TECHNICAL OLYMPIC S.A.
US Subsidiary TOUSA Inc. Publishes its FY 2007
The management of TECHNICAL OLYMPIC Group of Companies informs the investors that its subsidiary Technical Olympic USA Inc. ("TOUSA"), announced its FY 2007 financial results.
As a reminder, it has been previously announced by the Group?s management, that our US subsidiary TOUSA Inc filed voluntary petitions in the United States Bankruptcy Court on 29/1/2008 seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). Due to the complexity of the statutory procedures of the USA Bankruptcy Code, the engagement of several consultants and legal authorities and necessary data for publication, the Financial Services of TOUSA is not able to prepare the financial statements for the period 1/1 - 31/12/2007 until April 1st 2008, as it has already been announced via the press release dated 19/3/2008.
Reorganization update
On February 5, 2008 and pursuant to an interim order from the Bankruptcy Court dated January 31, 2008, TOUSA, Inc, entered into the Senior Secured Super-Priority Debtor in Possession Credit and Security Agreement (?DIP Credit Agreement?). The DIP Credit Agreement provided for a first priority and priming secured revolving credit interim commitment of up to $134.6 million. The agreement was subsequently amended to extend the DIP Credit Agreement to June 19, 2008. No funds were drawn under the DIP Credit Agreement. Effective June 20, 2008, the DIP Credit Agreement was terminated and TOUSA entered into a cash collateral order which defines the terms on which TOUSA may use cash collateral (cash generated by our operations, including the sale of excess inventory and the proceeds of our federal tax refund of $207.3 million received in April 2008). Under the order, TOUSA is authorized to use cash collateral of our first lien and second lien lenders (approximately $358.0 million at the time of the order) for a period of six months in a manner consistent with the defined cash collateral budget.
Fiscal Year 2007 compared to Fiscal Year 2006
TOUSA's total revenues decreased 12% to $2.2 billion for the year ended December 31, 2007, from $2.5 billion for the year ended December 31, 2006. This decrease is primarily attributable to a decrease in Homebuilding revenues of 12%.
For the year ended December 31, 2007, TOUSA had a loss from continuing operations before benefit for income taxes of $1.4 billion as compared to a loss from continuing operations before benefit for income taxes of $243.6 million for the year ended December 31, 2006. Results for 2007 and 2006 include charges totaling $1.3 billion and $586.7 million, respectively, related to inventory impairments, abandonment costs, joint venture impairments, goodwill impairments and the provision for settlement of loss contingency.
For the year ended December 31, 2007, TOUSA had a loss from continuing operations, net of taxes, of $1.3 billion (or a loss of $22.41 per diluted share) compared to a loss from continuing operations, net of taxes, of $200.8 million (or a loss of $3.37 per diluted share) for the year ended December 31, 2006. For the year ended December 31, 2007, TOUSA had a net loss of $1.4 billion (or a loss of $20.80 per diluted share) compared to a net loss of $201.2 million (or a loss of $3.38 per diluted share) for the year ended December 31, 2006.
Following the aforementioned losses, TOUSA's own equity as at December 31, 2007 formed at negative $ -475.5 million (negative net equity position), as compared to $ 774.9 million as at December 31, 2006.
Homebuilding
Homebuilding revenues decreased 12% to $2.2 billion for the year ended December 31, 2007, from $2.4 billion for the year ended December 31, 2006. This decrease is primarily due to a decrease in revenue from home sales to $2.0 billion for the year ended December 31, 2007 from $2.3 billion for the year ended December 31, 2006. The decrease in revenue from home sales, which is net of buyer incentives, was due to a 9% decrease in the number of deliveries from continuing operations to 6,580 for the year ended December 31, 2007 from 7,260 for the year ended December 31, 2006. The average price of homes delivered from continuing operations fell slightly, decreasing to $311,000 for the year ended December 31, 2007, from $318,000 for the year ended December 31, 2006. TOUSAexpect our home sales revenues to continue to decrease in 2008 as the number of home deliveries declines and the average price of homes delivered continues to be impacted by increased incentives as a result of severe market conditions in the new home industry combined with diminished consumer confidence, the oversupply of new and existing homes available for sale, increased foreclosures and downward pressure on home prices.
For the year ended December 31, 2007, TOUSA had a homebuilding gross loss of $511.4 million as compared to a gross profit of $417.9 million for the year ended December 31, 2006. This decrease is primarily due to an increase in inventory impairments and abandonment costs during the year ended December 31, 2007 in addition to the decrease in the number of deliveries coupled with higher incentives on homes delivered in response to challenging homebuilding market conditions. Inventory impairments and abandonment costs were $856.7 million for the year ended December 31, 2007 compared to $153.2 million for the year ended December 31, 2006. For the year ended December 31, 2007, our incentives from continuing operations increased to $43,900 per home delivered from $21,200 per home delivered for the year ended December 31, 2006. TOUSA expects gross margins to continue to decline in 2008 due to our expected continued use of higher incentives to drive TOUSA?s sales rates and downward pressure on home prices in response to challenging market conditions.
SG&A expenses increased to $362.7 million for the year ended December 31, 2007, from $358.3 million for the year ended December 31, 2006. This increase in expenses is due to: (i) an increase of $22.6 million in professional and consultant fees related to the Transeastern JV and professional services obtained in connection with the development of a long term business plan and the evaluation of our restructuring options; and (ii) an increase of $9.3 million in selling and marketing expenses. The increase in SG&A expenses was partially offset by a reduction in overhead and related expenses.
SG&A expenses as a percentage of revenues from home sales for the year ended December 31, 2007 increased to 17%, as compared to 16% for the year ended December 31, 2006. The increase in SG&A expenses as a percentage of home sales revenues is due to the factors discussed above. TOUSA expects selling expenses as a percentage of revenue from home sales to continue to increase in 2008 due to the competition for homebuyers. The ratio of SG&A expenses as a percentage of revenues from home sales is also affected by the fact that TOUSA?s consolidated revenues from home sales do not include revenues recognized by TOUSA?s unconsolidated joint ventures; however, the compensation and other expenses capitalized by TOUSA in connection with certain of these joint ventures are included in our consolidated SG&A expenses.
For the year ended December 31, 2007, TOUSA had a loss from unconsolidated joint ventures of $14.1 million compared to income from unconsolidated joint ventures of $104.7 million for the year ended December 31, 2006. The decrease in earnings from unconsolidated joint ventures is primarily due to reduced earnings in the joint ventures as TOUSA?s joint ventures are experiencing similar severe market conditions as our consolidated operations. In addition, during the year ended December 31, 2007 and 2006, TOUSA recorded impairment losses of $190.5 million and $152.8 million, respectively, related to unconsolidated joint ventures. For the year ended December 31, 2007, the unconsolidated joint ventures delivered 1,666 homes as compared to 3,951 homes delivered during the comparable period in the prior year.
Net Sales Orders and Homes in Backlog (Consolidated)
For the year ended December 31, 2007, net sales orders from continuing operations decreased by 21% to 4,836 as compared to 6,085 for the year ended December 31, 2006. The decrease in net sales orders is due to decreased demand for new homes and higher cancellation rates. TOUSA expects these factors to continue to negatively impact our net sales orders until the markets normalize.
The cancellation rate increased to 38% for the year ended December 31, 2007 from 32% for the year ended December 31, 2006. Except for the West region, all regions experienced increases in cancellation rates for the year ended December 31, 2007 when compared with the same period in 2006.
TOUSA had 2,379 homes in backlog from continuing operations as of December 31, 2007, as compared to 3,869 homes in backlog as of December 31, 2006. The 39% decrease in backlog units is primarily due to a decline in sales orders and an increase in cancellation rates as a result of decreased demand. The sales value of backlog from continuing operations decreased 47% to $736.3 million at December 31, 2007, from $1.4 billion at December 31, 2006, due to the decrease in the number of homes in backlog in addition to a decrease in the average selling price of homes in backlog to $310,000 from $361,000 from period to period. The decrease in the average selling price of homes in backlog was primarily due to increased incentives and a change in product mix. Contracts with a third-party that marketed homes in the United Kingdom included in backlog at December 31, 2007 were cancelled in 2008. These contracts were for 511 homes, representing $115.6 million in revenue. At June 30, 2008, TOUSA?s consolidated continuing operations had 1,580 homes in backlog representing $479.3 million in revenue. TOUSA expects the average selling price of homes in backlog to decrease in the future as cancellations remain higher than historical levels and higher incentives are offered to move home inventory.
Chapter 11 update
TOUSA has the exclusive right to file a Chapter 11 plan or plans prior to October 25, 2008. However as a result of the Chapter 11 cases and other matters, including uncertainties related to the fact that TOUSA has not yet had time to complete and obtain confirmation of a plan or plans of reorganization, there is substantial doubt about its ability to continue as a going concern. TOUSA''s ability to continue as a going concern, including its ability to meet the ongoing operational obligations, is dependent upon, among other things:
its ability to generate and maintain adequate cash;
the cost, duration and outcome of the restructuring process;
its ability to comply with the terms of its cash collateral order; and
its ability to achieve profitability following a restructuring given housing market challenges.
These challenges are in addition to those operational and competitive challenges that TOUSA faces in connection with its business. In conjunction with its advisors, TOUSA is implementing strategies to aid its liquidity and its ability to continue as a going concern. However, such efforts may not be successful.
TOUSA has taken and will continue to take actions to maximize cash receipts and minimize cash expenditures with the understanding that certain of these actions may make the company less able to take advantage of future improvements in the homebuilding market. TOUSA continues to take steps to reduce its general and administrative expenses by streamlining activities and increasing efficiencies, which have led and will continue to lead to reductions in the workforce.
However, much of its efforts to reduce general and administrative expenses are being offset by professional and consulting fees associated with the Chapter 11 cass. In addition, TOUSA is working with its existing suppliers and seeking new suppliers, through competitive bid processes, to reduce construction material and labor costs. We have and will continue to analyze each community based on anticipated sales absorption rates, net cash flows and financial returns taking into consideration current market factors in the homebuilding industry such as the oversupply of homes available for sale in most of its markets, less demand, decreased consumer confidence, tighter mortgage loan underwriting criteria and higher foreclosures. In order to generate cash and to reduce the inventory to levels consistent with its business plan, TOUSA has taken and will continue to take the following actions, to the extent possible given the limitations resulting from its Chapter 11 cases:
limiting new arrangements to acquire land by submitting proposals to a rigorous review;
engaging in bulk sales of land and unsold homes;
reducing the number of homes under construction and limiting and/or curtailing development activities in any development where we do not expect to deliver homes in the near future;
renegotiating terms or abandoning our rights under option contracts;
considering other asset dispositions including the possible sale of underperforming assets, communities, divisions and joint venture interests;
reducing our speculative home levels; and
pursuing other initiatives designed to monetize its assets.
The management of Technical Olympic Group of Companies informs the investment community that following the release of TOUSA?s fiscal year 2007 financial statements, our company estimates that it will be able to announce its consolidated financial results for the period 1/1 - 31/12/2007 the soonest possible, and immediately after all auditing procedures have been conducted. In any case the company will promptly inform investors regarding the release date.
In addition, Technical Olympic Group management informs the investment community once again that parent Company Technical Olympic will not be further impacted by the losses of its subsidiary TOUSA, beyond the impairment of its participation to EURO 0.03 (parent Company) and the losses incurred in fiscal year 2007 (consolidated level)
More information is available at the website of the US Securities and Exchange Commission, www.sec.gov, at the website of the subsidiary company, www.tousa.com, as well as at the website www.tousadocket.com.
As a reminder, it has been previously announced by the Group?s management, that our US subsidiary TOUSA Inc filed voluntary petitions in the United States Bankruptcy Court on 29/1/2008 seeking relief under the provisions of Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). Due to the complexity of the statutory procedures of the USA Bankruptcy Code, the engagement of several consultants and legal authorities and necessary data for publication, the Financial Services of TOUSA is not able to prepare the financial statements for the period 1/1 - 31/12/2007 until April 1st 2008, as it has already been announced via the press release dated 19/3/2008.
Reorganization update
On February 5, 2008 and pursuant to an interim order from the Bankruptcy Court dated January 31, 2008, TOUSA, Inc, entered into the Senior Secured Super-Priority Debtor in Possession Credit and Security Agreement (?DIP Credit Agreement?). The DIP Credit Agreement provided for a first priority and priming secured revolving credit interim commitment of up to $134.6 million. The agreement was subsequently amended to extend the DIP Credit Agreement to June 19, 2008. No funds were drawn under the DIP Credit Agreement. Effective June 20, 2008, the DIP Credit Agreement was terminated and TOUSA entered into a cash collateral order which defines the terms on which TOUSA may use cash collateral (cash generated by our operations, including the sale of excess inventory and the proceeds of our federal tax refund of $207.3 million received in April 2008). Under the order, TOUSA is authorized to use cash collateral of our first lien and second lien lenders (approximately $358.0 million at the time of the order) for a period of six months in a manner consistent with the defined cash collateral budget.
Fiscal Year 2007 compared to Fiscal Year 2006
TOUSA's total revenues decreased 12% to $2.2 billion for the year ended December 31, 2007, from $2.5 billion for the year ended December 31, 2006. This decrease is primarily attributable to a decrease in Homebuilding revenues of 12%.
For the year ended December 31, 2007, TOUSA had a loss from continuing operations before benefit for income taxes of $1.4 billion as compared to a loss from continuing operations before benefit for income taxes of $243.6 million for the year ended December 31, 2006. Results for 2007 and 2006 include charges totaling $1.3 billion and $586.7 million, respectively, related to inventory impairments, abandonment costs, joint venture impairments, goodwill impairments and the provision for settlement of loss contingency.
For the year ended December 31, 2007, TOUSA had a loss from continuing operations, net of taxes, of $1.3 billion (or a loss of $22.41 per diluted share) compared to a loss from continuing operations, net of taxes, of $200.8 million (or a loss of $3.37 per diluted share) for the year ended December 31, 2006. For the year ended December 31, 2007, TOUSA had a net loss of $1.4 billion (or a loss of $20.80 per diluted share) compared to a net loss of $201.2 million (or a loss of $3.38 per diluted share) for the year ended December 31, 2006.
Following the aforementioned losses, TOUSA's own equity as at December 31, 2007 formed at negative $ -475.5 million (negative net equity position), as compared to $ 774.9 million as at December 31, 2006.
Homebuilding
Homebuilding revenues decreased 12% to $2.2 billion for the year ended December 31, 2007, from $2.4 billion for the year ended December 31, 2006. This decrease is primarily due to a decrease in revenue from home sales to $2.0 billion for the year ended December 31, 2007 from $2.3 billion for the year ended December 31, 2006. The decrease in revenue from home sales, which is net of buyer incentives, was due to a 9% decrease in the number of deliveries from continuing operations to 6,580 for the year ended December 31, 2007 from 7,260 for the year ended December 31, 2006. The average price of homes delivered from continuing operations fell slightly, decreasing to $311,000 for the year ended December 31, 2007, from $318,000 for the year ended December 31, 2006. TOUSAexpect our home sales revenues to continue to decrease in 2008 as the number of home deliveries declines and the average price of homes delivered continues to be impacted by increased incentives as a result of severe market conditions in the new home industry combined with diminished consumer confidence, the oversupply of new and existing homes available for sale, increased foreclosures and downward pressure on home prices.
For the year ended December 31, 2007, TOUSA had a homebuilding gross loss of $511.4 million as compared to a gross profit of $417.9 million for the year ended December 31, 2006. This decrease is primarily due to an increase in inventory impairments and abandonment costs during the year ended December 31, 2007 in addition to the decrease in the number of deliveries coupled with higher incentives on homes delivered in response to challenging homebuilding market conditions. Inventory impairments and abandonment costs were $856.7 million for the year ended December 31, 2007 compared to $153.2 million for the year ended December 31, 2006. For the year ended December 31, 2007, our incentives from continuing operations increased to $43,900 per home delivered from $21,200 per home delivered for the year ended December 31, 2006. TOUSA expects gross margins to continue to decline in 2008 due to our expected continued use of higher incentives to drive TOUSA?s sales rates and downward pressure on home prices in response to challenging market conditions.
SG&A expenses increased to $362.7 million for the year ended December 31, 2007, from $358.3 million for the year ended December 31, 2006. This increase in expenses is due to: (i) an increase of $22.6 million in professional and consultant fees related to the Transeastern JV and professional services obtained in connection with the development of a long term business plan and the evaluation of our restructuring options; and (ii) an increase of $9.3 million in selling and marketing expenses. The increase in SG&A expenses was partially offset by a reduction in overhead and related expenses.
SG&A expenses as a percentage of revenues from home sales for the year ended December 31, 2007 increased to 17%, as compared to 16% for the year ended December 31, 2006. The increase in SG&A expenses as a percentage of home sales revenues is due to the factors discussed above. TOUSA expects selling expenses as a percentage of revenue from home sales to continue to increase in 2008 due to the competition for homebuyers. The ratio of SG&A expenses as a percentage of revenues from home sales is also affected by the fact that TOUSA?s consolidated revenues from home sales do not include revenues recognized by TOUSA?s unconsolidated joint ventures; however, the compensation and other expenses capitalized by TOUSA in connection with certain of these joint ventures are included in our consolidated SG&A expenses.
For the year ended December 31, 2007, TOUSA had a loss from unconsolidated joint ventures of $14.1 million compared to income from unconsolidated joint ventures of $104.7 million for the year ended December 31, 2006. The decrease in earnings from unconsolidated joint ventures is primarily due to reduced earnings in the joint ventures as TOUSA?s joint ventures are experiencing similar severe market conditions as our consolidated operations. In addition, during the year ended December 31, 2007 and 2006, TOUSA recorded impairment losses of $190.5 million and $152.8 million, respectively, related to unconsolidated joint ventures. For the year ended December 31, 2007, the unconsolidated joint ventures delivered 1,666 homes as compared to 3,951 homes delivered during the comparable period in the prior year.
Net Sales Orders and Homes in Backlog (Consolidated)
For the year ended December 31, 2007, net sales orders from continuing operations decreased by 21% to 4,836 as compared to 6,085 for the year ended December 31, 2006. The decrease in net sales orders is due to decreased demand for new homes and higher cancellation rates. TOUSA expects these factors to continue to negatively impact our net sales orders until the markets normalize.
The cancellation rate increased to 38% for the year ended December 31, 2007 from 32% for the year ended December 31, 2006. Except for the West region, all regions experienced increases in cancellation rates for the year ended December 31, 2007 when compared with the same period in 2006.
TOUSA had 2,379 homes in backlog from continuing operations as of December 31, 2007, as compared to 3,869 homes in backlog as of December 31, 2006. The 39% decrease in backlog units is primarily due to a decline in sales orders and an increase in cancellation rates as a result of decreased demand. The sales value of backlog from continuing operations decreased 47% to $736.3 million at December 31, 2007, from $1.4 billion at December 31, 2006, due to the decrease in the number of homes in backlog in addition to a decrease in the average selling price of homes in backlog to $310,000 from $361,000 from period to period. The decrease in the average selling price of homes in backlog was primarily due to increased incentives and a change in product mix. Contracts with a third-party that marketed homes in the United Kingdom included in backlog at December 31, 2007 were cancelled in 2008. These contracts were for 511 homes, representing $115.6 million in revenue. At June 30, 2008, TOUSA?s consolidated continuing operations had 1,580 homes in backlog representing $479.3 million in revenue. TOUSA expects the average selling price of homes in backlog to decrease in the future as cancellations remain higher than historical levels and higher incentives are offered to move home inventory.
Chapter 11 update
TOUSA has the exclusive right to file a Chapter 11 plan or plans prior to October 25, 2008. However as a result of the Chapter 11 cases and other matters, including uncertainties related to the fact that TOUSA has not yet had time to complete and obtain confirmation of a plan or plans of reorganization, there is substantial doubt about its ability to continue as a going concern. TOUSA''s ability to continue as a going concern, including its ability to meet the ongoing operational obligations, is dependent upon, among other things:
its ability to generate and maintain adequate cash;
the cost, duration and outcome of the restructuring process;
its ability to comply with the terms of its cash collateral order; and
its ability to achieve profitability following a restructuring given housing market challenges.
These challenges are in addition to those operational and competitive challenges that TOUSA faces in connection with its business. In conjunction with its advisors, TOUSA is implementing strategies to aid its liquidity and its ability to continue as a going concern. However, such efforts may not be successful.
TOUSA has taken and will continue to take actions to maximize cash receipts and minimize cash expenditures with the understanding that certain of these actions may make the company less able to take advantage of future improvements in the homebuilding market. TOUSA continues to take steps to reduce its general and administrative expenses by streamlining activities and increasing efficiencies, which have led and will continue to lead to reductions in the workforce.
However, much of its efforts to reduce general and administrative expenses are being offset by professional and consulting fees associated with the Chapter 11 cass. In addition, TOUSA is working with its existing suppliers and seeking new suppliers, through competitive bid processes, to reduce construction material and labor costs. We have and will continue to analyze each community based on anticipated sales absorption rates, net cash flows and financial returns taking into consideration current market factors in the homebuilding industry such as the oversupply of homes available for sale in most of its markets, less demand, decreased consumer confidence, tighter mortgage loan underwriting criteria and higher foreclosures. In order to generate cash and to reduce the inventory to levels consistent with its business plan, TOUSA has taken and will continue to take the following actions, to the extent possible given the limitations resulting from its Chapter 11 cases:
limiting new arrangements to acquire land by submitting proposals to a rigorous review;
engaging in bulk sales of land and unsold homes;
reducing the number of homes under construction and limiting and/or curtailing development activities in any development where we do not expect to deliver homes in the near future;
renegotiating terms or abandoning our rights under option contracts;
considering other asset dispositions including the possible sale of underperforming assets, communities, divisions and joint venture interests;
reducing our speculative home levels; and
pursuing other initiatives designed to monetize its assets.
The management of Technical Olympic Group of Companies informs the investment community that following the release of TOUSA?s fiscal year 2007 financial statements, our company estimates that it will be able to announce its consolidated financial results for the period 1/1 - 31/12/2007 the soonest possible, and immediately after all auditing procedures have been conducted. In any case the company will promptly inform investors regarding the release date.
In addition, Technical Olympic Group management informs the investment community once again that parent Company Technical Olympic will not be further impacted by the losses of its subsidiary TOUSA, beyond the impairment of its participation to EURO 0.03 (parent Company) and the losses incurred in fiscal year 2007 (consolidated level)
More information is available at the website of the US Securities and Exchange Commission, www.sec.gov, at the website of the subsidiary company, www.tousa.com, as well as at the website www.tousadocket.com.