |
|
|
$ |
288.7 |
|
|
|
1,517 |
|
|
$ |
436.2 |
|
Mid-Atlantic
|
|
|
564 |
|
|
|
197.9 |
|
|
|
636 |
|
|
|
209.3 |
|
|
|
562 |
|
|
|
235.3 |
|
|
|
235 |
|
|
|
88.6 |
|
|
|
277 |
|
|
|
111.3 |
|
Texas
|
|
|
1,539 |
|
|
|
397.2 |
|
|
|
1,557 |
|
|
|
407.5 |
|
|
|
1,827 |
|
|
|
459.9 |
|
|
|
889 |
|
|
|
221.2 |
|
|
|
847 |
|
|
|
204.3 |
|
West
|
|
|
958 |
|
|
|
258.2 |
|
|
|
1,631 |
|
|
|
425.1 |
|
|
|
2,471 |
|
|
|
657.0 |
|
|
|
975 |
|
|
|
270.8 |
|
|
|
1,238 |
|
|
|
342.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
|
5,085 |
|
|
$ |
1,350.3 |
|
|
|
6,135 |
|
|
$ |
1,604.4 |
|
|
|
7,221 |
|
|
$ |
1,985.0 |
|
|
|
3,199 |
|
|
$ |
869.3 |
|
|
|
3,879 |
|
|
$ |
1,094.5 |
|
From unconsolidated joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
34.7 |
|
|
|
2 |
|
|
|
0.6 |
|
|
|
344 |
|
|
|
103.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,085 |
|
|
$ |
1,350.3 |
|
|
|
6,135 |
|
|
$ |
1,604.4 |
|
|
|
7,337 |
|
|
$ |
2,019.7 |
|
|
|
3,201 |
|
|
$ |
869.9 |
|
|
|
4,223 |
|
|
$ |
1,197.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
Six months ended June 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net Sales Orders(1): |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
|
Homes | |
|
$ | |
| |
Florida
|
|
|
1,809 |
|
|
$ |
465.2 |
|
|
|
2,662 |
|
|
$ |
672.1 |
|
|
|
3,711 |
|
|
$ |
1,107.8 |
|
|
|
2,056 |
|
|
$ |
589.1 |
|
|
|
1,482 |
|
|
$ |
514.9 |
|
Mid-Atlantic
|
|
|
569 |
|
|
|
212.2 |
|
|
|
616 |
|
|
|
207.3 |
|
|
|
682 |
|
|
|
289.0 |
|
|
|
512 |
|
|
|
220.9 |
|
|
|
396 |
|
|
|
173.4 |
|
Texas
|
|
|
1,515 |
|
|
|
394.9 |
|
|
|
1,673 |
|
|
|
427.7 |
|
|
|
1,876 |
|
|
|
473.9 |
|
|
|
988 |
|
|
|
253.5 |
|
|
|
1,424 |
|
|
|
356.5 |
|
West
|
|
|
1,116 |
|
|
|
306.1 |
|
|
|
1,884 |
|
|
|
481.8 |
|
|
|
3,274 |
|
|
|
942.0 |
|
|
|
1,818 |
|
|
|
454.0 |
|
|
|
1,818 |
|
|
|
584.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
|
5,009 |
|
|
$ |
1,378.4 |
|
|
|
6,835 |
|
|
$ |
1,788.9 |
|
|
|
9,543 |
|
|
$ |
2,812.7 |
|
|
|
5,374 |
|
|
$ |
1,517.5 |
|
|
|
5,120 |
|
|
$ |
1,629.4 |
|
From unconsolidated joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390 |
|
|
|
117.6 |
|
|
|
230 |
|
|
|
70.2 |
|
|
|
800 |
|
|
|
282.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,009 |
|
|
$ |
1,378.4 |
|
|
|
6,835 |
|
|
$ |
1,788.9 |
|
|
|
9,933 |
|
|
$ |
2,930.3 |
|
|
|
5,604 |
|
|
$ |
1,587.7 |
|
|
|
5,920 |
|
|
$ |
1,911.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Avg | |
|
|
|
Avg | |
|
|
|
Avg | |
Sales Backlog: |
|
Homes | |
|
$ | |
|
price | |
|
Homes | |
|
$ | |
|
price | |
|
Homes | |
|
$ | |
|
price | |
| |
Florida
|
|
|
1,195 |
|
|
$ |
314.2 |
|
|
$ |
263 |
|
|
|
1,546 |
|
|
$ |
423.8 |
|
|
$ |
274 |
|
|
|
2,896 |
|
|
$ |
898.9 |
|
|
$ |
310 |
|
Mid-Atlantic
|
|
|
244 |
|
|
|
89.7 |
|
|
$ |
368 |
|
|
|
224 |
|
|
|
87.6 |
|
|
$ |
391 |
|
|
|
346 |
|
|
|
141.9 |
|
|
$ |
410 |
|
Texas
|
|
|
378 |
|
|
|
103.0 |
|
|
$ |
273 |
|
|
|
494 |
|
|
|
123.3 |
|
|
$ |
250 |
|
|
|
543 |
|
|
|
137.3 |
|
|
$ |
253 |
|
West
|
|
|
463 |
|
|
|
130.0 |
|
|
$ |
281 |
|
|
|
864 |
|
|
|
220.7 |
|
|
$ |
255 |
|
|
|
1,309 |
|
|
|
388.9 |
|
|
$ |
297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
|
2,280 |
|
|
$ |
636.9 |
|
|
$ |
279 |
|
|
|
3,128 |
|
|
$ |
855.4 |
|
|
$ |
274 |
|
|
|
5,094 |
|
|
$ |
1,567.0 |
|
|
$ |
308 |
|
From unconsolidated joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
669 |
|
|
|
210.4 |
|
|
$ |
314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,280 |
|
|
$ |
636.9 |
|
|
$ |
279 |
|
|
|
3,128 |
|
|
$ |
855.4 |
|
|
$ |
274 |
|
|
|
5,763 |
|
|
$ |
1,777.4 |
|
|
$ |
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-27
Managements discussion and analysis of financial
condition and results of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
|
|
Avg | |
|
|
|
Avg | |
Sales Backlog: |
|
Homes | |
|
$ | |
|
price | |
|
Homes | |
|
$ | |
|
price | |
| |
Florida
|
|
|
2,502 |
|
|
$ |
724.2 |
|
|
$ |
290 |
|
|
|
2,861 |
|
|
$ |
977.5 |
|
|
$ |
342 |
|
Mid-Atlantic
|
|
|
501 |
|
|
|
220.0 |
|
|
$ |
439 |
|
|
|
465 |
|
|
|
204.0 |
|
|
$ |
439 |
|
Texas
|
|
|
593 |
|
|
|
155.6 |
|
|
$ |
262 |
|
|
|
1,120 |
|
|
|
289.6 |
|
|
$ |
259 |
|
West
|
|
|
1,707 |
|
|
|
438.0 |
|
|
$ |
257 |
|
|
|
1,889 |
|
|
|
630.8 |
|
|
$ |
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
|
5,303 |
|
|
$ |
1,537.8 |
|
|
$ |
290 |
|
|
|
6,335 |
|
|
$ |
2,101.9 |
|
|
$ |
332 |
|
From unconsolidated joint ventures
|
|
|
228 |
|
|
|
69.6 |
|
|
$ |
305 |
|
|
|
1,125 |
|
|
|
389.1 |
|
|
$ |
346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,531 |
|
|
$ |
1,607.4 |
|
|
$ |
291 |
|
|
|
7,460 |
|
|
$ |
2,491.0 |
|
|
$ |
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
Six months ended June 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Sales | |
|
|
|
Sales | |
|
|
|
Sales | |
|
|
|
Sales | |
|
|
|
Sales | |
Average Price: |
|
Deliveries | |
|
orders | |
|
Deliveries | |
|
orders | |
|
Deliveries | |
|
orders | |
|
Deliveries | |
|
orders | |
|
Deliveries | |
|
orders | |
| |
Florida
|
|
$ |
246 |
|
|
$ |
257 |
|
|
$ |
243 |
|
|
$ |
253 |
|
|
$ |
268 |
|
|
$ |
299 |
|
|
$ |
262 |
|
|
$ |
287 |
|
|
$ |
288 |
|
|
$ |
347 |
|
Mid-Atlantic
|
|
$ |
351 |
|
|
$ |
373 |
|
|
$ |
329 |
|
|
$ |
337 |
|
|
$ |
419 |
|
|
$ |
424 |
|
|
$ |
377 |
|
|
$ |
432 |
|
|
$ |
402 |
|
|
$ |
438 |
|
Texas
|
|
$ |
258 |
|
|
$ |
261 |
|
|
$ |
262 |
|
|
$ |
256 |
|
|
$ |
252 |
|
|
$ |
253 |
|
|
$ |
249 |
|
|
$ |
257 |
|
|
$ |
241 |
|
|
$ |
250 |
|
West
|
|
$ |
270 |
|
|
$ |
274 |
|
|
$ |
261 |
|
|
$ |
256 |
|
|
$ |
266 |
|
|
$ |
288 |
|
|
$ |
278 |
|
|
$ |
250 |
|
|
$ |
277 |
|
|
$ |
322 |
|
Consolidated totals
|
|
$ |
266 |
|
|
$ |
275 |
|
|
$ |
262 |
|
|
$ |
262 |
|
|
$ |
275 |
|
|
$ |
295 |
|
|
$ |
272 |
|
|
$ |
282 |
|
|
$ |
282 |
|
|
$ |
318 |
|
From unconsolidated joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
299 |
|
|
$ |
301 |
|
|
$ |
309 |
|
|
$ |
305 |
|
|
$ |
301 |
|
|
$ |
353 |
|
Total
|
|
$ |
266 |
|
|
$ |
275 |
|
|
$ |
262 |
|
|
$ |
262 |
|
|
$ |
275 |
|
|
$ |
295 |
|
|
$ |
272 |
|
|
$ |
283 |
|
|
$ |
284 |
|
|
$ |
323 |
|
Six months ended June 30, 2005 compared to six months
ended June 30, 2004
Total revenues increased 24% to $1,170.8 million for the
six months ended June 30, 2005, from $941.4 million
for the six months ended June 30, 2004. This increase is
attributable to an increase in Homebuilding revenues of 25%, and
an increase in Financial Services revenues of 18%.
Income before provision for income taxes increased by 73% to
$115.6 million for the six months ended June 30, 2005,
from $66.9 million for the comparable period in 2004. This
increase is attributable to an increase in Homebuilding pretax
income to $111.9 million for the six months ended
June 30, 2005, from $61.2 million for the six months
ended June 30, 2004. This was partially offset by a decline
in Financial Services pretax income to $3.7 million for the
six months ended June 30, 2005 from $5.7 million for
the six months ended June 30, 2004.
Our effective tax rate was 37.7% and 37.0% for the six months
ended June 30, 2005 and 2004, respectively. This increase
was due to increases in income in states with higher tax rates.
As a result of the above, net income increased to
$72.1 million (or $1.24 per diluted share) for the six
months ended June 30, 2005 from $42.2 million (or
$0.74 per diluted share) for the six months ended
June 30, 2004.
Homebuilding
Homebuilding revenues increased 25% to $1,149.4 million for
the six months ended June 30, 2005, from
$923.2 million for the six months ended June 30, 2004.
This increase is due primarily to an increase in revenues from
home sales to $1,094.5 million for the six months ended
June 30, 2005, from $869.3 million for the comparable
period in 2004. The 26% increase in revenue from home sales was
due to (1) a 21% increase in home deliveries to 3,879 from
3,199 for the six months ended June 30, 2005 and 2004,
respectively, and (2) a 4% increase in the average selling
price on homes delivered to $282,000 from $272,000 in the
comparable period of the prior year. A significant
S-28
Managements discussion and analysis of financial
condition and results of operations
component of this increase was the 51% increase in revenues from
home sales in our Florida region for the six months ended
June 30, 2005 as compared to the same period in 2004. This
increase was due to a 38% increase in home deliveries and a 10%
increase in the average selling price of such homes. In addition
to revenue from home sales, we generated revenue from land sales
of $54.9 million for the six months ended June 30,
2005, as compared to $53.9 million for the six months ended
June 30, 2004. As discussed above, our land sales were a
result of our regular review of our land portfolio.
Our Homebuilding gross profit increased 44% to
$253.5 million for the six months ended June 30, 2005,
from $176.4 million for the six months ended June 30,
2004. This increase is primarily due to an increase in revenue
from home sales and an improved gross margin on home sales. Our
gross margin on home sales increased to 22.4% for the six months
ended June 30, 2005, from 18.8% for the six months ended
June 30, 2004. This increase from period to period is
primarily due to the phasing of sales to maximize revenues and
improve margins and improved control over costs, such as the
re-engineering of existing products to reduce costs of
construction; and the reduction of carrying costs on inventory
through improved control over the number of unsold homes
completed or under construction, particularly in our Texas and
West regions. For the six months ended June 30, 2005, we
generated gross profit on land sales of $8.2 million, as
compared to $12.7 million for the comparable period in 2004.
SG&A expenses increased to $156.5 million for the six
months ended June 30, 2005, from $115.7 million for
the six months ended June 30, 2004. SG&A expenses as a
percentage of revenues from home sales for the six months ended
June 30, 2005 increased to 14.3%, as compared to 13.3% for
the six months ended June 30, 2004.
The 100 basis point increase in SG&A expenses as a
percentage of home sales revenues is partially due to an
increase in compensation expense resulting from increased head
count to support our joint venture activities. For the six
months ended June 30, 2005, the income associated with
these activities is $10.7 million, including management
fees of $6.9 million, which is shown separately as income
from joint ventures in the consolidated statement of income.
Also contributing to the increase in SG&A expenses is an
increase of $2.8 million in stock based compensation
expense. For the six months ended June 30, 2005 and 2004,
we recognized a compensation charge of $4.5 million and
$1.7 million, respectively, due to the variable accounting
treatment of certain stock-based awards which include
performance-based accelerated vesting criteria and certain other
common stock purchase rights.
Our net profit margin is calculated by dividing net income by
home sales revenues. Our net profit margin increased to 6.6%
from 4.9% due to improved gross margins and joint venture
revenues.
Net sales orders (including joint ventures)
For the six months ended June 30, 2005, net sales orders
increased by 6% as compared to the same period in 2004, due to
an increase in sales in our Texas and West Regions, which were
partially offset by decreases in our Florida and Mid-Atlantic
regions from the deliberate phasing of sales to improve gross
margins. For the six months ended June 30, 2005, the sales
value of these new orders increased by 20% over the six months
ended June 30, 2004, due to an increase in the average net
sales price to $323,000 from $283,000 over these same periods.
Financial services
Financial Services revenues increased to $21.4 million for
the six months ended June 30, 2005, from $18.2 million
for the six months ended June 30, 2004. This 18% increase
is due primarily to an increase in the number of closings at our
title and mortgage operations offset by reduced gains in selling
mortgages in the secondary market caused by a shift toward more
adjustable rate mortgage
S-29
Managements discussion and analysis of financial
condition and results of operations
loans and market reductions in the interest rate margin. For the
six months ended June 30, 2005, our mix of mortgage
originations was 41% adjustable rate mortgages (of which
approximately 73% were interest only) and 59% fixed rate
mortgages, which is a shift from the comparable period in the
prior year of 33% adjustable rate mortgages and 67% fixed rate
mortgages. The average FICO score of our homebuyers during the
six months ended June 30, 2005 was 730, and the average
loan to value ratio on first mortgages was 77%. For the six
months ended June 30, 2005, approximately 10% of our
homebuyers paid in cash as compared to 13% during the six months
ended June 30, 2004. Our mortgage operations capture ratio
for non-cash homebuyers remained stable at 61% for the six
months ended June 30, 2005 and 2004. The number of closings
at our mortgage operations increased to 2,294 for the six months
ended June 30, 2005, from 2,190 for the six months ended
June 30, 2004. Our title operations capture ratio decreased
to 84% of our homebuyers for the six months ended June 30,
2005, from 95% for the comparable period in 2004, due to an
organizational change in our Phoenix operations causing a loss
of closings for the period. However, the number of closings at
our title operations increased to 10,538 for the six months
ended June 30, 2005, from 9,712 for the same period in
2004. Non-affiliated customers accounted for approximately 76%
of our title company revenues for the six months ended
June 30, 2005.
Financial Services expenses increased to $17.7 million for
the six months ended June 30, 2005, from $12.5 million
for the six months ended June 30, 2004. This 42% increase
is a result of higher staff levels to support anticipated
increased loan activity.
Fiscal year 2004 compared to fiscal year 2003
Total revenues increased 27% to $2.1 billion during the
year ended December 31, 2004, from $1.7 billion during
the year ended December 31, 2003. This increase is
attributable to an increase in Homebuilding revenues of 28%
offset by a 10% decrease in Financial Services revenues.
Although this was a large increase, delays related to the
hurricanes in Florida caused our deliveries to lag behind our
expectations. We expect the labor and supply shortages caused by
the hurricanes to persist for some time.
Income from continuing operations before income taxes increased
by 46% to $190.0 million for the year ended
December 31, 2004, from $130.3 million for the
comparable period in 2003. This increase is attributable to an
increase in Homebuilding pretax income to $181.7 million
for the year ended December 31, 2004, from
$114.7 million for the year ended December 31, 2003.
This was partially offset by a decline in Financial Services
pretax income to $8.3 million for the year ended
December 31, 2004 from $15.6 million for the year
ended December 31, 2003.
Our effective tax rate was 37.0% and 36.5% for the years ended
December 31, 2004 and 2003, respectively. This increase was
due to increases in income in states with higher tax rates.
As a result of the above, net income increased to
$119.6 million (or $2.08 per diluted share) for the
year ended December 31, 2004, from $82.7 million (or
$1.56 per diluted share) for the year ended
December 31, 2003.
Homebuilding
Homebuilding revenues increased 28% to $2.1 billion for the
year ended December 31, 2004, from $1.6 billion for
the year ended December 31, 2003. This increase is due
primarily to an increase in revenues from home sales to
$2.0 billion for the year ended December 31, 2004,
from $1.6 billion for 2003. The 24% increase in revenue
from home sales was due to (1) an 18% increase in home
deliveries to 7,221 from 6,135 for the years ended
December 31, 2004 and 2003, respectively and (2) a 5%
increase in the average selling price on delivered homes to
$275,000 from $262,000 in the prior year. A significant
component of this increase was the 55% increase in revenues from
home sales
S-30
Managements discussion and analysis of financial
condition and results of operations
in our West region for the year ended December 31, 2004 as
compared to 2003. This increase was due to the increased number
of homes delivered and the higher average selling price of such
homes. Land sales increased to $115.8 million for the year
ended December 31, 2004, as compared to $38.2 million
for the year ended December 31, 2003. As part of our land
inventory management strategy, we regularly review our land
portfolio. As a result of these reviews, we will seek to sell
land when we have changed our strategy for a certain property
and/or we have determined that the potential profit realizable
from a sale of a property outweighs the economics of developing
a community. Land sales are incidental to our residential
homebuilding operations and are expected to continue in the
future, but may fluctuate significantly from period to period.
Our Homebuilding gross profit increased 33% to
$428.4 million for the year ended December 31, 2004,
from $323.2 million for the year ended December 31,
2003. This increase is primarily due to an increase in revenue
from home sales. Our gross margin on home sales increased to
19.8% for the year ended December 31, 2004, from 19.5% for
the year ended December 31, 2003. For the year ended
December 31, 2004, we generated gross profit on land sales
of $35.4 million as compared to $10.6 million for the
year ended December 31, 2003.
SG&A expenses increased to $251.6 million for the year
ended December 31, 2004, from $212.1 million for the
year ended December 31, 2003. As a percentage of
Homebuilding revenues, SG&A expenses decreased to 12.0% for
the year ended December 31, 2004, as compared to 12.9% for
2003. The 90 basis point improvement in SG&A expenses
as a percentage of Homebuilding revenues is primarily
attributable to the increase in Homebuilding revenues and our
ability to generate higher revenue levels while leveraging fixed
SG&A costs. The combination of improved gross margins and
reduced SG&A expenses as a percentage of Homebuilding
revenues caused our Homebuilding pretax income as a percentage
of homebuilding revenues to increase to 8.6% for the year ended
December 31, 2004, from 7.0% for the year ended
December 31, 2003.
SG&A expenses as a percentage of revenues from home sales
for the year ended December 31, 2004 decreased to 12.7%, as
compared to 13.2% for the prior year. For the years ended
December 31, 2004 and 2003, we recognized a compensation
charge of $8.6 million and $1.2 million, respectively,
for variable accounting of certain stock-based awards which
include performance-based accelerated vesting criteria that were
partially vested during the year. We anticipate that we will
have a variable compensation charge in the fourth quarter of
2005 similar to that incurred in the fourth quarter of 2004,
though the amount of the charge is not currently calculable as
it depends upon the satisfaction of the performance criteria
contained in our outstanding performance-based accelerated stock
options.
For the year ended December 31, 2004, income from joint
ventures of $3.2 million includes our share of net earnings
from these entities and management fees.
Net sales orders and backlog
For the year ended December 31, 2004, net sales orders
increased by 40% and the value of net sales orders increased by
57%, as compared to 2003. The increase is due to strong housing
demand in the majority of our markets and an increase in the
number of communities in which we are marketing. The average
sales price on net sales orders increased by 12.6% to $295,000
for the year ended December 31, 2004, as compared to
$262,000 for the year ended December 31, 2003.
We had 5,094 homes in backlog, as of December 31, 2004, as
compared to 3,128 homes in backlog as of December 31, 2003.
This increase in backlog of 63% is primarily attributable to the
increased sales activity in many of our existing markets. As a
result of the strong housing demand in these markets, we have
been able to increase prices in those markets and have
experienced a change in the product mix of our homes in backlog.
Consequently, our average selling price of homes in backlog has
increased to $308,000 as of December 31, 2004 from $274,000
as of December 31, 2003. The
S-31
Managements discussion and analysis of financial
condition and results of operations
increase in backlog was also partially due to fourth quarter
delays in delivering homes in several of our markets.
Financial services
Financial Services revenues decreased to $34.5 million for
the year ended December 31, 2004 from $38.1 million
for the year ended December 31, 2003. This 10% decrease is
due primarily to a decrease in the number of closings at our
title and mortgage operations and reduced gains in selling
mortgages in the secondary market caused by a shift toward more
adjustable rate mortgage loans and market reductions in the
interest margin. For the year ended December 31, 2004, our
mix of mortgage originations was 33% adjustable rate mortgages
(of which approximately half were interest only) and 67% fixed
rate mortgages, which is a shift from the comparable period in
the prior year of 17% adjustable rate mortgages and 83% fixed
rate mortgages. The average FICO score of our homebuyers during
the year ended December 31, 2004 was 728 and the average
loan to value ratio on first mortgages was 76%. During the year
ended December 31, 2004, approximately 12% of our
homebuyers paid in cash as compared to 8% during the year ended
December 31, 2003. Our mortgage operations capture ratio
for non-cash homebuyers decreased to 58% for the year ended
December 31, 2004, from 59% in 2003. The number of closings
at our mortgage operations decreased to 4,577 for the year ended
December 31, 2004, from 4,663 for the year ended
December 31, 2003, primarily due to an increase in the
number of homebuyers paying in cash. Our title operations
capture ratio increased to 96% of our homebuyers for the year
ended December 31, 2004, from 82% in 2003. However, the
number of closings at our title operations decreased to 19,750
for the year ended December 31, 2004, from 20,773 for 2003
primarily due to a decrease in refinancing transactions by
non-affiliated customers. Non-affiliated customers accounted for
approximately 73% of our title company revenues for the year
ended December 31, 2004.
Financial Services expenses increased to $26.2 million for
the year ended December 31, 2004, from $22.5 million
for the year ended December, 31 2003. This 16% increase is a
result of higher staff levels and $1.5 million in moving
costs and employee separation expenses incurred in connection
with the relocation of our mortgage company headquarters to
Tampa, Florida.
Fiscal year 2003 compared to fiscal year 2002
Total revenues increased 19% to $1.7 billion during the
year ended December 31, 2003, from $1.4 billion during
the year ended December 31, 2002. This increase is
attributable to an increase in Homebuilding revenues of 19% and
an increase in Financial Services revenues of 24%.
Income from continuing operations before income taxes increased
by 22% to $130.3 million for the year ended
December 31, 2003, from $106.9 million for 2002. This
increase is attributable to an increase in Homebuilding pretax
income to $114.7 million for the year ended
December 31, 2003, from $91.2 million for the year
ended December 31, 2002. This was partially offset by a
decline in Financial Services pretax income to
$15.6 million for the year ended December 31, 2003
from $15.7 million for the year ended December 31,
2002.
Our effective tax rate was 36.5% and 37.3% for the years ended
December 31, 2003 and 2002, respectively. This decrease was
due primarily to expected reductions in state taxes as a result
of modifying our corporate structure and other tax planning
initiatives.
As a result of the above, income from continuing operations
increased to $82.7 million (or $1.56 per diluted
share) for the year ended December 31, 2003, from
$67.0 million (or $1.28 per diluted share) for the
year ended December 31, 2002.
S-32
Managements discussion and analysis of financial
condition and results of operations
Homebuilding
Homebuilding revenues increased 19% to $1.6 billion for the
year ended December 31, 2003, from $1.4 billion for
the year ended December 31, 2002. This increase is due
primarily to an increase in revenues from home sales to
$1.6 billion for the year ended December 31, 2003,
from $1.4 billion for the comparable period in 2002. The
19% increase in revenue from home sales was due to (1) a
21% increase in home deliveries to 6,135 from 5,085 for the
years ended December 31, 2003 and 2002, respectively, and
(2) a slight decline of 1.5% in the average selling price
on delivered homes to $262,000 from $266,000 in the same
periods. A significant component of this increase was the 65%
increase in revenues from home sales in our West region for the
year ended December 31, 2003 as compared to 2002. This
increase was due to a 70% increase in home deliveries to 1,631
during the year ended December 31, 2003, from 958 home
deliveries during the year ended December 31, 2002. In
addition to the increase in revenue from home sales, we
generated significant additional revenue from land sales which
increased to $38.2 million for the year ended
December 31, 2003, as compared to $27.4 million for
the year ended December 31, 2002. Land sales are incidental
to our residential homebuilding operations and are expected to
continue in the future, but may fluctuate significantly from
period to period.
Our Homebuilding gross profit increased 17.0% to
$323.2 million for the year ended December 31, 2003,
from $276.1 million for the year ended December 31,
2002. This increase is primarily due to an increase in revenue
from home sales. Our gross margin on home sales decreased to
19.5% for the year ended December 31, 2003, from 20.2% for
the year ended December 31, 2002. For the year ended
December 31, 2003, we generated gross profit on land sales
of $10.6 million as compared to $3.0 million in 2002.
SG&A expenses increased to $212.1 million for the year
ended December 31, 2003, from $187.5 million for the
year ended December 31, 2002. As a percentage of
Homebuilding revenues, SG&A expenses decreased to 12.9% for
the year ended December 31, 2003, as compared to 13.6% for
the same period in 2002. The 70 basis point improvement in
SG&A expenses as a percentage of Homebuilding revenues is
primarily attributable to a $5.4 million loss on early
retirement of debt and $20.0 million related to severance
and merger charges included in SG&A expenses for 2002.
Excluding these charges, SG&A expenses as a percentage of
Homebuilding revenues for 2002 would have been 11.8%, or
110 basis points lower than for year ended
December 31, 2003. This 110 basis point increase in
SG&A expense as a percentage of Homebuilding revenues from
2002 to 2003 is primarily attributable to the general and
administrative expenses necessary to effect our transition from
two separately operated homebuilders to a single national
homebuilder. SG&A expenses as a percentage of revenues from
home sales for the year ended December 31, 2003 decreased
to 13.2%, as compared to 13.9% for the same period in the prior
year, while our Homebuilding pretax income as a percentage of
home sales revenues increased to 7.1% for the year ended
December 31, 2003 from 6.8% for the year ended
December 31, 2002.
For the year ended December 31, 2003, we recognized a
compensation charge of $1.2 million for variable accounting
of certain stock-based awards which include accelerated vesting
criteria. We recognized this expense as a result of the market
price of our common stock, as of December 31, 2003, being
greater than the exercise price. During 2002 there was no
stock-based compensation expense. Additionally, during the year
ended December 31, 2002, in connection with our June 2002
notes offering, we recognized a loss on the early retirement of
debt of $5.4 million. This charge related to the exit fees
incurred and the write off of unamortized deferred finance costs
associated with our then existing borrowings. These amounts are
included in SG&A expenses.
As a result of the above, our Homebuilding pretax income as a
percentage of Homebuilding revenues increased to 7.0% for year
ended December 31, 2003, from 6.6% for the year ended
December 31, 2002.
S-33
Managements discussion and analysis of financial
condition and results of operations
Net sales orders and backlog
For the year ended December 31, 2003, net sales orders
increased by 36% and the value of net sales orders increased by
30%, as compared to the prior year. The increase was due to
strong housing demand in the majority of our markets and an
increase in the number of communities in which we were
marketing. The average sales price on net sales orders decreased
by 4.7% to $262,000 for the year ended December 31, 2003,
as compared to $275,000 for the year ended December 31,
2002.
We had 3,128 homes in backlog as compared to 2,280 homes in
backlog as of December 31, 2003 and 2002, respectively.
This increase in backlog of 37% is primarily attributable to the
homes in backlog of our recent acquisitions as well as increased
sales activity in several of our existing markets. Our average
selling price of homes in backlog decreased to $274,000 in 2003
from $279,000 in 2002 as a result of our product diversification.
Financial services
Financial Services revenues increased to $38.1 million for
the year ended December 31, 2003, from $30.7 million
for the year ended December 31, 2002. This 24% increase is
primarily attributable to an increase in the number of closings
by our mortgage and title operations. For the year ended
December 31, 2003, our mix of mortgage originations was 17%
adjustable rate mortgages and 83% fixed rate mortgages which is
a shift from the prior year of 12% adjustable rate mortgages and
88% fixed rate mortgages. The average FICO score of our
homebuyers during the year ended December 31, 2003 was 732
and the average loan to value ratio on first mortgages was 75%.
During the year ended December 31, 2003, approximately 8%
of our homebuyers paid in cash. Our mortgage operations capture
ratio for non-cash homebuyers decreased to 59% for the year
ended December 31, 2003, from 61% for the comparable period
in 2002. The number of closings at our mortgage operations
increased to 4,663 for the year ended December 31, 2003,
from 3,822 for the year ended December 31, 2002. Our title
operations capture ratio decreased to 82% for the year ended
December 31, 2003, from 85% for the comparable period in
2002. However, the number of closings at our title operations
increased to 20,773 for the year ended December 31, 2003,
from 18,041 for the same period in 2002 primarily due to an
increase in refinancing transactions.
Financial Services expenses increased to $22.5 million for
the year ended December 31, 2003, from $15.0 million
for the year ended December 31, 2002. This 50% increase is
primarily attributable to the increase in revenues and the
expansion into new markets.
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 from the
mortgage operations warehouse lines of credit to fund
these operations.
At June 30, 2005, we had unrestricted cash and cash
equivalents of $77.5 million as compared to
$268.5 million at December 31, 2004.
S-34
Managements discussion and analysis of financial
condition and results of operations
Cash used in operating activities was $164.2 million during
the six months ended June 30, 2005, as compared to
$63.7 million during the six months ended June 30,
2004. The increase in the use of cash in operating activities
primarily is due to an increase of $269.6 million in
additional inventory, consistent with our strategy to increase
the number of active communities and our land positions. At
June 30, 2005 compared to June 30, 2004, our
controlled homesites increased to approximately 74,000 from
46,000 and our homes completed or under construction increased
to 5,138 from 3,448. Our homes completed or under construction
increased due to our 35% increase in homes in backlog. These
expenditures have been financed by retaining earnings and with
the issuance of senior subordinated notes. Because of our rapid
growth in recent periods, our operations have generally used
more cash than they have generated. We expect this trend to
continue as long as we are experiencing similar growth.
Cash used in investing activities was $25.6 million during
the six months ended June 30, 2005, as compared to
$29.7 million during the six months ended June 30,
2004. The decrease in the use of cash in investing activities
primarily is due to additional consideration of
$6.6 million paid during the six months ended June 30,
2004 with respect to prior acquisitions, offset by an increase
in investments in unconsolidated joint ventures of
$5.7 million.
Financing activities
Our consolidated borrowings at June 30, 2005 were
$860.9 million, up slightly from $860.4 million at
December 31, 2004. At June 30, 2005, our Homebuilding
borrowings of $811.5 million included $300.0 million
in 9% senior notes due 2010, $185.0 million of
103/8% senior
subordinated notes due 2012, $125.0 million of
71/2% senior
subordinated notes due 2011, and $200.0 million of
71/2% senior
subordinated notes due 2015. Our weighted average debt to
maturity is 6.7 years, while our average inventory turnover
is 1.5 times per year.
Our outstanding senior notes are guaranteed, on a joint and
several basis, by the Guarantor Subsidiaries, which are all of
our material direct and indirect subsidiaries, other than our
mortgage and title operations 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 the 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 require us to maintain a minimum net worth
and place certain restrictions on our ability, among other
things, to incur additional debt (other than under our revolving
credit facility), pay or make dividends or other distributions,
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 each year.
Our financial leverage, as measured by the ratio of Homebuilding
net debt to capital, increased to 50.1% at June 30, 2005
from 47.3% at December 31, 2004, due primarily to the use
of cash in our operations. As noted above, we have made
significant investments in inventory consistent with our growth
strategy which we have financed through debt and internally
generated cash, resulting in an
S-35
Managements discussion and analysis of financial
condition and results of operations
increase in our financial leverage. We believe that our
financial leverage is appropriate given our industry, size and
current growth strategy.
|
|
|
|
|
|
|
|
|
|
|
Homebuilding net debt | |
|
|
to capital | |
|
|
| |
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
| |
|
|
(dollars in millions) | |
Notes payable
|
|
$ |
811.5 |
|
|
$ |
811.4 |
|
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding borrowings(1)
|
|
$ |
811.5 |
|
|
$ |
811.4 |
|
Less: unrestricted cash
|
|
|
73.3 |
|
|
|
217.6 |
|
|
|
|
|
|
|
|
Homebuilding net debt
|
|
$ |
738.2 |
|
|
$ |
593.8 |
|
Stockholders equity
|
|
|
736.3 |
|
|
|
662.7 |
|
|
|
|
|
|
|
|
Total capital(2)
|
|
$ |
1,474.5 |
|
|
$ |
1,256.5 |
|
|
|
|
|
|
|
|
Ratio
|
|
|
50.1 |
% |
|
|
47.3 |
% |
|
|
(1) |
Does not include obligations for inventory not owned of
$103.6 million at June 30, 2005 and
$136.2 million at December 31, 2004, all of which are
non-recourse to us. |
|
(2) |
Does not include Financial Services bank borrowings of
$49.4 million at June 30, 2005 and $49.0 million
at December 31, 2004. |
Homebuilding net debt to capital is not a financial measure
required by generally accepted accounting principles
(GAAP) and other companies may calculate it differently. We
have included this information as we believe that the ratio of
Homebuilding net debt to capital provides comparability among
other publicly-traded homebuilders. In addition, management uses
this information in measuring the financial leverage of our
homebuilding operations, which is our primary business.
Homebuilding net debt to capital has limitations as a measure of
financial leverage because it excludes Financial Services bank
borrowings and it reduces our Homebuilding debt by the amount of
our unrestricted cash. Management compensates for these
limitations by using Homebuilding net debt to capital as only
one of several comparative tools, together with GAAP
measurements, to assist in the evaluation of our financial
leverage. It should not be construed as an indication of our
operating performance or as a measure of our liquidity.
Our revolving credit facility permits us to borrow to the lesser
of (i) $600.0 million or (ii) our borrowing base
(calculated in accordance with the revolving credit facility
agreement) minus our outstanding senior debt. The facility has a
letter of credit subfacility of $300.0 million. In
addition, we have the right to increase the size of the facility
to provide up to an additional $150.0 million of revolving
loans, provided we satisfy certain conditions. Loans outstanding
under the facility may be base rate loans or Eurodollar loans,
at our election. Our obligations under the revolving credit
facility are guaranteed by our material direct and indirect
subsidiaries, other than our mortgage and title subsidiaries
(unrestricted subsidiaries). The revolving credit facility
expires on October 26, 2008. As of June 30, 2005, we
had no borrowings under the revolving credit facility and had
issued letters of credit totaling $140.0 million. We had
$460.0 million remaining in availability, all of which we
could have borrowed without violating any of our debt covenants.
Our mortgage subsidiary has the ability to borrow up to
$120.0 million under two revolving warehouse lines of
credit to fund the origination of residential mortgage loans.
One of these warehouse lines can be increased to provide up to
an additional $50.0 million of availability, subject to
meeting
S-36
Managements discussion and analysis of financial
condition and results of operations
certain requirements. One of the lines of credit bears interest
at the 30 day LIBOR rate plus a margin of 1.25% to 3.0%,
determined based upon the type of mortgage loans being financed,
and the other bears interest at the 30 day Eurodollar rate
plus a margin of 1.125%. Both warehouse lines of credit are
secured by funded mortgages, which are pledged as collateral,
and require our mortgage subsidiary to maintain certain
financial ratios and minimums. As of June 30, 2005, we had
$49.4 million in borrowings under our warehouse lines of
credit.
We believe that we have adequate financial resources, including
unrestricted cash, availability under our current revolving
credit facility and the warehouse lines of credit, and
relationships with financial partners to meet our current and
anticipated working capital, land acquisition and development
needs and our estimated consolidated annual debt service
payments of $72.8 million (at June 30, 2005, based on
the outstanding balances and interest rates as of such date).
However, there can be no assurance that the amounts available
from such sources will be sufficient. If we identify new
acquisition opportunities, or if our operations do not generate
sufficient cash from operations at levels currently anticipated,
we may seek additional debt or equity financing to operate or
expand our business.
At June 30, 2005, the amount of our annual debt service
payments was $72.8 million. This amount included annual
debt service payments on the senior and senior subordinated
notes of $70.6 million and interest payments on the
revolving credit facility, the warehouse lines of credit, and
other notes of $2.2 million based on the balances
outstanding as of June 30, 2005. The amount of our annual
debt service payments on the revolving credit facility
fluctuates based on the principal outstanding under the facility
and the interest rate. An increase or decrease of 1% in interest
rates will change our annual debt service payment by
$0.5 million per year.
Off balance sheet arrangements
Land and homesite option contracts
We enter into land and homesite option contracts to procure land
or homesites for the construction of homes. Option contracts
generally require the payment of cash or the posting of a letter
of credit for the right to acquire land or homesites during a
specified period of time at a certain price. These option
contracts are either with land sellers or financial investors
who have acquired the land to enter into option contracts with
us. Option contracts allow us to control significant homesite
positions with a minimal capital investment (generally 15%) and
substantially reduce the risk associated with land ownership and
development. At June 30, 2005, we had refundable and
non-refundable deposits of $186.1 million and had issued
letters of credit of approximately $111.2 million
associated with our option contracts. The financial exposure for
nonperformance on our part in these transactions is generally
limited to our deposits and/or letters of credit.
Additionally, at June 30, 2005, we had outstanding
performance/ surety bonds outstanding of approximately
$224.9 million and letters of credit of approximately
$28.8 million primarily related to land development
activities.
Investments in unconsolidated joint ventures
We have entered into, and expect to expand our use of, joint
ventures that acquire and develop land for our Homebuilding
operations and/or that also build and market homes for sale to
third parties. In addition, we have, on a selective basis,
entered into joint ventures that acquire and develop land for
sale to unrelated third parties. Through joint ventures, we
reduce and share our risk associated with land ownership and
development 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 assets are being financed with debt,
the borrowings are non-recourse to us. At
S-37
Managements discussion and analysis of financial
condition and results of operations
June 30, 2005, we had investments in unconsolidated joint
ventures of $82.4 million. 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 June 30,
2005, we had made short-term advances of $15.4 million to
these joint ventures.
We believe that the use of these off-balance sheet arrangements
enables us to acquire attractive land positions, which we may
not have otherwise been able to acquire at favorable terms,
mitigate and share risk associated with land ownership and
development, increase our return on assets and extend our
capital resources. As a result, we view the use of these
off-balance sheet arrangements as beneficial to our Homebuilding
activities as they increase our return on our investment.
DIVIDENDS
We paid aggregate cash dividends of $0.027 per share of
common stock during the six months ended June 30, 2005. We
paid aggregate cash dividends of $0.036 per share of common
stock during the year ended December 31, 2004. We did not
declare or pay any dividends during the years ended
December 31, 2002 and 2003. Prior to its merger with us,
Engle made net distributions of $4.8 million during its
2002 fiscal year.
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 rate of sales contracts for
new homes is highly dependent on the number of active
communities and the timing of new community openings. 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. Because new home
deliveries trail new home contracts by several months, we
typically have a greater percentage of home deliveries in the
fall.
S-38
Business
We design, build and market high quality detached single-family
residences, townhomes and condominiums. We operate in markets
characterized by strong population and income growth. Currently,
we conduct homebuilding operations in 16 metropolitan markets,
located in four major geographic regions: Florida, the
Mid-Atlantic, Texas and the West.
For the year ended December 31, 2004, we delivered 7,221
homes, with an average sales price of $275,000, and generated
approximately $2.1 billion in homebuilding revenues and
$119.6 million in net income. Our unconsolidated joint
ventures delivered an additional 116 homes, with an average
sales price of $299,000. For the six months ended June 30,
2005, we delivered 3,879 homes, with an average sales price of
$282,000 and our unconsolidated joint ventures delivered an
additional 344 homes, with an average sales price of
$301,000. This represented an increase in homebuilding revenues
of 25% to approximately $1,149.4 million for the six months
ended June 30, 2005, from $923.2 million for the six
months ended June 30, 2004. At June 30, 2005, our
homebuilding operations had a backlog of 6,335 homes under
contract, with sales value of $2.1 billion, and our
unconsolidated joint ventures had a backlog of 1,125 homes under
contract, with sales value of $0.4 billion.
Net income increased to $72.1 million, or $1.24 per
diluted share, for the six months ended June 30, 2005 from
$42.2 million, or $0.74 per diluted share for the six
months ended June 30, 2004. Net income for the year ended
December 31, 2004 was $119.6 million, or
$2.08 per diluted share.
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 empty-nesters. We market our
homes under various brand names, including Engle Homes, Newmark
Homes, Trophy Homes and Gilligan Homes.
As of June 30, 2005, we controlled approximately 74,000
homesites (including through our unconsolidated joint ventures),
of which 81% were controlled through various option
arrangements, and we were actively selling homes in 228
communities (including 20 through our unconsolidated joint
ventures).
As part of our objective to provide homebuyers a seamless home
purchasing experience, we have developed our complementary
financial services business. As part of this business, we
provide mortgage financing, closing and settlement services, and
offer title, homeowners and other insurance products. Our
mortgage financing operations revenues consist primarily
of origination and premium fee income, interest income and the
gain on the sale of mortgages. We sell substantially all of our
mortgages and the related servicing rights to third party
investors. Our mortgage financing services are used primarily by
buyers of our homes, although we also offer these services to
existing homeowners. By comparison, our closing services and our
insurance agency operations are used by our homebuyers as well
as a broad range of other clients purchasing or refinancing
residential or commercial real estate.
S-39
Business
HOMEBUILDING OPERATIONS
Markets
We operate in 16 metropolitan markets located in four major
geographic regions: Florida, the Mid-Atlantic, Texas and the
West.
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Florida |
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Mid-Atlantic |
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Texas |
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West |
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Jacksonville
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Baltimore/Southern Pennsylvania |
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Austin |
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Colorado |
Orlando
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Delaware |
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Dallas/Ft. Worth |
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Las Vegas |
Southeast Florida
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Nashville |
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Houston |
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Phoenix |
Southwest Florida
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Northern Virginia |
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San Antonio |
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Tampa/ St. Petersburg
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For the year ended December 31, 2004, none of our
metropolitan markets represented more than 16% of our total
revenues. We select our target geographic markets based on,
among other things, historical and projected population growth,
projected job growth, regional economic conditions, availability
of strong management with local expertise, land availability,
single-family home permit activity and price, the local land
development process, consumer tastes, competition, housing
inventory and secondary home sales activity. We market our homes
under various brand names, including Engle Homes, Newmark Homes,
Trophy Homes and Gilligan Homes.
Florida. Our Florida region has been comprised of four
metropolitan markets: Jacksonville; Orlando; Southeast Florida,
which is comprised of Miami-Dade, Broward, Palm Beach, Martin,
St. Lucie and Indian River Counties; and Southwest Florida,
which is comprised of the Fort Myers/ Naples area. As a
result of the Transeastern acquisition, our operations in
Florida have increased and our Florida region now includes the
Tampa/ St. Petersburg market, in addition to our existing
metropolitan markets in Florida. For the year ended
December 31, 2004, we delivered 2,361 homes in Florida,
generating revenue of $632.8 million, or 31.9% of our
revenues from home sales. For the six months ended June 30,
2005, we delivered 1,517 homes in Florida, generating
$436.2 million, or 39.8% of our revenues from home sales.
Mid-Atlantic. Our Mid-Atlantic region is comprised of
four metropolitan markets: Baltimore, Maryland/ Southern
Pennsylvania; Nashville, Tennessee; Northern Virginia; and
Delaware. We entered the Delaware market in September 2004
through our acquisition of certain assets of Gilligan Homes. For
the year ended December 31, 2004, we delivered 562 homes in
our Mid-Atlantic region generating revenue of
$235.3 million, or 11.8% of our revenues from home sales.
For the six months ended June 30, 2005, we delivered 277
homes in our Mid-Atlantic region, generating
$111.3 million, or 10.2% of our revenues from home sales.
Texas. Our Texas region is comprised of four metropolitan
markets: Austin; Dallas/ Ft. Worth; Houston; and
San Antonio. We build in both mini-master and master plan
communities in Texas. To meet varying local demand in each of
our Texas markets, a considerable number of our homes in the
Texas market are built as speculative homes, which
means we commence construction of the homes prior to having sold
them. The number of speculative homes we build in any given
community or market is influenced by local market factors, such
as new employment opportunities, significant job relocations,
housing demand, local market customs, the impact of local
weather patterns on the construction process and the length of
time we have operated in the market. For the year ended
December 31, 2004, we delivered 1,827 homes in Texas,
generating revenue of $459.9 million, or 23.2% of our
revenues from home sales. For the six months ended June 30,
2005, we delivered 847 homes in our Texas region, generating
$204.3 million, or 18.7% of our revenues from home sales.
West. Our West region is comprised of three metropolitan
markets: the Colorado Front Range, which is comprised of Denver,
Boulder and Colorado Springs; Las Vegas, Nevada; and Phoenix,
Arizona. A
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Business
considerable number of our homes in the Colorado market are
built as speculative homes due to local market factors. For the
year ended December 31, 2004, we delivered 2,471 homes in
our West region generating revenue of $657.0 million, or
33.1% of our revenues from home sales. For the six months ended
June 30, 2005, we delivered 1,238 homes in our West region,
generating $342.7 million, or 31.3% of our revenues from
home sales.
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.
For the year ended December 31, 2004, we generated 37% of
our revenues from home sales from homes in the $200,000 to
$300,000 price range, 22% of our revenues from home sales from
homes in the $300,000 to $400,000 price range, 29% of our
revenues from home sales from homes in the under $200,000 price
range, and 12% of our revenues from home sales from homes in the
over $400,000 price range.
Land and homesites
Land is a key raw material and one of our most valuable assets.
We believe that by acquiring land and homesites in premier
locations, we enhance our competitive standing and reduce our
exposure to economic downturns. We believe that homes in premier
locations continue to attract homebuyers in both strong and weak
economic conditions. We consider that our disciplined
acquisition strategy of balancing homesites and land we own and
those we can acquire under option contracts provides us access
to a substantial supply of quality homesites and land while
conserving our invested capital and optimizing our returns.
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 for it. Competition for
attractive land in certain of our more active markets, however,
leads us from time to time to acquire land that is not yet
entitled and undertake to have the land entitled.
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. Before we can build a home on an entitled
homesite that is not developed, the necessary infrastructure
must be put in place. In certain markets, 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 some of these cases,
we seek to use special assessment districts to finance any
necessary public infrastructure improvements and the costs of
land development. These special assessment districts typically
issue tax exempt bonds to finance these improvements and costs.
These tax exempt bonds are typically secured by the property,
are non-recourse to us and are repaid from assessments levied on
the property.
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. These policies and
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Business
procedures impose strict standards for assessing all proposed
land purchases with the goal of minimizing risk and maximizing
our financial returns.
Initially, our experienced 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:
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historical and projected population and employment rates for the
surrounding area; |
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4 |
demographic information such as age, education and economic
status of the homebuyers in the area; |
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suitability for development within two to four years of
acquisition; |
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desirability of location, including proximity to metropolitan
area, local traffic corridors and amenities; and |
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prices of comparable new and resale houses in the area. |
We then evaluate and identify specific homesites in desirable
locations 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:
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estimated costs of completed homesite development; |
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current and anticipated competition in the area, including the
type and anticipated sales price of homes offered by our
competitors; |
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opportunity to acquire additional homesites in the future, if
desired; and |
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results of financial analysis, 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 confirm that the land
has, or is reasonably likely to obtain, the necessary zoning and
other governmental entitlements required to develop and use the
property for residential home construction.
Each land acquisition proposal, which contains specific
information relating to the market, property and community, is
then subject to review and approval by our Asset Committee. The
Asset Committee is comprised of our senior corporate officers
representing our land, finance, sales and marketing, product
development, supply management, building technology and
corporate legal departments.
Land supply. We acquire the land and homesites we require
for our homebuilding operations through a combination of
purchases and option contracts. Under the option contracts, we
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. Homesite option
contracts are generally nonrecourse, thereby limiting our
financial exposure to non-refundable deposits, which are
generally 15% of the underlying purchase price. This enables us
to control significant homesite positions with a minimal capital
investment and reduces the risks associated with land ownership
and development. At June 30, 2005, we had approximately
53,000 homesites under option or similar contracts, representing
approximately 79% of our total homesite supply, and we had
approximately $186.1 million in refundable and
non-refundable deposits and $111.2 million in letters of
credit under those option contracts. Additionally, our joint
ventures owned approximately 3,500 lots and, in addition,
controlled approximately 3,000 homesites at June 30, 2005.
At June 30, 2005, our investments in unconsolidated joint
ventures was $82.4 million.
As of June 30, 2005, we had approximately 74,000 homesites
which were either owned or controlled under option contracts and
joint ventures in our homesite inventory. This represents supply
for
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Business
approximately 8.6 years of operations, based on our current
projections for home sales. The table below shows our
approximate homesite inventory by region and in total for the
dates indicated:
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At December 31, | |
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At June 30, | |
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2002 | |
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2003 | |
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2004 | |
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2005 | |
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Florida
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11,300 |
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19,900 |
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17,000 |
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16,500 |
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Mid-Atlantic
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4,950 |
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4,900 |
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5,900 |
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6,500 |
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Texas
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5,050 |
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8,100 |
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6,200 |
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12,500 |
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West
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5,000 |
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15,300 |
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15,900 |
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32,000 |
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Joint Ventures
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5,000 |
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6,500 |
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Total(1)
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26,300 |
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48,200 |
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50,000 |
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74,000 |
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(1) |
Includes approximately 16,500, 35,800 and 36,000 homesites
under option contracts by us and our joint ventures as of
December 31, 2002, 2003 and 2004, respectively and 56,000
homesites under option contracts by us and our joint ventures as
of June 30, 2005. |
Land sales. As part of our land inventory management
strategy, we regularly review our land portfolio to determine
whether to sell all or a portion of the homesites and land that
we have purchased to capitalize on market opportunities. Our
division managers are constantly reviewing the competitive
landscape and characteristics of each of our local markets. As a
result of these reviews, we will seek to sell land when we have
changed our strategy for a certain property or market and/or we
have determined that the potential profit realizable from a sale
of property outweighs the economics of developing a community.
Land sales are incidental to our homebuilding operations and may
fluctuate significantly from period to period. For the six
months ended June 30, 2005, revenues from land sales were
$54.9 million. Revenues from land sales for the year ended
December 31, 2004 were $115.8 million, as compared to
$38.2 million for the year ended December 31, 2003.
Joint ventures and option contracts. We believe that
using joint ventures in our homebuilding operations to acquire
and develop land and/or to acquire and develop land and build
and market homes helps us acquire attractive land positions,
mitigate and share the risks associated with land ownership and
development, increase our return on capital and extend our
capital resources. Accordingly, we expanded our use of joint
ventures during the year ended December 31, 2004 and six
months ended June 30, 2005, and we expect to further expand
our use of joint ventures in the future. 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. In addition to joint ventures
that acquire and develop land for our homebuilding operations,
and/or joint ventures that develop land and also build and
market homes, we have, on a selective basis, entered into joint
ventures that acquire and develop land for sale to unrelated
third party builders. At June 30, 2005, we had investments
in unconsolidated joint ventures of $82.4 million. During
the year ended December 31, 2004, our unconsolidated joint
ventures had a total of 390 net sales orders, 116 homes
delivered and 669 homes in backlog, having a sales value of
$210.4 million. For the six months ended June 30,
2005, our unconsolidated joint ventures had a total of
800 net sales orders, 344 homes delivered and 1,125 homes
in backlog, having a sales value of $389.1 million.
In addition to using joint ventures, we also seek to use option
contracts to acquire land whenever feasible. Option contracts
generally require the payment of a cash deposit or the posting
of a letter of credit for the right to acquire land or homesites
during a specified period of time at a certain price. These
option contracts are either with land sellers or financial
investors who have acquired the land to enter into the option
contract with us. The financial exposure for nonperformance on
our part in these transactions is generally limited to our cash
deposits and/or letters of credit. Option contracts allow us
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Business
to control significant homesite positions with minimal capital
investment, allowing us to increase our return on capital and
extend our capital resources. At June 30, 2005, we had
refundable and non-refundable deposits of $186.1 million
and had issued letters of credit of approximately
$111.2 million in connection with our option contracts, and
we controlled 53,000 homesites through these contracts.
Supply management
We use our purchasing power and a team-oriented sourcing
methodology to achieve volume discounts and the best possible
service from our suppliers, thereby reducing costs, ensuring
timely deliveries and reducing the risk of supply shortages due
to allocations of materials. Our team-oriented sourcing
methodology involves the use of corporate, regional 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 spending power. We have negotiated price
arrangements, which we believe are favorable, to purchase
lumber, sheetrock, appliances, heating and air conditioning,
counter tops, bathroom fixtures, roofing and insulation
products, concrete, bricks, floor coverings and other housing
equipment and materials. Our purchase contracts are with high
quality national and regional suppliers and do not have any
minimum purchase requirements.
Our supply management team uses our quality control and safety
database 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 of
detailed information relating to the design and construction of
our homes, including architectural plans previously or currently
used in our other communities. We also use an accelerated
product development process that involves gathering our
architects, strategic suppliers and subcontractors and
divisional management teams together in intensive working
sessions intended to allow us to develop and deploy new product
designs faster than the industry norm. As discussed above, this
cross-functional approach to product development and design also
focuses on reducing costs and inefficiencies in the building
process by ensuring that the design process takes into account
supply management, building technology and sales and marketing
issues.
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 flooring, lighting, fixtures and
hardware options available to them. In keeping with our regional
approach, each region decides what type of design center is
suitable for the local area. While the size and content of our
design centers vary between markets, the focus of
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Business
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 workmanlike manner. 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 work force 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.
We typically complete the construction of a home within four to
five months after the receipt of relevant permits. Construction
time, however, depends on weather, availability of labor,
materials, 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. 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. In recent years, we have not experienced
significant delays in construction due to shortages of materials.
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 also strongly encourage our
subcontractors to participate in a peer review process using an
independent quality control database designed to assist us in
identifying and addressing quality control issues and operating
inefficiencies. We believe that this program has and will
continue to improve our efficiency and decrease our construction
time.
Marketing and sales
We market our homes under various brand names, including Engle
Homes, Newmark Homes, Trophy Homes and Gilligan Homes. We are in
the process of consolidating our brands to leverage our most
successful brands and reduce the costs associated with
maintaining multiple brands. In the future, we will be marketing
our homes under the Engle Homes brand name in Florida, most of
the Mid-Atlantic and the West, and under the Newmark Homes brand
name in Texas and in Nashville, Tennessee. We also market our
homes targeted to first-time homebuyers under the Trophy Homes
brand name. We believe our brands are widely recognized in the
markets in which we operate for providing quality homes in
desirable locations and enjoy a solid reputation among potential
homebuyers.
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 television, in newspapers
and other publications, through our own brochures and
newsletters, on billboards and in brochures and newsletters
produced and distributed by real estate and mortgage brokers.
Some of our suppliers
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Business
participate in our advertising and promotional materials, either
through co-branding, cost-sharing or rebates.
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 commissioned sales
personnel and in cooperation with independent real estate
brokers. Because approximately 55% of our sales (based on homes
delivered) originate from independent real estate brokers, we
sponsor a variety of programs and events, including breakfasts,
contests and other events to provide the brokers with a level of
familiarity with our communities, homes and financing options
necessary to successfully market our homes. We also offer other
incentives to brokers to actively 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 up to $5,000 or five
to ten percent of the purchase price. The contract typically
includes a financing contingency which permits the customer to
cancel in the event mortgage financing cannot be obtained within
a specified period, usually 30 days from the signing. The
contract may include other contingencies, such as the prior sale
of a buyers existing home. We estimate that the average
period between the execution of a sales contract for a home and
closing is approximately nine months for presold homes.
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 repeat and referral business. We
conduct home orientations and pre-delivery inspections with
homebuyers immediately before closing. In conjunction with these
inspections, we create a list of unfinished construction items
and address outstanding issues promptly.
An integral part of our customer service program includes
post-delivery surveys. In most of our markets we contract
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. Typically, 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 build, we provide our homebuyers with a
one-year or two-year limited warranty of workmanship and
materials, and an eight-year or 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 a homebuilder protective policy which
covers 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, and
are continuing to implement, a warranty administration
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Business
program in conjunction with our homebuilder protective policy
insurance carrier that we believe will allow us to more
effectively manage and resolve our warranty claims. We
subcontract homebuilding work to subcontractors who generally
provide us with an indemnity and a certificate of insurance
before receiving payments for their work and, therefore, claims
relating to workmanship and materials are the primary
responsibility of our subcontractors. However, there is no
assurance that we will be able 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. In most instances, a customer service
manager inspects the warranty request within 48 hours of
receipt. 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 pro-active 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.
FINANCIAL SERVICES
As part of our objective to provide homebuyers a seamless home
purchasing experience, we have developed, and are expanding, our
complementary financial services business. As part of this
business, we provide mortgage financing, closing and settlement
services, and offer title, homeowners and other insurance
products. Our mortgage financing operation derives most of its
revenues from buyers of our homes, although we also offer these
services to existing homeowners. By comparison, our closing
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 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. 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 six months ended June 30, 2005, approximately 10%
of our homebuyers paid in cash and 61% of our non-cash
homebuyers utilized the services of our mortgage business. For
the year ended December 31, 2004, approximately 12% of our
homebuyers paid in cash and 58% of our non-cash homebuyers
utilized the services of our mortgage business. We closed
approximately 3,158 loans with an aggregate principal amount of
$567.7 million for the six months ended June 30, 2005
and 4,883 loans with an aggregate principle amount of
$873.9 million for the year ended December 31, 2004.
Through our title services business, we, as agent, obtain
competitively-priced title insurance for, and provide closing
services to, our homebuyers as well as third party homebuyers.
We conduct this business through our subsidiary, Universal Land
Title, Inc. and its subsidiaries, which we refer to as Universal
Land Title. Universal Land Title operates as a traditional title
agency with its headquarters in West Palm Beach, Florida and has
30 additional offices.
Universal Land Title works with national underwriters and
lenders to facilitate client service and coordinate closing 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.
Approximately 84% and 96% of our homebuyers used Universal Land
Title or its affiliates for their title insurance agency and
closing services for the six months ended June 30, 2005 and
year ended December 31, 2004, respectively. We continue to
expand our title services business to markets not
S-47
Business
currently served by Universal Land Title. Third party homebuyers
(or non-company customers) accounted for approximately 76% and
73% of our title services business revenue for the six months
ended June 30, 2005 and year ended December 31, 2004,
respectively.
Alliance Insurance and Information Services, LLC, owned by
Universal Land Title and which we refer to as Alliance, 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. Approximately 9% and
14% of our homebuyers used Alliance for their insurance needs
during the six months ended June 30, 2005 and for the year
ended December 31, 2004, respectively.
GOVERNMENTAL REGULATION
We must comply with 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 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, 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 insurance laws and regulations. Our mortgage
financing subsidiaries 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
companies. These laws and regulations include provisions
regarding capitalization, operating procedures, investments,
forms of policies and premiums.
S-48
Business
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:
|
|
4 |
our experience within our geographic markets; |
|
4 |
the ability of our local managers to identify and quickly
respond to local market conditions; and |
|
4 |
our reputation for service and quality. |
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.
We compete 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. We 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.
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 rate of sales contracts for
new homes is highly dependent on the number of active
communities and the timing of new community openings. 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. Because new home
deliveries trail new home contracts by several months, we
typically have the greatest percentage of home deliveries in the
fall and winter.
BACKLOG
At June 30, 2005, our consolidated operations had 6,335
homes in backlog representing $2.1 billion in sales value,
as compared to 5,094 homes in backlog representing
$1.6 billion in sales value at December 31, 2004. In
addition, our unconsolidated joint ventures had 1,125 homes in
backlog at June 30, 2005 as compared to 669 homes in
backlog at December 31, 2004. 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. Historically, substantially all of the homes
in our backlog at any given point in time have been closed in
the following 12-month period. Although cancellations can
disrupt anticipated home closings, we believe that cancellations
have not had a material negative impact on our operations or
liquidity during the last several years. We attempt to reduce
the number of cancellations by reviewing each homebuyers
ability to obtain mortgage financing early in the sales process
and by closely monitoring
S-49
Business
the mortgage approval process. Our cancellation rate for the six
months ended June 30, 2005 and the fiscal year ended
December 31, 2004 was approximately 14% and 16%,
respectively.
EMPLOYEES
At June 30, 2005, we employed 2,408 people. None of our
employees are covered by collective bargaining agreements. We
believe our relations with our employees are good.
S-50
Board of directors
The following table sets forth the names, ages and positions of
each of our directors as of July 27, 2005. Each of the
directors term of office will expire at the next annual
meeting of our stockholders.
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
Konstantinos Stengos
|
|
|
68 |
|
|
Chairman of the Board |
Antonio B. Mon
|
|
|
60 |
|
|
Executive Vice Chairman, Chief Executive Officer, President and
Director |
Andreas Stengos
|
|
|
42 |
|
|
Director |
George Stengos
|
|
|
38 |
|
|
Executive Vice President and Director |
Marianna Stengou
|
|
|
27 |
|
|
Director |
Larry D. Horner
|
|
|
71 |
|
|
Director |
William A. Hasler
|
|
|
63 |
|
|
Director |
Tommy L. McAden
|
|
|
43 |
|
|
Executive Vice President and Director |
Michael J. Poulos
|
|
|
74 |
|
|
Director |
Susan B. Parks
|
|
|
48 |
|
|
Director |
J. Bryan Whitworth
|
|
|
66 |
|
|
Director |
Konstantinos Stengos has been the Chairman of our Board
since December 15, 1999. Mr. Stengos has served as the
President and Managing Director of TOSA since he formed TOSA in
1965. Mr. Stengos owns more than 5% of the outstanding
equity of TOSA, which is publicly traded on the Athens Stock
Exchange. Mr. Stengos has also served as a director and
President of TOSI since October 2003. TOSA and TOSI are each
affiliates of ours. In March 2005, Mr. Stengos was found by
a Court of Misdemeanors in Athens, Greece, to have violated
certain Greek laws relating to a 1999 sale of certain shares of
TOSA. Mr. Stengos has advised us that he is appealing the
ruling.
Antonio B. Mon became a director of TOUSA and our
Executive Vice Chairman, Chief Executive Officer and President,
on June 25, 2002. From October 2001 to June 2002,
Mr. Mon served as the Chief Executive Officer of Technical
Olympic, our former parent company. From May 2001 to October
2001, Mr. Mon was a consultant to Technical Olympic. 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,
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 TOUSA since 1999.
Since October 2003, Mr. Stengos has served as a director
and Treasurer of TOSI. Mr. Stengos has also been a director
of TOSA since 1989 and has served as its Vice President and
General Manager since 1995.
George Stengos has been a director of TOUSA 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.
S-51
Board of directors
Marianna Stengou has been a director of TOUSA since 2004.
Ms. Stengou has served as Vice President of Porto Carras
Campus Hospitality Studies S.A. since April 2002.
Ms. Stengou has served in a variety of positions at TOSA,
including most recently as Director of Human Resources and
Quality, since January 2000. Ms. Stengou served as
President and Managing Director of Toxotis S.A. from November
1997 to June 2004. Ms. Stengou has also been a director of
TOSA since June 2003.
Larry D. Horner has been a director of TOUSA 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
director of ConocoPhillips (an energy company), 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 physicians office and hospital laboratory
products) and New River Pharmaceuticals, Inc. (a research-based
pharmaceutical 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. He is a certified public
accountant.
William A. Hasler has been a director of TOUSA 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
(a real estate investment trust), DiTech Communications (a
global telecommunications equipment supplier for voice
networks), Schwab Funds (a mutual fund company), Aphton
Corporation and Stratex Networks (a provider of high-speed
wireless transmission solutions) and is Chairman of the Board of
Solectron Corp. (a provider of electronics manufacturing
services). Mr. Hasler is a trustee of Pomona College. He is
a certified public accountant.
Tommy L. McAden became a director and our Executive Vice
President in May 2005. Mr. McAden served as our Senior Vice
President Strategy and Operations from April 2004 to May
2005. He 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 Technical Olympic from
January 2000 to June 2002. From 1994 to December 1999,
Mr. McAden was Chief Financial Officer of Pacific Realty
Group, Inc., which was our former 80% stockholder.
Michael J. Poulos has been a director of TOUSA since
2000. Mr. Poulos also serves as a trustee of Century Shares
Trust, a mutual fund. Mr. Poulos served as Chairman,
President and Chief Executive Officer of Western National
Corporation, a life insurance 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.
Susan B. Parks has been a director of TOUSA since 2004.
She is the founder and CEO of WalkStyles, Inc., a consumer
products company, since September 2003. 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 December
2001 to August 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
S-52
Board of directors
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 TOUSA
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.
FAMILY RELATIONSHIPS
Konstantinos Stengos is the father of Andreas Stengos, George
Stengos, and Marianna Stengou. There are no other familial
relationships among the executive officers and directors.
S-53
Management
Our executive officers, their ages and positions, as of
July 27, 2005, are as follows:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
Antonio B. Mon
|
|
|
60 |
|
|
Executive Vice Chairman, Chief Executive Officer, President and
Director |
George Stengos
|
|
|
38 |
|
|
Executive Vice President and Director |
David J. Keller
|
|
|
57 |
|
|
Senior Vice President, Chief Financial Officer and Treasurer |
Tommy L. McAden
|
|
|
43 |
|
|
Executive Vice President and Director |
Patricia M. Petersen
|
|
|
45 |
|
|
Senior Vice President and General Counsel |
Randy L. Kotler
|
|
|
40 |
|
|
Vice President and Chief Accounting Officer |
Harry Englestein
|
|
|
70 |
|
|
Senior Executive Vice President TOUSA Homes |
John Kraynick
|
|
|
51 |
|
|
Vice President Land |
Clint Ooten
|
|
|
34 |
|
|
Vice President Human Resources and Administration |
Edward R. Wohlwender
|
|
|
45 |
|
|
Vice President Operations Support Group and Senior Vice
President TOUSA Homes |
Below is a summary of the business experience of each of our
executive officers who does not serve on our Board of Directors.
The business experience of Messrs. Mon, Stengos and McAden
appears under the caption Board of Directors set
forth above.
David J. Keller became our Senior Vice President, Chief
Financial Officer and Treasurer in May 2004. Prior to joining
us, Mr. Keller served as Executive Vice President and Chief
Financial Officer of CitiFinancial, a subsidiary of CitiGroup,
from October 1999 through August 2003. Prior to CitiGroup,
Mr. Keller spent eight years as Chief Financial Officer of
D.R. Horton, a homebuilder. Mr. Keller began his career
with Ernst & Young LLP, where he was an audit partner
for eight years. Mr. Keller is a certified public
accountant.
Patricia M. Petersen became our Vice President and
General Counsel on September 1, 2002, was named Senior Vice
President in April 2004, and served as our Secretary from July
2003 to November 2004. Before joining TOUSA, Ms. Petersen
served as Assistant General Counsel of Corning Incorporated, a
technology company, from January 2001 to August 2002. From
September 1992 to October 2000, Ms. Petersen served as
Managing Partner of the Nestor Nestor Kingston Petersen law firm
in Bucharest, Romania, and from 1990 to August 1992 as Associate
Counsel with the Hillis Clark Martin & Peterson law
firm in Seattle, Washington.
Randy L. Kotler became our Vice President and Chief
Accounting Officer on June 25, 2002. Prior to joining
TOUSA, Mr. Kotler spent 13 years in public accounting,
including the last five with Ernst & Young LLP in its
Real Estate Group. Mr. Kotler is a certified public
accountant.
Harry Engelstein became Senior Executive Vice President
of TOUSA Homes, Inc. in April 2004, served as Executive Vice
President of TOUSA Homes, Inc. from February 2003 to April 2004,
and managed our South Florida division from June 2002 to
February 2003. Mr. Engelstein began his career in
homebuilding in Montreal, Canada, in 1960, as a contractor. In
1979, he moved to Florida to help form Engle Homes, Inc.,
our predecessor in interest. In 1992, Engle Homes went public,
and Mr. Engelstein served as Executive Vice President and
Corporate Chief Construction Manager.
S-54
Management
John Kraynick became our Vice PresidentLand in
December 2004 and has served as Senior Vice President of TOUSA
Homes, Inc. since June 2002. Prior to that time,
Mr. Kraynick served as Executive Vice President of Engle
Homes, our predecessor in interest, since December 1998. He
originally joined Engle Homes in March 1986. As Executive Vice
President of Engle Homes, Mr. Kraynick coordinated the
operations of that companys seven divisions and oversaw
land acquisition on a national level.
Clint Ooten became our Vice PresidentHuman
Resources and Administration in April 2004. From March 2002
until November 2004, Mr. Ooten served as our Director of
Human Resources. Prior to joining TOUSA, Mr. Ooten served
for five years as the Director of Human Resources for GE
Industrial Systems, a division of the General Electric Company.
Edward R. Wohlwender became our Vice
PresidentOperations Support Group in December 2004 and has
served as Senior Vice President of TOUSA Homes, Inc. since
February 2003. Mr. Wohlwender served as Vice
PresidentSupply Management of TOUSA Homes, Inc. from
January 2002 to February 2003. From January 2001 to January
2002, Mr. Wohlwender owned and managed Value Chain
Consulting, a consulting firm based in Cincinnati, Ohio and
specializing in supply chain optimization. From July 1999 to
January 2001, Mr. Wohlwender served as Senior Vice
PresidentSupply Chain for the Standard Register Company,
an integrated document solutions provider based in Dayton, Ohio.
Prior to July 1999, Mr. Wohlwender worked as a senior
executive at Ernst & Young LLP in their consulting
practice and was Director of Logistics for a division of the
Sara Lee Corporation.
S-55
Executive compensation
The following table presents certain summary information
concerning compensation earned for services rendered by
(i) our Chief Executive Officer during 2004, (ii) our
other four most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000 during the
fiscal year ended December 31, 2004 and (iii) two
additional individuals for whom disclosure is required.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term | |
|
|
|
|
|
|
|
|
|
|
|
|
compensation | |
|
|
|
|
|
|
|
|
awards | |
|
|
|
|
|
|
Annual compensation | |
|
| |
|
|
|
|
|
|
| |
|
Securities | |
|
|
|
|
|
|
|
|
Other annual | |
|
underlying | |
|
All other | |
Name and principal position |
|
Year | |
|
Salary($) | |
|
Bonus($) | |
|
compensation($) | |
|
options(#)(5) | |
|
compensation($) | |
| |
Antonio B. Mon
|
|
|
2004 |
|
|
|
992,200 |
|
|
|
3,950,000 |
|
|
|
140,208 |
(1) |
|
|
|
|
|
|
111,636 |
(2) |
|
Chief Executive Officer, |
|
|
2003 |
|
|
|
896,700 |
|
|
|
2,500,000 |
|
|
|
117,239 |
(3) |
|
|
|
|
|
|
111,636 |
(2) |
|
President and Director |
|
|
2002 |
|
|
|
828,333 |
|
|
|
2,394,700 |
|
|
|
61,644 |
(4) |
|
|
3,293,169 |
|
|
|
111,636 |
(2) |
David J. Keller(6)(7)
|
|
|
2004 |
|
|
|
300,000 |
|
|
|
500,000 |
|
|
|
* |
|
|
|
93,750 |
|
|
|
|
|
|
Senior Vice President, |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer, |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Treasurer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tommy L. McAden
|
|
|
2004 |
|
|
|
459,800 |
|
|
|
965,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Senior Vice President |
|
|
2003 |
|
|
|
418,000 |
|
|
|
625,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Strategy and Operations |
|
|
2002 |
|
|
|
395,833 |
|
|
|
550,000 |
|
|
|
* |
|
|
|
823,292 |
|
|
|
|
|
John Kraynick(6)
|
|
|
2004 |
|
|
|
445,000 |
|
|
|
500,000 |
|
|
|
* |
|
|
|
46,875 |
|
|
|
|
|
|
Vice PresidentLand |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sr. Vice President |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOUSA Homes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry Engelstein
|
|
|
2004 |
|
|
|
445,500 |
|
|
|
2,000,000 |
|
|
|
* |
|
|
|
56,250 |
|
|
|
|
|
|
Senior Executive Vice |
|
|
2003 |
|
|
|
445,000 |
|
|
|
1,019,064 |
|
|
|
* |
|
|
|
37,500 |
|
|
|
|
|
|
President |
|
|
2002 |
|
|
|
415,000 |
|
|
|
969,064 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
TOUSA Homes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark R. Upton(8)
|
|
|
2004 |
|
|
|
420,000 |
|
|
|
1,322,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Executive Vice President |
|
|
2003 |
|
|
|
420,000 |
|
|
|
1,000,000 |
|
|
|
* |
|
|
|
93,750 |
|
|
|
|
|
|
TOUSA Homes |
|
|
2002 |
|
|
|
239,850 |
|
|
|
696,927 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
J. Eric Rome(8)
|
|
|
2004 |
|
|
|
420,000 |
|
|
|
924,100 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Executive Vice President |
|
|
2003 |
|
|
|
420,000 |
|
|
|
1,000,000 |
|
|
|
* |
|
|
|
93,750 |
|
|
|
|
|
|
TOUSA Homes |
|
|
2002 |
|
|
|
408,846 |
|
|
|
800,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
Value of perquisites and other personal benefits does not
exceed the lesser of $50,000 or 10% of the total of annual
salary and bonus reported for the persons above. These
perquisites and other personal benefits consist of automobile
allowances and/or the personal use of a corporate automobile,
the taxable portion of premiums paid by us on group term life
insurance and tax gross ups on certain of these payments. |
|
|
(1) |
Of this amount, $37,644 represents an automobile allowance,
$50,400 represents use of a corporate apartment and the balance
represents personal use of a corporate automobile, the taxable
portion of premiums paid by us on group term life insurance and
tax gross-up payments on these perquisites. |
|
(2) |
This amount includes $60,000 paid for life insurance
policies, plus $51,636 paid in tax gross-up payments on such
premiums. |
|
(3) |
Of this amount, $37,644 represents an automobile allowance,
$46,800 represents use of a corporate apartment and the balance
represents personal use of a corporate automobile and tax
gross-up payments on these perquisites. |
|
(4) |
This amount represents an automobile allowance, use of a
corporate apartment, the taxable portion of premiums paid by us
on group term life insurance and tax gross-up payments. |
S-56
Executive compensation
|
|
(5) |
Adjusted to reflect our three for two stock split, effected
in the form of a 50% stock dividend, which was paid to
stockholders on June 1, 2004 and our five-for-four stock
split, effected in the form of a 25% stock dividend, which was
paid to stockholders on March 31, 2005. |
|
(6) |
Individual was not an executive officer of TOUSA during the
fiscal years ended December 31, 2002 and 2003. |
|
(7) |
Base salary amount does not include $37,500 earned by the
executive officer during 2004 as a consultant prior to his
employment by us. |
|
(8) |
Individual was not an executive officer of ours as of
December 31, 2004. |
S-57
Security ownership
The following table sets forth certain information as of
July 27, 2005, regarding beneficial ownership of our common
stock by
|
|
4 |
each person (or group of affiliated persons) who we know to
beneficially own more than 5% of the outstanding shares of our
common stock; |
|
4 |
each of our current directors and our Current Named Executive
Officers*; and |
|
4 |
all of our current executive officers and directors as a group. |
The percentage of beneficial ownership is based on
60,093,602 shares of our common stock outstanding, after
giving effect to the issuance by us of 4,000,000 shares of
our common stock in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
Percentage | |
|
|
shares | |
|
|
|
Number of | |
|
of shares | |
|
|
beneficially | |
|
Number of | |
|
shares | |
|
owned | |
|
|
owned before | |
|
shares | |
|
owned after | |
|
after the | |
Name and address of beneficial owner |
|
the offering(1) | |
|
to be sold | |
|
the offering(1) | |
|
offering | |
| |
Technical Olympic S.A.(2)
|
|
|
41,141,975 |
|
|
|
1,500,000 |
(3) |
|
|
39,641,975 |
|
|
|
65.97 |
% |
Bricoleur Capital Management LLC(4)
|
|
|
3,530,181 |
|
|
|
|
|
|
|
3,530,181 |
|
|
|
5.87 |
% |
Konstantinos Stengos
|
|
|
273,197 |
(5) |
|
|
|
|
|
|
273,197 |
(5) |
|
|
** |
|
Antonio B. Mon
|
|
|
2,650,009 |
(6) |
|
|
|
|
|
|
2,650,009 |
(6) |
|
|
4.22 |
% |
Andreas Stengos
|
|
|
226,322 |
(7) |
|
|
|
|
|
|
226,322 |
(7) |
|
|
** |
|
George Stengos
|
|
|
226,322 |
(7) |
|
|
|
|
|
|
226,322 |
(7) |
|
|
** |
|
Marianna Stengou
|
|
|
245,072 |
(5) |
|
|
|
|
|
|
245,072 |
(5) |
|
|
** |
|
Larry D. Horner
|
|
|
19,670 |
|
|
|
|
|
|
|
19,670 |
|
|
|
** |
|
William A. Hasler
|
|
|
19,801 |
(8) |
|
|
|
|
|
|
17,072 |
(8) |
|
|
** |
|
Michael J. Poulos
|
|
|
9,833 |
|
|
|
|
|
|
|
9,833 |
|
|
|
** |
|
Susan B. Parks
|
|
|
3,375 |
|
|
|
|
|
|
|
3,375 |
|
|
|
** |
|
J. Bryan Whitworth
|
|
|
6,343 |
(9) |
|
|
|
|
|
|
2,614 |
(9) |
|
|
** |
|
David J. Keller
|
|
|
22,750 |
(10) |
|
|
|
|
|
|
22,750 |
(10) |
|
|
** |
|
Tommy L. McAden
|
|
|
662,628 |
(11) |
|
|
|
|
|
|
662,628 |
(11) |
|
|
1.09 |
% |
Harry Engelstein
|
|
|
26,250 |
(7) |
|
|
|
|
|
|
26,250 |
(7) |
|
|
** |
|
John Kraynick
|
|
|
9,375 |
(7) |
|
|
|
|
|
|
9,375 |
(7) |
|
|
** |
|
All directors and executive officers as a group (18 persons)
|
|
|
4,469,947 |
(12) |
|
|
|
|
|
|
4,363,769 |
(12) |
|
|
6.93 |
% |
|
|
* |
For purposes of this table only, Current Named
Executive Officers includes each person who was identified
as a Named Executive Officer in our proxy statement for the 2005
annual meeting of stockholders and who currently serves as one
of our executive officers. |
|
|
** |
Less than one percent. |
Except as otherwise indicated, the address of each person named
in this table is c/o Technical Olympic USA, Inc., 4000
Hollywood Boulevard, Suite 500 N, Hollywood, Florida 33021.
|
|
(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 |
S-58
Security ownership
|
|
|
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 July 27,
2005, 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 TOSA. Any material relationships
between us and TOSA are described in Certain Relationships
and Related Transactions. |
|
(3) |
TOSA has agreed to sell up to an
aggregate of 225,000 shares of common stock if the
underwriters exercise in full their over-allotment option. TOSA
owns 73.35% of our common stock and after the offering, will own
65.97% of our common stock, or 64.94% if the over-allotment is
exercised in full. |
|
(4) |
The principal business address
of Bricoleur Capital Management (Bricoleur) is 12230
El Camino Real, Suite 100, San Diego, California
92130. This number is based solely on Amendment No. 4,
filed on April 8, 2005, to the Schedule 13G filed with
the Commission by Bricoleur. According to the Schedule 13G,
as amended, Bricoleur has shared voting power and shared
dispositive power with respect to all of the referenced
shares. |
|
(5) |
Includes 226,322 shares
issuable upon exercise of stock options that have already vested
or will vest within 60 days of July 27,
2005. |
|
(6) |
As a result of various gifts and
transfers for estate planning purposes, Mr. Mon has
transferred all of his 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 or will vest within
60 days of July 27, 2005 that are beneficially owned
by Maywood Investment Company, LLC (MIC),
(ii) 967,307 shares issuable upon exercise of stock
options that have already vested or will vest within
60 days of July 27, 2005 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
or will vest within 60 days of July 27, 2005 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. |
|
(7) |
Consists solely of shares
issuable upon exercise of stock options that have already vested
or will vest within 60 days of July 27,
2005. |
|
(8) |
Includes 17,251 shares
issuable upon exercise of stock options that have already vested
or will vest within 60 days of July 27,
2005. |
|
(9) |
Includes 4,093 shares
issuable upon exercise of stock options that have already vested
or will vest within 60 days of July 27,
2005. |
|
|
(10) |
Includes 18,750 shares issuable upon exercise of stock
options that have already vested or will vest within
60 days of July 27, 2005. |
|
(11) |
Includes 662,503 shares issuable upon exercise of stock
options that have already vested or will vest within
60 days of July 27, 2005. |
|
(12) |
Includes 4,363,769 shares issuable upon exercise of
stock options that have already vested or will vest within
60 days of July 27, 2005. |
S-59
Certain relationships and related transactions
MANAGEMENT SERVICES AGREEMENT
In June 2003, we entered into an Amended and Restated Management
Services Agreement with Technical Olympic, our former parent
company, and in connection with an October 2003 restructuring
transaction, Technical Olympic 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. Pursuant to the
terms of our revolving credit facility, the aggregate amount of
annual fees payable under the Amended and Restated Management
Services Agreement may not exceed $3.5 million. For the
year ended December 31, 2004, we have made payments of
$2.5 million to TOSI under this agreement. The agreement
expires on December 31, 2007.
PURCHASING AGREEMENT
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 $302.6 million of materials and supplies on
our behalf for the year ended December 31, 2004.
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 Group, a limited
liability company controlled by Alec Engelstein, Harry
Engelsteins brother. We made payments of $5.5 million
to Equity Group pursuant to these agreements during the year
ended December 31, 2004, and, as of December 31, 2004,
had options to purchase from Equity Group additional lots for a
total aggregate sum of approximately $13.8 million. We
believe that the terms of these various agreements include
purchase prices that approximate fair market value.
TAX ALLOCATION AGREEMENT
As a result of the merger of Technical Olympic into one of our
wholly-owned subsidiaries pursuant to an October 2003
restructuring transaction, a previously existing tax allocation
agreement between Technical Olympic and us was terminated. Due
to the termination of the tax allocation agreement between
Technical Olympic and us, the tax accounts between the two
companies were settled. The closing reconciliation of tax
accounts resulted in an estimated $4.1 million due to us
from TOSI, a Delaware corporation that is wholly-owned by TOSA,
who assumed this liability from Technical Olympic as part of the
October 2003 restructuring transaction. In satisfaction of this
obligation, during the year ended December 31, 2004, TOSI
(i) paid us approximately $2.8 million and
(ii) also assigned to us a federal tax refund of
approximately $1.3 million relating to amendments to tax
returns filed pursuant to the tax allocation agreement.
S-60
Material United States federal tax considerations to
Non-U.S. holders
The following is a general summary of the material United States
federal income and estate tax considerations to a
Non-U.S. Holder (as defined below) relevant to the
ownership and disposition of shares of common stock purchased
for cash in this offering and held as capital assets within the
meaning of the code. This summary is based on the Internal
Revenue Code of 1986, as amended (the Code), final,
temporary and proposed United States Treasury regulations
promulgated thereunder, Internal Revenue Service
(IRS) rulings, official pronouncements and judicial
decisions, all as in effect as of the date hereof and all of
which are subject to change, possibly with retroactive effect,
or different interpretations. This summary does not discuss all
the tax consequences that may be relevant to a particular
Non-U.S. Holder in light of the holders particular
circumstances and it is not intended to be applicable in all
respects to all categories of Non-U.S. Holders, some of
whom may be subject to special rules not discussed below.
Purchasers that may be subject to special rules include:
|
|
4 |
certain U.S. expatriates; |
|
4 |
financial institutions; |
|
4 |
insurance companies; |
|
4 |
partnerships or other pass-through entities; |
|
4 |
tax-exempt entities; |
|
4 |
dealers in securities or currencies; |
|
4 |
traders in securities; and |
|
4 |
persons that hold the common stock as part of a straddle, hedge,
conversion or other integrated transaction. |
The following discussion does not address the U.S. federal
income tax consequences of persons who hold the common stock
through a partnership or other pass-through entity. In addition,
the following discussion does not address any state, local or
foreign tax considerations that may be relevant to a
Non-U.S. Holders decision to purchase shares of
common stock. You should consult your own tax advisor regarding
the particular U.S. federal, state and local and foreign
income, estate and other tax consequences of acquiring, owning
and disposing of the common stock that may be applicable to you.
Special rules may apply to certain Non-U.S. Holders, such
as controlled foreign corporations and passive
foreign investment companies, which are subject to special
treatment under the Code. Such entities should consult their own
tax advisors to determine the U.S. federal, state, local
and other tax consequences that may be relevant to them.
For purposes of the federal income tax portion of this
discussion, a Non-U.S. Holder means a
beneficial owner of common stock that is a nonresident alien or
a corporation, trust or estate that is not for U.S. federal
income tax purposes (1) a corporation created or organized
in or under the laws of the United States or any political
subdivision thereof, (2) an estate the income of which is
subject to United States federal income taxation regardless of
its source or (3) a trust (a) that is subject to the
supervision of a court within the United States and the control
of one or more United States persons as described in
section 7701(a)(30) of the Code or (b) that has a
valid election in effect under applicable United States Treasury
regulations to be treated as a U.S. person. For purposes of
the federal estate tax portion of this discussion, a
Non-U.S. Holder means a beneficial owner of
common stock who is an individual who is not domiciled in the
United States.
S-61
Material United States federal tax considerations to
non-U.S. holders
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT
INTENDED TO BE CONSTRUED AS TAX ADVICE. ALL
NON-U.S. HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
SHARES OF COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
DIVIDENDS ON COMMON STOCK
Generally, any dividends paid to a Non-U.S. Holder of
common stock will be subject to United States federal
withholding tax at a rate of 30% of the amount of the dividend,
or at a lower applicable income tax treaty rate. However, if the
dividend is effectively connected with the conduct of a United
States trade or business of a Non-U.S. Holder (and is
attributable to a U.S. permanent establishment of such
Non-U.S. Holder, if an income tax treaty applies), it
generally will be subject to United States federal income tax on
a net income basis at ordinary federal income tax rates (in
which case the branch profits tax at 30% (or such
lower rate as may be specified in an applicable income tax
treaty) may also apply if such Non-U.S. Holder is a foreign
corporation), and assuming certain certification requirements
are met, will not be subject to the 30% withholding tax.
United States Treasury regulations require a
Non-U.S. Holder to provide certain certifications under
penalties of perjury in order to obtain treaty benefits (and
avoid backup withholding as discussed below).
A Non-U.S. Holder of common stock eligible for a reduced
rate of United States withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the IRS.
DISPOSITION OF COMMON STOCK
Subject to the discussion of backup withholding below, any
capital gain realized upon a sale or other disposition of common
stock by a Non-U.S. Holder ordinarily will not be subject
to United States federal income tax unless (1) the gain is
effectively connected with a trade or business conducted by such
Non-U.S. Holder within the United States (and is
attributable to a U.S. permanent establishment of such
holder, if an income tax treaty applies) in which case, the
Non-U.S. Holder will be subject to United States federal
income tax on the net gain derived from the sale under regular
graduated United States federal income tax rates, and if the
Non-U.S. Holder is a foreign corporation, the branch
profits tax at 30% of the Non-U.S. Holders
effectively connected earnings and profits within the meaning of
the Code for the taxable year, as adjusted for certain items (or
such lower rate as may be specified in an applicable income tax
treaty), may also apply, or (2) in the case of a
Non-U.S. Holder that is an individual, such
Non-U.S. Holder is present in the United States for a
period or periods aggregating 183 days or more in the
taxable year of the sale or other disposition and certain other
requirements are met (in which case the holder will be subject
to a flat 30% tax on the gain derived from the sale, which may
be offset by United States source capital losses, even though
the individual is not considered a resident of the United
States), or (3) we are or have been a United States
real property holding corporation (a USRPHC)
for United States federal income tax purposes at any time within
the lesser of (a) the five-year period ending on the date
of the sale or other disposition and (b) the
Non-U.S. Holders holding period, and, in each case,
no income tax treaty exception is applicable. We believe that we
are currently a USRPHC and will remain a USRPHC in the future.
However, any gain recognized by a Non-U.S. Holder on the
disposition of the common stock still would not be subject to
U.S. federal income tax if the common stock were to be
regularly traded (within the meaning of applicable
United States Treasury regulations) on an established securities
market (such as, for example, the New York Stock Exchange) and
the Non-U.S. Holder did not own, directly or
constructively, more than 5% of the outstanding common stock at
any time during the shorter of
S-62
Material United States federal tax considerations to
non-U.S. holders
(a) the five-year period ending on the date of the sale or
other disposition and (b) the Non-U.S. Holders
holding period. Our common stock is currently regularly
traded (within the meaning of applicable United States
Treasury regulations) on an established securities market,
although no assurance can be given that this will not change in
the future. Non-U.S. Holders should consult their tax
advisors to determine whether an income tax treaty is applicable.
FEDERAL ESTATE TAXES
Common stock that is beneficially owned by an individual
Non-U.S. Holder at the time of death will be included in
the individuals gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty
provides otherwise. The individuals gross estate might
also include the value of common stock which is held indirectly
by the individual through one or more domestic or foreign
entities. Non-U.S. holders are encouraged to consult their
tax advisors regarding the inclusion of the value of the common
stock in their gross estate.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report to the IRS the amount of dividends
paid on common stock to a Non-U.S. Holder, the name and
address of the Non-U.S. Holder, and the amount, if any, of
tax withheld. Pursuant to tax treaties or certain other
agreements, the IRS may make its reports available to tax
authorities in the Non-U.S. Holders country of
residence. Dividends on common stock paid to a
Non-U.S. Holder will generally be exempt from backup
withholding tax, provided that Non-U.S. holders meet
applicable certification requirements or otherwise establish an
exemption. Non-U.S. holders that fail to meet these
requirements will be subject to backup withholding, currently at
a rate of 28%.
Payments of the proceeds from the sale (or other disposition,
including a redemption) by a Non-U.S. Holder of shares of
common stock made by or through a foreign office of a broker
will not be subject to information reporting or backup
withholding except that if the broker is, for United States tax
purposes, (i) a U.S. person, (ii) a
controlled foreign corporation (as defined in the
Code), (iii) a foreign person 50% or more of whose gross
income is effectively connected with the conduct of a United
States trade or business for a specified three-year period, or
(iv) a foreign partnership, if at any time during its tax
year, one or more of its partners are U.S. persons, as
defined in Treasury regulations, who in the aggregate hold more
than 50% of the income or capital interest in the partnership or
if, at any time during its tax year, the foreign partnership is
engaged in a U.S. trade or business, then information
reporting but not backup withholding may apply to these payments
if the Non-U.S. Holder does not meet applicable
certification requirements or otherwise establish an exemption.
Payments of the proceeds from the sale of shares of common stock
by or through the United States office of a broker will be
subject to information reporting and backup withholding unless
the Non-U.S. Holder certifies under penalties of perjury
that it is a Non-U.S. Holder or otherwise establishes an
exemption from information reporting and backup withholding.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against the
Non-U.S. Holders United States federal income tax
liability provided the required information is timely furnished
to the IRS.
S-63
Underwriting
We and the selling stockholder are selling the common stock to
the underwriters named in the table below pursuant to an
underwriting agreement dated the date of this prospectus
supplement. We and the selling stockholder have agreed to sell
to each of the underwriters, and each of the underwriters has
severally agreed to purchase the number of shares of common
stock set forth opposite that underwriters name in the
table below:
|
|
|
|
|
|
|
|
Number of | |
Underwriters |
|
shares | |
| |
UBS Securities LLC
|
|
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
|
Deutsche Bank Securities Inc.
|
|
|
|
|
Wachovia Capital Markets, LLC
|
|
|
|
|
JMP Securities LLC
|
|
|
|
|
|
Total
|
|
|
5,500,000 |
|
|
|
|
|
Under the terms and conditions of the underwriting agreement,
the underwriters must buy all of the shares of offered common
stock if they buy any of them. The underwriting agreement
provides that the obligations of the underwriters are subject to
approval of legal matters by their counsel, including the
validity of the common stock, and other conditions, such as the
receipt by the underwriters of officers certificates and
legal opinions. If an underwriter defaults, the underwriting
agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased
or the underwriting agreement may be terminated. The
underwriters will sell the common stock to the public when and
if the underwriters buy the common stock from us and the selling
stockholder.
We and the selling stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments
the underwriters may be required to make in respect to those
liabilities.
We and the selling stockholder have granted to the underwriters
an option to purchase up to 825,000 additional shares of common
stock at the public offering price, less the underwriting
discounts and commissions, set forth on the cover page of the
prospectus supplement to cover over-allotments, if any. This
option is exercisable for a period of 30 days. If the
underwriters exercise their over-allotment option, the
underwriters have severally agreed, subject to conditions, to
purchase from us shares in approximately the same proportion as
set forth in the table above.
The underwriters propose to offer the common stock directly to
the public initially at the offering price set forth on the
cover page of this prospectus supplement. The underwriters may
offer the common stock to securities dealers at that price less
a concession not in excess of
$ per
share. Securities dealers may reallow a concession not in excess
of
$ per
share on sales to certain other brokers or dealers. The
underwriters reserve the right to reject any order for the
purchase of shares. If all of the shares are not sold at the
public offering price, the underwriters may change the offering
price and other selling terms.
We, the selling stockholder and our executive officers and
directors have agreed that we will not issue, offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933, as
amended, relating to, any common shares or securities
convertible into or exchangeable or exercisable for any common
shares without the prior written consent of UBS Securities LLC
and Citigroup Global
S-64
Underwriting
Markets Inc. for a period of 90 days from the date of this
prospectus supplement. This agreement does not apply to
(i) sales to the underwriters pursuant to this offering,
(ii) issuances pursuant to our employee benefit plans or
pursuant to the exercise of employee or director stock options
outstanding on the date hereof and (iii) the sale of up to
100,000 shares of common stock in the aggregate by our
directors and executive officers. UBS Securities LLC and
Citigroup Global Markets Inc. in their sole discretion may
release any of the securities subject to these lock-up
provisions at any time without notice.
The following table provides information regarding the per share
and total underwriting discounts and commissions to be paid to
the underwriters. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase up to 825,000 additional shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid by us | |
|
Paid by selling stockholder | |
|
|
| |
|
| |
|
|
No exercise of | |
|
Full exercise of | |
|
No exercise of | |
|
Full exercise of | |
|
|
over-allotment | |
|
over-allotment | |
|
over-allotment | |
|
over-allotment | |
|
|
option | |
|
option | |
|
option | |
|
option | |
| |
Per Share
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
We estimate that our expenses in connection with the sale of the
common stock, other than underwriting discounts, will be
$400,000. This estimate includes expenses related to the filing
fee for the registration statement, printing, transfer agent
fees, and legal and account fees, among other expenses.
The underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M of the
Securities Exchange Act of 1934. Over-allotment transactions
involve syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying securities so long as the
stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit
the underwriters to reclaim a selling concession from a
syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or
syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common
stock to be higher than it would otherwise be in the absence of
these transactions. Neither we, nor the selling stockholder nor
any underwriter is making any representation or prediction as to
the effect that the transactions described above may have on the
price of the common stock. These transactions may be effected on
the New York Stock Exchange or otherwise and, if commenced, may
be discontinued at any time.
Certain of the underwriters and their affiliates have performed
investment banking and advisory services for us from time to
time for which they have received customary fees and expenses.
The underwriters and their affiliates may, from time to time in
the future, engage in transactions with, and perform services
for, us in the ordinary course of their business for which they
would receive customary fees and expenses. An affiliate of
Citigroup Global Markets Inc. is an agent and lender and an
affiliate of each of Deutsche Bank Securities Inc. and Wachovia
Capital Markets, LLC is a lender under our revolving credit
facility and as such will receive its pro rata portion of the
approximately $109.2 million of net proceeds of this
offering used to repay loans under our revolving credit facility.
S-65
Where you can find more information
We file annual, quarterly and special reports and other
information with the Commission. You may read our Commission
filings over the Internet at the Commissions website at
http://www.sec.gov. You may also read and copy documents at the
Commissions Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-SEC-0330 for further information on the
Public Reference Room. Our Commission filings are also available
via our website at http://www.tousa.com. We do not intend the
information on our website to constitute part of this prospectus
supplement.
We incorporate into this prospectus supplement by reference the
following documents filed by us with the Commission, each of
which should be considered an important part of this prospectus
supplement:
|
|
|
Commission filing (File No. 001-32322) |
|
Period covered or date of filing |
|
|
|
Annual Report on Form 10-K |
|
Year ended December 31, 2004 |
|
Quarterly Report on Form 10-Q |
|
Quarters ended March 31, 2005 and June 30, 2005 |
|
Current Report on Form 8-K, other than any information
furnished pursuant to Item 2.02 or Item 7.01 of
Form 8-K |
|
February 17, 2005, February 22, 2005, March 1,
2005, March 4, 2005, March 31, 2005, April 8,
2005, May 24, 2005, May 31, 2005 and June 9, 2005 |
|
Description of our common stock contained in Registration
Statement on Form 8-A and any amendment or report filed for
the purpose of updating such description |
|
January 28, 1998 and October 18, 2004 |
|
All subsequent documents filed by us under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act of 1934, other than any
information furnished pursuant to Item 2.02 or
Item 7.01 of Form 8-K or as otherwise permitted by
Commission rules and regulations |
|
After the date of this prospectus |
Any statement contained in a document deemed to be incorporated
by reference herein shall be deemed to be modified or superseded
to the extent that a statement contained herein, or in any other
subsequently filed document also deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of
this prospectus supplement. You may request a copy of each of
our filings incorporated by reference in this prospectus
supplement, at no cost, upon written or oral request directed to
us at the following address: 4000 Hollywood Blvd.,
Suite 500 N, Hollywood, Florida 33021, Attn: General
Counsel, (954) 364-4000.
Legal matters
The validity of any securities offered under this prospectus or
any prospectus supplement has been passed upon for us by Akerman
Senterfitt, Miami, Florida. Certain legal matters in connection
with this offering will be passed upon for the underwriters by
Cahill Gordon & Reindel
llp, New York, New
York.
S-66
Experts
Our consolidated financial statements at December 31, 2004
and 2003, and for each of the three years in the period ended
December 31, 2004, appearing in this prospectus supplement
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
Our consolidated financial statements appearing in our Annual
Report on Form 10-K for the year ended December 31,
2004, and our managements assessment of the effectiveness
of internal control over financial reporting as of
December 31, 2004 included therein, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements and managements assessment are
incorporated by reference in this prospectus in reliance upon
such reports given on the authority of said firm as experts in
accounting and auditing.
S-67
Index to consolidated financial statements
|
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|
Page | |
|
|
| |
Audited Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-9 |
|
Unaudited Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-37 |
|
|
|
|
F-38 |
|
|
|
|
F-29 |
|
|
|
|
F-40 |
|
F-1
Technical Olympic USA, Inc. and subsidiaries
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders
Technical Olympic USA, Inc.
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Technical Olympic USA, Inc. maintained
effective internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Technical Olympic USA, 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. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of 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, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, 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, managements assessment that Technical
Olympic USA, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Technical Olympic USA, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, 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 Technical
Olympic USA, Inc. as of December 31, 2004 and 2003, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2004 and our report dated March 8,
2005 expressed an unqualified opinion thereon.
|
|
|
Ernst & Young LLP
|
|
Certified Public Accountants |
Miami, Florida
March 8, 2005
F-2
Technical Olympic USA, Inc. and subsidiaries
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE FINANCIAL STATEMENTS
The Board of Directors and Stockholders
Technical Olympic USA, Inc.
We have audited the accompanying consolidated statements of
financial condition of Technical Olympic USA, Inc. and
subsidiaries (the Company) as of December 31, 2004 and
2003, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2004. 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.
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 provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Technical Olympic USA, Inc. and
subsidiaries at December 31, 2004 and 2003, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Technical Olympic USA, Inc.s internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 8, 2005 expressed an unqualified opinion
thereon.
|
|
|
Ernst & Young LLP
|
|
Certified Public Accountants |
Miami, Florida
March 8, 2005
F-3
Technical Olympic USA, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
| |
|
|
(dollars in millions, | |
|
|
except par value) | |
ASSETS |
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
$ |
217.6 |
|
|
$ |
73.7 |
|
|
Restricted
|
|
|
8.0 |
|
|
|
21.2 |
|
Inventory
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
132.8 |
|
|
|
78.7 |
|
|
Homesites and land under development
|
|
|
336.2 |
|
|
|
443.4 |
|
|
Residences completed and under construction
|
|
|
671.0 |
|
|
|
404.6 |
|
|
Inventory not owned
|
|
|
136.2 |
|
|
|
246.2 |
|
|
|
|
|
|
|
|
|
|
|
1,276.2 |
|
|
|
1,172.9 |
|
Property and equipment, net
|
|
|
26.7 |
|
|
|
23.7 |
|
Investments in unconsolidated joint ventures
|
|
|
71.6 |
|
|
|
10.5 |
|
Other assets
|
|
|
71.1 |
|
|
|
43.7 |
|
Goodwill
|
|
|
110.7 |
|
|
|
100.1 |
|
|
|
|
|
|
|
|
|
|
|
1,781.9 |
|
|
|
1,445.8 |
|
Financial Services:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Unrestricted
|
|
|
50.9 |
|
|
|
3.1 |
|
|
Restricted
|
|
|
69.1 |
|
|
|
73.4 |
|
Mortgage loans held for sale
|
|
|
75.8 |
|
|
|
75.2 |
|
Other assets
|
|
|
9.8 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
|
|
|
205.6 |
|
|
|
159.2 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,987.5 |
|
|
$ |
1,605.0 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$ |
188.9 |
|
|
$ |
149.3 |
|
Customer deposits
|
|
|
69.1 |
|
|
|
35.5 |
|
Obligations for inventory not owned
|
|
|
136.2 |
|
|
|
246.2 |
|
Notes payable
|
|
|
811.4 |
|
|
|
480.0 |
|
Bank borrowings
|
|
|
|
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
1,205.6 |
|
|
|
928.9 |
|
Financial Services:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
70.2 |
|
|
|
75.3 |
|
Bank borrowings
|
|
|
49.0 |
|
|
|
63.2 |
|
|
|
|
|
|
|
|
|
|
|
119.2 |
|
|
|
138.5 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,324.8 |
|
|
|
1,067.4 |
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock$0.01 par value; 3,000,000 shares
authorized; none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock$0.01 par value; 97,000,000 shares
authorized and 44,856,437 and 44,833,554 shares issued and
outstanding at December 31, 2004, and 2003, respectively
|
|
|
0.4 |
|
|
|
0.3 |
|
Additional paid-in capital
|
|
|
388.5 |
|
|
|
379.4 |
|
Unearned compensation
|
|
|
(9.0 |
) |
|
|
(7.3 |
) |
Retained earnings
|
|
|
282.8 |
|
|
|
165.2 |
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
662.7 |
|
|
|
537.6 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
1,987.5 |
|
|
$ |
1,605.0 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
Technical Olympic USA, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
|
(dollars in millions, except per share amounts) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes sales
|
|
$ |
1,985.0 |
|
|
$ |
1,604.4 |
|
|
$ |
1,350.3 |
|
|
Land sales
|
|
|
115.8 |
|
|
|
38.2 |
|
|
|
27.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100.8 |
|
|
|
1,642.6 |
|
|
|
1,377.7 |
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
1,592.0 |
|
|
|
1,291.8 |
|
|
|
1,077.2 |
|
|
Land sales
|
|
|
80.4 |
|
|
|
27.6 |
|
|
|
24.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672.4 |
|
|
|
1,319.4 |
|
|
|
1,101.6 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
428.4 |
|
|
|
323.2 |
|
|
|
276.1 |
|
Selling, general and administrative expenses
|
|
|
251.6 |
|
|
|
212.1 |
|
|
|
187.5 |
|
Income from joint ventures, net
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(1.7 |
) |
|
|
(3.6 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income
|
|
|
181.7 |
|
|
|
114.7 |
|
|
|
91.2 |
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
34.5 |
|
|
|
38.1 |
|
|
|
30.7 |
|
Expenses
|
|
|
26.2 |
|
|
|
22.5 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
Financial Services pretax income
|
|
|
8.3 |
|
|
|
15.6 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
190.0 |
|
|
|
130.3 |
|
|
|
106.9 |
|
Provision for income taxes
|
|
|
70.4 |
|
|
|
47.6 |
|
|
|
39.9 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
119.6 |
|
|
|
82.7 |
|
|
|
67.0 |
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
7.9 |
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
119.6 |
|
|
$ |
82.7 |
|
|
$ |
72.0 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per common sharebasic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
2.67 |
|
|
$ |
1.96 |
|
|
$ |
1.60 |
|
|
From discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2.67 |
|
|
$ |
1.96 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per common sharediluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
2.60 |
|
|
$ |
1.94 |
|
|
$ |
1.60 |
|
|
From discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2.60 |
|
|
$ |
1.94 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,848,297 |
|
|
|
42,176,148 |
|
|
|
41,818,181 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,928,560 |
|
|
|
42,544,152 |
|
|
|
41,818,181 |
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$ |
0.045 |
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
F-5
Technical Olympic USA, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock | |
|
Additional | |
|
|
|
|
|
|
|
|
| |
|
paid-in | |
|
Unearned | |
|
Retained | |
|
Total | |
|
|
Shares | |
|
Amount | |
|
capital | |
|
comp | |
|
earnings | |
|
equity | |
| |
|
|
(dollars in millions) | |
Balance at January 1, 2002
|
|
|
41,818,181 |
|
|
$ |
0.3 |
|
|
$ |
322.4 |
|
|
$ |
|
|
|
$ |
90.7 |
|
|
$ |
413.4 |
|
|
Assumption of Technical Olympic debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75.4 |
) |
|
|
(75.4 |
) |
|
Distributions by Engle Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.8 |
) |
|
|
(4.8 |
) |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72.0 |
|
|
|
72.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
41,818,181 |
|
|
|
0.3 |
|
|
|
322.4 |
|
|
|
|
|
|
|
82.5 |
|
|
|
405.2 |
|
|
Common stock issued to directors
|
|
|
15,373 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Sale of common stock
|
|
|
3,000,000 |
|
|
|
|
|
|
|
48.4 |
|
|
|
|
|
|
|
|
|
|
|
48.4 |
|
|
Unearned compensation
|
|
|
|
|
|
|
|
|
|
|
8.5 |
|
|
|
(7.3 |
) |
|
|
|
|
|
|
1.2 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82.7 |
|
|
|
82.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
44,833,554 |
|
|
|
0.3 |
|
|
|
379.4 |
|
|
|
(7.3 |
) |
|
|
165.2 |
|
|
|
537.6 |
|
|
Common stock issued to directors
|
|
|
10,917 |
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
Stock split
|
|
|
|
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
11,966 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0 |
) |
|
|
(2.0 |
) |
|
Unearned compensation
|
|
|
|
|
|
|
|
|
|
|
8.9 |
|
|
|
(1.7 |
) |
|
|
|
|
|
|
7.2 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119.6 |
|
|
|
119.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
44,856,437 |
|
|
$ |
0.4 |
|
|
$ |
388.5 |
|
|
$ |
(9.0 |
) |
|
$ |
282.8 |
|
|
$ |
662.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Technical Olympic USA, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
|
(dollars in millions) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$119.6 |
|
|
$ |
82.7 |
|
|
$ |
72.0 |
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(5.0 |
) |
|
Depreciation and amortization
|
|
|
12.6 |
|
|
|
9.3 |
|
|
|
7.5 |
|
|
Non-cash compensation expense
|
|
|
8.8 |
|
|
|
1.4 |
|
|
|
|
|
|
Deferred income taxes
|
|
|
(0.6 |
) |
|
|
(0.7 |
) |
|
|
(2.1 |
) |
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
1.1 |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
17.5 |
|
|
|
(48.1 |
) |
|
|
(19.1 |
) |
|
|
Inventory
|
|
|
(211.8 |
) |
|
|
(132.3 |
) |
|
|
(75.9 |
) |
|
|
Other assets
|
|
|
(23.3 |
) |
|
|
(3.1 |
) |
|
|
(2.4 |
) |
|
|
Accounts payable and other liabilities
|
|
|
29.2 |
|
|
|
102.0 |
|
|
|
39.1 |
|
|
|
Customer deposits
|
|
|
33.6 |
|
|
|
7.2 |
|
|
|
(1.6 |
) |
|
|
Mortgage loans held for sale
|
|
|
(0.6 |
) |
|
|
(16.4 |
) |
|
|
(7.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(15.0 |
) |
|
|
2.0 |
|
|
|
5.7 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net additions to property and equipment
|
|
|
(15.6 |
) |
|
|
(19.1 |
) |
|
|
(8.8 |
) |
Investments in unconsolidated joint ventures
|
|
|
(61.1 |
) |
|
|
(10.5 |
) |
|
|
|
|
Amounts paid for acquisitions, net of cash acquired
|
|
|
|
|
|
|
(59.6 |
) |
|
|
(51.3 |
) |
Earn out consideration paid for acquisitions
|
|
|
(6.6 |
) |
|
|
(18.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(83.3 |
) |
|
|
(107.3 |
) |
|
|
(60.1 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (repayments on) proceeds from revolving credit facilities
|
|
|
(10.0 |
) |
|
|
(45.2 |
) |
|
|
58.6 |
|
Proceeds from notes offerings
|
|
|
330.0 |
|
|
|
129.3 |
|
|
|
350.0 |
|
Principal payments on unsecured borrowings and senior notes
|
|
|
(7.9 |
) |
|
|
|
|
|
|
(379.6 |
) |
Net payments on obligations for inventory not owned
|
|
|
|
|
|
|
|
|
|
|
(13.7 |
) |
Net (repayments on) proceeds from Financial Services bank
borrowings
|
|
|
(14.3 |
) |
|
|
14.9 |
|
|
|
9.6 |
|
Payments for deferred financing costs
|
|
|
(5.9 |
) |
|
|
(5.4 |
) |
|
|
(15.3 |
) |
Minority interest in consolidated subsidiaries
|
|
|
|
|
|
|
(9.1 |
) |
|
|
(26.7 |
) |
Net proceeds from sale of common stock
|
|
|
|
|
|
|
48.4 |
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Dividends paid and distributions by Engle Holdings
|
|
|
(2.0 |
) |
|
|
|
|
|
|
(4.8 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
290.0 |
|
|
|
132.9 |
|
|
|
(21.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
|
191.7 |
|
|
|
27.6 |
|
|
|
(76.3 |
) |
Net cash provided by discontinued operations
|
|
|
|
|
|
|
|
|
|
|
50.3 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
191.7 |
|
|
|
27.6 |
|
|
|
(26.0 |
) |
Cash and cash equivalents at beginning of period
|
|
|
76.8 |
|
|
|
49.2 |
|
|
|
75.2 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$268.5 |
|
|
$ |
76.8 |
|
|
$ |
49.2 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
Technical Olympic USA, Inc. and subsidiaries
Supplemental disclosure on non-cash investing and financing
activities (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
Amount accrued for earn out consideration on acquisition
|
|
$ |
4.0 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in obligations for inventory not owned and
corresponding (decrease) increase in inventory
|
|
$ |
(110.0 |
) |
|
$ |
229.9 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Cash paid for income taxes
|
|
$ |
60.4 |
|
|
$ |
43.8 |
|
|
$ |
39.2 |
|
|
|
|
|
|
|
|
|
|
|
F-8
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
|
|
1. |
BUSINESS AND ORGANIZATION |
Business
Technical Olympic USA, Inc. is a Delaware corporation. We are a
homebuilder with a geographically diversified national presence.
We operate in 15 metropolitan markets located in four major
geographic regions: Florida, the Mid-Atlantic, Texas, and the
West. We design, build and market detached single-family
residences, townhomes and condominiums. We also provide title
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 to investors.
Organization
The merger and notes offering
On June 25, 2002, Engle Holdings Corp. (Engle), which was
100% owned by Technical Olympic, Inc. (Technical Olympic),
merged with and into Newmark Homes Corp. (Newmark), which was
80% owned by Technical Olympic (the Merger). The combined
company was renamed Technical Olympic USA, Inc. As a result of
the Merger, Technical Olympics ownership of the merged
entity increased to 91.75%. In addition, we assumed
$75.4 million of debt incurred by Technical Olympic (the
Technical Olympic Debt). As both Engle and Newmark were under
the control of Technical Olympic, in accordance with Statement
of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, the Merger was accounted for in a
manner similar to a pooling of interests, whereby we recognized
the acquired assets and liabilities of Engle at their historical
carrying amounts. As both entities came under common control of
Technical Olympic on November 22, 2000, the financial
statements and other operating data have been restated to
include the operations of Engle from November 22, 2000. Our
assumption of the $75.4 million of Technical Olympic Debt
has been accounted for as a distribution.
Concurrently with the Merger, we completed a private placement
of $200.0 million 9% senior notes and
$150.0 million
103/8% senior
subordinated notes (the Notes Offering). The net proceeds
of approximately $335.0 million from the
Notes Offering were used to repay certain indebtedness of
both Newmark and Engle and the Technical Olympic Debt that was
assumed in connection with the Merger. Subsequently, all
outstanding privately placed senior and senior subordinated
notes issued in connection with the Merger were exchanged for an
equivalent amount of notes at their respective interest rates,
which are registered under the Securities Act of 1933.
In October 2003, as part of a restructuring transaction, all of
the shares of Technical Olympic were sold by Technical Olympic
(UK) Limited to Technical Olympic, S.A. Technical
Olympic was then merged with and into TOI, LLC, a newly formed
wholly-owned subsidiary of ours. As part of the merger,
Technical Olympic, S.A. acquired the shares of our common
stock previously owned by Technical Olympic. Technical
Olympic S.A. is a Greek company that is publicly traded on
the Athens Stock Exchange. Technical Olympic S.A. currently
owns 73.38% of the voting power of our common stock.
|
|
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.
F-9
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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. As a result of the Merger being accounted
for as a reorganization of entities under common control, the
consolidated financial statements have been restated to present
our combined results as if the Merger had been in effect from
November 22, 2000, the date at which both entities came
under the control of Technical Olympic.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Due to our normal operating cycle being in excess of one year,
we present unclassified statements of financial condition.
Segment reporting
In accordance with SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, we have
concluded that our operating segments consist of homebuilding
and financial services. These two segments are segregated in the
accompanying consolidated financial statements under
Homebuilding and Financial Services,
respectively.
For the years ended December 31, 2004, 2003, and 2002, we
have eliminated inter-segment financial services revenues of
$7.3 million, $5.9 million and $3.6 million,
respectively.
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 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 subdivisions based upon the
total number of homes to be constructed in each subdivision
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.
Obligations for inventory not owned
Obligations for inventory not owned represent liabilities
associated with our land banking and similar activities,
including obligations in variable interest entities 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 leverage ratios pursuant to the terms of our revolving
credit facility.
F-10
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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.
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, 2004, 2003 and 2002 amounted to
$12.4 million, $12.6 million and $15.3 million,
respectively.
Financial services
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. Substantially all of the loans originated by us are sold
to private investors within 30 days of origination.
Interest rate lock commitments
On March 9, 2004, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 105,
Application of Accounting Principles to Loan Commitments
(SAB No. 105), which provides guidance regarding
interest rate lock commitments (IRLCs) that are accounted for as
derivative instruments under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. In SAB No. 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. This guidance must be applied to IRLCs initiated
after March 31, 2004. Our IRLCs were directly offset by
forward trades; accordingly, the implementation of
SAB No. 105 did not have a material impact on our
financial position or results of operations.
Revenue recognition
Loan origination revenues, net of direct origination costs, and
loan discount points are deferred 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 book value of the
F-11
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
loans. 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.
Restricted cash consists of amounts held in escrow as required
by purchase contracts or by law for escrow deposits held by our
title company and compensating balances for various open letters
of credit.
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 year ended December 31, 2004, we
recorded impairment losses of $4.8 million which were
determined based on prices for similar assets. These losses are
included in cost of sales land sales in the
accompanying statement of income.
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
45 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 36 months to 31 years. At December 31, 2004
and 2003, accumulated depreciation approximated
$20.7 million and $13.1 million, respectively.
Goodwill
Goodwill represents the excess of the purchase price of the
Companys 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.
F-12
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, we test goodwill for impairment at least
annually. 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. We performed our annual
impairment test as of December 31, 2004 and determined that
goodwill was not impaired.
The change in goodwill for the years ended December 31,
2004 and 2003 is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
| |
Balance at January 1
|
|
$ |
100.1 |
|
|
$ |
74.3 |
|
Earn out consideration paid or accrued on acquisitions
|
|
|
10.6 |
|
|
|
18.1 |
|
Goodwill recognized from acquisitions
|
|
|
|
|
|
|
7.7 |
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
110.7 |
|
|
$ |
100.1 |
|
|
|
|
|
|
|
|
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.
Under SFAS No. 109, 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 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.
Earnings per share
We present earnings per share data in accordance with the
provisions of SFAS No. 128, Earnings Per Share.
Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average number
of common shares outstanding for the period.
Diluted earnings 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 exercise
F-13
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
prices. 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 weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Basic weighted average shares outstanding
|
|
|
44,848,297 |
|
|
|
42,176,148 |
|
|
|
41,818,181 |
|
Net effect of common stock equivalents assumed to be exercised
|
|
|
1,080,263 |
|
|
|
368,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
45,928,560 |
|
|
|
42,544,152 |
|
|
|
41,818,181 |
|
|
|
|
|
|
|
|
|
|
|
The shares issued and outstanding and the earnings per share
amounts in the consolidated financial statements 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.
We account for our stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. We have
adopted the disclosure-only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). Accordingly, no
compensation cost has been recognized for our stock option plan.
If the methodologies of SFAS No. 123 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 years ended December 31, 2004, 2003, and 2002 would
have been reduced to the pro forma amounts indicated below
(dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Net income as reported
|
|
$ |
119.6 |
|
|
$ |
82.7 |
|
|
$ |
72.0 |
|
Add: Stock-based employee compensation included in reported net
income, net of tax
|
|
|
5.4 |
|
|
|
0.8 |
|
|
|
|
|
Deduct: Stock-based employee compensation expense determined
under the fair value method, net of tax
|
|
|
(4.1 |
) |
|
|
(2.9 |
) |
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
120.9 |
|
|
$ |
80.6 |
|
|
$ |
69.7 |
|
|
|
|
|
|
|
|
|
|
|
Reported basic earnings per share
|
|
$ |
2.67 |
|
|
$ |
1.96 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$ |
2.70 |
|
|
$ |
1.91 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
Reported diluted earnings per share
|
|
$ |
2.60 |
|
|
$ |
1.94 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$ |
2.63 |
|
|
$ |
1.89 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
F-14
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The fair values of options granted were estimated on the date of
their grant using the Black-Scholes option pricing model based
on the following assumptions:
|
|
|
|
|
|
|
Expected volatility
|
|
|
|
|
|
0.42%-0.48% |
Expected dividend yield
|
|
|
|
|
|
0% |
Risk-free interest rate
|
|
|
|
|
|
1.47%-4.02% |
Expected life
|
|
|
|
|
|
4-10 years |
In December 2004, the FASB issued SFAS No. 123(R).
SFAS No. 123(R) establishes accounting standards for
transactions in which a company exchanges its equity instruments
for goods or services. In particular, this Statement would
require companies to record compensation expense for all
share-based payments, such as employee stock options, at fair
market value. This Statement is effective as of the beginning of
the first interim or annual reporting period that begins after
June 15, 2005. As a result, beginning in our fiscal third
quarter of 2005, we will adopt SFAS 123(R) and begin
reflecting the stock option expense determined under fair value
based methods in our income statement rather than as pro forma
disclosure in the notes to the financial statements. We expect
the effect of adopting SFAS 123(R) to be similar to the
effect represented in our proforma disclosure related to
SFAS 123.
|
|
|
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 carrying
value of financial service borrowings and obligations for
inventory not owned approximate their fair value as
substantially all of the debt has a fluctuating interest rate
based upon a current market index. The fair value of the
$300.0 million senior and $510.0 million senior
subordinated notes at December 31, 2004 is
$321.0 million and $531.6 million, respectively, as
determined by quoted market prices.
|
|
|
Obligations for inventory not owned |
In January 2003, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities
(Interpretation No. 46). Interpretation No. 46
addresses consolidation by business enterprises of variable
interest entities (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.
Generally, homebuilders will enter into option contracts for the
purchase of land or homesites with land sellers and third-party
financial entities, some of which may qualify as VIEs. In
applying Interpretation No. 46 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, Interpretation No. 46
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 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.
F-15
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Certain reclassifications have been made to conform the prior
periods amounts to the current periods presentation.
A summary of homebuilding interest capitalized in inventory is
as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Interest capitalized, beginning of period
|
|
$ |
29.7 |
|
|
$ |
11.6 |
|
|
$ |
12.2 |
|
Interest incurred
|
|
|
66.1 |
|
|
|
55.1 |
|
|
|
27.7 |
|
Less interest included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
50.5 |
|
|
|
35.3 |
|
|
|
28.1 |
|
|
Other*
|
|
|
8.5 |
|
|
|
1.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized, end of period
|
|
$ |
36.8 |
|
|
$ |
29.7 |
|
|
$ |
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Included in Other above for the year ended
December 31, 2004 is $4.4 million of interest which
was capitalized to inventory that was subsequently contributed
to an unconsolidated joint venture. For the years ended
December 31, 2004, 2003, and 2002, all interest incurred
has been capitalized. |
In the ordinary course of business, we enter into contracts to
purchase homesites and land held for development. At
December 31, 2004 and 2003, we had refundable and
non-refundable deposits aggregating $132.8 million and
$78.7 million, respectively, included in inventory in the
accompanying consolidated statements of financial condition. Our
liability for nonperformance under such contracts is generally
limited to forfeiture of the related deposits.
The effect of Interpretation No. 46 at December 31,
2004 was to increase inventory by $90.8 million, excluding
deposits of $5.0 million, which had been previously
recorded, with a corresponding increase to obligations for
inventory not owned in the accompanying consolidated
statement of financial condition. Additionally, we have entered
into arrangements with VIEs to acquire homesites whereby 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.
During the year ended December 31, 2004, we transferred
title to certain parcels of land to unrelated third parties for
net proceeds of $43.2 million. In connection with these
transactions, we entered into options with the purchasers to
acquire fully developed homesites. As we have retained a
continuing involvement in these properties, in accordance with
SFAS No. 66, Accounting for the Sales of Real
Estate, we have accounted for these transactions as
financing arrangements. As a result, we have included the
corresponding liability of $13.9 million in
obligations for inventory not owned in the
accompanying consolidated statement of financial condition as of
December 31, 2004. As of December 31, 2004,
$45.4 million of inventory not owned relates to sales with
continuing involvement.
F-16
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
|
|
4. |
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES |
Summarized condensed combined financial information on
unconsolidated entities in which we have investments that are
accounted for by the equity method is (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
| |
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
16.2 |
|
|
$ |
1.4 |
|
Inventories
|
|
|
270.8 |
|
|
|
42.3 |
|
Other assets
|
|
|
9.8 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
296.8 |
|
|
$ |
43.9 |
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
Accounts payable and other liabilities
|
|
$ |
20.8 |
|
|
$ |
7.4 |
|
Notes payable
|
|
|
113.8 |
|
|
|
17.2 |
|
Equity of:
|
|
|
|
|
|
|
|
|
|
Technical Olympic USA, Inc.
|
|
|
66.8 |
|
|
|
7.0 |
|
|
Others
|
|
|
95.4 |
|
|
|
12.3 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
296.8 |
|
|
$ |
43.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
December 31, |
|
|
|
|
|
2004 | |
|
2003 |
|
Revenues
|
|
$ |
54.1 |
|
|
$ |
|
|
Cost and expenses
|
|
|
49.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings of unconsolidated entities
|
|
$ |
4.5 |
|
|
$ |
|
|
|
Our share of net earnings
|
|
$ |
0.5 |
|
|
$ |
|
|
Net fees earned
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from joint ventures
|
|
$ |
3.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
We enter into strategic joint ventures to acquire, to develop
and to sell land and/or homesites, as well as to construct and
sell homes, in which we have an ownership interest of 50% or
less and do not have a controlling interest. Our partners
generally are unrelated homebuilders, land sellers or other real
estate entities. The unconsolidated entities follow accounting
principles generally accepted in the United States of America.
We share in the profits and losses of these unconsolidated
entities generally in accordance with our ownership interests.
In many instances, we are appointed as the day-to-day manager of
the unconsolidated entities and receive management fees for
performing this function. During 2004, we received management
fees and reimbursement of expenses from the unconsolidated
entities approximating $2.7 million. Additionally, certain
of these ventures delivered 116 homes, which accounted for
$34.7 million of the total $54.1 million of
unconsolidated partnership revenue.
F-17
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In December 2004, we entered into a joint venture agreement
with Sunbelt Holdings (Sunbelt) to form Engle/ Sunbelt
Holdings, LLC (Engle/ Sunbelt). Upon its inception, the
partnership acquired eight of our existing communities in
Phoenix, Arizona. Engle/ Sunbelt was formed to develop finished
homesites and deliver homes in the Phoenix, Arizona market. We
and Sunbelt contributed capital of approximately
$28.0 million and $3.2 million, respectively, to
Engle/ Sunbelt and the venture itself obtained financing
arrangements with an aggregate borrowing capacity of
$180.0 million, of which $150.0 million related to a
term loan and $30.0 million related to a revolving
mezzanine financing instrument. We are not obligated with regard
to the borrowings by Engle/ Sunbelt, except that through our
subsidiary Engle Homes Residential, LLC, we have committed
to complete any property development commitments in the event
Engle/ Sunbelt defaults. As of December 31, 2004, Engle/
Sunbelt had approximately $117.2 million in total
assets and had drawn upon $81.8 million of its total
$180.0 million borrowing capacity. In connection with our
contribution of certain assets, we recognized a gain of
$12.5 million. Due to our continuing involvement with these
assets through our investment, we have deferred
$10.7 million. This deferral is being recognized in income
as homes are delivered from the joint venture. We account for
our investment in Engle/ Sunbelt under the equity method of
accounting as we have a less than 50% ownership interest
and do not have control over its operations.
5. ACCRUED EXPENSES AND OTHER
LIABILITIES
Accrued expenses and other liabilities consist of the following
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
| |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
58.4 |
|
|
$ |
44.8 |
|
|
Interest
|
|
|
26.2 |
|
|
|
23.9 |
|
|
Compensation
|
|
|
22.7 |
|
|
|
18.2 |
|
|
Taxes, including income and real estate
|
|
|
16.7 |
|
|
|
11.1 |
|
|
Accrual for unpaid invoices on delivered homes
|
|
|
24.8 |
|
|
|
16.5 |
|
|
Accrued expenses
|
|
|
20.9 |
|
|
|
24.1 |
|
|
Warranty costs
|
|
|
6.5 |
|
|
|
4.9 |
|
|
Deferred revenue
|
|
|
12.7 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
Total accounts payable and other liabilities
|
|
$ |
188.9 |
|
|
$ |
149.3 |
|
|
|
|
|
|
|
|
Accounts payable and other liabilities for Financial Services
consist primarily of title company escrows.
F-18
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
During the years ended December 31, 2004 and 2003, changes
in our warranty accrual consisted of (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
| |
Accrued warranty costs at January 1
|
|
$ |
4.9 |
|
|
$ |
4.8 |
|
Liability recorded for warranties issued during the period
|
|
|
11.3 |
|
|
|
9.3 |
|
Warranty work performed
|
|
|
(8.0 |
) |
|
|
(9.1 |
) |
Adjustments
|
|
|
(1.7 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Accrued warranty costs at December 31
|
|
$ |
6.5 |
|
|
$ |
4.9 |
|
|
|
|
|
|
|
|
|
|
6. |
HOMEBUILDING AND FINANCIAL SERVICES BORROWINGS |
Homebuilding borrowings
Homebuilding borrowings consists of the following (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
2004 | |
|
2003 | |
| |
Senior notes due 2010, at 9%(a)
|
|
$ |
300.0 |
|
|
$ |
300.0 |
|
Discount on senior notes
|
|
|
(3.8 |
) |
|
|
(4.5 |
) |
Senior subordinated notes due 2012, at
103/8%(a)
|
|
|
185.0 |
|
|
|
185.0 |
|
Senior subordinated notes due 2011, at
71/2%(a)
|
|
|
125.0 |
|
|
|
|
|
Senior subordinated notes due 2015, at
71/2%(a)
|
|
|
200.0 |
|
|
|
|
|
Premium (discount) on senior subordinated notes
|
|
|
5.2 |
|
|
|
(.5 |
) |
Revolving credit facility(b)
|
|
|
|
|
|
|
10.0 |
|
Other
|
|
|
|
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
$ |
811.4 |
|
|
$ |
497.9 |
|
|
|
|
|
|
|
|
|
|
(a) |
Interest on the senior and senior subordinated notes
due 2012 is payable semi-annually on January 1 and
July 1 of each year. Interest on the senior subordinated
notes due 2011 and 2015 is payable semi-annually on
March 15 and September 15 each year, and
January 15 and July 15 each year, respectively. Our
outstanding senior notes are guaranteed, on a joint and several
basis, by the Guarantor Subsidiaries, which are all of our
direct and indirect subsidiaries, other than our mortgage and
title operations subsidiaries and certain other immaterial
subsidiaries (the Non-guarantor Subsidiaries). Our outstanding
senior subordinated notes are guaranteed on a senior
subordinated basis by all of the Guarantor Subsidiaries. The
indentures governing the senior notes and senior subordinated
notes require us to maintain a minimum net worth and place
certain restrictions on our ability, among other things, to
incur additional debt (other than under our revolving credit
facility), pay or make dividends or other distributions, sell
assets, enter into transactions with affiliates, and merge or
consolidate with other entities. |
|
|
|
Our outstanding senior notes and
senior subordinated notes have call features that allow
redemption of the notes prior to maturity, upon payment of a
make-whole premium or, in certain cases, a stated
premium as provided in the relevant indenture. |
|
(b) |
On October 26, 2004, we
entered into an unsecured revolving credit facility replacing
our previous $350.0 million revolving credit facility. Our
new credit facility increased the amount we are permitted to
borrow to the lesser of (i) $600.0 million or
(ii) our borrowing base (calculated in accordance with
the |
F-19
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
|
|
|
revolving credit facility
agreement) minus our outstanding senior debt. The new facility
also increased the amount of the letter of credit subfacility to
$300.0 million from $175.0 million under our previous
credit facility. In addition, we have the right to increase the
size of the facility to provide up to an additional
$150.0 million of revolving loans, provided we give 10
business days notice of our intention to increase the size
of the facility and we meet the following conditions:
(i) at the time of and after giving effect to the increase,
we are in pro forma compliance with our financial covenants;
(ii) no default or event of default has occurred and is
continuing or would result from the increase, and (iii) the
conditions precedent to a borrowing are satisfied as of such
date. The revolving credit facility expires on October 26,
2008. Loans outstanding under the facility may be base rate
loans or Eurodollar loans, at our election. Base rate loans
accrue interest at a rate per annum equal to (i) an
applicable margin plus (ii) the higher of
(A) Citicorps base rate or (B) 0.5% plus the
Federal Funds Rate. Eurodollar loans accrue interest at a rate
per annum equal to (i) an applicable margin plus
(ii) the reserve-adjusted Eurodollar base rate for the
interest period. Applicable margins will be adjusted based on
the ratio of our liabilities to our adjusted tangible net worth
or our senior debt rating. The revolving credit facility
requires us to maintain specified financial ratios regarding
leverage, interest coverage, adjusted tangible net worth and
certain operational measurements. The revolving credit facility
also places certain restrictions on, among other things, our
ability to pay or make dividends or other distributions, create
or permit certain liens, make equity investments in joint
ventures, enter into transactions with affiliates and merge or
consolidate with other entities. Our obligations under the
revolving credit facility are guaranteed by our significant
domestic subsidiaries, other than our mortgage and title
subsidiaries (unrestricted subsidiaries). As of
December 31, 2004, we had no borrowings under the revolving
credit facility and had issued letters of credit totaling
$136.0 million. |
All of our homebuilding borrowings mature subsequent to
December 31, 2009.
Financial services borrowings
On October 22, 2004, our mortgage subsidiary entered into a
new $100.0 million revolving warehouse line of credit (the
New Warehouse Line of Credit) to fund the
origination of residential mortgage loans, which is in addition
to our Existing Warehouse Line of Credit as described below. Our
mortgage subsidiary has the right to increase the size of the
New Warehouse Line of Credit to provide up to an additional
$50.0 million, subject to meeting certain requirements. The
New Warehouse Line of Credit expires on October 22, 2005.
The New Warehouse Line of Credit bears interest at the
30 day LIBOR rate plus a margin of 1.25% to 3.0%
determined based upon the type of mortgage loans being financed.
The New Warehouse Line of Credit is secured by funded mortgages,
which are pledged as collateral, and requires our mortgage
subsidiary to maintain certain financial ratios and minimums.
The New 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.
On December 31, 2004, our mortgage subsidiary amended its
existing $90.0 million warehouse line of credit (the
Existing Warehouse Line of Credit) to reduce the
size of the facility to $20.0 million. The Existing
Warehouse Line of Credit is used to fund the origination of
residential mortgage loans in addition to our New Warehouse Line
of Credit. The Existing Warehouse Line of Credit expires
December 15, 2005, is secured by funded mortgages, which
are pledged as collateral, and requires our mortgage subsidiary
to maintain certain financial ratios and minimums. As of
December 31, 2004, we had no borrowings under our Existing
Warehouse Line of Credit.
F-20
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Borrowing capacity
At December 31, 2004, we had the capacity to borrow an
additional $464.0 million under the revolving credit
facility and $71.0 million under the warehouse lines of
credit, subject to satisfying the relevant borrowing conditions
in those facilities.
On October 4, 2002, we acquired the net assets of
DS Ware Homes LLC, a homebuilder operating in Jacksonville,
Florida. We paid $35.6 million in cash. In addition,
because certain earnings targets were met for the five-month
period after the closing, we paid an additional
$5.2 million in cash to the sellers in April 2003. This
acquisition resulted in approximately $26.1 million of
goodwill.
On November 18, 2002, we acquired the net assets of Masonry
Homes, Inc., a homebuilder operating in the northwestern suburbs
of Baltimore and southern Pennsylvania. We paid
$17.1 million in cash. In addition, because certain targets
were met regarding home sale deliveries, the development and/or
subdivision of certain homesites and earnings for the 2004 and
2003 fiscal years, we paid an additional $6.0 million and
$11.3 million during the years ended December 31, 2004
and 2003, respectively. At December 31, 2004,
$4.0 million of additional consideration was accrued. This
acquisition resulted in approximately $21.2 million of
goodwill.
On February 6, 2003, we acquired the net assets of Trophy
Homes, Inc., a homebuilder operating in Las Vegas, Nevada and
certain homesites for approximately $36.2 million in cash.
In addition, because certain targets were met regarding home
deliveries during 2004 and 2003, we paid $1.6 million of
additional consideration during the years ended
December 31, 2004 and 2003, respectively. This acquisition
resulted in approximately $9.6 million of goodwill.
On February 28, 2003, we acquired the net assets of The
James Construction Company, a homebuilder operating in the
greater Denver, Colorado area, for approximately
$22.0 million in cash. In addition, we are obligated to pay
an additional $1.4 million to the sellers over a two-year
period. This acquisition resulted in no goodwill being recorded.
In September 2004, we acquired certain assets of Gilligan Homes
which included control of approximately 1,100 homesites
(including those in unconsolidated joint ventures). The purchase
price of the assets acquired was $0.2 million and our
investment in the unconsolidated joint ventures at
December 31, 2004 is $2.2 million. Gilligan Homes has
operations in Maryland, Southern Pennsylvania and Delaware.
|
|
8. |
SEVERANCE AND MERGER RELATED EXPENSES |
Included in selling, general and administrative expenses in the
accompanying consolidated statement of income for the year ended
December 31, 2002 are costs of the merger and integration,
such as professional fees and investment banking fees. These
fees approximate $6.1 million. Additionally, we incurred
approximately $4.8 million in severance charges
attributable to former executives whose employment was
terminated in connection with the Merger and $7.6 million
for severance payments with respect to former Engle executives.
On April 15, 2002, we sold one of our subsidiaries,
Westbrooke, to Standard Pacific Corp. (Standard Pacific) for
approximately $41.0 million in cash. In addition, Standard
Pacific satisfied approximately
F-21
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
$54.4 million of Westbrookes debt that included
approximately $14.2 million of intercompany liabilities
owed to us. Upon completion of this sale, we realized a gain of
$4.3 million. We determined that in accordance with
SFAS 144, as of March 31, 2002, the criteria to
classify the Westbrooke assets as held for sale were met.
Results of Westbrookes operations have been classified as
discontinued operations. Discontinued operations include
Westbrooke revenues, which totaled $44.2 million for the
year ended December 31, 2002.
|
|
10. |
COMMITMENTS AND CONTINGENCIES |
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
defects.
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 homesite purchase contract deposits. At
December 31, 2004, we had total outstanding letters of
credit and performance/ surety bonds under these arrangements of
approximately of $136.0 million and $161.8 million,
respectively.
We entered into an agreement with an insurance company to
underwrite private mortgage insurance on certain loans
originated by our mortgage services subsidiary. Under the terms
of the agreement, we share in the premiums generated on the
loans and are exposed to losses in the event of a loan default.
At December 31, 2004, our maximum exposure to losses
relating to loans insured is approximately $4.8 million,
which is further limited to the amounts held in trust of
approximately $1.1 million. We minimize the credit risk
associated with such loans through credit investigations of
customers as part of the loan origination process and by
monitoring the status of the loans and related collateral on a
continuous basis.
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 is not expected to
have a material adverse effect on our consolidated financial
position or results of operations.
In early February 2002, Alec Engelstein, then Chief Executive
Officer of Engle Homes, Inc., and David Shapiro, then Vice
President-Chief Financial Officer of Engle Homes, Inc., resigned
from their executive positions with Engle Homes, Inc. and
alleged that they were entitled to receive severance packages in
the aggregate amount of approximately $9.4 million, plus
other benefits, including a claim by Mr. Engelstein of a
monthly retirement benefit equal to
1/12th
of his annual salary with such payments to continue for a period
of 60 consecutive months. During September 2002, we reached an
agreement whereby we would pay $7.6 million, which was
recorded in selling, general and administrative expenses in the
accompanying consolidated statement of income for the year ended
December 31, 2002.
During the year ended December 31, 2004, we completed
various sale-leaseback transactions of model homes, for net
proceeds of $7.8 million. In connection with these
transactions, we deferred profit of $1.3 million which is
being amortized over the lease term. The lease term varies on a
per home basis and ranges from 3 to 36 months.
F-22
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 2004, we are obligated under
non-cancellable operating leases of office space and equipment.
For the year ended December 31, 2004, rent expense under
operating leases was $3.6 million. Minimum annual lease
payments under these leases at December 31, 2004 are as
follows (dollars in millions):
|
|
|
|
|
2005
|
|
$ |
6.3 |
|
2006
|
|
|
3.9 |
|
2007
|
|
|
3.1 |
|
2008
|
|
|
2.5 |
|
2009
|
|
|
1.2 |
|
Thereafter
|
|
|
1.1 |
|
|
|
|
|
|
|
$ |
18.1 |
|
|
|
|
|
|
|
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 $302.6 million,
$203.7 million and $191.6 million of materials and
supplies on our behalf during the years ended December 31,
2004, 2003 and 2002, 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, whereby Technical Olympic will provide
certain advisory, administrative and other services. The
management services agreement was amended and restated on
June 13, 2003. Technical Olympic 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,
2004, 2003 and 2002, we incurred $2.5 million,
$2.5 million and $1.4 million, respectively. At
December 31, 2004 and 2003, $2.0 million and
$2.5 million, respectively, has been accrued and is
included in accounts payable and other liabilities in the
accompanying consolidated statement of financial condition.
These expenses are included in selling, general and
administrative expenses in the accompanying consolidated
statements of income.
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, a limited
liability company controlled by the brother of one of our
executives. We made payments of $5.5 million,
$7.2 million and $36.0 million to this entity pursuant
to these agreements during the years ended December 31,
2004, 2003 and 2002, respectively. We believe that the terms of
these agreements include purchase prices that approximate fair
market values.
F-23
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Components of income tax expense (benefit) from continuing
operations consist of (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
65.5 |
|
|
$ |
43.4 |
|
|
$ |
38.3 |
|
|
State
|
|
|
5.6 |
|
|
|
3.0 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.1 |
|
|
|
46.4 |
|
|
|
42.0 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(0.6 |
) |
|
|
1.5 |
|
|
|
(1.9 |
) |
|
State
|
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
1.2 |
|
|
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
70.4 |
|
|
$ |
47.6 |
|
|
$ |
39.9 |
|
|
|
|
|
|
|
|
|
|
|
The difference between total reported income taxes and expected
income tax expense computed by applying the federal statutory
income tax rate of 37.0% for 2004, 2003 and 2002 to income from
continuing operations is reconciled as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Computed income tax expense at statutory rate
|
|
$ |
66.5 |
|
|
$ |
45.6 |
|
|
$ |
37.4 |
|
State income taxes
|
|
|
2.7 |
|
|
|
1.7 |
|
|
|
2.3 |
|
Other, net
|
|
|
1.2 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
70.4 |
|
|
$ |
47.6 |
|
|
$ |
39.9 |
|
|
|
|
|
|
|
|
|
|
|
Significant temporary differences that give rise to the deferred
tax assets and liabilities from continuing operations are as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Warranty, legal and insurance reserves
|
|
$ |
4.5 |
|
|
$ |
3.4 |
|
|
Inventory
|
|
|
7.7 |
|
|
|
4.3 |
|
|
Accrued compensation
|
|
|
4.0 |
|
|
|
2.4 |
|
|
State net operating loss carryforwards
|
|
|
0.3 |
|
|
|
0.4 |
|
|
Other
|
|
|
2.2 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
18.7 |
|
|
|
12.6 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Amortizable intangibles
|
|
|
(9.6 |
) |
|
|
(7.3 |
) |
|
Prepaid commissions and differences in reporting selling and
marketing
|
|
|
(4.3 |
) |
|
|
(2.4 |
) |
|
Other
|
|
|
(1.8 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(15.7 |
) |
|
|
(10.2 |
) |
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
3.0 |
|
|
$ |
2.4 |
|
|
|
|
|
|
|
|
F-24
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax asset included in other assets in the
accompanying consolidated statements of financial condition at
December 31, 2004 and 2003 was $3.0 million and
$2.4 million, respectively. We believe that it is more
likely than not that the gross deferred tax assets will be
realized or settled due to our ability to generate taxable
income exclusive of reversing timing differences. Accordingly,
no valuation allowance has been established at December 31,
2004 and 2003.
Prior to October 2003, we were included in the consolidated
federal income tax return with Technical Olympic pursuant to a
Tax Allocation Agreement between Technical Olympic and us.
Payments of $28.3 million and $37.7 million were made
to Technical Olympic for federal income taxes during 2003 and
2002, respectively.
On November 19, 2003, we sold, pursuant to an underwritten
public offering, 2.0 million shares of our common stock at
a price of $26.00 per share (unadjusted for subsequent
stock split). The net proceeds of the offering to us were
$48.4 million, after deducting offering costs and
underwriting fees of $3.6 million. The offering proceeds
were used to pay outstanding indebtedness under our revolving
credit facility. In connection with our offering of common
stock, Technical Olympic S.A. sold approximately
3.2 million of shares of our common stock, including
675,000 shares sold pursuant to the underwriters exercise
of their over-allotment option.
Our chief executive officer has the right to purchase on
January 1, 2007, 1% of our then outstanding common stock
(calculated on a fully diluted basis) at an exercise price of
$20.29 per share (subject to specified adjustments.) Our
chief executive officer also has the right to purchase on
January 1, 2008, an additional 1% of our then outstanding
common stock (calculated on a fully diluted basis) at an
exercise price of $22.31 per share (subject to specified
adjustments.) These rights are being accounted for under the
variable accounting method as provided by APB No. 25. These
rights vest one year from the date of grant and are exercisable
for a 10 year period from the date of grant. In connection
with these rights, we recognized compensation expense of
$1.4 million during the year ended December 31, 2004
which is included in selling, general and administrative
expenses in the accompanying consolidated statement of income.
During 2001, we adopted the Technical Olympic USA, Inc. Annual
and Long-Term Incentive Plan (as amended and restated on
October 5, 2004), formerly known as the Newmark Homes Corp.
Annual and Long-Term Incentive Plan (the Plan), pursuant to
which our employees, consultants and directors, and those of our
subsidiaries and affiliated entities are eligible to receive
options to purchase shares of common stock. Under the Plan,
subject to adjustment as defined, the maximum number of shares
with respect to which awards may be granted is 6,000,000.
F-25
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Activity under the Plan for the years ended December 31,
2004, 2003 and 2002 is:
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|
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|
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|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
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|
|
|
average | |
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|
|
average | |
|
|
|
average | |
|
|
|
|
exercise | |
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|
exercise | |
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|
exercise | |
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|
Options | |
|
price | |
|
Options | |
|
price | |
|
Options | |
|
price | |
| |
Options outstanding at beginning of year
|
|
|
5,136,704 |
|
|
$ |
13.05 |
|
|
|
3,293,177 |
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|
$ |
12.92 |
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|
|
|
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|
$ |
|
|
Granted
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|
360,000 |
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|
$ |
27.00 |
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|
1,861,554 |
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|
$ |
13.16 |
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|
3,293,177 |
|
|
$ |
12.92 |
|
Exercised
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|
(12,000 |
) |
|
$ |
12.60 |
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|
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|
$ |
|
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|
$ |
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Forfeited
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(7,500 |
) |
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$ |
13.92 |
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|
(18,027 |
) |
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$ |
11.87 |
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|
|
|
$ |
|
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|
|
|
|
|
|
|
|
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|
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|
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|
Options outstanding at end of year
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|
|
5,477,204 |
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|
$ |
13.93 |
|
|
|
5,136,704 |
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|
$ |
13.05 |
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|
|
3,293,177 |
|
|
$ |
12.92 |
|
|
Options exercisable at end of year
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|
2,901,350 |
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|
$ |
12.62 |
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|
1,548,031 |
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|
$ |
12.13 |
|
|
|
428,103 |
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|
$ |
11.45 |
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|
|
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|
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|
Options available for grant at end of year
|
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|
484,506 |
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|
|
|
|
|
|
845,264 |
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|
|
|
|
|
|
2,706,823 |
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|
Weighted average fair market value per share of options granted
during the year under SFAS No. 123
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$3.47 |
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|
$3.91 |
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|
$9.60 |
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The following table summarizes information about stock options
outstanding at December 31, 2004:
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Options Outstanding | |
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Options Exercisable | |
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| |
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| |
|
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|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
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|
|
average | |
|
average | |
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|
|
average | |
|
|
|
|
remaining | |
|
exercise | |
|
|
|
exercise | |
Range of exercise price |
|
Options | |
|
contractual life | |
|
price | |
|
Options | |
|
price | |
| |
$10.41-$12.60
|
|
|
2,879,528 |
|
|
|
8.01 years |
|
|
|
$11.85 |
|
|
|
1,972,713 |
|
|
|
$12.03 |
|
$13.56-$15.24
|
|
|
2,237,676 |
|
|
|
8.03 years |
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|
|
$14.50 |
|
|
|
928,637 |
|
|
|
$13.86 |
|
$21.56-$24.19
|
|
|
129,000 |
|
|
|
9.19 years |
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|
|
$22.82 |
|
|
|
|
|
|
|
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|
$26.09-$29.27
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|
|
72,000 |
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|
9.20 years |
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|
$26.20 |
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|
|
|
|
|
|
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|
$28.70-$31.56
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|
129,000 |
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|
9.19 years |
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|
$30.03 |
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|
|
|
|
|
|
|
|
$32.20-$35.42
|
|
|
30,000 |
|
|
|
9.33 years |
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|
|
$33.81 |
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|
|
|
|
|
|
|
|
Included in the 5,477,204 options outstanding as of
December 31, 2004 are 1,253,662 options granted to
executives which contain performance based accelerated
vesting criteria. These options are being accounted for under
the variable accounting method as provided for by APB Opinion
No. 25. During 2004 and 2003, we recognized an expense of
$7.2 million and $1.2 million, respectively, as the
market value of our common stock as of our fiscal year end was
greater than the exercise price and the vesting accelerated for
some of the performance-based options due to targets being
achieved during 2004. This expense is included in selling,
general and administrative expense in the accompanying
consolidated statements of income for the years ended
December 31, 2004 and 2003. No expense was
F-26
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
recorded during the year ended December 31, 2002 as the
exercise price was greater than the current market price of the
stock.
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|
15. |
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, 2004, 2003 and 2002, amounted
to $1.9 million, $1.6 million and $1.3 million,
respectively.
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16. |
QUARTERLY RESULTS (UNAUDITED) |
Quarterly results for the years ended December 31, 2004 and
2003, which have been restated for conformity with the year end
presentation, are reflected below (dollars in millions):
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First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
2004:
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|
Total Revenue
|
|
$ |
435.2 |
|
|
$ |
509.5 |
|
|
$ |
517.3 |
|
|
$ |
673.3 |
|
Homebuilding gross profit
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|
|
80.5 |
|
|
|
95.8 |
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|
|
101.8 |
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|
|
150.3 |
|
Net income
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|
|
18.0 |
|
|
|
24.1 |
|
|
|
28.1 |
|
|
|
49.4 |
|
Basic earnings per share
|
|
|
0.40 |
|
|
|
0.54 |
|
|
|
0.63 |
|
|
|
1.10 |
|
Diluted earnings per share
|
|
|
0.40 |
|
|
|
0.53 |
|
|
|
0.61 |
|
|
|
1.06 |
|
2003:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
324.7 |
|
|
$ |
426.9 |
|
|
$ |
443.3 |
|
|
$ |
485.8 |
|
Homebuilding gross profit
|
|
|
66.9 |
|
|
|
82.2 |
|
|
|
86.5 |
|
|
|
87.6 |
|
Net income
|
|
|
17.6 |
|
|
|
23.3 |
|
|
|
21.5 |
|
|
|
20.3 |
|
Basic earnings per share
|
|
|
0.42 |
|
|
|
0.56 |
|
|
|
0.52 |
|
|
|
0.47 |
|
Diluted earnings per share
|
|
|
0.42 |
|
|
|
0.55 |
|
|
|
0.51 |
|
|
|
0.46 |
|
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. The 2003 and first quarter 2004 per share amounts
have been adjusted for the three-for-two stock split declared
April 27, 2004.
In the fourth quarter of 2004, we recorded $3.4 million of
variable stock based compensation expense related to the
accelerated vesting of certain stock options containing
performance based acceleration criteria which were satisfied
during the fourth quarter of 2004.
On March 1, 2005, our Board of Directors authorized a
five-for-four stock split on all outstanding shares of our
common stock. The stock split will be effected in the form of a
25% stock dividend to
F-27
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
shareholders of record at the close of business on
March 11, 2005. The following pro forma data for the years
ended December 31, 2004, 2003, and 2002 have been prepared
to reflect such stock split:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
| |
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$2.13 |
|
|
|
$1.57 |
|
|
|
$1.38 |
|
|
Diluted
|
|
|
$2.08 |
|
|
|
$1.56 |
|
|
|
$1.38 |
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
56,060,371 |
|
|
|
52,720,185 |
|
|
|
52,272,726 |
|
|
Diluted
|
|
|
57,410,700 |
|
|
|
53,180,190 |
|
|
|
52,272,726 |
|
|
|
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 direct and indirect subsidiaries, other than our
mortgage and title operations subsidiaries and certain other
immaterial 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-28
Technical Olympic USA, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Consolidating statement of financial condition
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|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
Technical | |
|
|
|
Non- | |
|
|
|
|
Olympic | |
|
Guarantor | |
|
guarantor | |
|
Intercompany | |
|
|
|
|
USA, Inc. | |
|
subsidiaries | |
|
subsidiaries | |
|
eliminations | |
|
Total | |
| |
|
|
(dollars in millions) | |
ASSETS
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|