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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-6830
ORLEANS HOMEBUILDERS, INC.
(formerly FPA Corporation)
(Exact name of registrant as specified in its charter)
Delaware 59-0874323 One Greenwood Square, #101
(State or other jurisdiction of (I.R.S. Employer 3333 Street Road
incorporation or organization) Identification No.) Bensalem, PA 19020
(Address of Principal Executive Office)
(215) 245-7500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title on which Registered
----- -------------------
Common Stock, $.10 Par Value Per Share
(also formerly registered under
Section 12(g) of the Act)................ American
Securities Registered Pursuant to Section
12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of September 6, 2000 was approximately $5,108,000.
Number of shares of outstanding Common Stock as of September 6, 2000 was
11,357,893, shares (excluding 1,340,238 shares held in Treasury).
Part III (except for information included under Part I relating to executive
officers of the registrant) is incorporated by reference from the proxy
statement for the annual meeting of Stockholders scheduled to be held in
December, 2000.
TABLE OF CONTENTS
PART I
------
PAGE
ITEM 1. Business.
General 1
ITEM 2. Properties.
Lease of Executive Offices 8
ITEM 3. Legal Proceedings 8
ITEM 4. Submission of Matters to a Vote of Security Holders 8
ITEM 4A. Executive Officers of the Registrant 9
PART II
-------
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters 10
ITEM 6. Selected Financial Data 11
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 17
ITEM 8. Financial Statements and Supplementary Data 18
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 41
PART III
--------
ITEM 10. Directors and Executive Officers of Registrant 41
ITEM 11. Executive Compensation 41
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 41
ITEM 13. Certain Relationships and Related Transactions 41
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 41
Item l. Business.
General
- -------
The Company develops residential communities in Southeastern
Pennsylvania and Central and Southern New Jersey. The Company's operations in
Pennsylvania and New Jersey are in the Philadelphia metropolitan area, primarily
in Bucks, Chester and Delaware Counties in Pennsylvania and in Burlington,
Camden and Gloucester Counties in New Jersey.
The Company operates as both a developer and builder. The Company
builds and sells condominiums, townhouses and single-family homes; and sells
land and developed homesites. During the fiscal year ended June 30, 2000, the
Company delivered 768 residential units, as compared to 718 units in fiscal
1999. Revenues earned from residential property activities increased by 22.5%
during fiscal 2000 to $176,189,000, as compared to $143,827,000 in fiscal 1999.
At June 30, 2000, the Company's backlog increased by 26.6% to $127,899,000,
representing 409 units, compared to $101,065,000 and 425 units, at June 30,
1999. In addition, as of June 30, 2000, there were reservation deposits relating
to 21 units at the Company's various developments which had an aggregate sales
value of $6,203,000, as compared to 25 units aggregating $6,862,000 at June 30,
1999.
Effective July 1998, the Registrant changed its name from FPA
Corporation to Orleans Homebuilders, Inc. ("OHB" or the "Company"). The
Company's predecessor, Florida Palm-Aire Corporation, was formed in 1959 and was
merged into Orleans Homebuilders, Inc., a Delaware corporation formed on
September 4, 1969. In 1965, the late Marvin Orleans and Orleans Construction
Co., a general partnership substantially owned and controlled by Marvin Orleans
and his late father, A.P. Orleans, acquired the controlling interest in the
Company. In 1993, the Company acquired Orleans Construction Corp. ("OCC") from
Jeffrey P. Orleans. Unless otherwise indicated, the terms the "Company" and
"OHB" include Orleans Homebuilders, Inc. and all of its Subsidiaries.
Jeffrey P. Orleans, the son of Marvin Orleans and Chairman of the Board
and Chief Executive Officer of the Company, owns, directly or indirectly,
approximately 7,324,828 shares of Common Stock, par value $.10 per share
("Common Stock"), which represents approximately 64.5% of the outstanding
shares, excluding treasury shares, as of September 8, 2000. In addition, if Mr.
Orleans were to convert his Convertible Subordinated 7% Note (See Note 7 of
Notes to Consolidated Financial Statements) and his Series D Preferred Stock
(See Note 9 of Notes to Consolidated Financial Statements) into common shares,
he would then own 73.7% of the then outstanding shares.
1
New Business
- ------------
The Company has plans to expand into other market areas. In June, 2000
the Company entered into a non-binding letter of intent to acquire Parker
Lancaster Corporation, a privately-held residential home builder, with
operations in Virginia, North Carolina and South Carolina. Parker Lancaster's
reported revenues for the year ended June 30, 1999 and for the nine months ended
March 31, 2000, were approximately $85 million and $60 million, respectively. A
definitive agreement has not been executed and there can be no assurance that
the acquisition will be consummated.
Residential Development
- -----------------------
The Company's activities in developing residential communities include
the sale of residential properties and the sale of land and developed homesites
to independent builders. The Company occasionally participates in joint ventures
in certain of these activities.
The following table sets forth certain information at June 30, 2000
with respect to land holdings, active communities of the Company under
development and those where construction is expected to commence in the near
future.
2
RESIDENTIAL DEVELOPMENTS AS OF JUNE 30, 2000
--------------------------------------------
No. of Total Units Total Units Total Units Reservation Unit Price Remaining
State Communities Approved Delivered Under Contract Deposits Range(1) Approved Units(2)
- ----- ----------- -------- --------- -------------- -------- -------- -----------------
PA 11 981 394 113 6 $ 117,000 468
$ 587,000
NJ 25 2,738 1,418 296 15 $ 96,000 1,009
-- ----- ----- --- -- $ 674,000 -----
36 3,719 1,812 409 21 1,477
== ===== ===== === == =====
1. Range of base prices of residential dwelling units currently being offered
for sale by the Company. In addition, the Company sells homesites from time
to time at its various developments to unaffiliated builders at prices
substantially lower than its dwelling units.
2. Although zoning and certain preliminary master plan approvals have been
received for these units, final plans are subject to substantial review and
approval by appropriate governmental agencies. No assurance can be given
that the Company will be able to obtain the required final approvals for
the indicated units or will ultimately elect to develop the properties in
accordance with presently anticipated development plans.
3
The following table sets forth certain detail as to residential sales activity.
The information provided is for the twelve months ended June 30, 2000, 1999 and
1998 in the case of revenues earned and new orders, and as of June 30, 2000,
1999 and 1998 in the case of backlog.
Year Ended June 30,
------------------------------------
2000 1999* 1998*
-------- -------- --------
(Dollars in Thousands)
Revenues earned $176,189 $143,827 $106,246
Units 768 718 589
Average price per unit $ 229 $ 200 $ 180
New orders $203,023 $173,897 $139,129
Units 752 803 719
Average price per unit $ 270 $ 217 $ 194
Backlog $127,899 $101,065 $ 70,995
Units 409 425 340
Average price per unit $ 313 $ 238 $ 209
* Included in revenues earned and new order data for fiscal 1999 are four low
income housing units purchased by Jeffrey P. Orleans, Chairman and Chief
Executive Officer of the Company. The units had an aggregate sales value of
$176,000. In addition, included in revenues earned for fiscal 1998 are 26 low
income housing units purchased by Mr. Orleans, with an aggregate sales value of
$1.4 million. The selling price of all units, which are determined by state
statute, are the same as if the units had been sold to unaffiliated third
parties. These transactions will satisfy, in part, the Company's low income
housing requirements in Mount Laurel Township, New Jersey.
Operating Policies
- ------------------
Construction
------------
The Company has historically designed its own products with the
assistance of unaffiliated architectural firms as well as supervised the
development and building of its communities. When the Company constructs units,
it acts as a general contractor and employs subcontractors at specified prices
for the installation of site improvements and construction of its residential
units. Agreements with subcontractors provide for a fixed price for work
performed or materials supplied and are generally short-term.
The Company does not manufacture any of the materials or other items
used in the development of its communities, nor does the Company maintain
substantial inventories of materials. Standard building materials, appliances
and other components are purchased in volume. The Company has not experienced
significant delays in obtaining materials needed by it to date and has
long-standing relationships with many of its major suppliers and contractors.
None of the Company's suppliers accounted for more than 10% of the Company's
total purchases in the fiscal year ended June 30, 2000.
4
Sales and Customer Financing
----------------------------
The Company conducts a marketing program that is directed to purchasers
of primary residences. In Pennsylvania and New Jersey, A.P. Orleans Inc., a
wholly-owned subsidiary of the Company, is the exclusive sales agent.
Model homes and sales centers are constructed to promote sales. A
variety of custom changes are permitted at the request of home buyers. The
Company advertises extensively using newspapers, billboards, the internet and
other types of media. The Company also uses brochures to describe each
community.
The Company's customers generally require mortgage financing to
complete their purchases. The Company has a mortgage department to assist its
home buyers in obtaining financing from unaffiliated lenders and the Company
receives a fee for this service.
The Company applies for project financing approvals from the Federal
Housing Administration, the Veterans Administration and the Federal National
Mortgage Association for many of its moderately priced communities. These
approvals assist customers in their ability to obtain competitive fixed and
adjustable rate mortgages with moderate down payments and liberal underwriting
requirements. The Company has obtained approvals for most projects and
anticipates additional approvals during fiscal 2001; however, there can be no
assurance that additional approvals will be obtained.
Land Policy
-----------
The Company acquires land in order to provide an adequate and
well-located supply for its residential building operations. In evaluating
possible opportunities to acquire land, the Company considers such factors as
the feasibility of development, proximity to developed areas, population growth
patterns, customer preferences, estimated cost of development and availability
and cost of financing.
As of June 30, 2000, the Company had contracted to acquire twenty-one
additional parcels of land in its existing markets, totaling approximately 2,800
residential lots for an aggregate purchase price of approximately $81,260,000.
The Company anticipates completing a majority of these acquisitions during the
next two fiscal years.
The Company will continue to monitor economic and market conditions for
residential units in each of its various communities in assessing the relative
desirability of constructing units or selling parcels to other builders.
The Company engages in many phases of development activity, including
land and site planning, obtaining environmental and other regulatory approvals,
construction of roads, sewer, water and drainage facilities, recreation
facilities and other amenities.
5
Joint Ventures
--------------
From time to time, the Company has developed and owned projects through
joint ventures with other parties.
As discussed in Notes 1 and 2 of Notes to Consolidated Financial
Statements, the Company, through a wholly owned subsidiary, is the General
Partner in Versailles Associates, L.P., a limited partnership comprised of
private investors, formed to purchase and develop a 102 multi-family unit
community in Cherry Hill, New Jersey. As of June 30, 1998, all units have been
delivered and final distributions for the partnership occurred during fiscal
1999.
Also, as discussed in Notes 1 and 2 of Notes to Consolidated Financial
Statements, OCC has entered into a joint venture with Bridlewood Associates,
L.P. OCC is the general partner in this limited partnership formed to develop an
85 acre parcel of land in Mount Laurel, New Jersey. As of June 30, 1999, all
units have been delivered. The partnership has been substantially liquidated as
of June 30, 2000.
Determinations by the Company to enter into joint ventures have
traditionally been based upon a number of factors, including principally an
alternative source for land acquisition financing. At the present time joint
venture activities do not constitute a material portion of the Company's
operations.
Government Regulation
---------------------
The Company and its subcontractors are subject to continuing compliance
requirements of various federal, state and local statutes, ordinances, rules and
regulations regarding zoning, plumbing, heating, air conditioning and electrical
systems, building permits and similar matters. The intensity of development in
recent years in areas in which the Company is actively developing real estate
has resulted in increased restrictive regulation and moratoriums by governments
with respect to density, sewer, water, ecological and similar matters. Further
expansion and development will require prior approval of federal, state and
local authorities and may result in delay or curtailment of development
activities and costly compliance programs.
In January 1983, the New Jersey Supreme Court rendered a decision known
as the "Mount Laurel II" decision, which has the effect of requiring certain
municipalities in New Jersey to provide housing for persons of low and moderate
income. In order to comply with such requirements, municipalities in that state
may require developers, including the Company, in connection with the
development of residential communities, to contribute funds, on a per unit
basis, or otherwise assist in the achievement of a fair share of low or moderate
housing in such municipalities.
6
In recent years, regulation by federal and state authorities relating
to the sale and advertising of condominium interests and residential real estate
has become more restrictive and intense. In order to advertise and sell
condominiums and residential real estate in many jurisdictions, including
Pennsylvania and New Jersey, the Company has been required to prepare a
registration statement or other disclosure document and, in some cases, to file
such materials with a designated regulatory agency.
Despite the Company's past ability to obtain necessary permits and
authorizations for its projects, more stringent requirements may be imposed on
developers and home builders in the future. Although the Company cannot predict
the effect of such requirements, they could result in time-consuming and
expensive compliance programs and substantial expenditures for environmental
controls which could have a material adverse effect on the results of operations
of the Company. In addition, the continued effectiveness of permits already
granted is subject to many factors, including changes in policies, rules and
regulations and their interpretation and application, which are beyond the
Company's control.
Environmental Regulation and Litigation
---------------------------------------
Development and sale of real property creates a potential for
environmental liability on the part of the developer, owner, or any mortgage
lender for its own acts or omissions as well as those of current or prior owners
of the subject property or adjacent parcels. If hazardous substances are
discovered on or emanating from any of the Company's properties, the owner or
operator of the property (including the prior owners) may be held liable for
costs and liabilities relating to such hazardous substances. Environmental
studies are undertaken in connection with property acquisitions by the Company.
Further governmental regulation on environmental matters affecting residential
development could impose substantial additional expense to the Company, which
could adversely affect the results of operations of the Company or the value of
properties owned, or under contract to purchase by the Company. (See Note 12 of
Notes to Consolidated Financial Statements for a discussion of specific
environmental litigation.)
Competition
-----------
The real estate industry is highly competitive. The Company competes on
the basis of its reputation, location, design, price, financing programs,
quality of product and related amenities, with regional and national home
builders in its areas of development, some of which have greater sales,
financial resources and geographical diversity than the Company. Numerous local
residential builders and individual resales of residential units and homesites
provide additional competition.
Employees
---------
The Company, as of June 30, 2000, employed 60 executive, administrative
and clerical personnel, 51 sales personnel, 96 construction supervisory
personnel and laborers, for a total of 207 employees.
The level of construction and sales employees varies throughout the
year in relation to the level of activities at the Company's various
developments. The Company has had no work stoppages and considers its relations
with employees to be good.
7
Economic Conditions
-------------------
The Company's business is affected by general economic conditions in
the United States and its related regions and particularly by the level of
interest rates. The Company cannot predict whether interest rates will be at
levels attractive to prospective home buyers or whether mortgage and
construction financing will continue to be available.
Item 2. Properties.
Lease of Executive Offices
--------------------------
Except as noted below, the Company's real property assets are described
generally under Item 1 - Business.
The Company is currently leasing office space comprising approximately
15,000 square feet at One Greenwood Square at 3333 Street Road, Bensalem,
Pennsylvania. The annual rent is approximately $240,000 and the lease expires on
December 31, 2006.
Item 3. Legal Proceedings.
The Company is a plaintiff or defendant in various cases arising out of
its usual and customary business. The Company believes that it has adequate
reserves, insurance or meritorious defenses in all pending cases in which it is
a defendant and that adverse decisions in any or all of the cases would not have
a material effect upon the Company. (See Note 12 of Notes to Consolidated
Financial Statements for a discussion of specific litigation).
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
8
Item 4A. Executive Officers of the Registrant.
The following list contains certain information relative to executive
officers of the Company. There are no family relationships among any executive
officers. The term of each executive officer expires at the next annual meeting
of the Board of Directors following the Annual Meeting of Stockholders scheduled
to be held in December, 2000 or until their successors are duly elected and
qualified.
Position Principal Occupation and Offices
Name Age or Office Past Five Years
---- --- --------- ---------------
Jeffrey P. Orleans 54 Chairman of the Board Served as Chairman of the Board and
and Chief Executive Officer Chief Executive Officer since September 1986.
Benjamin D. Goldman 54 Vice Chairman and Director Elected Vice Chairman in April 1998.
Served as President from May 1992 to April 1998. Has
served as a Director of the Company since May 1992.
Michael T. Vesey 41 President and Chief Elected President and Chief Operating
Operating Officer Officer in April 1998. Served as Executive
Vice President responsible for project management
from July 1994 through April 1998.
Joseph A. Santangelo 46 Chief Financial Officer, Elected Chief Financial Officer of the Company
Treasurer and Secretary in July 1994. He was elected Secretary of the
Company in May 1992 and has been Treasurer since
joining the Company in March 1987.
9
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The principal market on which the Company's Common Stock is traded is
the American Stock Exchange, Inc. Effective July 1998, in conjunction with the
Company's name change to Orleans Homebuilders, Inc., the Company's ticker symbol
was changed from "FPO" to "OHB".
The high and low sales prices on the Exchange for the periods indicated
are as follows:
Fiscal year
ended June 30, High Low
-------------- ---- ---
2000 First Quarter $ 1.875 $ 1.500
Second Quarter 1.750 1.250
Third Quarter 2.313 1.438
Fourth Quarter 2.125 1.438
1999 First Quarter $ 2.688 $ 1.375
Second Quarter 2.688 1.375
Third Quarter 2.563 1.750
Fourth Quarter 2.188 1.625
The number of common stockholders of record of the Company as of
September 6, 2000 was approximately 300.
The Company has not paid a cash dividend since December 1982. Payment
of dividends will depend upon the earnings of the Company, its funds derived
from operations, its working capital needs, its debt service requirements, its
general financial condition and other factors (including, without limitation,
restrictions in certain financing agreements). No assurance can be given that
the Company will pay dividends in the future.
10
Item 6. Selected Financial Data
The following table sets forth selected financial data for the
Company and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included under Item 8 of the
Form 10K.
Year Ended June 30,
(In thousands, except per share data)
Operating Data 2000 1999 1998 1997 1996
- -------------- ---- ---- ---- ---- ----
Earned revenues $ 178,997 $ 150,573 $ 108,998 $ 101,996 $ 94,359
Income from continuing operations 7,539 5,367 1,668 1,615 1,235
Income per share from
continuing operations:
Basic 0.65 0.46 0.15 0.14 0.11
Diluted 0.49 0.36 0.14 0.14 0.10
Balance at June 30,
(In thousands)
Balance Sheet Data 2000 1999 1998 1997 1996
- ------------------ ---- ---- ---- ---- ----
Residential properties $ 65,669 $ 51,800 $ 47,209 $ 35,355 $ 34,263
Land and improvements 61,991 59,763 64,044 60,067 46,654
Total assets 150,328 136,537 130,525 107,613 92,866
Mortgage obligations
secured by real estate 69,344 67,129 65,136 53,637 42,524
Subordinated debentures -- -- 601 601 618
Other notes payable 7,563 8,951 14,970 13,618 12,782
Shareholders' equity 33,271 25,942 17,719 16,051 13,949
The Company has not paid a cash dividend since December 1982.
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Company requires capital to purchase and develop land, to construct
units, to fund related carrying costs and overhead and to fund various
advertising and marketing programs to facilitate sales. These expenditures
include site preparation, roads, water and sewer lines, impact fees and
earthwork, as well as the construction costs of the homes and amenities. The
Company's sources of capital include funds derived from operations, sales of
assets and various borrowings, most of which are secured. At June 30, 2000, the
Company had approximately $62,155,000 available to be drawn under existing
secured revolving and construction loans for planned development expenditures.
The Company believes that the funds generated from operations and financing
commitments from available lenders will provide the Company with sufficient
capital to meet its operating needs through fiscal 2001.
The Company has continued its ongoing land acquisition efforts during
fiscal 2000. During this period, the Company acquired, in its existing markets,
land for future development with an aggregate purchase price of approximately
$20,740,000. Marketing activities had commenced on a majority of these
communities as of June 30, 2000 and the remaining communities will commence
marketing activities in the next fiscal year.
As of June 30, 2000, the Company had contracted to purchase twenty-one
additional parcels of land, in its existing markets, for an aggregate purchase
price of approximately $81,260,000. These purchase agreements are subject to due
diligence review and are contingent upon the receipt of governmental approvals.
The Company expects to utilize purchase money mortgages, secured financings and
existing capital resources to finance these acquisitions. The Company
anticipates completing a majority of these acquisitions during the next two
fiscal years.
Overview of Operations
- ----------------------
The tables included in "Item 1 - Business" summarize the Company's
revenues, new orders and backlog data for the year ended June 30, 2000 with
comparable data for fiscal 1999 and 1998.
The dollar value of new orders for fiscal 2000 increased by
approximately 17% to $203,023,000 on 752 units compared to $173,897,000 on 803
units during fiscal 1999. The increase in new order dollars can be attributed to
an increase in the average price per unit of new orders. The average price per
unit of new orders increased due to a change in product mix toward higher priced
and larger single family homes sold in fiscal 2000 compared to fiscal 1999. In
addition, favorable economic conditions and consumer sentiment contributed to
this increase in new orders. Single family homes sold in fiscal 2000 accounted
for approximately 52% of total unit sales compared with approximately 46% during
fiscal 1999. In addition, the average unit sales price increased for the
majority of communities open during fiscal 2000 compared with the same units
offered for sale in fiscal 1999.
12
The dollar backlog at June 30, 2000 increased by approximately 27% to
$127,899,000 on 409 homes, as compared to the backlog at June 30, 1999 of
$101,065,000 on 425 homes. The Company's change in product mix toward higher
priced and larger single family homes, coupled with favorable economic
conditions and consumer sentiment, resulted in the increased backlog level. The
Company anticipates delivering substantially all of its backlog units during
fiscal 2001.
Inflation
- ---------
Inflation can have a significant impact on the Company's liquidity.
Rising costs of land, materials, labor, interest and administrative costs have
generally been recoverable in prior years through increased selling prices.
However, there is no assurance the Company will be able to continue to increase
prices to cover the effects of inflation in the future.
Fiscal Years Ended June 30, 2000 and 1999
-----------------------------------------
Results of Operations
- ---------------------
Operating Revenues
------------------
Earned revenues for fiscal 2000 increased $28,424,000 to $178,997,000,
or 18.9%, compared to fiscal 1999. Revenues from the sale of residential homes
included 768 homes totaling $176,189,000 during fiscal 2000, as compared to 718
homes totaling $143,827,000 during fiscal 1999. The increase in revenues for
fiscal 2000, as compared to fiscal 1999, is attributable to the number of units
delivered and an increase in average selling price, which is the result of the
expanding geographic scope of the Company's operations, and favorable economic
conditions affecting unit sales volume and price. The average selling price per
unit increased to approximately $229,000 during fiscal 2000, as compared to
approximately $200,000 during fiscal 1999. The increase in average selling price
is due to an increase in the base price per unit, option revenue per unit, and
an increase over the prior comparable period in the percentage of single family
homes delivered when compared to total homes delivered for the period. Fiscal
2000 revenue from land sales decreased approximately $4,214,000 to $405,000 as
compared to $4,619,000 in fiscal 1999. This decrease is primarily due to a
decrease in the number and size of developed homesites sold during fiscal 2000
compared with fiscal 1999.
13
Costs and Expenses
- ------------------
Costs and expenses for fiscal 2000 increased $24,922,000 to
$166,838,000, or 17.6%, compared with fiscal 1999. The fiscal 2000 cost of
residential properties increased $26,472,000 to $147,287,000, or 21.9% when
compared with fiscal 1999. This increase in residential property costs is less
than the percentage increase in residential property revenues when compared with
the prior fiscal year. Overall profit margins on residential properties
improved, as the gross profit of residential properties as a percentage of
residential property revenues was 16.4% for fiscal 2000, compared with 16.0% for
fiscal 1999. The increase in gross profit of residential property revenues is
primarily due to an increase in base selling prices per unit in excess of an
increase in the cost of residential properties per unit when compared to the
prior comparable period. In addition, the cost of land sales for fiscal 2000
decreased $3,531,000 when compared to fiscal 1999. The decrease in the cost of
land sales is due to the overall decrease in land sale revenues. The gross
profit of land sales as a percentage of land sale revenues was 13.6% for fiscal
2000 compared with 16.0% for fiscal 1999.
Fiscal 2000 selling, general and administrative expenses increased
$2,227,000 to $17,742,000, or 14.4% when compared with fiscal 1999. The fiscal
2000 increase in selling, general and administrative expenses is attributable to
an increase in sales incentives, sales office expense and advertising costs, as
a result of the increase in residential property revenues. The selling, general
and administrative expenses as a percentage of residential property revenues
decreased to 10.1% during fiscal 2000, compared to 10.8% in the prior fiscal
year. The decrease in selling, general and administrative expenses as a
percentage of residential property revenue can be attributed to an increase in
revenues, combined with the fixed portion of costs related to advertising, sales
office expenses and administrative office expense, remaining relatively
consistent with the prior comparable period.
Net Income Available for Common Shareholders
- --------------------------------------------
Net income available for common shareholders for fiscal 2000 was
$7,329,000 ($.65 basic and $.49 diluted earnings per share), compared with
$5,220,000 ($.46 basic and $.36 diluted earnings per share) for fiscal 1999.
This increase in net income available for common shareholders is primarily
attributable to an increase in residential revenues as a result of unit sales
volume, combined with a decrease in selling, general and administrative costs as
a percentage of residential property revenues.
14
Fiscal Years Ended June 30, 1999 and 1998
-----------------------------------------
Results of Operations
- ---------------------
Operating Revenues
------------------
Earned revenues for fiscal 1999 increased $41,575,000 to $150,573,000,
or 38.1% compared with fiscal 1998. Revenues from the sale of residential homes
included 718 homes totaling $143,827,000 during fiscal 1999, as compared to 589
homes totaling $106,246,000 during fiscal 1998. Revenues from related parties
for fiscal 1999 included four low income homes with a sales value of $176,000,
as compared to 27 low income homes with a sales value of $1,472,000 for fiscal
1998. These sales have satisfied, in part, the Company's low income housing
requirements in Mount Laurel Township, New Jersey. The selling prices of these
homes, which is determined by state statute, were the same as if the homes had
been sold to unaffiliated third parties. The increase in revenues for fiscal
1999, as compared to fiscal 1998, is primarily attributable to the number of
units sold which is the result of expanding the Company's operations in the
Delaware Valley, as well as Central New Jersey, and favorable economic
conditions affecting unit sales volume and price. The average selling price per
unit increased to approximately $200,000 during fiscal 1999, as compared to
approximately $180,000 during fiscal 1998. The increase in average selling price
is partially due to an increase in the base price per unit, option revenue per
unit, and an increase over the prior comparable period in the percentage of
single family homes delivered when compared to total homes delivered for the
period. Fiscal 1999 revenue from land sales increased approximately $3,510,000,
or four times the land sales revenue from fiscal 1998. This increase is
primarily due to an increase in the number and size of developed homesites sold
during fiscal 1999 compared with fiscal 1998.
Costs and Expenses
------------------
Costs and expenses for fiscal 1999 increased $35,608,000, or 33.5%,
compared with fiscal 1998. The fiscal 1999 cost of residential properties
increased $30,411,000 to $120,815,000, or 33.6% when compared with fiscal 1998.
Residential property costs increased as a result of the increased residential
property revenues. Overall profit margins on residential properties improved due
to increased sales volume and prices as a result of strong customer demand. The
cost of residential properties as a percentage of residential property revenues
was 84.0% for fiscal 1999 compared with 85.1% for fiscal 1998. In addition, the
cost of land sales for fiscal 1999 increased $2,990,000 when compared with
fiscal 1998. The increase in the cost of land sales is due to the overall
increase in land sale revenues. The cost of land sales as a percentage of land
sale revenues was 84.0% for fiscal 1999 compared with 80.3% for fiscal 1998.
15
For fiscal 1999, selling, general and administrative expenses increased
$1,942,000 to $15,515,000, or 14.3% when compared with fiscal 1998. The fiscal
1999 increase in selling, general and administrative expenses is attributable to
an increase in the number of communities, residential property revenues and
sales incentives. In addition, the Company's advertising costs increased due to
the overall increase in communities open during fiscal 1999 when compared with
the prior fiscal year. Although advertising costs increased, the percentage
increase in advertising costs was significantly less than the percentage
increase in residential property revenues as the Company contained costs by
combined advertising for many new communities located within the Philadelphia
Metropolitan Area. The selling, general and administrative expenses as a
percentage of residential property revenues decreased to 10.8% during fiscal
1999, compared to 12.8% in the prior fiscal year.
Net Income Available for Common Shareholders
- --------------------------------------------
Net income available for common shareholders for fiscal 1999 was
$5,220,000 ($.46 basic and $.36 diluted earnings per share), compared with
$1,668,000 ($.15 basic and $.14 diluted earnings per share) for fiscal 1998.
This increase in net income available for common shareholders is primarily
attributable to an increase in residential revenues as a result of unit sales
volume, combined with a decrease in selling, general and administrative costs as
a percentage of residential property revenues.
16
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
- --------------------------------------------------------------------------------
Securities Litigation Reform Act of 1995.
- -----------------------------------------
The following important factors, among others, in some cases have affected, and
in the future could affect, the Company's actual consolidated results and could
cause the Company's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of Orleans
Homebuilders, Inc.:
o changes in consumer confidence due to perceived uncertainty of
future employment opportunities and other factors;
o competition from national and local homebuilders in the Company's
market areas;
o building material price fluctuations;
o changes in mortgage interest rates charged to buyers of the
Company's units;
o changes in the availability and cost of financing for the Company's
operations, including land acquisition;
o revisions in federal, state and local tax laws which provide
incentives for home ownership;
o delays in obtaining land development permits as a result of (i)
federal, state and local environmental and other land development
regulations, (ii) actions taken or failed to be taken by
governmental agencies having authority to issue such permits, and
(iii) opposition from third parties; and
o increased cost of suitable development land.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company, due to adverse
changes in financial and commodity market prices and interest rates. The Company
is exposed to market risk in the area of interest rate changes. A majority of
the Company's debt is variable based on LIBOR and prime rate, and, therefore,
affected by changes in market interest rates. Based on current operations, an
increase in interest rates of 100 basis points will increase cost of sales and
interest expense by approximately $450,000. Generally, the Company has been able
to increase prices to cover portions of any increase in interest rates. As a
result, the Company believes that reasonably possible near-term changes in
interest rates will not result in a material effect on future earnings, fair
values or cash flows of the Company.
17
Item 8. Financial Statements and Supplementary Data.
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of independent accountants 19-20
Consolidated balance sheets at June 30, 2000 21
and June 30, 1999
Consolidated statements of operations and retained 22
earnings for the years ended June 30, 2000,
1999 and 1998
Consolidated statements of cash flows for the
years ended June 30, 2000, 1999 and 1998 23
Notes to consolidated financial statements 24
All other schedules have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.
The individual financial statements of the Registrant's subsidiaries
have been omitted since the Registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements, in the
aggregate, do not have minority equity interest and/or indebtedness to any
person other than the Registrant or its consolidated subsidiaries in amounts
which together exceed 5 percent of total consolidated assets at June 30, 2000,
excepting indebtedness incurred in the ordinary course of business.
18
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders
of Orleans Homebuilders, Inc.
In our opinion, the accompanying consolidated balance sheet as of June 30, 2000
and the related consolidated statements of operations and retained earnings and
of cash flows for the years ended June 30, 2000 and June 30, 1998 present
fairly, in all material respects, the financial position of Orleans
Homebuilders, Inc. and its subsidiaries (the "Company") at June 30, 2000 and the
results of their operations and their cash flows for the years ended June 30,
2000 and June 30, 1998, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The financial
statements of the Company as of June 30, 1999 and for the year then ended were
audited by other independent accountants whose report dated October 11, 1999
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
September 6, 2000
19
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
of Orleans Homebuilders, Inc.
We have audited the accompanying consolidated balance sheet of Orleans
Homebuilders, Inc. and subsidiaries as of June 30, 1999, and the related
consolidated statements of operations and retained earnings, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Orleans
Homebuilders, Inc. and subsidiaries as of June 30, 1999, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepting accounting principles.
KPMG LLP
Philadelphia, Pennsylvania
October 11, 1999
20
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
June 30, June 30,
2000 1999
--------- ---------
Assets
Cash $ 2,719 $ 6,738
Restricted cash - customer deposits 8,737 6,128
Real estate held for development and sale:
Residential properties completed or under construction 65,669 51,800
Land and improvements held for development or sale 61,991 59,763
Property and equipment, at cost, less accumulated depreciation 439 1,948
Receivables, deferred charges and other assets 10,773 10,160
--------- ---------
Total Assets $ 150,328 $ 136,537
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 18,895 $ 15,530
Accrued expenses 10,359 10,353
Customer deposits 8,737 6,128
Mortgage and other note obligations primarily secured by real
estate held for development and sale 69,344 67,129
Notes payable - related parties 4,810 5,999
Other notes payable 2,753 2,952
Deferred income taxes 2,159 2,504
--------- ---------
Total Liabilities 117,057 110,595
--------- ---------
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $1 par, 500,000 shares authorized:
Series D convertible preferred stock, 7% cumulative annual
dividend, $30 stated value, issued and outstanding 100,000
shares ($3,000,000 liquidation preference) 3,000 3,000
Common stock, $.10 par, 20,000,000 shares authorized,
12,698,131 shares issued 1,270 1,270
Capital in excess of par value - common stock 17,726 17,726
Retained earnings 12,250 4,921
Treasury stock, at cost (1,340,238 shares held at
June 30, 2000 and June 30, 1999) (975) (975)
--------- ---------
Total Shareholders' Equity 33,271 25,942
--------- ---------
Total Liabilities and Shareholders' Equity $ 150,328 $ 136,537
========= =========
See notes to consolidated financial statements
21
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Operations
and Changes in Retained Earnings
(in thousands, except per share amounts)
For the year ended June 30,
2000 1999 1998
--------- --------- ---------
Earned revenues
Residential properties $ 176,189 $ 143,827 $ 106,246
Land sales 405 4,619 1,109
Other income 2,403 2,127 1,643
--------- --------- ---------
178,997 150,573 108,998
--------- --------- ---------
Costs and expenses
Residential properties 147,287 120,815 90,404
Land sales 350 3,881 891
Other 1,030 1,098 784
Selling, general and administrative 17,742 15,515 13,573
Interest
Incurred 7,656 7,597 7,564
Less capitalized (7,227) (6,990) (6,786)
Minority interests - - (122)
--------- --------- ---------
166,838 141,916 106,308
--------- --------- ---------
Income from operations before income taxes 12,159 8,657 2,690
Income tax expense 4,620 3,290 1,022
--------- --------- ---------
Net income 7,539 5,367 1,668
Preferred dividends 210 147 --
--------- --------- ---------
Net income available for common shareholders 7,329 5,220 1,668
Retained earnings (deficit), at beginning of period 4,921 (299) (1,967)
--------- --------- ---------
Retained earnings (deficit), at end of period $ 12,250 $ 4,921 $ (299)
========= ========= =========
Basic earnings per share $ 0.65 $ 0.46 $ 0.15
========= ========= =========
Diluted earnings per share $ 0.49 $ 0.36 $ 0.14
========= ========= =========
See notes to consolidated financial statements
22
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the year ended June 30,
2000 1999 1998
------- ------- -------
Cash flows from operating activities:
Net income $ 7,539 $ 5,367 $ 1,668
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 218 326 214
Changes in operating assets and liabilities:
Restricted cash - customer deposits (2,609) (2,226) (1,978)
Real estate held for development and sale (16,097) (310) (15,831)
Receivables, deferred charges and other assets (613) 485 (2,467)
Accounts payable and other liabilities 4,529 646 6,415
Customer deposits 2,609 2,226 1,978
------- ------- -------
Net cash (used in) provided by operating activities (4,424) 6,514 (10,001)
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment (212) (382) (1,599)
------- ------- -------
Net cash used in investing activities (212) (382) (1,599)
------- ------- -------
Cash flows from financing activities:
Borrowings from loans secured by real estate assets 118,590 107,463 86,537
Repayment of loans secured by real estate assets (116,375) (105,470) (75,038)
Repayment of subordinated debentures -- (601) --
Borrowings from other note obligations 7,331 1,521 3,752
Repayment of other note obligations (8,719) (4,540) (2,400)
Stock options exercised -- 3 --
Preferred stock dividend (210) (147) --
Distribution of minority interests -- (456) --
------- ------- -------
Net cash provided by (used in) financing activities 617 (2,227) 12,851
------- ------- -------
Net (decrease) increase in cash (4,019) 3,905 1,251
Cash at beginning of period 6,738 2,833 1,582
------- ------- -------
Cash at end of period $ 2,719 $ 6,738 $ 2,833
======= ======= =======
See notes to consolidated financial statements
23
Orleans Homebuilders, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
During fiscal 1998, the Company changed its name to Orleans Homebuilders, Inc.
("OHB") from FPA Corporation. Orleans Homebuilders, Inc. and its subsidiaries
(the Company) are currently engaged in residential real estate development in
Pennsylvania and New Jersey. A summary of the significant accounting principles
and practices used in the preparation of the consolidated financial statements
is as follows:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. The financial statements
include the consolidated financial position and results of operations of
Versailles Associates, L.P., and Bridlewood Associates, L.P., joint ventures in
which a subsidiary of the Company is the sole General Partner. The outside
limited partners have been allocated their portion of the income or loss and
equity. These amounts are presented as minority interests in the financial
statements. As of June 30, 2000, the aforementioned partnerships have been
substantially liquidated. All material intercompany transactions and accounts
have been eliminated.
Earned revenues from real estate transactions
The Company recognizes revenues from sales of residential properties at the time
of closing. The Company also sells developed and undeveloped land in bulk and
under option agreements. Revenues from sales of land and other real estate are
recognized when the Company has received an adequate cash down payment and all
other conditions necessary for profit recognition have been satisfied. To the
extent that certain sales or portions thereof do not meet all conditions
necessary for profit recognition, the Company uses other methods to recognize
profit, including cost recovery and the deposit methods. These methods of profit
recognition defer a portion or all of the profit to the extent it is dependent
upon the occurrence of future events.
Real estate capitalization and cost allocation
Residential properties completed or under construction are stated at cost or
estimated net realizable value, whichever is lower. Costs include land and land
improvements, direct construction costs, construction overhead costs, interest
on indebtedness and real estate taxes. Selling and advertising costs are
expensed as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification methods.
Land and improvement costs include land, land improvements, interest on
indebtedness and real estate taxes. Appropriate costs are allocated to projects
on the basis of acreage, dwelling units and relative sales value. Land held for
development and sale and improvements are stated at cost or estimated net
realizable value, whichever is lower.
Land and land improvements applicable to condominiums, townhomes and
single-family homes, are transferred to construction in progress when
construction commences.
Interest costs included in Costs and Expenses of residential properties and land
sold for fiscal years 2000, 1999 and 1998 were $7,469,000, $7,564,000 and
$5,373,000, respectively.
24
Advertising costs
The total amount of advertising costs charged to expense was $2,612,000,
$2,377,000 and $2,163,000 for the three years ended June 30, 2000, 1999 and
1998, respectively.
Depreciation, amortization and maintenance expense
Depreciation and amortization is primarily provided on the straight-line method
at rates calculated to amortize the cost of the assets over their estimated
useful lives. Expenditures for maintenance, repairs and minor renewals are
expensed as incurred; major renewals and betterments are capitalized. At the
time depreciable assets are retired or otherwise disposed of, the cost and the
accumulated depreciation of the assets are eliminated from the accounts and any
profit or loss is recognized.
Leases
The Company's leasing arrangements as lessee include the leasing of certain
office space and equipment. These leases have been classified as operating
leases. Rent expense was approximately $213,000 for fiscal 2000 and $200,000 for
fiscal 1999 and 1998, respectively.
Income taxes
The Company and its subsidiaries file a consolidated federal income tax return.
See Note 10 for an additional discussion of income tax matters.
Earnings per share
Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
include additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. The weighted average number of
shares used to compute basic earnings per common share and diluted earnings per
common share, and a reconciliation of the numerator and denominator used in the
computation for the three years ended June 30, 2000, 1999 and 1998,
respectively, are shown in the following table.
25
For Year Ended June 30,
-------------------------------------------
2000 1999 1998
-------------------------------------------
Total common shares issued 12,698,131 12,698,131 12,698,131
Less: Average treasury shares outstanding (1,340,238) (1,340,783) (1,342,113)
------------ ------------ ------------
Basic EPS shares 11,357,893 11,357,348 11,356,018
Effect of assumed shares issued under
treasury stock method for stock options 370,204 465,983 209,750
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 2,000,000 2,000,000 --
Effect of assumed conversion of $3 million
Series D Preferred Stock 2,000,000 1,386,301 --
------------ ------------ ------------
Diluted EPS shares 15,728,097 15,209,632 11,565,768
============ ============ ============
Net income available for common shareholders $ 7,329,000 $ 5,220,000 $ 1,668,000
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 130,200 130,200 --
Effect of assumed conversion of $3 million
Series D Preferred Stock 210,000 147,000 --
------------ ------------ ------------
Adjusted net income for diluted EPS $ 7,669,200 $ 5,497,200 $ 1,668,000
============ ============ ============
Disclosures about fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
the Company to disclose the estimated fair market value of its financial
instruments. The Company believes that the carrying value of its financial
instruments (primarily mortgages receivable and mortgage notes payable)
approximates fair market value and that any differences are not significant.
This assessment is based upon substantially all of the Company's debt
obligations being based upon LIBOR or the prime rate of interest which are
variable market rates.
Segment reporting
Since the Company operates primarily in a single extended geographical market
with similar products at its various development projects, it is considered to
represent a single operating segment for financial reporting purposes.
26
Management's estimates and assumptions
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidated statements of cash flows
For purposes of reporting cash flows, short-term investments with original
maturities of ninety days or less are considered cash equivalents. Interest
payments, net of amounts capitalized, for fiscal 2000, 1999 and 1998, were
$259,000, $440,000 and $459,000, respectively. Income taxes paid were
$5,376,000, $3,451,000 and $377,000 for fiscal 2000, 1999 and 1998,
respectively.
On October 20, 1998, the Company issued 100,000 shares of Series D Preferred
Stock (the "Series D Stock") to Jeffrey P. Orleans in exchange for an aggregate
amount of $3,000,000 in Company notes held by Mr. Orleans.
In fiscal 2000, a subsidiary of the Company dedicated a waste water spray
irrigation facility to the municipal authority for the Company's Willistown
Chase Community in Chester County, Pennsylvania. The net asset value of the
waste water spray irrigation facility was approximately $1,503,000 at
dedication. The waste water spray irrigation facility was offset against
deferred revenue that was collected for this purpose and there was no gain or
loss recognized on this transaction.
Comprehensive income
On July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income consists of items such as net income,
foreign currency translations and minimum pension liabilities. The Company's
comprehensive income and net income are the same for fiscal 2000, 1999 and 1998.
Recent accounting pronouncements
In June, 2000, the Financial Accounting Standards Board issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of SFAS No. 133". SFAS No. 133 provides new accounting and
reporting standards for use of derivative instruments. Management intends to
have the Company adopt this statement, as required by the provisions of SFAS No.
138, effective July 1, 2000. Although not precluded from doing so, the Company
and its subsidiaries have not historically used such instruments extensively
and, accordingly, management does not believe adoption of SFAS No. 133 will have
a material impact on the Company's financial statements.
Note 2. Joint Ventures
In October, 1992, a wholly owned subsidiary of the Company, Versailles at
Europa, Inc. was established to act as the General Partner in a newly formed
Versailles Associates, L.P. (the "Partnership"). The financial statements of the
Partnership are included in the consolidated financial statements of the
Company. The limited partner's share of the income from this entity has been
presented as minority interest in the accompanying consolidated financial
statements. As of June 30, 1998, all units have been delivered and final
distribution to the partners and liquidation of the partnership occurred in
fiscal 1999.
27
Orleans Construction Corp. ("OCC"), a subsidiary of the Company, entered into a
joint venture agreement with Bridlewood Associates, L.P., a limited partnership
formed to develop an 85 acre parcel of land in Mount Laurel, New Jersey. OCC is
the managing general partner. OCC and the limited partner share equally in the
profits or losses of the entity. The financial statements of the Partnership are
included in the consolidated financial statements of the Company. The limited
partner's share of the income and capital from this entity has been presented as
minority interest in the accompanying consolidated financial statements. As of
June 30, 1999, all units have been delivered and the partnership has been
substantially liquidated during fiscal 2000.
Note 3. Certain Transactions with Related Parties
During fiscal 1999 and 1998, Jeffrey P. Orleans, Chairman and Chief Executive
Officer of the Company, purchased four (4) and twenty-six (26) low income homes,
respectively, with an aggregate sales value of approximately $176,000 and
$1,400,000, respectively. These transactions satisfied, in part, the Company's
low income housing requirements in Mount Laurel Township, New Jersey. The
selling prices for these homes, which are determined by state statute, are the
same as if the homes had been sold to unaffiliated third parties.
In December 1997, the Company purchased land approved for the development of 181
lots from Mr. Orleans in exchange for a $500,000 Purchase Money Mortgage, plus a
share of one-half of the gross profit in excess of 16% on 134 of the lots.
During fiscal 2000, 32 of the lots have settled and the Company accrued
approximately $161,000 for Mr. Orleans' share of the gross profit. Included in
the Accrued Expenses balance at June 30, 2000, is $58,000 for Mr. Orleans' share
of the gross profit, the difference of $103,000 being paid to Mr. Orleans during
fiscal 2000.
See Note 7 to the consolidated financial statements for a discussion of other
related party transactions.
28
Note 4. Real Estate Held for Development and Sale
Residential properties completed or under construction consist of the following:
June 30,
--------------------
2000 1999
--------------------
(In thousands)
Condominiums and townhomes $22,695 $23,848
Single-family homes 42,974 27,952
------- -------
$65,669 $51,800
======= =======
Sales status of above properties is as follows:
June 30,
--------------------
2000 1999
--------------------
(In thousands)
Under contract for sale $55,820 $41,144
Unsold 9,849 10,656
------- -------
$65,669 $51,800
======= =======
Note 5. Mortgage Subsidiary
The Company has a wholly-owned financing subsidiary which had been involved,
through unaffiliated companies, in issuing mortgage-collateralized bonds.
Condensed financial information for the finance subsidiary is as follows:
June 30,
--------------------
2000 1999
--------------------
(In thousands)
Total assets, principally mortgage notes receivable $ 205 $ 262
Total liabilities, principally bonds payable 145 200
------- -------
Advances from parent company $ 60 $ 62
======= =======
Net income for the year ended $ 3 $ 4
======= =======
Note 6. Property and Equipment
June 30,
--------------------
2000 1999
--------------------
(In thousands)
Property and equipment consists of the following:
Equipment and fixtures $ 1,446 $ 2,963
Less accumulated depreciation (1,007) (1,015)
------- -------
$ 439 $ 1,948
======= =======
29
During fiscal 1998, a subsidiary of the Company used the proceeds from a 1997
Chester County Industrial Development Authority Wastewater Treatment Revenue
Bond Offering to construct and operate a waste water spray irrigation facility.
See Note 7 for additional information on the revenue bonds. In fiscal 2000, the
waste water spray irrigation facility was dedicated to the municipal authority
for the Company's Willistown Chase Community in Chester County, Pennsylvania.
See Note 1 under consolidated statements of cash flows for additional
information on the dedication of the waste water spray irrigation facility.
Depreciation expense, included in Other Costs and Expenses on the Company's
Consolidated Statements of Operations and Retained Earnings, was $218,000,
$326,000 and $214,000 during fiscal 2000, 1999 and 1998, respectively.
Note 7. Mortgage and Other Note Obligations
The maximum balance outstanding under construction and inventory loan agreements
at any month end during fiscal 2000, 1999 and 1998 was $63,366,000, $56,308,000
and $48,461,000, respectively. The average month end balance during fiscal 2000,
1999 and 1998 was approximately $60,676,000, $49,980,000 and $39,916,000,
respectively, bearing interest at an approximate average annual rate of 8.31%,
8.35% and 8.95%, respectively. At June 30, 2000, the Company had approximately
$62,155,000 available to be drawn under existing secured revolving and
construction loans for planned development expenditures. Mortgage obligations
secured by land held for development and sale and improvements aggregating
$10,469,000 and $10,820,000 at June 30, 2000 and 1999, respectively, are due in
varying installments through fiscal 2003 with annual interest based on LIBOR,
the prime rate of interest or a fixed rate of 7%. The LIBOR and prime rate of
interest at June 30, 2000 were 6.64% and 9.50%, respectively.
Maturities of land and improvement mortgage obligations, other than residential
property construction loans, are as follows: 2001 - $3,361,000; 2002 -
$1,427,000; 2003 - $5,681,000. Obligations under residential property and
construction loans amounted to $58,875,000 and $56,309,000 at June 30, 2000 and
1999, respectively, and are repaid at a predetermined percentage (approximately
85% on average) of the selling price of a unit when a sale is completed. The
repayment percentage varies significantly from community to community and over
time within the same community.
Included in the Notes Payable - Related Parties balance at June 30, 2000 and
1999 is a $3,000,000 Convertible Subordinated 7% Note dated August 8, 1996
issued to Jeffrey P. Orleans. This note is convertible into Orleans
Homebuilders, Inc. common stock at $1.50 per share. During fiscal 2000, Mr.
Orleans agreed to extend the maturity date one year to January 1, 2003, provided
the terms of the original Convertible Subordinated 7% Note are not modified.
Interest is payable quarterly and principal is due in annual installments of
$1,000,000 beginning January 1, 2001.
During fiscal 1999, the Company entered into a $4,000,000 unsecured line of
credit agreement with Mr. Orleans. This agreement provides for an annual review
for a one-year extension and currently expires June 30, 2002 with annual
interest at LIBOR plus 4% payable monthly. There were no principal and interest
balances outstanding under this unsecured line of credit agreement at June 30,
2000. The total outstanding principal and interest was $650,000 at June 30,
1999.
At June 30, 1998, the Company had a $2,000,000 Variable Rate Note and a
$1,746,000 Demand Note due to Mr. Orleans with interest at prime plus 2%,
payable quarterly. In October, 1998, the Company issued 100,000 shares of Series
D Preferred Stock in exchange for the $2,000,000 Variable Rate Note and
$1,000,000 of the Demand Note. See Note 9 for additional information on the
Series D Preferred Stock. The remaining portion of the Demand Note was paid in
full in November, 1998.
30
The Company has a $750,000 Revolving Working Capital Note with Mr. Orleans with
interest at the prime rate, payable monthly. There were no principal and
interest balances outstanding under the Revolving Working Capital Note at June
30, 2000 and 1999. The Company has the right to reborrow under this facility.
In December 1997, the Company purchased land from Mr. Orleans in exchange for a
$500,000 Purchase Money Mortgage ("PMM") plus a share of one-half of the gross
profit in excess of 16% on certain specified lots to be developed and sold. See
Note 3 for additional information on the gross profit sharing arrangement. The
PMM will be repaid from the proceeds of units sold at this development and bears
interest at 7% annually, due no later than 60 months from the date of issuance.
The total principal and accrued interest of $177,000 and $300,000, respectively,
is included in Notes Payable - Related Parties at June 30, 2000 and 1999.
Prior to October 22, 1993, the date of acquisition by the Company of Orleans
Construction Corp., a real estate company which was wholly owned by Jeffrey P.
Orleans, Chairman and Chief Executive Officer of the Company, OCC had advanced
funds to, borrowed funds from, and paid expenses and debt obligations on behalf
of Orleans Builders and Developers, L.P., a partnership in which Jeffrey P.
Orleans owns a majority interest. At June 30, 2000 and 1999, amounts owed by the
Company to the partnership aggregated $1,633,000 and $2,049,000, respectively.
These advances are payable on demand and bear interest at 7% annually. Interest
incurred on these advances amounted to $134,000, $149,000 and $176,000 for the
years ended June 30, 2000, 1999 and 1998, respectively.
In June, 1997, the Chester County Industrial Development Authority issued bonds
in the amount of $1,855,000 and loaned the proceeds thereof to a subsidiary of
the Company. The bonds mature November 1, 2006 and bear interest at 7% annually.
The bonds will be repaid at a predetermined amount from settlement proceeds for
each home sold with minimum annual repayments of approximately $200,000
commencing on November 1, 1998. The proceeds from this obligation were used to
construct and operate a waste water spray irrigation facility which is servicing
the Company's Willistown Chase community in Chester County, Pennsylvania.
Included in Other Assets on the Company's Consolidated Balance Sheet at June 30,
2000 is $1,087,000 of restricted cash to be used for repayment of the bonds. The
total principal and accrued interest of $1,505,000 and $1,674,000, respectively,
is included in Other Notes Payable at June 30, 2000 and 1999.
In addition, the Company has various working capital and property and equipment
note obligations which require various monthly repayment terms with maturity
dates from fiscal 2001 through 2004.
31
The following table summarizes the components of Other Notes Payable, including
related party amounts.
Outstanding
Balance
as of June 30,
Maturity Interest ----------------------------
Note Date Rate 2000 1999
- ---- -------- -------- -------- ------
(In thousands)
Convertible Subordinated 7% Note 1/2003 7% $ 3,000 $ 3,000
Unsecured Line of Credit 6/2002 LIBOR +4% -- 650
Purchase Money Mortgage 12/2002 7% 177 300
Unsecured advance On demand 7% 1,633 2,049
------- --------
Subtotal - related party notes payable(1) 4,810 5,999
------- --------
Property & Equipment 2001-2004 9 1/2%-11 1/2% 1,103 1,078
Bonds Payable (secured
by mortgage receivables) 2001-2017 10%-12% 145 200
Quaker Sewer Bonds 11/2006 7% 1,505 1,674
------- --------
Subtotal - other notes payable 2,753 2,952
------- --------
$ 7,563 $ 8,951
======= ========
Maturities of these obligations during the next five fiscal years are (in
thousands):
2001(2) $ 3,634
2002 1,420
2003 1,408
2004 276
2005 215
Thereafter 610
-------
$ 7,563
=======
- -------
(1) The holders of the related party notes payable are Jeffrey P. Orleans or
Orleans Builders and Developers, L.P.
(2) Includes all demand notes and unsecured advances payable on demand.
32
Note 8. Subordinated Debentures
On September 8, 1980, the Company sold 25,000 Units, each consisting of a $1,000
debenture bearing interest at 14 l/2% per annum and 5 shares of Common Stock.
The debentures, which were unsecured obligations of the company, required
semi-annual interest payments each September and March with the principal
balance due on September 1, 2000. The Company repaid the debentures in full in
March, 1999. No gain or loss was recognized on the repayment.
Note 9. Preferred Stock
On October 20, 1998, the Company issued 100,000 shares of Series D Stock to
Jeffrey P. Orleans in exchange for an aggregate amount of $3,000,000 in company
notes held by Mr. Orleans. (See Note 7 for additional information on the notes.)
The Series D Stock was issued from an aggregate of 500,000 shares of Preferred
Stock authorized. The Series D Stock has a liquidation value of $3,000,000, or
$30.00 per share, and requires annual dividends of 7% of the liquidation value.
The dividends are cumulative and are payable quarterly on the first day of
March, June, September and December. The Series D Stock may be redeemed by the
Company at any time after December 31, 2003, in whole or in part, at a cash
redemption price equal to the liquidation value plus all accrued and unpaid
dividends on such shares to the date of redemption. The Series D Stock is
currently convertible into 2,000,000 shares of Common Stock.
Note 10. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
For Year Ended June 30,
---------------------------------
2000 1999 1998
---------------------------------
(In Thousands)
---------------------------------
Continuing operations
Current $ 4,965 $ 3,747 896
Deferred (345) (457) 126
------- ------- -------
$ 4,620 $ 3,290 $ 1,022
======= ======= =======
The differences between taxes computed at federal income tax rates and amounts
provided for continuing operations are as follows:
For Year Ended June 30,
--------------------------------
2000 1999 1998
--------------------------------
(In thousands)
--------------------------------
Amount computed at statutory rate $ 4,134 $ 2,944 $ 914
State income taxes, net of federal
tax benefit 486 346 162
Realized benefits from
net operating loss carry forwards
and other tax credits net of
changes in related valuation reserves -- -- (54)
------- ------- -------
$ 4,620 $ 3,290 $ 1,022
======= ======= =======
33
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes". The principal components of the Company's
deferred tax liability of $2,107,000 and $2,504,000 at June 30, 2000 and 1999,
respectively, are temporary differences arising from interest and real estate
taxes incurred prior to commencing active construction being capitalized for
financial reporting purposes while being expensed for tax purposes. In addition,
temporary differences arise from net realizable value adjustments recognized for
financial reporting purposes, but not for tax purposes. These temporary
differences reverse ratably as the communities sellout. The principal items
making up the deferred income tax provisions (benefits) from continuing
operations are as follows:
For Year Ended June 30,
------------------------------
2000 1999 1998
------------------------------
(In thousands)
------------------------------
Interest and real estate taxes $ (43) $(253) $ 246
Difference in tax accounting for
land and property sales (net) (18) (6) (8)
Realized tax net operating loss carryforwards
and other tax credits, net of changes in related
valuation reserves -- -- (122)
Accrued expenses (278) 80 12
Gain (loss) from joint ventures 2 (7) 15
Deferred compensation (79) (305) (35)
Depreciation and other 27 (47) 18
State taxes 44 81 --
------ ----- -----
$ (345) $(457) $ 126
====== ===== =====
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. SFAS No. 109 requires the Company to record a valuation allowance
when it is "more likely than not that some portion or all of the deferred tax
assets will not be realized." It further states that "forming a conclusion that
a valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years." The Company does not have a
valuation allowance for deferred tax assets at June 30, 2000. The ultimate
realization of certain tax assets depends on the Company's ability to generate
sufficient taxable income in the future, including the effects of future
anticipated arising/reversing temporary differences.
34
The components of net deferred taxes payable consisted of the following:
June 30,
--------
2000 1999
---- ----
(In Thousands)
----------------------
Capitalized interest and real estate taxes $2,424 $2,499
State income taxes 1,300 1,250
Other 18 21
------ ------
Gross deferred tax liabilities 3,742 3,770
------ ------
Reserves for books (330) ( 52)
Partnership income (166) (168)
Related party interest ( 9) ( 50)
Executive bonus (486) (342)
Employment contracts (259) (316)
Vacation accrual ( 73) ( 73)
Inventory adjustment ( 187) (165)
Fixed assets ( 59) ( 86)
Other ( 14) ( 14)
------ ------
Gross deferred tax assets (1,583) (1,266)
------ ------
Net deferred tax liabilities $2,159 $2,504
====== ======
As of June 30, 2000, the Company had no remaining federal net operating loss or
alternative minimum tax credit carryforwards.
Note 11. Stock Option Plan
In December 1992, the Board of Directors adopted (i) the 1992 Stock Incentive
Option Plan and (ii) the Non-Employee Directors Stock Option Plan. The 1992 Plan
allows for the grant of options to purchase up to 1,210,000 shares (increased in
December 1998 from 910,000 shares) of Common Stock of the Company. The
Non-Employee Directors Stock Option Plan allows for the grant of options to
purchase up to 100,000 shares of Common Stock of the Company. No options were
granted under either plan during fiscal 2000. During fiscal 1999 and 1998,
options were granted under these plans totaling 10,625 and 170,000 options,
respectively, at an exercise price of $2.06 and $1.19 per share, respectively.
The aforementioned options vest 25% per year beginning on the date of grant.
In February, 1995, the Board of Directors adopted the 1995 Stock Option Plan for
Non-Employee Directors (the "1995 Directors Plan"). The 1995 Directors Plan
allows for the grant of options to purchase up to 125,000 shares (increased in
December, 1998 from 100,000 shares) of Common Stock of the Company. During
fiscal 1998, 50,000 options were granted at an exercise price of $1.19 per
share. The options vest 25% per year beginning on the date of grant.
The option price per share under all plans is established at the fair market
value on the date of each grant. Total outstanding options under all three plans
aggregated 1,188,125 options to purchase shares of
35
Common Stock of the Company at prices ranging from $.69 to $2.81 per share. All
options expire between December 2002 and December 2008.
Effective in fiscal 1997, the Company was required to adopt the provisions of
SFAS No. 123 "Accounting for Stock Based Compensation". As permitted, the
Company has elected to continue to utilize the intrinsic value method and not to
charge the fair value of such options as earned directly to the financial
statements but to disclose the effects of such a charge. Had compensation costs
for the option plans been determined based on the fair value at the grant date
for awards and recognized over the related vesting period in 2000, 1999 and
1998, consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per share for the three years ended June 30, 2000 would have been
reduced to the pro forma amounts indicated below:
For Year Ended June 30
----------------------
2000 1999 1998
----------------------------------------
(In thousands, except for EPS data)
Net Income - as reported $7,329 $5,220 $1,668
Net Income - pro forma $7,271 5,148 1,641
Diluted EPS - as reported .49 .36 .14
Diluted EPS - pro forma .48 .35 .14
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option - Pricing Model with the following weighted average
assumptions used for options granted in fiscal 1998 through fiscal 1999:
dividend yield of 0% for all years; expected volatility of 73.9%; risk free
interest rates for treasuries of comparable duration and expected lives of 10
years for all grants. The weighted average fair value of grants per share for
fiscal 1999 and 1998 was $1.67 and $.98 per share, respectively. Note there were
no options granted in fiscal 2000.
The fiscal 1998 option grants were included in the pro forma calculation for
fiscal 1999, as they were not approved by the shareholders until December 1998.
The pro forma disclosures above may not be indicative of the effects on reported
net income and net income per share for future years, as the pro forma
disclosures include the effects of only those awards granted on or after July 1,
1995.
36
The following summarizes stock option activity for the three plans during the
three years ended June 30, 2000:
2000 1999 1998
---- ---- ----
Weighted- Weighted- Weighted
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- -------------- --------- -------------- --------- --------------
Outstanding,
beginning of year 1,188,125 $1.22 967,500 $1.21 967,500 $ 1.21
Granted - 230,625 1.23 - -
Exercised - ( 1,875) 1.19 - -
Canceled - ( 8,125) 1.19 - -
--------- --------- -------
Outstanding,
end of year 1,188,125 1.22 1,188,125 1.22 967,500 1.21
========= ========= =======
Exercisable,
end of year 989,688 1.17 884,531 1.15 708,750 1.10
========= ========= =======
Available for grant,
end of year 245,000 245,000 92,500
========= ========= =======
The fiscal 1999 grants include 220,000 options granted in fiscal 1998 subject to
shareholder approval, which was obtained during fiscal 1999.
The following table summarizes information about stock options outstanding at
June 30, 2000.
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (in yrs) Price Exercisable Price
$ .69 -$ .81 480,000 2.5 $ .75 480,000 $ .75
$1.19 -$1.63 562,500 6.6 1.32 390,000 1.29
$2.00 -$2.81 145,625 5.5 2.42 119,688 2.51
--------- -------
$ .69 -$2.81 1,188,125 5.8 $1.22 989,688 $1.17
========= =======
37
Note 12. Commitments and Contingencies
General
At June 30, 2000, the Company had outstanding bank letters of credit, surety
bonds and financial security agreements amounting to $45,614,000 as collateral
for completion of improvements at various developments of the Company.
At June 30, 2000 the Company had agreements to purchase land and approved
homesites aggregating approximately 2,800 building lots with purchase prices
totaling approximately $81,260,000 at twenty-one locations. Purchase of the
properties is contingent upon obtaining all governmental approvals and
satisfaction of certain requirements by the Company and the Sellers. The Company
expects to utilize purchase money mortgages, secured financings and existing
capital resources to finance these acquisitions. The Company anticipates
completing a majority of these acquisitions in the next two fiscal years. As of
June 30, 2000 and 1999, the Company had paid deposits and incurred other costs
associated with the acquisition and development of these parcels aggregating
$4,627,000 and $4,141,000, respectively, which are included in Other Assets.
Environmental Liability Exposure
Development and sale of real property creates a potential for environmental
liability on the part of the developer, owner or any mortgage lender for its own
acts or omissions as well as those of current or prior owners of the subject
property or adjacent parcels. If hazardous substances are discovered on or
emanating from any of the Company's properties, the owner or operator of the
property (including the prior owners) may be held strictly liable for all costs
and liabilities relating to such hazardous substances. Environmental studies are
undertaken in connection with property acquisitions by the Company.
Pursuant to an Order dated February 6, 1996 issued by the New Jersey Department
of Environmental Protection ("NJDEP"), the Company submitted a
Closure/Post-Closure Plan ("Plan") and Classification Exception Area ("CEA") for
certain affected portions of Colts Neck Estates, a single family residential
development built by the Company in Washington Township, Gloucester County, New
Jersey. The affected areas include those portions of Colts Neck where solid
waste allegedly was deposited. NJDEP approved the Plan and CEA on July 22, 1996
and the Company carried it out thereafter. NJDEP as a standard condition of its
approval of the Plan and CEA reserves the right to amend its approval to require
additional remediation measures if warranted. Neither the implementation of the
Plan nor CEA is expected to have a material adverse effect on the Company's
results of operations or its financial position.
Approximately 145 homeowners at Colts Neck instituted three lawsuits against the
Company, which were separately filed in state and Federal courts between April
and November, 1993. These suits were consolidated in the United States District
Court for the District of New Jersey and were subject to court-sponsored
mediation. Asserting a variety of state and federal claims, the plaintiffs in
the consolidated action alleged that the Company and other defendants built and
sold them homes which had been constructed on and adjacent to land which had
been used as a municipal waste landfill and a pig farm. The complaints asserted
claims under the federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Solid Waste Disposal Act, the New Jersey Sanitary
Landfill Facility Closure and Contingency Act, the New Jersey Spill Compensation
and Control Act, as well as under state common law and statutory law.
38
In September, 1993 the Company brought an action in New Jersey state court
against more than 30 of its insurance companies seeking indemnification and
reimbursement of costs of defense in connection with the three Colts Neck
actions referred to above.
As a result of the court sponsored mediation, the Company and the plaintiffs in
the consolidated federal litigation entered into a settlement agreement. Under
that agreement, which has been approved by the Court, a $6,000,000 Judgment was
entered against the Company in favor of a class comprising most of the current
and former homeowners. The Company, which has paid $650,000 on August 28, 1996
to the class, has no liability for the remainder of the Judgment. The remainder
of the Judgment is to be paid solely from the proceeds of the state court
litigation against the Company's insurance companies. Although, under the
settlement agreement the Company is obligated to prosecute and fund the
litigation against its insurance companies, the Company is entitled to obtain
some reimbursement of those expenses. Specifically, under the settlement
agreement, the Company may obtain reimbursement of its aggregate litigation
expenses in excess of $100,000 incurred in connection with its continued
prosecution of the insurance claims to the extent that settlements are reached
and to the extent that the portion of those settlement funds designated to fund
the litigation are not exhausted. The Company's right to reimbursement may,
under certain circumstances, be limited to a total of $300,000.
The Company is actively pursuing the litigation against its insurance companies
in state court pursuant to its settlement agreement. The likelihood of a
favorable judgment or additional settlements in the litigation is uncertain.
The Company has accrued estimated costs of environmental testing as well as all
other reasonably estimable future investigatory, engineering, legal and
litigation costs and expenses. The Company believes that neither the
implementation of the settlement agreement nor the resolution of the insurance
claims through further litigation will have a material effect on its results of
operations or its financial position.
The Company is not aware of any other environmental liabilities associated with
any of its other projects.
Other Significant Litigation
From time to time, the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be accurately
predicted, in the opinion of the Company any such liability will not have a
material adverse effect on the financial position or operating results of the
Company.
39
Note 13. Quarterly Financial Data (Unaudited)
Unaudited summarized financial data by quarter for 2000 and 1999 are as follows
(in thousands, except per share data):
Three Months Ended
September 30 December 31 March 31 June 30
------------ ------------------ -------- -------
Fiscal 2000
Net sales $41,475 $43,715 $40,453 $50,951
Gross profit 6,287 7,276 6,871 8,523
Net income available for
common shareholders 1,458 1,933 1,489 2,449
Net earnings per share:
Basic .13 .17 .13 .22
Diluted .10 .13 .10 .16
Fiscal 1999
Net sales $35,461 $39,920 $30,829 $42,236
Gross profit 5,344 6,051 4,887 7,468
Net income available for
common shareholders 1,026 1,443 859 1,892
Net earnings per share:
Basic .09 .13 .08 .16
Diluted .08 .10 .06 .12
40
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- Financial Disclosure.
---------------------------------------------------------------
There are no matters required to be reported hereunder.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
Incorporated herein by reference from the Company's definitive proxy
statement for its Annual Meeting of Stockholders to be held in December, 2000.
Information concerning the executive officers is included under the separate
caption Item A. "Executive Officers of the Registrant" under Part I of this Form
10-K.
Item 11. Executive Compensation.
- -------- -----------------------
Incorporated herein by reference from the Company's definitive proxy
statement for its Annual Meeting of Stockholders to be held in December, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
Incorporated herein by reference from the Company's definitive proxy
statement for its Annual Meeting of Stockholders to be held in December, 2000.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Incorporated herein by reference from the Company's definitive proxy
statement for its Annual Meeting of Stockholders to be held in December, 2000.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements
--------------------
The financial statements listed in the index on the
first page under Item 8 are filed as part of this
Form 10-K.
2. Financial Statement Schedules
None.
3. Exhibits
41
Exhibit Number
- --------------
3.l Certificate of Incorporation of the Company dated September 4,
1969 (incorporated by reference to Exhibit 2.l of the Company's
Registration Statement on Form S-7, filed with the Securities and
Exchange Commission (S.E.C. File No. 2-68662) (herein referred to
as "Form S-7")).
3.2 Amendment to Certificate of Incorporation of the Company filed
July 25, 1983 (incorporated by reference to Exhibit 3.2 of
Amendment No. 2 to the Company's Registration Statement on Form
S-2 filed with the Securities and Exchange Commission (S.E.C. File
No. 2-84724)).
3.3 Amendment to Certificate of Incorporation of the Company filed
May 27, 1992 (incorporated by reference to Exhibit 3.6 of
Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission (S.E.C. File
No. 33-43943) (the "Form S-1")).
3.4 Agreement and Plan of Merger dated as of October 22, 1993, by and
among the Company, FPA Merger Subsidiary, Inc. a Pennsylvania
corporation; Orleans Construction Corp. ("OCC"); and Jeffrey P.
Orleans, including the Certificate of Designation respecting the
Series C Preferred Stock incorporated by reference to Exhibit 3.5
to the Company's Form 8-K dated October 22, 1993 filed with the
Securities and Exchange Commission (the "1993 Form 8-K").
3.5 Certificate of Designation filed by the Company on September 6,
1991 with the Secretary of State of Delaware respecting the Series
A Preferred Stock and Series B Junior Preferred Stock
(incorporated by reference to Exhibit 4.4 of the Company's Form
8-K dated September 11, 1991 ("1991 Form 8- K")).
3.6 Subsequent Certificate to Certificate of Designations, Preferences
and Rights of Series A Preferred Stock and Series B Junior
Preferred Stock of FPA Corporation adopted September 14, 1992 and
filed with the Secretary of State of Delaware. (incorporated by
reference to Exhibit 4.19 to Registrant's Form 10-K for the fiscal
year ended June 30, 1994).
3.7 Subsequent Certificate to Certificate of Designations, Preferences
and Rights of Series A Preferred Stock and Series B Junior
Preferred Stock of FPA Corporation filed on September 2, 1993 with
the Secretary of State of Delaware.
3.8 Certificate of Designations, Preferences and Rights of Series C
Preferred Stock filed by the Company on October 21, 1993 with the
Secretary of State of Delaware respecting the Series C Preferred
Stock. (incorporated by reference to Exhibit 2.1 to the Company's
Form 8-K dated October 22, 1993).
3.9 Certificate of Elimination to Certificate of Designations,
Preferences and Rights of Series C Preferred Stock of FPA
Corporation filed on October 18, 1996 with the Secretary of State
of Delaware (incorporated by reference to Exhibit 3.9 to the 1998
Form 10-K).
3.10 Amendment to Certificate of Incorporation filed with the Secretary
of State of Delaware on July 13, 1998 (incorporated by reference
to Exhibit 3.10 to the 1998 Form 10-K).
42
3.11 By-Laws, as last amended on April 20, 1998 (incorporated by
reference to Exhibit 3.11 to the 1998 Form 10-K).
3.12 Certificate of Designations, Preferences and Rights of Series D
Preferred Stock of Orleans Homebuilders, Inc. filed October 14,
1998 (incorporated by reference to Exhibit 3.1 to the September
30, 1998 Form 10-Q).
4.1 Form of Note Purchase Agreement, dated as of August 1, 1996,
together with form of $3,000,000 Convertible Subordinated 7% Note
due January 1, 2002 (incorporated by reference to Exhibit 4.9 to
the 1997 Form 10-K).
10.1 Form of Indemnity Agreement executed by the Company with Directors
of the Company (incorporated by reference to Exhibit B to the
Company's Proxy Statement respecting its 1986 Annual Meeting of
Stockholders).
10.2 Employment Agreement between the Company and Jeffrey P. Orleans,
dated June 26, 1987 (incorporated by reference to Exhibit 10.2 to
the Form S-1.)
10.3 Mortgage dated March 17, 1992 granted by the Company to Jeffrey P.
Orleans, respecting property in Washington Township, Gloucester
County, New Jersey (incorporated by reference to Exhibit 10.3 to
the 1992 Form 8-K).
10.4 Exchange Agreement dated as of October 14, 1998 between Orleans
Homebuilders, Inc. and Jeffrey P. Orleans (incorporated by
referenced to Exhibit 10.1 to the September 30, 1998 Form 10-Q).
10.5 $4,000,000 Unsecured Line of Credit Agreement with Jeffrey P.
Orleans dated as of June 30, 1999 (incorporated by reference to
Exhibit 10.4 to the 1999 Form 10-K).
22. Subsidiaries of Registrant (incorporated by reference to Exhibit
22 to the 1998 Form 10-K).
23.* Consents of Experts and Counsel.
25.* Power of Attorney (included on Signatures page).
27.* Financial Data Schedule (included in electronic filing format only).
- --------------
* Exhibits included with this filing.
(b) Reports on Form 8-K
None.
43
SIGNATURES
and
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jeffrey P. Orleans, Benjamin D. Goldman and Joseph A.
Santangelo and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or each of them, of their or his
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
s/ Jeffrey P. Orleans September 14, 2000
- -------------------------------------
Jeffrey P. Orleans
Chairman of the Board and
Chief Executive Officer
s/ Benjamin D. Goldman September 14, 2000
- -------------------------------------
Benjamin D. Goldman
Vice Chairman and Director
s/ Sylvan M. Cohen September 14, 2000
- -------------------------------------
Sylvan M. Cohen
Director
s/ Robert N. Goodman September 14, 2000
- -------------------------------------
Robert N. Goodman
Director
s/ Andrew N. Heine September 14, 2000
- -------------------------------------
Andrew N. Heine
Director
s/ David Kaplan September 14, 2000
- -------------------------------------
David Kaplan
Director
s/ Lewis Katz September 14, 2000
- -------------------------------------
Lewis Katz
Director
s/ Michael T. Vesey September 14, 2000
- -------------------------------------
Michael T. Vesey
President and Chief Operating Officer
s/ Joseph A. Santangelo September 14, 2000
- -------------------------------------
Joseph A. Santangelo
Chief Financial Officer,
Treasurer and Secretary
44