TECHNICAL OLYMPIC GROUP's management informs the investment community that NYSE listed US subsidiary TOUSA Inc. released today its financial results for the three months ended September 30, 2007.
Consolidated Total revenues of TOUSA (homebuilding and land sales and services) amounted to $501.2 mil marking a 16% decrease versus the third quarter of 2006. Revenue from home sales reported lower by 20% to $449.6 million for the three months ended September 30, 2007 from $563.0 million for the three months ended September 30, 2006. The decrease in revenue from home sales, was due to an 18% decrease in the number of deliveries to 1,459 from 1,769 for the three months ended September 30, 2006 attributed to the significant difficult conditions in the US housing market. The average price of homes delivered decreased to $308,000 for the three months ended September 30, 2007, from $318,000 for the three months ended September 30, 2006.
The Company's gross profit margin, excluding impairment and related charges, decreased to 17.7% in the third quarter of 2007 from 22.8% in the third quarter of 2006. Home sales gross profit was primarily impacted by higher incentives, which increased to $45,300 per delivery for the third quarter of 2007 from $23,700 per delivery for the third quarter of 2006.
The Company reported consolidated net sales orders of 892 in the third quarter of 2007 compared to 1,330 in the third quarter of 2006, a 33% decrease. The sales value of the Company?s consolidated sales orders was $219.6 million, compared to $419.6 million in the third quarter of 2006, a 48% decrease. The Company's average sales price on net sales orders decreased to $246,000 in the third quarter of 2007 from $315,000 in the third quarter of 2006 due to increased incentives and a change in product mix.
The Company's sales orders cancellation rate was approximately 47% for the three months ended September 30, 2007 as compared to 33%, 29% and 49% for the three months ended June 30, 2007, March 31, 2007 and December 31, 2006, respectively. The Company attributes the unusually-high cancellation rate to the tightening of the credit markets, buyer?s inability to sell their existing home, diminished consumer confidence, the oversupply of homes available for sale and downward pressure on home prices.
The Company's consolidated homes in backlog decreased 26% to 3,485 in the third quarter of 2007 from 4,684 in the third quarter of 2006. EBITDA for the third quarter of 2007 was $32.3 million compared to $101.2 million in the third quarter of 2006. The Company reported a net loss for the three months ended September 30, 2007 of $619.7 million (or a loss of $10.42 per diluted share), compared to net loss of $80.0 million (a loss $1.34 per diluted share) reported in the three months ended September 30, 2006.
It is worth noting that TOUSA?s results for the third quarter of 2007 include a $40.7 million increase in the pre-tax loss contingency relating to the Transeastern JV settlement. Also adversely impacting net income is $530.6 million of pre-tax charges resulting from goodwill impairments and the write-down of assets including, inventory impairments and write-off of deposits and abandonment costs. Of this amount, $63.3 million of inventory impairments are related to active communities, $441.2 million are rel ated to land impairments, deposit write-offs, $23.4 million are related to impairments of investments in unconsolidated joint ventures, and $2.7 million are related to goodwill impairment.
Excluding the impact of the $40.7 million loss contingency related to the Transeastern JV settlement and the $530.6 million of non-cash, pre-tax charges reflected above, the Company?s net loss would have been $25.6 million (or a loss $0.43 per diluted share, assuming 59.6 million diluted shares outstanding) using an effective tax rate of 35%.
As of September 30, 2007, the Company had stockholders? equity of $48.3 million. Based on the foregoing, the Company believes there is substantial doubt about its ability to continue as a going concern. The Company is considering all available in and out of court restructuring and reorganization alternatives, including a possible Chapter 11 filing. Such alternatives include, among other things, restructuring its capital structure through the exchange of some or all of its outstanding indebtedness for equit y in the Company. TOUSA?s ability to continue as a going concern will depend upon its ability to restructure its capital structure including exchanging a large portion of the Company?s outstanding indebtedness for equity. The Company has asked its bondholders to organize as a group in order to discuss such restructuring and reorganization alternatives and the Company has commenced discussions with its representatives, though these discussions are at a very early stage.
The additional borrowings arising from the settlement of the Transeastern JV disputes and the continuing deterioration of the housing market, including the worsening since late July 2007 due to the mortgage and credit market crisis, has had, and will continue to have for an extended period of time, a negative impact on the Company?s liquidity and its ability to comply with financial and other covenants under the Company?s bank loans and indentures, including interest coverage, total leverage, and tangible net worth covenants. All of these factors, and others which may arise in the future, will adversely impact the Company?s financial condition and results of operations.
TOUSA has taken, and continues to take, actions to maximize cash receipts and minimize cash expenditures. As part of these initiatives, TOUSA continues to take steps to reduce its general and administrative costs and operations to increase efficiencies by reducing costs and streamlining its activities In connection with its asset management efforts, TOUSA has reduced its consolidated controlled homesite position by approximately 35% to 39,500 homesites at September 30, 2007 from 60,600 at December 31, 2006. At September 30, 2007, the Company?s consolidated controlled homesite position includes approximately 4,700 homesites acquired as part of the Transeastern acquisition, of which 3,900 are owned and 800 are optioned.
At September 30, 2007, the Company had 3,700 homes completed or under construction compared to 3,800 homes at December 31, 2006. Approximately 35% of these homes were unsold at September 30, 2007, an increase from 27% at June 30, 2007. At September 30, 2007, the Company had 452 completed unsold homes in its inventory, up 142% from 187 homes at June 30, 2007. Approximately 52% of the Company?s completed, unsold homes at September 30, 2007 had been completed for more than 90 days. The Company attributes the increase in unsold homes in inventory to the increase in the third quarter cancellation rate, as well as the acquisition of 200 unsold homes in connection the Transeastern JV settlement. As part of its asset management strategy, the Company is focusing its efforts on managing the number and geographic allocation of its speculative homes, addressing its inventory levels and timing its construction starts.
As a result of worsening market conditions since late July and the Company?s liquidity constraints, during the three months ended September 30, 2007, TOUSA abandoned its rights under certain option agreements which resulted in a 9,400 unit decline in its controlled homesites. Abandonment decisions were made following in depth community by community analyses of all option contracts based on projected returns, amount and timing of incremental cash flow, and owned homesites. In connection with the abandonmen t of our rights under these option contracts, TOUSA forfeited cash deposits of $166.9 million and had letters of credit of $91.2 million drawn, subsequent to September 30, 3007, which increased outstanding borrowings.
On September 25, 2007, the Company sold 317 homesites to an unrelated homebuilder for a total purchase price of $26.1 million and realized a pre-tax loss of $13.2 million. Additionally, as part of the transaction, the buyer agreed to purchase an option interest to acquire 250 homesites as well as 34 owned homesites from TOUSA once certain obligations associated with such property are met. The total purchase price for these additional homesites and the assignment of the option interest is $10.6 million. Th e transaction will close once the Company fulfills its continuing obligations on these properties, which it expects will take place before the end of the year.
As far as the nine months ended September 30, 2007 is concerned, homebuilding revenues decreased 9% to $1,619.3 million for the nine months ended September 30, 2007 from $1,781.6 million for the nine months ended September 30, 2006.
This decrease is primarily due to a decrease in revenues from home sales to $1,542.3 million for the nine months ended September 30, 2007 from $1,724.8 million for the nine months ended September 30, 2006, caused by a 10% decrease in the number of deliveries to 4,833 from 5,380 for the nine months ended September 30, 2006.
EBITDA for the first nine months of 2007 was $144.0 million compared to $341.7 million for the first nine months of 2006. The Company reported a net loss for the first nine months of 2007 of $817.7 million (or a loss of $13.76 per diluted share) from net income of $42.6 million (or income of $0.70 per diluted share) for the nine months ended September 30, 2006. Included in the Company?s net loss for the nine months ended September 30, 2007 is a $17.6 million net loss from discontinued operations.
The Company's results for the nine months ended September 30, 2007 include: (1) a $151.6 million increase in the estimated loss contingency related to the settlement of the Transeastern JV litigation, (2) $657.3 million in inventory impairments, impairments of investments in unconsolidated joint ventures, and write-offs of land deposits and related abandonment costs, and (3) goodwill impairments totaling $40.9 million.
Pursuant to the global consensual settlement of the TRANSEASTERN JV and the total settlement of TOUSA debt, and according to the agreed terms of the Settlement and Release Agreement dated June 29, 2007, two of the lenders and in specific, DEUTSCHE BANK AG and HIGHLAND CAPITAL MANAGEMENT LP, own shares of the 8% Series A Convertible Pay-In-Kind Preferred Stock, and in addition DEUTSCHE BANK AG owns lower and higher stock purchase warrants, and they hold the right to convert into TOUSA common shares as follo ws: DEUTSCHE BANK AG will acquire (a) 39,551,813 new common shares (or 39.9%) at $1.61 per share conversion price form the convertible preferred shares owned, (b) 652,958 new common shares at $6 per share acquisition price and (c) 494,673 new common shares at $7 per share acquisition price from the warrants owned. HIGHLAND CAPITAL MANAGEMENT LP will acquire 18,084,472 new common shares (or 23.3%) at $1.61 conversion price per share of TOUSA. The convertible preferred shares may be converted part or in all to common shares of TOUSA at any time until the expiration of the options that is until 2012 and 2015 accordingly. To this end, the lenders have submitted the relative filings to the US Securities and Exchange Commission (SEC) on November 13 and 9 respectively. More information is available at the website of the US Securities and Exchange Commission (SEC), www.sec.gov, as well as our subsidiary TOUSA website, www.tousa.com.
Regarding the TOUSA listing in the NYSE, Under an NYSE rule that became effective on March 5, 2007, the NYSE has halted trading the Company?s common stock when trades were reported at a price of below $1.05. Trading will not resume on the NYSE until the Company's common stock has traded on another market for at least one entire trading day at a price at or above $1.10. While TOUSA's common stock has continued to trade on other markets pursuant to unlisted trading privileges, such unlisted trading may not continue and may not reach $1.10 per share.
The NYSE has minimum continuing listing standards that it requires of its listed companies including thresholds regarding stock price, market capitalization combined with minimum stockholders equity and total market value. On November 12, 2007, the Company received notice from the NYSE that it was not in compliance with NYSE continued listing requirements because the average closing share price of the Company?s common stock over a consecutive 30-trading day period was less than $1.00. The NYSE also noted that the Company?s absolute market value was, based on a closing price of $0.35 on November 9, 2007, only $20.9 million and that it would immediately initiate suspension and delisting procedures if the 30-trading day average was below $25.0 million. A third continued listing standard requires a 30 average trading day market capitalization of not less than $75 million and stockholders? equity of at least $75 million. TOUSA is now below this standard and anticipates being notified by the NYSE of such fail ure.
Finally the Company has been notified by the NYSE that delisting procedures may be instituted if its stock trades at an ?abnormally low? price. The Company intends to take actions to re-attain compliance or request a review of the delisting decision by the NYSE. TOUSA may not be successful with its efforts. If the Company?s common stock is delisted from the NYSE, TOUSA may apply to have its shares quoted on NASDAQ?s Bulletin Board or in the ?pink sheets? maintained by the National Quotations Bureau, Inc. The Bulletin Board and the pink sheets are generally considered to be less efficient markets than the NYSE. If the Company?s shares are delisted from the NYSE, this will constitute a ?change of control? under its credit agreements, which is an event of default. The lenders may terminate the Company?s right to borrow and declare the loans to be due and payable.
This press release contains "forward-looking statements". The company wishes to alert readers hat there may be significant factors that may affect the Company?s results in the future as well as the may differ materially from any projections of future periods made by the Company.
In view of our subsidiary TOUSA third quarter 2007 financial results release, and following our letter sent out to the Athens Exchange on October 31st 2007 and pursuant to the negative trend in our share?s value lately, TECHNICAL OLYMPIC wishes to bring to your attention and emphasize on the following: As mentioned in our previous release, TECHNICAL OLYMPIC GROUP is active in several diverse sectors that is, in the construction sector through ATHEX listed subsidiary MOCHLOS SA, performing a stable growth course both in Greece as well as in the broader area of South Eastern Europe and reports positive results, as well as in the sectors of tourism (PORTO CARRAS), wind energy, construction and operation of marinas etc.
As regards our subsidiary TOUSA Inc., which currently comprises a large portion of our consolidated results, its current negative course is due to the unforeseen and of substantial downturn in the US housing market, whose future course is evidently neither controlled from TOUSA nor is possible to be projected with certainty.
However it is of pivotal importance to consider the fact that TECHNICAL OLYMPIC SA has no commitments of guarantee towards its subsidiary TOUSA. TECHNICAL OLYMPIC strategic goal has been and still remains to be active in a diverse number of independent growth sectors as well as in different geographic regions in order to diversify away the operating risk in time horizon.
It is consequently evident that beyond the effect that TOUSA has in the consolidated financial statements of TECHNICAL OLYMPIC and regardless of the subsequent course of events in the activities of the subsidiary TOUSA, the group will continue to operate unimpeded. In addition, TECHNICAL OLYMPIC has been informing the investment community of all developments regarding the company and its subsidiaries and hence there is no additional information that has not been released to substantiate the negative stock trend.