Technical Olympic USA, Inc.

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Technical Olympic USA, Inc.

4000 Hollywood Boulevard, Suite 500 North
Hollywood, Florida 33021
U.S.A.
Telephone: (954) 364-4000
Fax: (954) 364-4010
Web site: http://www.tousa.com

Public Company
Incorporated: 1983 as Newmark Homes Corporation
Employees: 2,079
Sales: $2.13 billion (2004)
Stock Exchanges: New York
Ticker Symbol: TOA
NAIC: 236116 New Multi-Family Housing Construction (Except Operative Builders); 237210 Land Subdivision; 522292 Real Estate Credit; 524127 Direct Title Insurance Carriers; 551112 Offices of Other Holding Companies

Technical Olympic USA, Inc. (TOUSA) is a designer, builder, and seller of detached, single-family homes, town-homes, and condominiums. The company operates in four regions: Florida, the Mid-Atlantic, Texas, and the West, concentrating its activities in 15 metropolitan markets. TOUSA, which eventually intends to create a single national brand for its homes, operates under several brand names, including Engle Homes, Newmark Homes, D.S. Ware Homes, Masonry Homes, Trophy Homes, and Gilligan Homes. The company sells more than 7,000 homes per year at an average sales price of $275,000. TOUSA also operates a financial services business through three subsidiaries, Preferred Home Mortgage Company, Alliance Insurance and Information Services, LLC, and Universal Land Title Inc. TOUSA's mortgage financing services are used primarily by buyers of its homes, while its closing services and insurance agency operations are used by its customers as well as other clients purchasing or refinancing residential or commercial real estate. TOUSA subcontracts nearly all of its construction work, assigning its own construction superintendents to monitor and to coordinate the construction of each home. Technical Olympic S.A., a Greek construction firm, owns approximately 70 percent of TOUSA's stock.

Origins

TOUSA represented the efforts of a Greek construction company to enter the U.S. home-building market at the end of the 1990s. The Greek company, Technical Olympic S.A., was founded in Patra in 1965 as Pelops Constructions. Its founder, Konstantinos Stengos, a civil engineer who was a graduate of the National Technical University in Athens, specialized in the construction of apartment buildings and public works projects. Stengos served as chairman of Technical Olympic S.A. and more than two dozen other subsidiaries at the time TOUSA was formed, having spent the previous 30 years creating a massive construction conglomerate. After decades of development, his company held sway as a giant construction firm, operating as a contractor for residential dwellings, tourist resorts, marinas, and large-scale industrial projects throughout Greece. By the 1990s, the extent of Technical Olympic S.A.'s growth had begun to work against the company, leaving it with fewer opportunities for commercial, residential, and industrial construction projects. The company had grown too large to subsist solely on the business available in Greece, a natural consequence of its own success that prompted Stengos to look beyond Greece's borders for work. He began expanding geographically, founding Technical Olympic UK, PLC, based in London, and Eurorom Constructii SRL, a Romania-based subsidiary, in 1997. Next, he plotted the company's foray into the United States, a move to be spearheaded by the newest Technical Olympic S.A. subsidiary and TOUSA's direct predecessor, Technical Olympic Inc.

Technical Olympic Inc. was a company with Greek lineage, but its business was American with its own historical roots. A dual citizen of sorts, Technical Olympic could explain its corporate lineage by following two paths: One led back to Patra in 1965 and followed the development of Stengos's construction business and the other led back to Houston in 1983, to the formation of Newmark Homes Corp. Technical Olympic was formed for the express purpose of buying its way into the U.S. construction industry, an objective completed when the company acquired Newmark in 1999 and became a going enterprise. Technical Olympic's development would be shaped almost entirely by the acquisitions it made, with each new addition expanding the company's operations in a significant way, but with no acquisition as important as the Newmark acquisition. Newmark lent Technical Olympic a corporate identity, defining it at its birth, and it gave the company tangible assets for the first time, and because of this, its influence over the company superseded its Greek parentage. Technical Olympic, as it described itself in later years, was a company with historical roots stretching back to Houston in 1983, not to Patra in 1965.

Newmark was a nearly $500 million-in-sales company when Technical Olympic acquired 80 percent of its stock for $86 million. During its first 15 years of business, Newmark had developed into a geographically diverse designer, builder, and seller of single-family detached homes. The company operated as holding company for its Newmark Home, Westbrooke Communities, The Adler Companies, and Pacific United Development subsidiaries, a group of businesses that served seven major markets in the Southwest and Southeast. Newmark built its business in Texas before expanding into Tennessee. In 1995, after a dozen years in business and with a substantial presence in Houston, Austin, Dallas/Fort Worth, and Nashville, the company acquired The Adler Companies, Inc. The Adler Companies, formed in 1990 in Miami, constructed homes in south Florida, tailoring its construction efforts to attract "move-up," or second-time homebuyers. In 1998, Newmark increased its construction activity in Florida by acquiring Westbrooke Communities, Inc., a company founded in Miami in 1976. Once Newmark had completed the purchase of Westbrooke, it merged its two Florida acquisitions into a single operation and expanded into North Carolina, entering Charlotte and the Greensboro/Winston-Salem area. The year of the merger also coincided with Newmark's initial public offering of stock, which made Technical Olympic a publicly traded company once it purchased Newmark in December of the following year.

The purchase of Newmark was a defining event for Technical Olympic, one that was followed by an acquisition of significant size. In November 2000, less than a year after acquiring Newmark, Technical Olympic purchased Boca Raton, Florida-based Engle Holdings Corp. in a deal valued at $465 million. A publicly traded company, Engle Holdings was founded in 1978 by Alex Engelstein, who continued to serve as the company's chairman and chief executive officer when it was acquired by Technical Olympic. Engelstein took Engle Holdings public in 1992, which gave him $27 million to make land acquisitions to accelerate the growth of his company. In the years preceding its acquisition by Technical Olympic, Engle Holdings recorded impressive growth, increasing its revenues from $245 million in 1995 to $742 million by 1999. During the period, the number of homes sold by the company more than tripled, jumping from 1,137 to 3,514, as it expanded its business into Georgia, North Carolina, Virginia, Colorado, Texas, and Arizona. Despite the company's accomplishments, the reaction from Wall Street was less than Engelstein would have hoped for, fueling his disenchantment with running the company. In his mind, Engle Holdings' share price never accurately reflected the value of the company, a perception that led him to sell the company to Technical Olympic. "It was one of the things," he said in an October 13, 2000 interview with the Miami Herald, referring to the decision to sell his company to Technical Olympic. "The frustration that the market, per se, didn't give us full credit for our accomplishments."

With Newmark and Engle Holdings constituting its operations, Technical Olympic stood as a recognizable force in the nation's home-building industry, having quickly penetrated the U.S. market. Based on the number of homes the company sold in 2001, a year in which revenues reached $1.4 billion, Technical Olympic ranked as the 12th largest homebuilder in the country. The company pressed forward with its strategy of expanding by acquiring local and regional homebuilders, doing so under new leadership appointed in 2001. Antonio B. Mon was named president and chief executive officer, bringing with him 35 years of experience in finance, investment management, consulting, venture capital, and constructing residential properties. In his position before joining Technical Olympic, Mon served as vice-chairman of Pacific Greystone Corp., a company he had cofounded in 1991. During his stay at Pacific Greystone, Mon presided over the company's development into a major homebuilder in the western United States.

Merger in 2002 Creating TOUSA

Technical Olympic resumed its acquisition campaign in 2002, a significant year for the company. In April, the company sold Westbrooke, the south Florida builder it had acquired through the purchase of Newmark, to Standard Pacific Corp., a homebuilder with extensive holdings in California and Florida. In June, the company merged Newmark with its Engle Holdings subsidiary, a transaction that gave birth to a new name for the entire organization, Technical Olympic USA, Inc., or TOUSA, as the company preferred to call itself. Under its new corporate banner, the company added to its portfolio of home-building brands, shoring up its presence in Florida and adding a new market to the geographic scope of its operations. In October, TOUSA purchased D.S. Ware Homes, LLC for $35.6 million. Founded in 1987 by Donald Ware, D.S. Ware operated in Jacksonville, Florida, where it ranked as the city's fourth largest builder, selling between 300 and 400 homes each year. The following month, TOUSA completed a smaller acquisition, paying $17.1 million for Masonry Homes, Inc. Founded in 1971, Masonry constructed homes in the northwestern suburbs of Baltimore and in southern Pennsylvania, selling 250 homes at an average price of $214,000 in the year before its acquisition by TOUSA.

Company Perspectives:

We believe that our diversification across a range of fast-growing markets, across a range of product types and prices, and across a range of homebuilding and financial services will enable us to thrive in a variety of economic conditions. We invite you to watch our results as we execute this strategy!

With a substantial foundation in place, Mon added to TOUSA's holdings as if adding pieces to a puzzle. The company was focused on ten states: Florida, Texas, Arizona, Virginia, Colorado, Nevada, Tennessee, Maryland, Pennsylvania, and Delaware. Housing markets deemed to be overpriced, markets such as San Diego, Boston, and Los Angeles, were avoided, as were markets that lacked employment growth. The company was reluctant, for instance, to establish a presence in the Midwest, where little employment growth existed. Instead, Mon and his management team concentrated on areas where employment growth had been steady for at least five years and where second-time homebuyers could be found. TOUSA's typical customer wanted a three- to four-bedroom home, 3,000 square feet of living space, and a two-car garage. "They're a little older, in their 30s and 40s," Mon said, describing the typical TOUSA customer in an April 18, 2005 interview with Investor's Business Daily. "They're more financially successful and have equity in the homes they're selling."

A Single Brand for the Future

Mon selected acquisition candidates that matched the criteria of the company's expansion strategy and fleshed out TOUSA's market presence, making several additions during his first five years of leadership. In 2003, he acquired two builders, completing both purchases in February. First, he acquired The James Construction Company, a homebuilder operating in the greater Denver area, paying $22 million for the company. Next, he acquired Trophy Homes, Inc., paying $36 million for the Las Vegas-based homebuilder. In 2004, he acquired Gilligan Homes, a homebuilder with operations in Maryland, Pennsylvania, and Delaware, gaining control of roughly 1,100 home sites. The company ended the year, its fifth anniversary, eclipsing $2 billion in sales, a total derived from the 7,221 homes it sold during the year.

As TOUSA looked ahead, the company anticipated creating a single national brand out of its local and regional construction firms. As its acquisition campaign continued, it planned to retain the name of the local or regional company it acquired for two years, after which point the acquisition would adopt the single identity of the entire organization, a single corporate banner under which all of the company's firms would operate. As a cohesive whole, TOUSA's construction activities in its four geographic regions—Florida, Mid-Atlantic, Texas, and the West—stood to benefit from the project-management and inventory-flow technology employed by the company. "You can't have the drywall guys come in before the plumbers," Mon said in his April 18, 2005 interview with Investor's Business Daily. "Our system allows us to track each stage of construction and alert subcontractors to get ready." To this system, Mon was expected to add additional local and regional homebuilders. The company's acquisition of Transeastern Properties, Inc., a Coral Springs, Florida-based construction firm purchased in August 2005, set the tone for the years ahead: TOUSA would continue to expand through acquisitions, fleshing out its presence in its four major operating regions.

Principal Subsidiaries

Engle Homes Residential Construction, LLC; Alliance Insurance and Information Services, LLC; Preferred Home Mortgage Company; Universal Land Title Inc.; Newmark Homes, L.P.; Trophy Homes; Fedrick, Harris Estate Homes; TOUSA Homes, Inc.; Universal Land Title, Inc.; Woodland Pines, L.P.