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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD__________ TO __________.
Commission File No. 1-6830
ORLEANS HOMEBUILDERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-0874323
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
One Greenwood Square, Suite 101
3333 Street Road
Bensalem, PA 19020
(Address of principal executive offices)
Telephone: (215) 245-7500
(Registrant's telephone number, including area code)
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 12 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Number of shares of common stock, par value $0.10 per share, outstanding as of
February 14, 2005: 18,698,131
(excluding 389,552 shares held in Treasury).
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
PAGE
----
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at December 31, 2004
and June 30, 2004 1
Consolidated Statements of Operations for the
Three and Six Months Ended December 31, 2004 and 2003 2
Consolidated Statements of Shareholders' Equity for the
Six Months Ended December 31, 2004 3
Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 2004 and 2003 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
Item 4. Controls and Procedures 41
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Secured Holders 42
Item 6. Exhibits 43
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
December 31, June 30,
2004 2004
------------ ------------
Assets:
Cash and cash equivalents $ 18,763 $ 32,962
Restricted cash - customer deposits 19,471 17,795
Real estate held for development and sale:
Residential properties completed or under construction 273,051 140,401
Land held for development or sale and improvements 309,651 161,265
Inventory not owned - Variable Interest Entities 93,927 88,995
Property and equipment, at cost, less accumulated depreciation 3,115 3,163
Deferred taxes 2,542 2,453
Intangible assets 288 -
Goodwill 20,426 7,187
Receivables, deferred charges and other assets 17,326 9,025
Land deposits and costs of future development 32,818 23,356
------------ ------------
Total Assets $ 791,378 $ 486,602
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 32,568 $ 26,246
Accrued expenses 37,792 46,981
Customer deposits 34,192 22,620
Obligations related to inventory not owned 86,156 81,992
Mortgage and other note obligations primarily secured by real
estate held for development and sale 395,295 128,773
Notes payable and amounts due to related parties 2,129 2,879
Other notes payable 9,436 1,139
------------ ------------
Total Liabilities 597,568 310,630
------------ ------------
Commitments and contingencies (See Note I)
Redeemable common stock 1,067 1,067
------------ ------------
Shareholders' Equity:
Common stock, $.10 par, 20,000,000 shares authorized,
16,698,131 and 18,031,463 shares issued December 31, 2004 1,870 1,803
and June 30, 2004, respectively
Capital in excess of par value - common stock 69,732 68,554
Retained earnings 121,996 105,564
Treasury stock, at cost (484,552 and 576,330 shares held
at December 31, 2004 and June 30, 2004, respectively) (855) (1,016)
------------ ------------
Total Shareholders' Equity 192,743 174,905
------------ ------------
Total Liabilities and Shareholders' Equity $ 791,378 $ 486,602
============ ============
See accompanying notes which are an integral part of the consolidated
financial statements.
- 1 -
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Earned revenues
Residential properties $ 178,278 $ 121,481 $ 316,590 $ 219,864
Land sales 43 - 92 457
Other income 1,687 1,234 3,488 2,829
------------ ------------ ------------ ------------
180,008 122,715 320,170 223,150
------------ ------------ ------------ ------------
Costs and expenses
Residential properties 141,954 95,170 251,545 169,979
Land sales 40 - 88 490
Other 1,384 1,001 2,321 2,224
Selling, general and administrative 23,160 14,110 39,255 25,558
Interest
Incurred 3,308 2,488 6,038 4,302
Less capitalized (3,293) (2,350) (6,009) (4,092)
------------ ------------ ------------ ------------
166,553 110,419 293,238 198,461
------------ ------------ ------------ ------------
Income from operations before income taxes 13,455 12,296 26,932 24,689
Income tax expense 5,225 4,831 10,500 9,706
------------ ------------ ------------ ------------
Net income $ 8,230 $ 7,465 $ 16,432 $ 14,983
============ ============ ============ ============
Net income 8,230 7,465 16,432 14,983
Preferred dividends - 51 - 104
------------ ------------ ------------ ------------
Net income available for common shareholders $ 8,230 $ 7,414 $ 16,432 $ 14,879
============ ============ ============ ============
Basic earnings per share $ 0.47 $ 0.57 $ 0.94 $ 1.16
============ ============ ============ ============
Diluted earnings per share $ 0.44 $ 0.45 $ 0.88 $ 0.90
============ ============ ============ ============
See accompanying notes which are an integral part of the consolidated
financial statements.
- 2 -
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Common Stock
-------------------------- Capital in
Shares Excess of
Issued and Par Value - Retained
Outstanding Amount Common Stock Earnings
----------- ----------- ------------ -----------
Balance at June 30, 2004 18,031,463 $ 1,803 $ 68,554 $ 105,564
Fair market value of stock options issued 139
Conversion of senior subordinated notes 666,668 67 933
Shares issued in connection with the acquisition of PLC (132)
Shares awarded under Stock Award Plan 238
Net income 16,432
----------- ----------- ------------ -----------
Balance at December 31, 2004 18,698,131 $ 1,870 $ 69,732 $ 121,996
=========== =========== ============ ===========
Treasury Stock
-------------------------
Share
Held Amount Total
----------- ----------- -----------
Balance at June 30, 2004 576,330 $ (1,016) $ 174,905
Fair market value of stock options issued 139
Conversion of senior subordinated notes 1,000
Shares issued in connection with the acquisition of PLC (75,000) 132 -
Shares awarded under Stock Award Plan (16,778) 29 267
Net income 16,432
----------- ----------- -----------
Balance at December 31, 2004 484,552 $ (855) $ 192,743
=========== =========== ===========
See accompanying notes which are an integral part of the financial statements.
- 3 -
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
December 31,
---------------------------
2004 2003
------------ ------------
Cash flows from operating activities:
Net income $ 16,432 $ 14,983
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 766 292
Deferred taxes (89) -
Stock based compensation expense 139 67
Changes in operating assets and liabilities:
Restricted cash - customer deposits 2,597 (967)
Real estate held for development and sale (144,204) (39,356)
Receivables, deferred charges and other assets (6,822) (24,845)
Land deposits and costs of future developments (8,153) 15,966
Accounts payable and other liabilities (22,169) (11,233)
Customer deposits 3,007 1,866
------------ ------------
Net cash used in operating activities (158,496) (43,227)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (341) (212)
Acquisitions, net of cash acquired (56,945) (4,973)
------------ ------------
Net cash used in investing activities (57,286) (5,185)
------------ ------------
Cash flows from financing activities:
Borrowings from loans secured by real estate assets 580,811 187,758
Repayment of loans secured by real estate assets (384,649) (136,068)
Borrowings from unsecured line of credit 135,948 -
Repayment of unsecured line of credit (135,948) -
Borrowings from other note obligations 5,179 1,654
Repayment of other note obligations (25) (266)
Sale of treasury stock 267 240
Stock options exercised - 13
Preferred stock dividend - (104)
------------ ------------
Net cash provided by financing activities 201,583 53,227
------------ ------------
Net increase (decrease) in cash and cash equivalents (14,199) 4,815
Cash and cash equivalents at beginning of year 32,962 8,883
------------ ------------
Cash and cash equivalents at end of period $ 18,763 $ 13,698
============ ============
Supplemental disclosure of cash flow activities:
Interest paid, net of amounts capitalized $ 29 $ 210
============ ============
Income taxes paid $ 14,243 $ 12,461
============ ============
See accompanying notes which are an integral part of the consolidated
financial statements.
- 4 -
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) Summary of Significant Accounting Policies:
The accompanying unaudited consolidated financial statements are
presented in accordance with the requirements for Form 10-Q and do not
include all the disclosures required by generally accepted accounting
principles for complete financial statements. Reference is made to Form
10-K as of and for the year ended June 30, 2004 for Orleans
Homebuilders, Inc. and subsidiaries (the "Company") for additional
disclosures, including a summary of the Company's accounting policies.
On July 28, 2004, the Company acquired all of the issued and outstanding
partnership interests in Realen Homes, L.P., a Pennsylvania limited
partnership ("Realen Homes"). Unless otherwise indicated, the term the
"Company" includes the accounts of Realen Homes. Realen Homes is engaged
in residential real estate development in Southeastern Pennsylvania and
Chicago, Illinois. The Consolidated Statements of Operations and Changes
in Retained Earnings and the Consolidated Statements of Cash Flows
include the accounts of Realen Homes from July 28, 2004 through
December 31, 2004. The Consolidated Balance Sheets include the accounts
of Realen Homes as of December 31, 2004. All material intercompany
transactions and accounts have been eliminated.
In the opinion of management, the consolidated financial statements
contain all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the consolidated financial position of the
Company for the periods presented. The interim operating results of the
Company may not be indicative of operating results for the full year.
Certain prior year amounts have been reclassified to conform to the
fiscal 2005 presentation.
Recent accounting pronouncements:
In January 2003, the FASB issued FASB Interpretation No. 46
"Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 in December
2003 which modifies and clarifies various aspects of the original
interpretations. A Variable Interest Entity ("VIE") is created when
(i) the equity investment at risk is not sufficient to permit the entity
to finance its activities without additional subordinated financial
support from other parties or (ii) equity holders either (a) lack direct
or indirect ability to make decisions about the entity, (b) are not
obligated to absorb expected losses of the entity or (c) do not have the
right to
5
receive expected residual returns of the entity if they occur. If an
entity is deemed to be a VIE, pursuant to FIN 46, an enterprise that
absorbs a majority of the expected losses of the VIE is considered the
primary beneficiary and must consolidate the VIE. For VIEs created
before January 31, 2003, FIN 46 was deferred to the end of the first
interim or annual period ending after March 15, 2004. The Company fully
adopted FIN 46 effective March 31, 2004.
Based on the provisions of FIN 46, the Company has concluded that
whenever it enters into an option agreement to acquire land or lots from
an entity and pays a significant deposit that is not unconditionally
refundable, a VIE is created under condition (ii) (b) of the previous
paragraph. The Company has been deemed to have provided subordinated
financial support, which refers to variable interests that will absorb
some or all of an entity's expected theoretical losses if they occur.
For each VIE created the Company will compute expected losses and
residual returns based on the probability of future cash flows as
outlined in FIN 46. If the Company is deemed to be the primary
beneficiary of the VIE it will consolidate the VIE on its balance sheet.
The fair value of the VIEs inventory will be reported as "Inventory Not
Owned - Variable Interest Entities."
At December 31, 2004, the Company consolidated twenty-four VIEs as a
result of its option to purchase land or lots from the selling entities.
The Company paid cash or issued letters of credit deposits to these
twenty-four VIEs totaling $8,488,000 and incurred additional
pre-acquisition costs totaling $1,424,000. The Company's deposits and
any costs incurred prior to acquisition of the land or lots, represent
our maximum exposure to loss. The fair value of the VIEs inventory will
be reported as "Inventory Not Owned - Variable Interest Entities." The
Company recorded $93,927,000 in Inventory Not Owned - Variable Interest
Entities as of December 31, 2004. The fair value of the property to be
acquired less cash deposits and pre-acquisition costs, which totaled
$86,156,000 at December 31, 2004, was reported on the balance sheet as
"Obligations related to inventory not owned." Creditors, if any, of
these VIEs have no recourse against the Company.
The Company will continue to secure land and lots using options.
Including the deposits and other costs capitalized in connection with
the VIEs above, the Company had total costs incurred to acquire land and
lots at December 31, 2004 of approximately $30,004,000, including
$20,231,000 of cash deposits. The total purchase price under these
cancelable contracts or options is approximately $523,028,000. The
maximum exposure to loss is limited to the deposits, although some
deposits are refundable, and costs incurred prior to the acquisition of
the land or lots.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 "Accounting for Certain Financial Instruments With
Characteristics of Both Liabilities and Equity" ("SFAS No. 150"). This
standard requires issuers to classify as liabilities the following three
types of freestanding
6
financial instruments: (1) mandatory redeemable financial instruments,
(2) obligations to repurchase the issuer's equity shares by transferring
assets; and (3) certain obligations to issue a variable number of
shares. The Company adopted SFAS No. 150 effective July 1, 2003. The
adoption of SFAS No. 150 did not have a material impact on the financial
position or results of operations of the Company.
In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB
104"), "Revenue Recognition" which rescinds portions of SAB 101,
"Revenue Recognition in Financial Statements." SAB 104's primary purpose
is to rescind the accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superseded as a result of the
issuance of EITF 00-21. The Company adopted the provisions of this
statement immediately, as required, and it did not have a significant
impact on the Company's Consolidated Financial Statements.
EITF 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables," issued during the third quarter of 2003, provides
guidance on revenue recognition for revenues derived from a single
contract that contain multiple products or services. EITF 00-21 also
provides additional requirements to determine when these revenues may be
recorded separately for accounting purposes. The Company adopted EITF
00-21 on July 1, 2003, as required, and it did not have a significant
impact on the Company's Consolidated Financial Statements.
In December 2004, the FASB revised FAS 123 through the issuance of FAS
No. 123 "Share Based Payment", revised ("FAS 123-R"). FAS 123-R is
effective for the Company commencing July 1, 2005. FAS 123-R, among
other things, eliminates the alternative to use the intrinsic value
method of accounting for stock based compensation and requires entities
to recognize the cost of employee services received in exchange for
awards of equity instruments based on the grant-date fair value of those
awards (with limited exceptions). The fair value based method in
FAS 123-R is similar to the fair-value-based method in FAS 123 in most
respects, subject to certain key differences. The Company is in the
process of evaluating the impact of such key differences between FAS 123
and FAS-123R, but does not currently believe that the adoption of
FAS 123-R will have a material impact on the Company.
(B) Acquisitions:
On December 23, 2004, pursuant to an Asset Purchase Agreement of the
same date, the Company acquired, through a wholly-owned subsidiary, the
real estate assets described below (the "Assets") from Peachtree
Residential Properties, LLC, a North Carolina limited liability company
and Peachtree Townhome Communities, LLC, a North Carolina limited
liability company which are wholly-owned subsidiaries of Peachtree
Residential Properties, Inc., a Georgia corporation (collectively,
"Peachtree Residential Properties").
7
The Assets include: (a) improved and unimproved real property,
(b) rights to acquire real estate under options or agreements, (c)
equipment, (d) rights under certain contracts for the sale of homes to
be sold and leases for real property, (e) rights to certain tradenames
and other intangibles, including contract backlog, (f) homes and other
improvements under construction as of the closing, (g) certain plans,
drawings, specifications, permits and rights under warranties and
(h) governmental approvals and books and records associated with, or
relating to the foregoing.
The Company paid $29,300,000 in cash, to acquire the Assets and certain
of liabilities of Peachtree Residential Properties assumed by the
Company, less $200,000 to be retained by the Company and applied towards
the administration of certain home warranty claims.
On July 28, 2004, pursuant to a Purchase Agreement of the same date, the
Company completed its acquisition of all of the issued and outstanding
partnership interests in Realen Homes, a Pennsylvania limited
partnership, from Realen General Partner, LLC, a Pennsylvania limited
liability company, and DB Homes Venture L.P., a Pennsylvania limited
partnership. The Company acquired the limited partner's interest in
Realen Homes and a subsidiary of the Company, RHGP LLC, acquired the
general partner's interest and serves as the general partner of Realen
Homes.
In accordance with the Purchase Agreement, the consideration paid by the
Company consisted of: (i) $53,348,000 in cash delivered at closing,
(ii) a promissory note of the Company in the aggregate principal amount
of $5 million, payable over a period of up to two years, with an
interest rate of 3% per year and (iii) a warranty holdback of $1.5
million retained by the Company to be applied toward the administration
of any warranty claims made against Realen Homes in excess of certain
predetermined amounts. The purchase price was determined based on Realen
Homes' book value at June 30, 2004, its management personnel, its
profitability, its backlog and its land position. In addition to the
consideration described above, the Company incurred approximately
$349,000 in professional fees in connection with the acquisition of
Realen Homes.
The Company evaluated the $5,000,000 3% note in accordance with APB 21
and determined that it was a below market rate note. In accordance with
APB 21, the Company estimated, based on current market conditions that
the Company would likely have been able to obtain similar fixed-rate
financing from a third party at approximately 150 basis points higher
than the note actually obtained. The Company imputed interest on the
note at 4.5% and reduced the carrying value of the note from $5,000,000
to $4,863,000. The discount of $137,000 will be recorded as interest
expense over the life of the note.
The acquisition included, subject to specified exceptions, all assets
and liabilities of Realen Homes, including land owned or under contract,
homes
8
under construction but not sold or sold but not delivered, sales offers
and reservations, and model homes and furnishings. The acquired assets
were used by Realen Homes in the homebuilding business in Pennsylvania
and Illinois. The Company intends to continue to use the acquired assets
in the homebuilding business.
The Company accounted for the acquisition as a purchase in accordance
with SFAS No. 141, "Business Combinations". The purchase price was
allocated to the fair value of assets and liabilities acquired with the
excess purchase price of approximately $13,239,000 and $500,000
allocated to intangible assets, respectively. The intangible assets
represent the intangible value of the backlog acquired from Realen
Homes. The intangible value of the backlog will be amortized into cost
of sales as the acquired backlog is delivered. The Company amortized
$212,000 of the intangible value of the backlog acquired from Realen
Homes for the six months ended December 31, 2004. The company
anticipates that the intangible asset will be fully amortized by
June 30, 2005.
If the Realen Homes acquisition occurred on July 1, 2003, pro forma
information for the Company would have been as follows:
Three Months Ended Six Months Ended
December 31,
---------------------------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(in thousands, except share amounts)
Earned revenues $ 185,434 $ 179,728 $ 325,596 $ 311,633
Income from operations before
income taxes 13,876 17,013 29,077 29,412
Net income 8,423 10,327 17,650 17,853
Earnings per share:
Basic 0.48 0.80 1.01 1.39
Diluted 0.45 0.62 .94 1.08
On July 28, 2003, the Company acquired all of the issued and outstanding
shares of Masterpiece Homes and entered into an employment agreement
with the president of Masterpiece Homes. Masterpiece Homes is an
established homebuilder located in Orange City, Florida. The terms of
the stock purchase agreement and employment agreement are as follows:
(i) $3,900,000 in cash, at closing; and (ii) $2,130,000 payable January
1, 2005, unless prior to that date the president is terminated for cause
or terminates his employment without good reason, as defined in the
employment agreement; (iii) sale of 30,000 shares of the Company's
common stock at $8 per share with a put option at the same price,
(iv) stock options to purchase 45,000 shares of the Company's common
stock at $10.64 per share vesting equally on
9
December 31, 2004, 2005 and 2006; and (v) contingent payments
representing 25% of the pre-tax profits of Masterpiece Homes for the
calendar years ended December 31, 2004, 2005 and 2006. The Company also
incurred approximately $297,000 in acquisition costs to complete this
transaction. The aforementioned costs are considered part of the
purchase price of Masterpiece Homes, except for the following items that
are considered part of, and contingent upon, the employment agreement:
(a) $710,000 of the $2,130,000 payable January 1, 2005; (b) stock
options to purchase 45,000 shares of the Company's common stock at
$10.64 per share; and (c) contingent payments representing 25% of the
pre-tax profits of Masterpiece Homes for the calendar years ended
December 31, 2004, 2005 and 2006.
The Company accounted for these transactions in accordance with
SFAS No. 141, "Business Combinations", whereby approximately $5,700,000
was considered to be part of the purchase price of the business and the
remainder part of employee compensation. That portion related to
employee compensation will be charged to expense over the period to
which it relates. With respect to the amounts allocated to the purchase,
such amounts were allocated to the fair value of assets and liabilities
acquired with the excess of approximately $3,007,000 allocated to
goodwill.
(C) Mortgage, Other Note Obligations, and Revolving Credit Facility:
The maximum balance outstanding under construction and inventory loan
agreements at any month end during the six months ended December 31,
2004 was $395,295,000. The average month end balance during the six
months ended December 31, 2004 was $237,730,000. At December 31, 2004,
the Company had $112 million of borrowing capacity of which
approximately $23,588,000 was then available to be drawn under the
secured revolving credit facility discussed below. The $395,295,000 at
December 31, 2004 consists of $388,000,000 under the Revolving Credit
Facility which is defined below plus $7,295,000 under mortgage
obligations secured by land held for development and sale and
improvements which are due in varying installments through fiscal 2005
with annual interest at variable rates based upon 30-day LIBOR or the
prime rate of interest plus a spread.
On December 22, 2004, Greenwood Financial, Inc., a wholly-owned
subsidiary of the Company and other wholly-owned subsidiaries of the
Company, as borrowers, and Orleans Homebuilders, Inc. as guarantor,
entered into a Revolving Credit and Loan Agreement (the "Credit
Agreement") for a $500 Million Senior Secured Revolving Credit and
Letter of Credit Facility (the "Revolving Credit Facility") with various
banks as lenders. The Revolving Credit Facility may be increased to
$650,000,000 under certain circumstances. Under and subject to the terms
of the Revolving Credit Facility, the borrowers may borrow and re-borrow
for the purpose of financing the acquisition and development of real
estate, the construction of homes and improvements, for investment in
joint ventures, for working capital and for such other appropriate
purposes as may be approved by the lenders.
10
Capitalized terms used below and not otherwise defined have the meanings
set forth in the Revolving Credit Agreement.
The Revolving Credit Facility replaces the Company's July 28, 2004
Bridge Loan Agreement with Wachovia Bank, N.A. In addition, the Company
used approximately $388 million of funds available under the Revolving
Credit Facility to repay substantially all of the outstanding loans of
the Company and its wholly-owned subsidiaries from other banks and
financial institutions and to acquire the real estate assets of
Peachtree Residential Properties in Charlotte, North Carolina. At
December 31, 2004, there is $388 million outstanding under the Revolving
Credit Facility. In addition, approximately $37 million of letters of
credit and other assurances of the availability of funds have been
provided under the Revolving Credit Facility.
The Revolving Credit Facility has a three-year term and borrowings and
advances bear interest on a per annum basis equal to the LIBOR Market
Index Rate plus a non-default variable spread ranging from 175 basis
points to 237.5 basis points, depending upon the Company's leverage
ratio. During the term of the Revolving Credit Facility, interest is
payable monthly in arrears. The December 31, 2004 interest rate was
4.78% which includes the 237.5 basis point spread.
Under the Revolving Credit Facility, the total amount of loans and
advances outstanding at any time may not exceed the lesser of the
then-current Borrowing Base Availability or the Revolving Sublimit of
$500 million. The Revolving Sublimit, under certain circumstances, may
be increased up to $650 million. The Borrowing Base Availability is
based on the lesser of the appraised value or cost of real estate owned
by borrowers that has been admitted to the borrowing base. Various
conditions must be satisfied in order for real estate to be admitted to
the borrowing base, including that a mortgage in favor of lenders has
been delivered to the agent for lenders and that all governmental
approvals necessary to begin development of for-sale residential
housing, other than building permits and certain other permits borrower
in good faith believes will be issued within 120 days, have been
obtained. Depending on the stage of development of the real estate, the
loan to value or loan to cost advance rate ranges from 50% to 90% of the
appraised value or cost of the real estate, whichever is lower.
As security for all obligations of borrowers to lenders under the
Revolving Credit Facility, lenders have a first priority mortgage lien
on all real estate admitted to the borrowing base. In addition, Orleans
Homebuilders, Inc. has guaranteed the obligations of the borrowers to
lenders pursuant to a Guaranty executed by the Company on December 22,
2004. Under the Guaranty, Orleans Homebuilders, Inc. has granted lenders
a security interest in any balance or assets in any deposit or other
account Orleans Homebuilders, Inc. has with any lender.
The Company is required to maintain certain financial ratios and
customary covenants as set forth in the Revolving Credit Facility.
11
On July 28, 2004 the Company entered into an Unsecured Bridge Loan
Agreement with a maximum borrowing amount of $120,000,000. Proceeds from
the Unsecured Bridge Loan were used to finance the acquisition of Realen
Homes, refinance certain outstanding indebtedness of Realen Homes and
provide the Company with short-term liquidity for land purchases and
residential development and construction site improvements. The
Unsecured Bridge Loan had a maturity date of November 30, 2004. On
November 17, 2004, the Unsecured Bridge Loan was increased to
$140,000,000 and the maturity date was extended to December 31, 2004. On
December 22, 2004, the Unsecured Bridge Loan was replaced with part of
the proceeds of the Revolving Credit Facility mentioned above. Interest
on the Unsecured Bridge Loan was payable monthly at 30-day LIBOR plus
225 basis points on the portion of the outstanding principal balance
that did not exceed $60,000,000 and 30-day LIBOR plus 250 basis points
on the portion of the outstanding principal balance that exceeded
$60,000,000. The average outstanding debt and interest rate under the
Unsecured Bridge Loan during the Company's term was approximately
$95,000,000 and 4.20%, respectively.
As part of the acquisition of Realen Homes, the Company assumed a
$70,000,000 secured credit facility. On December 22, 2004, the
$70,000,000 secured credit facility was replaced with part of the
proceeds of the Revolving Credit Facility mentioned above. Interest on
the secured credit facility was payable monthly at a rate based upon the
agent lender's prime rate. The Company had an option to convert all or a
portion of the outstanding secured credit facility to a fixed rate
facility at 30-day LIBOR plus 187.5 basis points to 250 basis points per
annum in accordance with the lenders pricing formula. The average
outstanding debt and interest rate under the secured credit facility
during the Company's term was $70,000,000 and 4.25%, respectively.
On December 21, 2004 and in accordance with the terms of the Company's
Convertible Subordinated 7% Note issued to Jeffrey P. Orleans, Chairman
and Chief Executive Officer of the Company, the third and final
installment due of $1,000,000 was converted, at $1.50 per share, into
666,668 shares of the Company's common stock.
(D) Redeemable Common Stock:
In connection with the Company's acquisition of Parker and Lancaster
Corporation on October 13, 2000, the Company issued 300,000 shares of
common stock of the Company to the former shareholders of Parker and
Lancaster Corporation. The former shareholders of Parker and Lancaster
Corporation have the right to cause the Company to repurchase the common
stock approximately five years after the closing of the acquisition at a
price of $3.33 per share. Through December 31, 2004, a former
shareholder of Parker and Lancaster Corporation sold 51,502 shares of
the Company's Common Stock thereby reducing the number of shares of
redeemable common stock in connection with the Parker and Lancaster
Corporation acquisition to 248,498 shares.
12
In connection with the Company's acquisition of Masterpiece Homes on
July 28, 2003 (see Note B), the Company sold 30,000 shares of common
stock of the Company to the president of Masterpiece Homes at $8 per
share. The president of Masterpiece Homes has the right to cause the
Company to repurchase the common stock at $8 per share by giving notice
to the Company no later than the earlier of December 31, 2006 or 30 days
after termination of his employment, as specified in his employment
agreement.
(E) Earnings Per Share:
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
months and six months ended December 31, 2004 and 2003 are shown in the
following table:
Three Months Ended Six Months Ended
December 31,
------------------------------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(Unaudited)
(in thousands)
Weighted average common shares issued 18,031 13,452 18,031 13,408
Unconditional shares issuable 28 77 48 107
Less: Average treasury shares
Outstanding (515) (632) (545) (669)
--------- --------- --------- ---------
Basic EPS shares (3) 17,544 12,897 17,534 12,846
Effect of assumed shares issued under
treasury stock method for stock options 562 627 566 605
Effect of partial conversion of $3 million
Convertible Subordinated 7% Note 667 1,312 667 1,322
Effect of December 29, 2003 conversion
of $3 million Series D Preferred Stock - 1,935 - 1,967
--------- --------- --------- ---------
Diluted EPS shares (3) 18,773 16,771 18,767 16,740
========= ========= ========= =========
Net income available for common
Shareholders $ 8,230 $ 7,414 $ 16,432 $ 14,879
Effect of December 29, 2003 conversion
of $3 million Series D Preferred Stock (1) - 51 - 104
Effect of partial conversion of $3 million
Convertible Subordinated 7% Note (2) 11 22 22 43
--------- --------- --------- ---------
Adjusted net income for diluted EPS $ 8,241 $ 7,487 $ 16,454 $ 15,026
========= ========= ========= =========
(1) On December 29, 2003 and in accordance with the conversion
features of the Company-issued Series D Preferred Stock,
liquidation value of $3,000,000, held by Mr. Orleans, the Series
D Preferred Stock was converted, at $1.50 per share, into
2,000,000 shares of the Company's common stock.
13
(2) On December 29, 2003 and in accordance with the terms of the
Company's Convertible Subordinated 7% Note issued to
Jeffrey P. Orleans, Chairman and Chief Executive Officer of the
Company, the second annual installment due of $1,000,000 was
converted, at $1.50 per share, into 666,666 shares of the
Company's common stock. Interest on the remaining principal
balance of $1,000,000 is payable quarterly and the final
installment of principal was converted December 21, 2004.
(3) Dilutive convertible securities converted during a period are
included in the weighted average number of shares outstanding
for purposes of computing diluted EPS for the period prior to
their actual conversion. Therefore, the shares issued upon
conversion are included in the weighted average calculation of
shares outstanding used for both basic and diluted EPS.
(F) Supplemental Cash Flow Disclosure:
On July 28, 2004, the Company acquired Realen Homes. The following is a
summary of the effects of this transaction on the Company's consolidated
financial position:
July 28,
2004
-------------
(in thousands)
Assets acquired:
Cash $ (3,174)
Restricted cash - customer deposits (4,273)
Real estate held for development and sale (136,832)
Property and equipment, at cost, less accumulated
Depreciation (166)
Intangible assets, net of amortization (13,223)
Receivables, deferred charges and other assets (1,478)
Land deposits and costs of future development (2,254)
------------
Total assets acquired (161,400)
------------
Liabilities assumed:
Accounts payable 10,771
Accrued expenses 8,191
Customer deposits 8,566
Mortgage and other note obligations primarily secured
by real estate held for development and sale 70,282
Other notes payable 3,471
------------
Total liabilities assumed 101,281
------------
Cash paid (53,348)
Note payable (4,863)
Warranty holdback (1,500)
Professional fees paid (311)
Less cash acquired 3,174
------------
Net cash outflow for Realen Homes acquisition $ (56,945)
============
14
(G) Residential Properties Completed or under Construction:
Residential properties completed or under construction consist of the
following:
December 31, June 30,
2004 2004
------------ ----------
(in thousands)
Under contract for sale (backlog) $ 172,367 $ 89,519
Unsold 100,684 50,882
------------ ----------
Total residential properties completed
or under construction $ 273,051 $ 140,401
============ ==========
(H) 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
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, operating results or cash flows of the Company.
(I) Commitments and Contingencies:
As of December 31, 2004, the Company owned or controlled approximately
15,927 building lots. As part of the aforementioned building lots, the
Company had contracted to purchase, or has under option, undeveloped
land and improved lots for an aggregate purchase price of approximately
$523,028,000 which is expected to yield approximately 8,609 building
lots. Generally, the Company structures its land acquisitions so that it
has the right to cancel its agreements to purchase undeveloped land and
improved lots by forfeiture of its deposit under the agreement.
Furthermore, purchase of the properties is usually contingent upon
obtaining all governmental approvals and satisfaction of certain
requirements by the Company and the sellers.
15
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Orleans Homebuilders, Inc. and its subsidiaries (collectively, the "Company",
"OHB" or "Orleans") are currently engaged in residential real estate development
in the following ten markets: Southeastern Pennsylvania; Central New Jersey;
Southern New Jersey; Charlotte, Raleigh and Greensboro, North Carolina; Richmond
and Tidewater, Virginia; Orlando, Florida; and Chicago, Illinois. The Company's
Charlotte, North Carolina market also includes operations in adjacent counties
in South Carolina. The Company has operated in its Pennsylvania and New Jersey
markets for over 85 years and began operations in its North Carolina and
Virginia markets in fiscal 2001 through the acquisition of Parker & Lancaster
Corporation, a privately-held residential homebuilder. The Company entered the
Orlando, Florida market on July 28, 2003 through its acquisition of Masterpiece
Homes, Inc. ("Masterpiece Homes"), a privately-held residential homebuilder. On
July 28, 2004, the Company entered the Chicago, Illinois market through the
acquisition of Realen Homes, L.P. ("Realen Homes"), an established
privately-held homebuilder with operations in Southeastern Pennsylvania and
Chicago, Illinois. On December 23, 2004, pursuant to an Asset Purchase Agreement
of the same date, the Company acquired, through a wholly-owned subsidiary, the
real estate assets described previously from Peachtree Residential Properties,
LLC, a North Carolina limited liability company and Peachtree Townhome
Communities, LLC, a North Carolina limited liability company which are
wholly-owned subsidiaries of Peachtree Residential Properties, Inc., a Georgia
corporation (collectively, "Peachtree Residential Properties"). The Results of
Operations include the activity of Masterpiece Homes from July 28, 2003 through
December 31, 2004 and Realen Homes from July 28, 2004 through December 31, 2004
as well as the revenue and expenses associated with certain real estate assets
acquired from Peachtree Residential Properties. Unless otherwise indicated, the
term the "Company" includes the accounts of Realen Homes.
References to a given fiscal year in this Quarterly Report on Form 10-Q are to
the fiscal year ended June 30th of that year. For example, the phrases "fiscal
2004" or "2004 fiscal year" refer to the fiscal year ended June 30, 2004. When
used in this report, "northern region" refers to the Company's Pennsylvania and
New Jersey markets, which includes the Southeastern Pennsylvania operations of
Realen Homes that were acquired on July 28, 2004; "southern region" refers to
the Company's North Carolina and Virginia markets; "Florida region" refers to
the Company's Florida market, and "midwestern region" refers to the Company's
Illinois market.
The Company believes it is well positioned for continued growth. At December 31,
2004, backlog was $601,016,000 representing 1,580 homes compared to a backlog of
$368,324,000 representing 1,079 homes at December 31, 2003. At December 31,
2004, the Company was selling in 106 communities and owned or controlled
approximately 15,927 building lots compared to 80 communities and 11,045 owned
or controlled building lots at December 31, 2003.
16
The Company has entitled and developed lots in the highly regulated Pennsylvania
and New Jersey markets for over 40 years. As a result, the Company believes it
has expertise in all aspects of the site selection, land planning, entitlement
and land development processes which can be leveraged across all markets in
which the Company operates. In addition, the Company believes that it holds
attractive land positions in the Pennsylvania and New Jersey markets and that
the market value of these land positions will continue to grow due to the highly
regulated environment in these markets.
The Company develops, builds and markets high-quality single-family homes,
townhomes and condominiums to serve various homebuyer segments, including
first-time, move-up, luxury, empty nester and active adult. The Company believes
this broad range of home designs allows it to capitalize on favorable economic
and demographic trends within its markets.
Results of Operations
The following table sets forth certain details as to residential sales activity.
The information provided is for the three and six months ended December 31, 2004
and 2003 in the case of residential revenue earned and new orders, and as of
December 31, 2004 and 2003 in the case of backlog.
A sales contract or potential sale is classified as a new order and, therefore,
becomes a part of backlog, at the time a homebuyer executes a contract to
purchase a home from the Company.
Six Months Ended December 31,
---------------------------------------------------------------------------
2004 2003
------------------------------------ ------------------------------------
(Dollars in thousands)
Average Average
Amount Homes Price Amount Homes Price
---------- ------- ---------- ---------- -------- ----------
NORTHERN REGION (1)
New Jersey and Pennsylvania:
Residential revenue earned $ 135,701 309 $ 439 $ 117,537 317 $ 371
New orders 140,546 274 513 122,756 270 455
Backlog 287,664 625 460 195,153 415 470
SOUTHERN REGION(2)
North Carolina, South Carolina
and Virginia:
Residential revenue earned $ 98,713 279 $ 354 $ 75,756 245 $ 309
New orders 103,605 277 374 108,485 317 342
Backlog 161,035 410 393 128,562 362 355
FLORIDA REGION (3)
Residential revenue earned $ 33,831 206 $ 164 $ 26,571 199 $ 134
New orders 37,727 179 211 29,518 203 145
Backlog 56,744 292 194 44,609 302 148
MIDWESTERN REGION (4)
Residential revenue earned $ 48,345 133 $ 363 $ - - $ -
New orders 46,240 120 385 - - -
Backlog 95,573 253 378 - - -
COMBINED REGIONS
Residential revenue earned $ 316,590 927 $ 342 $ 219,864 761 $ 289
New orders 328,118 850 386 260,759 790 330
Backlog 601,016 1,580 380 368,324 1,079 341
17
(1) Information on residential revenue earned and new orders for the six months
ending December 31, 2004 includes the acquired operations of Realen Homes'
Southeastern Pennsylvania region from the date of acquisition, July 28, 2004,
through December 31, 2004.
The backlog at December 31, 2004, includes the acquired backlog of Realen Homes'
Southeastern Pennsylvania region not delivered as of December 31, 2004.
(2) Information on residential revenue earned and new orders for the six months
ending December 31, 2004 includes amounts acquired from Peachtree Residential
Properties for the period beginning December 23, 2004, the date the Company
acquired the assets, through December 31, 2004. The backlog at December 31, 2004
includes the acquired backlog of Peachtree Residential Properties not delivered
as of December 31, 2004.
(3) Information on residential revenue earned and new orders for the six months
ending December 31, 2003 is for the period beginning July 28, 2003, the date the
Company entered this market through its acquisition of Masterpiece Homes,
through December 31, 2003.
(4) Information on residential revenue earned and new orders is for the period
beginning July 28, 2004, the date the Company entered this market through its
acquisition of Realen Homes, through December 31, 2004. The backlog at December
31, 2004 includes the acquired backlog of Realen Homes midwestern region not
delivered as of December 31, 2004.
Three Months Ended December 31,
---------------------------------------------------------------------------
2004 2003
------------------------------------ ------------------------------------
(Dollars in thousands)
Average Average
Amount Homes Price Amount Homes Price
---------- ------- ---------- ---------- -------- ----------
NORTHERN REGION (1)
New Jersey and Pennsylvania:
Residential revenue earned $ 68,418 154 $ 444 $ 64,517 177 $ 365
New orders 63,109 110 574 60,201 124 485
Backlog 287,664 625 460 195,153 415 470
SOUTHERN REGION (2)
North Carolina, South Carolina
and Virginia:
Residential revenue earned $ 58,265 163 $ 357 $ 41,340 134 $ 309
New orders 56,177 147 382 52,447 150 350
Backlog 161,035 410 393 128,562 362 355
FLORIDA REGION
Residential revenue earned $ 19,428 117 $ 166 $ 15,624 115 $ 136
New orders 15,998 73 219 17,069 115 148
Backlog 56,744 292 194 44,609 302 148
MIDWESTERN REGION (3)
Residential revenue earned $ 32,167 88 $ 366 $ - - $ -
New orders 22,037 54 408 - - -
Backlog 95,573 253 378 - - -
COMBINED REGIONS
Residential revenue earned $ 178,278 522 $ 342 $ 121,481 426 $ 285
New orders 157,321 384 410 129,717 389 333
Backlog 601,016 1,580 380 368,324 1,079 341
18
(1) Information on residential revenue earned and new orders for the three
months ending December 31, 2004 includes the acquired operations of Realen
Homes' Southeastern Pennsylvania region for the quarter ending December 31,
2004. The backlog at December 31, 2004, includes the acquired backlog of Realen
Homes' Southeastern Pennsylvania region not delivered as of December 31, 2004.
(2) Information on residential revenue earned and new orders for the three
months ending December 31, 2004 includes amounts acquired from Peachtree
Residential Properties for the period beginning December 23, 2004, the date the
Company acquired the assets, through December 31, 2004. The backlog at December
31, 2004 includes the acquired backlog of Peachtree Residential Properties not
delivered as of December 31, 2004.
(3) The backlog at December 31, 2004 includes the acquired backlog of Realen
Homes' midwestern region not delivered as of December 31, 2004.
Six Months and Three Months Ended December 31, 2004
Orders and Backlog
New orders for the six months ended December 31, 2004 increased $67,359,000, or
25.8%, to $328,118,000 on 850 homes, compared to $260,759,000 on 790 homes for
the six months ended December 31, 2003. The average price per home of new orders
increased by approximately 17.0% to $386,000 for the six months ended December
31, 2004 compared to $330,000 for the six months ended December 31, 2003.
19
New orders for the three months ended December 31, 2004 increased $27,604,000,
or 21.3%, to $157,321,000 on 384 homes, compared to $129,717,000 on 389 homes
for the three months ended December 31, 2003. The average price per home of new
orders increased by approximately 23.1% to $410,000 for the three months ended
December 31, 2004 compared to $333,000 for the three months ended December 31,
2003.
The backlog at December 31, 2004 increased $232,692,000, or 63.2%, to
$601,016,000 on 1,580 homes compared to the backlog at December 31, 2003 of
$368,324,000 on 1,079 homes. The increase in backlog was attributable to an
increase in new orders, the Company's obtaining additional backlog of
$170,785,000 on 463 homes through its acquisition of Realen Homes on July 28,
2004, the Company's obtaining additional backlog of $27,876,000 on 75 homes
through its acquisition of certain real estate assets of Peachtree Residential
Properties in Charlotte, and favorable economic conditions for the homebuilding
industry in the regions where the Company operates. These favorable economic
conditions, including historically low interest rates, have resulted in positive
home pricing trends and consistent customer demand. The average price per home
included in the Company's backlog increased 11.4% to $380,000 at December 31,
2004 compared to $341,000 at December 31, 2003.
NORTHERN REGION:
New orders for the six months ended December 31, 2004 increased $17,790,000 to
$140,546,000 or 14.5% on 274 homes, compared to $122,756,000 on 270 homes for
the six months ended December 31, 2003. The increase was primarily attributable
to new orders in the communities acquired in the northern region as part of the
Realen Homes acquisition. The new communities acquired in the Realen Homes
acquisition accounted for $22,311,000 and 49 homes for the six months ended
December 31, 2004. The net decline in new orders excluding the Realen Homes
acquisition is attributable to the delay in the start of new communities due to
increased government regulation in the northern region states in which the
Company operates. The increase in new order dollars and the decrease in new home
orders is also a result of the Company's efforts to intentionally slow
absorption through pricing increases in several new communities to ensure
production, pricing and absorption rates are properly balanced. The average
price per home of new orders increased by 12.8% to $513,000 for the six months
ended December 31, 2004 compared to $455,000 for the six months ended December
31, 2003. The Company believes that it has been able to increase sales prices
due to the strong demand for new homes resulting from the growing population,
fueled in part by immigration, and historically low interest rates which have
made housing more affordable. The limited supply of entitled lots for
residential housing in Pennsylvania and New Jersey due to increased governmental
regulation has also positively impacted home pricing trends.
New orders for the three months ended December 31, 2004 increased $2,908,000 to
$63,109,000 or 4.8% on 110 homes, compared to $60,201,000 on 124 homes for the
three months ended December 31, 2003. The increase was primarily attributable to
new orders acquired in the northern region as part of the Realen Homes
acquisition. The new communities acquired in the Realen Homes acquisition
accounted for $10,008,000 and 19 homes for the three months ended December 31,
2004. The net decline in new orders excluding the Realen acquisition is
attributable to the delay in the start of new
20
communities due to increased government regulation in the northern region states
in which the company operates. The average price per home of new orders
increased by 18.2% to $574,000 for the three months ended December 31, 2004
compared to $485,000 for the three months ended December 31, 2003. The Company
believes that it has been able to increase sales prices due to the strong demand
for new homes resulting from the growing population, fueled in part by
immigration, and historically low interest rates which have made housing more
affordable. The limited supply of entitled lots for residential housing in
Pennsylvania and New Jersey due to increased governmental regulation has also
positively impacted home pricing trends.
The Company had 29 active selling communities in the northern region as of
December 31, 2004 compared to 19 active selling communities as of December 31,
2003. The increase in the number of active selling communities was primarily
attributable to the acquisition of Realen Homes which resulted in the addition
of 8 active selling communities in the northern region.
SOUTHERN REGION:
New orders for the six months ended December 31, 2004 decreased $4,880,000 to
$103,605,000 or 4.5% on 277 homes, compared to $108,485,000 on 317 homes for the
six months ended December 31, 2003. The decrease in new orders was attributable
to a decrease in the number of available building lots to sell for the six
months ended December 31, 2004 when compared to the six months ended
December 31, 2003.
The average price per home of new orders increased by 9.4% to $374,000 for the
six months ended December 31, 2004 compared to $342,000 for the six months ended
December 31, 2003. This increase in the average price per home of new orders is
due to price increases in those communities open during the six months ended
December 31, 2004 when compared with the same communities and products offered
for sale in the comparable prior year period.
New orders for the three months ended December 31, 2004 increased $3,730,000 to
$56,177,000 or 7.1% on 147 homes, compared to $52,447,000 on 150 homes for the
three months ended December 31, 2003.
The average price per home of new orders increased by 9.1% to $382,000 for the
three months ended December 31, 2004 compared to $350,000 for the three months
ended December 31, 2003. This increase in the average price per home of new
orders is due to price increases in those communities open during the three
months ended December 31, 2004 when compared with the same communities and
products offered for sale in the comparable prior year period.
The Company had 60 active selling communities in the southern region as of
December 31, 2004 compared to 53 active selling communities as of December 31,
2003. The acquisition of Peachtree Residential Properties added 10 selling
communities to the southern region.
21
FLORIDA REGION:
In spite of a series of hurricanes that struck the Florida region in September
2004, new orders for the six months ended December 31, 2004 increased $8,209,000
to $37,727,000, or 27.8% on 179 homes, compared to $29,518,000 on 203 homes for
the six months ended December 31, 2003. The increase in new orders is primarily
attributable to an increase in the average price per home to $211,000 for the
six months ended December 31, 2004 compared to the $145,000 for the six months
ended December 31, 2003. While the hurricanes slowed sales activities, they did
not result in any substantial physical damage to the Company's properties.
New orders for the three months ended December 31, 2004 decreased $1,071,000 to
$15,998,000 or 6.3% on 73 homes, compared to $17,069,000 on 115 homes for the
three months ended December 31, 2003. The decrease was attributable to the fact
that the Florida region's results of operations were impacted by the hurricanes.
The average price per home of new orders increased by 48.0% to $219,000 for the
three months ended December 31, 2004 compared to $148,000 for the three months
ended December 31, 2003. The increase in the average selling price per home in
the Florida region is primarily due to the demand for new housing.
The Company is continuing to expand its operations in the Florida region. The
Company had 10 active selling communities in the Florida region as of
December 31, 2004, compared to 8 active selling communities as of
December 31, 2003.
MIDWESTERN REGION:
The Company entered the midwestern region through the acquisition of Realen
Homes on July 28, 2004. For the six months ended December 31, 2004, the
midwestern region accounted for $46,240,000 in new orders on 120 homes at an
average price per home of new orders of $385,000.
For the three months ended December 31, 2004, the midwestern region accounted
for $22,037,000 in new orders on 54 homes at an average price per home of new
orders of $408,000.
As of December 31, 2004, the midwestern region had 7 active selling communities.
Total Earned Revenues
Total earned revenues for the six months ended December 31, 2004 increased
$97,020,000, to $320,170,000 or 43.5%, compared to $223,150,000 for the six
months ended December 31, 2003. Residential revenue earned from the sale of
residential homes included 927 homes totaling $316,590,000 during the six months
ended December 31, 2004, as compared to 761 homes totaling $219,864,000 during
the six months ended December 31, 2003. The average selling price per home
delivered in the six months
22
ended December 31, 2004 increased by approximately 18.3% to $342,000 compared to
$289,000 for the six months ended December 31, 2003.
Total earned revenues for the three months ended December 31, 2004 increased
$57,293,000, to $180,008,000 or 46.7%, compared to $122,715,000 for the three
months ended December 31, 2003. Residential revenue earned from the sale of
residential homes included 522 homes totaling $178,278,000 during the three
months ended December 31, 2004, as compared to 426 homes totaling $121,481,000
during the three months ended December 31, 2003. The average selling price per
home delivered in the three months ended December 31, 2004 increased by
approximately 20.0% to $342,000 for the three months ended December 31, 2004
compared to $285,000 for the three months ended December 31, 2003.
NORTHERN REGION:
Residential revenue earned for the six months ended December 31, 2004 increased
$18,164,000 to $135,701,000 or 15.5% on 309 homes delivered as compared to
$117,537,000 on 317 homes delivered during the six months ended December 31,
2003. The increase was primarily attributable to homes delivered in the
communities acquired in the northern region as part of the Realen Homes
acquisition. The new communities acquired in the Realen Homes acquisition
accounted for $25,318,000 and 78 homes delivered for the six months ended
December 31, 2004.
Excluding the acquisition of Realen Homes, residential revenue earned decreased
$7,154,000 to $110,383,000 and the number of homes delivered decreased 86 homes
to 231 homes for the six months ended December 31, 2004 when compared to the six
months ended December 31, 2003. The decrease in residential revenue earned and
the decrease in new home deliveries is a result of the mix of homes delivered.
Specifically, single family homes, which typically have a longer building cycle
than townhomes and active adult single family homes, comprised a larger
percentage of the total homes delivered in the region during the six months
ended December 31, 2004 than townhomes and active adult single family homes when
compared to the six months ended December 31, 2003. In addition, the net decline
in the number of homes delivered, excluding the Realen Homes acquisition, is
attributable to the delay in the start of new communities caused by increased
government regulation in the northern region states in which the Company
operates.
The average selling price per home delivered in the six months ended December
31, 2004 increased by approximately 18.3% to $439,000 compared to $371,000 for
the six months ended December 31, 2003. This increase in the average selling
price per home delivered contributed to the increase in residential revenue
earned described above. The increase in the average selling price per home
delivered is attributable to increases in the average price per home of new
orders in fiscal 2005 resulting from sales price increases as well as the
product mix of homes delivered. Specifically, single family homes, which have
higher selling prices than townhomes and active adult single family homes,
comprised a larger percentage of the total homes delivered in the region during
the six months ended December 31, 2004 when compared to the six months ended
December 31, 2003.
23
Residential revenue earned for the three months ended December 31, 2004
increased $3,901,000 to $68,418,000 or 6.0% on 154 homes delivered as compared
to $64,517,000 on 177 homes delivered during the three months ended December 31,
2003. The increase was primarily attributable to homes delivered in the
communities acquired in the northern region as part of the Realen Homes
acquisition. The new communities acquired in the Realen Homes acquisition
contributed $14,581,000 in residential revenue on 43 homes delivered for the
three months ended December 31, 2004.
Excluding the acquisition of Realen Homes, residential revenue earned decreased
$10,680,000 to $53,837,000 and the number of homes delivered decreased 66 homes
to 111 homes for the three months ended December 31, 2004 when compared to the
three months ended December 31, 2003. The decrease in residential revenue earned
and new home deliveries is a result of the mix of homes delivered. Specifically,
single family homes, which typically have a longer building cycle than townhomes
and active adult single family homes, comprised a larger percentage of the total
homes delivered in the region during the three months ended December 31, 2004
than townhomes and active adult single family homes when compared to the three
months ended December 31, 2003. In addition, the net decline in the number of
homes delivered, excluding the Realen Homes acquisition, is attributable to the
delay in the start of new communities due to increased government regulation in
the northern region states in which the Company operates.
The average selling price per home delivered in three months ended December 31,
2004 increased by approximately 21.6% to $444,000 for the three months ended
December 31, 2004 compared to $365,000 for the three months ended December 31,
2003. This increase in the average selling price per home delivered contributed
to the increase in residential revenue earned described above. The increase in
the average selling price per home delivered is attributable increases in the
average price per home of new orders in fiscal 2005 resulting from sales price
increases as well as the product mix of homes delivered. Specifically, single
family homes, which have higher selling prices than townhomes and active adult
single family homes, comprised a larger percentage of the total homes delivered
in the region during the three months ended December 31, 2004 when compared to
the three months ended December 31, 2003.
SOUTHERN REGION:
Residential revenue earned for the six months ended December 31, 2004 increased
$22,957,000 to $98,713,000 or 30.3% on 279 homes delivered as compared to
$75,756,000 on 245 homes delivered during the six months ended December 31,
2003.
The average price per home delivered increased 14.6% to $354,000 for the six
months ended December 31, 2004 compared to $309,000 for the six months ended
December 31, 2003. The increase in the average price per home delivered was
attributable to increases in the average price per home of new orders in fiscal
2005 coupled with an increase in revenue attributable to customer-selected
options, such as bonus rooms and flooring upgrades, for the six months ended
December 31, 2004 when compared to the six months ended December 31, 2003. In
addition, a change in the product mix of homes delivered during the six months
ended December 31, 2004 compared to the six months ended December 31, 2003
contributed to the increase in the average price per home delivered.
24
Specifically, the Company delivered a larger percentage of luxury and move-up
homes during the six months ended December 31, 2004 than during the six months
ended December 31, 2003.
Residential revenue earned for the three months ended December 31, 2004
increased $16,925,000 to $58,265,000 or 40.9% on 163 homes delivered as compared
to $41,340,000 on 134 homes delivered during the three months ended December 31,
2003.
The average price per home delivered increased 15.5% to $357,000 for the three
months ended December 31, 2004 compared to $309,000 for the three months ended
December 31, 2003. The increase in the average price per home delivered was
attributable to increases in the average price per home of new orders in
fiscal 2005 coupled with an increase in revenue attributable to
customer-selected options, such as bonus rooms and flooring upgrades, for the
three months ended December 31, 2004 when compared to the three months ended
December 31, 2003. In addition, a change in the product mix of homes delivered
during the three months ended December 31, 2004 compared to the three months
ended December 31, 2003 contributed to the increase in the average price per
home delivered. Specifically, the Company delivered a larger percentage of
luxury and move-up homes during the three months ended December 31, 2004 than
during the three months ended December 31, 2003.
FLORIDA REGION:
In spite of a series of hurricanes that struck the Florida region in September
2004, residential revenue earned for the six months ended December 31, 2004
increased $7,260,000 to $33,831,000, or 27.3% on 206 homes, compared to
$26,571,000 on 199 homes for the six months ended December 31, 2003. The
increase is primarily attributable to a 23.0% increase in the average selling
price per home to $164,000 for the six months ended December 31, 2004 compared
to $134,000 for the six months ended December 31, 2003. In addition, the Florida
region's results of operations were included in the Company's results of
operations for the entire six months ended December 31, 2004 compared to the
comparable prior year period wherein the Company acquired Masterpiece Homes and
entered the Florida region on July 28, 2003. The Company did not experience any
significant construction delays as a result of the hurricanes that struck the
Florida region in September.
In spite of a series of hurricanes that struck the Florida region in September
2004, residential revenue earned for the three months ended December 31, 2004
increased $3,804,000 to $19,428,000, or 24.4% on 117 homes, compared to
$15,624,000 on 115 homes for the three months ended December 31, 2003. The
increase is primarily attributable to a 22.2% increase in the average selling
price per home to $166,000 for the three months ended December 31, 2004 compared
to $136,000 for the three months ended December 31, 2003 The Company did not
experience any significant construction delays as a result of the hurricanes
that struck Florida in September.
25
The increase in the average selling price per home delivered is attributable to
the demand for new housing.
MIDWESTERN REGION:
The Company entered the midwestern region on July 28, 2004 through the
acquisition of Realen Homes. For the six months ended December 31, 2004, the
midwestern region accounted for $48,345,000 in residential revenue earned on 133
homes at an average selling price per home delivered of $363,000.
For the three months ended December 31, 2004, the midwestern region accounted
for $32,167,000 in residential revenue earned on 88 homes at an average selling
price per home delivered of $366,000.
Costs and Expenses
Costs and expenses for the six months ended December 31, 2004 increased
$94,777,000 to $293,238,000, or 47.8%, compared with the six months ended
December 31, 2003. The cost of residential properties for the six months ended
December 31, 2004 increased $81,566,000 to $251,545,000, or 48.0%, when compared
with the six months ended December 31, 2003. The increase in cost of residential
properties was primarily attributable to increased residential revenue in the
Company's northern, southern, and Florida regions as noted above as well as the
increase in residential revenue resulting from the Company's acquisition of
Realen Homes and Peachtree Residential Properties. The consolidated gross profit
margin for the six months ended December 31, 2004 decreased 2.2% to 20.5%
compared to 22.7% for the six months ended December 31, 2003.
Interest included in the costs and expenses of residential properties and land
sold for the six months ended December 31, 2004 and December 31, 2003 was
$2,781,000 and $3,238,000, respectively. The decrease in the interest included
in the costs and expenses of residential properties and land sold, despite the
overall increase in the cost of residential properties, is attributable to
reduced debt levels and low interest rates during the construction period for
the site improvements and related homes being delivered in the current period.
The interest incurred during the construction periods is expensed to the cost of
residential properties in the period in which the unit settles.
The decrease in the consolidated gross profit margin was primarily attributable
to the change in geographic mix of homes delivered and the impact of purchase
accounting. The northern region, which has significantly higher gross profit
margins than the other regions in which the Company operates, comprised a
smaller percentage of the consolidated residential properties revenue for the
six months ended December 31, 2004 than for the six months ended December 31,
2003. The gross profit margin is affected when the acquired Realen Homes'
inventory is delivered because the value of the acquired Realen Homes' inventory
was increased to its fair market value as a result of the application of
purchase accounting under SFAS No. 141 "Business Combinations". The additional
costs recognized in connection with the deliveries of the acquired Realen Homes
inventory as a result of the fair market value write-up of the acquired
inventory
26
was approximately $2,677,000 for the six months ended December 31, 2004. The
additional costs recognized in connection with the amortization of the
intangible value of the acquired Realen Homes backlog delivered during the six
months ended December 31, 2004 was approximately $212,000.
Costs and expenses for the three months ended December 31, 2004 increased
$56,134,000 to $166,553,000, or 50.8%, compared with the three months ended
December 31, 2003. The cost of residential properties for the three months ended
December 31, 2004 increased $46,784,000 to $141,954,000, or 49.2%, when compared
with the three months ended December 31, 2003. The increase in cost of
residential properties was primarily attributable to increased residential
revenue in the Company's northern, southern, and Florida regions as noted above
as well as the increase in residential revenue resulting from the Company's
acquisition of Realen Homes. The consolidated gross profit margin for the three
months ended December 31, 2004 decreased 1.3% to 20.4% compared to 21.7% for the
three months ended December 31, 2003.
Interest included in the costs and expenses of residential properties and land
sold for the three months ended December 31, 2004 and December 31, 2003 was
$1,431,000 and $1,763,000, respectively. The decrease in the interest included
in the costs and expenses of residential properties and land sold, despite the
overall increase in the cost of residential properties is attributable to reduce
debt levels and low interest rates during the construction periods for both the
site improvements and related homes being delivered in the current period. The
interest incurred during the construction periods is expensed to the cost of
residential properties in the period in which the unit settles.
The decrease in the consolidated gross profit margin was attributable to the
change in geographic mix of homes delivered and the impact of purchase
accounting. The northern region, which has significantly higher gross profit
margins than the other regions in which the Company operates, comprised a
smaller percentage of the consolidated residential properties revenue for the
three months ended December 31, 2004 than for the three months ended December
31, 2003. The gross profit margin is affected when the acquired Realen Homes'
inventory is delivered because the value of the acquired Realen Homes' inventory
was increased to its fair market value as a result of the application of
purchase accounting under SFAS No. 141 "Business Combinations". The additional
costs recognized in connection with the deliveries of the acquired Realen Homes
inventory as a result of the fair market value write-up of the acquired
inventory was approximately $979,000 for the three months ended December 31,
2004. The additional costs recognized in connection with the amortization of the
intangible value of the acquired Realen Homes backlog delivered during the three
months ended December 31, 2004 was approximately $130,000.
The Company sells a variety of home types in various communities and regions,
each yielding a different gross profit margin. As a result, depending on the mix
of both communities and of home types delivered, the consolidated gross profit
margin may fluctuate up or down on a periodic basis and periodic profit margins
may not be representative of the consolidated gross profit margin for the year.
27
Selling, General & Administrative Expenses
For the six months ended December 31, 2004, selling, general and administrative
expenses increased $13,697,000 to $39,255,000, or 53.6%, when compared with the
six months ended December 31, 2003. The increase in selling, general and
administrative expenses was due to an increase in sales commissions and
incentive compensation of approximately $4,100,000 attributable to the Company's
growth in residential revenue and profit. Additionally, the Company incurred
approximately $6,100,000 in selling, general and administrative expenses
resulting from the Company's expansion in the northern region and its expansion
into the midwestern region through the acquisition of Realen Homes on July 28,
2004. The expansion in the northern region and Midwestern region as a result of
the Realen Homes acquisition added a total of 15 selling communities to the
regions. The remaining increase in selling, general and administrative expenses
was primarily attributable to increases in payroll, legal, consulting,
advertising, and travel expenses in order to support the expansion of the
Company into new regions.
The selling, general and administrative expenses as a percentage of residential
revenue earned for the six months ended December 31, 2004 increased .8% to 12.4%
from 11.6% for the six months ended December 31, 2003. The increased percentage
is primarily due to an increase in expenses to support the expansion of the
Company into new regions and a delay in revenue caused by utility company
constraints at one of the Company's communities. The utility company issue has
since been resolved and the Company anticipates selling, general, and
administrative expenses as a percentage of revenue to decline in the second half
of fiscal 2005.
For the three months ended December 31, 2004, selling, general and
administrative expenses increased $9,050,000 to $23,160,000, or 64.1%, when
compared with the three months ended December 31, 2003. The Company incurred
$4,367,000 in selling, general and administrative expenses resulting from the
Company's expansion in the northern region and its expansion into the midwestern
region through the acquisition of Realen Homes on July 28, 2004. The remaining
increase in selling, general and administrative expenses was primarily
attributable to increases in general and administrative payroll, incentive
compensation and travel expenses in order to support the expansion of the
Company into new regions.
The selling, general and administrative expenses as a percentage of residential
revenue earned for the three months ended December 31, 2004 increased 1.4% to
13.0% as compared to the 11.6% for the three months ended December 31, 2003.
This increase is primarily due to a delay in revenue due to utility company
constraints at one of the Company's communities, as described above.
Income Tax Expense
Income tax expense for the six months ended December 31, 2004 increased $794,000
to $10,500,000, or 8.2% from $9,706,000 for the six months ended December 31,
2003. The increase in income tax expense for the six months ended December 31,
2004 is attributable to an increase in income from operations.
28
Additionally, income tax expense as a percentage of income from operations
before income taxes was 39.0% and 39.3% for the six months ended December 31,
2004 and 2003, respectively. The slight decrease in the effective tax rate is
due to an increase in net income from operations before income taxes in the
Florida region as a percentage of the consolidated income from operations before
income taxes for the six months ended December 31, 2004 when compared to the six
months ended December 31, 2003 as Florida has a lower state tax rate than a
majority of the states in which the Company operates.
Income tax expense for the three months ended December 31, 2004 increased
$394,000 to $5,225,000, or 8.2% from $4,831,000 for the three months ended
December 31, 2003. The increase in income tax expense for the three months ended
December 31, 2004 is attributable to an increase in income from operations.
Additionally, income tax expense as a percentage of income from operations
before income taxes was 38.8% and 39.3% for the three months ended December 31,
2004 and 2003, respectively. The slight decrease in the effective tax rate is
due to an increase in net income from operations before income taxes in the
Florida region as a percentage of the consolidated income from operations before
income taxes for the three months ended December 31, 2004 when compared to the
three months ended December 31, 2003 as Florida has a lower state tax rate than
a majority of the states in which the Company operates.
Net Income
Net income for the six months ended December 31, 2004 increased $1,449,000, or
9.7%, to $16,432,000, compared with $14,983,000 for the six months ended
December 31, 2003. This increase in net income was attributable to an increase
in residential revenue earned primarily as a result of the Realen Homes
acquisition and favorable conditions in the homebuilding industry, resulting in
strong customer demand and positive home pricing trends. The Company believes
the primary factors resulting in favorable conditions in the homebuilding
industry include: the strong demand for new homes as a result of an increase in
immigration and new household formation; historically low interest rates which
enhance the affordability of homes; and the limited supply of entitled lots for
residential housing due to increased governmental regulation, which increases
the value of lots already owned by the Company.
The increase in net income for the six months ended December 31, 2004 was
reduced by approximately $1,762,000 on an after-tax basis due to the additional
costs recognized in connection with the deliveries of the acquired Realen Homes
inventory, as a result of the fair market value write-up of the acquired
inventory and backlog. This was partially offset by the recognition of
approximately $765,000 of net income that was previously deferred pending the
resolution of outstanding issues associated with one of the Company's closed
communities.
Net income for the three months ended December 31, 2004 increased $765,000, or
10.3%, to $8,230,000, compared with $7,465,000 for the three months ended
December 31, 2003. This increase in net income was attributable to an increase
in residential
29
revenue earned primarily as a result of favorable conditions in the homebuilding
industry, resulting in strong customer demand and positive home pricing trends.
The Company believes the primary factors resulting in favorable conditions in
the homebuilding industry include: the strong demand for new homes as a result
of an increase in immigration and new household formation; historically low
interest rates which enhance the affordability of homes; and the limited supply
of entitled lots for residential housing due to increased governmental
regulation, which increases the value of lots already owned by the Company.
The increase in net income for the three months ended December 31, 2004 was
reduced by approximately $679,000 on an after-tax basis due to the additional
costs recognized in connection with the second quarter deliveries of the
acquired Realen Homes inventory, as a result of the fair market value write-up
of the acquired inventory and backlog.
Liquidity and Capital Resources
On an ongoing basis, 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. The Company believes
that funds generated from operations and financial commitments from available
lenders will provide sufficient capital for the Company to meet its existing
operating needs.
REVOLVING CREDIT FACILITY
At December 31, 2004, the Company had $112 million of borrowing capacity of
which approximately $23,588,000 was then available to be drawn under the secured
revolving credit facility discussed below. A majority of the Company's debt is
variable rate, based on 30-day LIBOR or the prime rate, and therefore, the
Company is exposed to market risk in connection with interest rate changes. At
December 31, 2004, the 30-day LIBOR and prime rates of interest were 2.42% and
5.25%, respectively.
On December 22, 2004, Greenwood Financial, Inc., a wholly-owned subsidiary of
the Company and other wholly-owned subsidiaries of the Company, as borrowers,
and Orleans Homebuilders, Inc. as guarantor, entered into a Revolving Credit and
Loan Agreement (the "Credit Agreement") for a $500 Million Senior Secured
Revolving Credit and Letter of Credit Facility (the "Revolving Credit Facility")
with various banks as lenders. Under and subject to the terms of the Revolving
Credit Facility, the borrowers may borrow and re-borrow for the purpose of
financing the acquisition and development of real estate, the construction of
homes and improvements, for investment in joint ventures, for working capital
and for such other appropriate purposes as may be approved by the lenders.
Capitalized terms used below and not otherwise defined have the meanings set
forth in the Revolving Credit Agreement.
30
The Revolving Credit Facility replaces the Company's July 28, 2004 Bridge Loan
Agreement. In addition, the Company used approximately $388,000,000 of funds
available under the Revolving Credit Facility to acquire the real estate assets
of Peachtree Residential Properties in Charlotte, North Carolina and to repay
substantially all of the outstanding loans of the Company and its wholly-owned
subsidiaries from other banks and financial institutions. At December 31, 2004,
there is $388,000,000 outstanding under the Revolving Credit Facility. In
addition, approximately $37,000,000 of letters of credit and other assurances of
the availability of funds have been provided under the Revolving Credit
facility.
The Revolving Credit Facility has a three-year term and borrowings and advances
bear interest on a per annum basis equal to LIBOR Market Index Rate plus a
non-default variable spread ranging from 175 basis points to 237.5 basis points,
depending upon the Company's leverage ratio. During the term of the Revolving
Credit Facility, interest is payable monthly in arrears.
The total amount of loans and advances outstanding at any time may not exceed
the lesser of the then-current Borrowing Base Availability or the Revolving
Sublimit as defined in the Revolving Credit Facility. The Revolving Sublimit
initially is $500,000,000, but under certain circumstances may be increased to
up to $650,000,000. The Borrowing Base Availability is based on the lesser of
the appraised value or cost of real estate owned by the Company that has been
admitted to the borrowing base. Various conditions must be satisfied in order
for real estate to be admitted to the borrowing base, including that a mortgage
in favor of lenders has been delivered to the agent for lenders and that all
governmental approvals necessary to begin development of for-sale residential
housing, other than building permits and certain other permits borrower in good
faith believes will be issued within 120 days, have been obtained. Depending on
the stage of development of the real estate, the loan to value or loan to cost
advance rate ranges from 50% to 90% of the appraised value or cost of the real
estate.
As security for all obligations of borrowers to lenders under the Revolving
Credit Facility, lenders have a first priority mortgage lien on all real estate
admitted to the borrowing base. In addition, Orleans Homebuilders, Inc. has
guaranteed the obligations of the borrowers to lenders pursuant to a Guaranty
executed by Orleans Homebuilders, Inc. on December 22, 2004. Under the Guaranty,
Orleans Homebuilders, Inc. has granted lenders a security interest in any
balance or assets in any deposit or other account Orleans Homebuilders, Inc. has
with any lender.
In the event that the Company's leverage ratio is less than 2.00:1 as shown on
its financial statements for two consecutive quarters, and provided that there
exists no event of default or any fact or circumstance that, but for delivery of
notice or the passage of time (or both) would constitute an event of default and
that certain other conditions are met, upon request, the lenders are obligated
to release their mortgage liens granted pursuant to the Revolving Credit
Facility. After such a release, the requirements for real estate to be admitted
to the borrowing base are decreased and a mortgage in favor of lenders will no
longer be required for real estate to be admitted to the borrowing base.
31
The Revolving Credit Facility contains customary covenants that, subject to
certain exceptions, limit the ability of the Company to (among other things):
Incur or assume other indebtedness, except certain permitted
indebtedness;
Grant or permit to exist any lien, except certain permitted
liens;
Enter into any merger, consolidation or acquisition of all or
substantially all the assets of another entity;
Sell, assign, lease or otherwise dispose of all or substantially
all of its assets; or
Enter into any transaction with an affiliate that is not a
borrower or a guarantor under the Revolving Credit Facility, or
a subsidiary of either.
The Revolving Credit Facility also contains various financial covenants. Among
other things, the financial covenants require that:
As of the last day of each fiscal quarter, the ratio of the
Company's Adjusted EBITDA to Debt Service for the prior four
fiscal quarters be not less than 2.25:1.
The Company maintain a minimum Consolidated Adjusted Tangible
Net Worth equal to an amount not less than the sum of
(i) $140,000,000 plus (ii) an amount equal to fifty percent
(50%) of the net income of the Company earned during each fiscal
quarter that ends on or after December 22, 2004 plus (iii) all
of the net proceeds of equity securities issued by the Company
or any of its subsidiaries after December 22, 2004.
As of the last day of each fiscal quarter that ends on or before
June 30, 2006, the Company's Leverage Ratio not exceed 3.25:1.
As of the last day of each fiscal quarter that ends after
June 30, 2006, the Company's Leverage Ratio not exceed 3.00:1.
As of the last day of each fiscal quarter that ends on or after
the date, if any, on which the collateral securing the loans
under the Revolving Credit Facility is released in accordance
with the terms of the Revolving Credit Agreement, the Company's
Leverage Ratio shall not exceed 2.25:1.
32
In addition, the Revolving Credit Facility contains various financial covenants
with respect to the value of land in certain stages of development that may be
owned by the Company, a borrower or any subsidiary of the Company or a borrower
and limiting the number of units which are not subject to a bona-fide agreement
of sale that may be in the inventory of any borrower, the Company or any
subsidiary of the Company.
The Revolving Credit Facility provides that, subject to any applicable notice
and cure provisions, each of the following (among others) is an event of
default:
Failure by borrowers to pay when due any amounts owing under the
Revolving Credit Facility;
Failure by the Company to observe or perform any promise,
covenant, warranty, obligation, representation or agreement
under the Revolving Credit Facility or any other loan document;
Bankruptcy and other insolvency events with respect to any
borrower or the Company;
Dissolution or reorganization of any borrower or the Company;
The entry of a judgment or judgments against borrower(s) or the
Company: (i) in an aggregate amount that is at least $500,000 in
excess of available insurance proceeds, if such judgment or
judgments are not dismissed or bonded within 30 days; or
(ii) that prevents borrowers from conveying lots and units in
the ordinary course of business if such judgment or judgments
are not dismissed or bonded within 30 days; or the issuance of
any writs of attachment, execution or garnishment against any
borrower or the Company;
Any material adverse change in the financial condition of a
borrower or the Company which causes the lenders, in good faith,
to believe the that performance of any of the obligations under
the Revolving Credit Facility is impaired or doubtful for any
reason; and
Specified cross defaults.
Upon the occurrence and continuation of an event of default, after completion of
any applicable grace or cure period, lenders may demand immediate payment in
full of all indebtedness outstanding under the Revolving Credit Facility,
terminate their obligations to make any loans or advances or issue any letter of
credit, set off and apply any and all deposits held by any lender for the credit
or account of any borrower. In addition, upon the occurrence of certain events
of bankruptcy or other insolvency events with respect to
33
any borrower or the Company, all indebtedness outstanding under the Revolving
Credit Facility shall be immediately due and payable without any act or action
by lenders.
The Company is in compliance with all covenants of the Revolving Credit
Facility.
ACQUISITIONS
On December 23, 2004, pursuant to an Asset Purchase Agreement of the same date,
the Company acquired the real estate assets ("the Assets") described below from
Peachtree Residential Properties.
The Assets include: (a) improved and unimproved real property, (b) rights to
acquire real estate under options or agreements, (c) equipment, (d) rights under
certain contracts for the sale of homes to be sold and leases for real property,
(e) rights to certain tradenames, (f) homes and other improvements under
construction as of the closing, (g) certain plans, drawings, specifications,
permits and rights under warranties and (h) governmental approvals and books and
records associated with, or relating to the foregoing.
The Company paid $29,300,000 in cash, which covers the Assets and certain of
Seller's liabilities assumed by the Company, less $200,000 to be retained by the
Company and applied towards the administration of certain home warranty claims.
On July 28, 2004, pursuant to a Purchase Agreement of the same date, the Company
completed its acquisition of all of the issued and outstanding partnership
interests in Realen Homes, a Pennsylvania limited partnership. The terms of the
Purchase Agreement are as follows: (i) $53,348,000 in cash delivered at closing,
(ii) a promissory note of the Company in the aggregate principal amount of
$5 million, payable over a period of up to two years, with an interest rate of
3% per year and (iii) a warranty holdback of $1.5 million retained by the
Company to be applied toward the administration of any warranty claims made
against Realen Homes in excess of certain predetermined amounts. To finance the
acquisition of Realen Homes, refinance certain outstanding indebtedness of
Realen Homes and provide the Company with short-term liquidity for land
purchases and residential development and construction site improvements, the
Company obtained a $120,000,000 unsecured bridge loan. The unsecured bridge loan
has a maturity date of November 30, 2004. On November 17, 2004, the Unsecured
Bridge Loan was increased to $140,000,000 and the maturity date was extended to
December 31, 2004. On December 22, 2004, the Unsecured Bridge Loan was replaced
with the Revolving Credit Facility mentioned above. Interest was payable monthly
at 30-day LIBOR plus 225 basis points on the portion of the outstanding
principal balance that does not exceed $60,000,000 and 30-day LIBOR plus 250
basis points on the portion of the outstanding principal balance that exceeds
$60,000,000.
CASH FLOW STATEMENT
Net cash used in operating activities for the six months ended December 31, 2004
was $158,496,000, compared to net cash used by operating activities for the
prior fiscal year period of $43,227,000. The increase in net cash used in
operating activities during the six months ended December 31, 2004 was primarily
attributable to the acquisition of undeveloped land and improved building lots
that will yield approximately 2,870
34
building lots with an aggregate purchase price of approximately $119,337,000.
Net cash used in investing activities for the six months ended December 31, 2004
was $57,286,000, compared to $5,185,000 for the prior fiscal year period. This
increase was primarily related to the acquisition of Realen Homes on July 28,
2004. Net cash provided by financing activities for the six months ended
December 31, 2004 was $201,583,000, compared to $53,227,000 for the prior fiscal
year period. The increase in net cash provided by financing activities is
primarily attributable to borrowings under the new credit facility to acquire
Realen Homes, Peachtree Residential Properties, and the acquisition of
undeveloped land and improved building lots as noted above.
Lot Positions
As of December 31, 2004, the Company owned or controlled approximately 15,927
building lots. Included in the aforementioned lots, the Company had contracted
to purchase, or has under option, undeveloped land and improved building lots
for an aggregate purchase price of approximately $523,028,000 that are expected
to yield approximately 8,609 building lots.
Undeveloped Land Acquisitions
In recent years, the process of acquiring desirable undeveloped land has become
extremely competitive, particularly in the northern region, mostly due to the
lack of available parcels suitable for development. In addition, expansion of
regulation in the housing industry has increased the time it takes to acquire
undeveloped land with all of the necessary governmental approvals required to
begin construction. Generally, the Company structures its land acquisitions so
that it has the right to cancel its agreements to purchase undeveloped land by
forfeiture of its deposit under the agreement. For the six months ended December
31, 2004, the Company did not forfeit any land deposits related to the
cancellation of purchase agreements. Included in the balance sheet captions
"Inventory not owned - Variable Interest Entities" and "Land deposits and costs
of future development," at December 31, 2004 the Company had $23,506,000
invested in 57 parcels of undeveloped land, of which $13,932,000 is deposits, a
portion of which is non-refundable. These undeveloped parcels of land have an
aggregate purchase price of approximately $376,227,000 and are expected to yield
approximately 6,819 building lots.
The Company attempts to further mitigate the risks involved in acquiring
undeveloped land by structuring its undeveloped land acquisitions so that the
deposits required under the agreements coincide with certain benchmarks in the
governmental approval process, thereby limiting the amount at risk. This process
allows the Company to periodically review the approval process and make a
decision on the viability of developing the acquired parcel based upon expected
profitability. In some circumstances the Company may be required to make
deposits solely due to the passage of time. This structure still provides the
Company an opportunity to periodically review the viability of developing the
parcel of land. In addition, the Company primarily structures its agreements to
purchase undeveloped land to be contingent upon obtaining all governmental
approvals necessary for construction. Under most agreements, the Company secures
the responsibility for obtaining the required governmental approvals as the
Company
35
believes that it has significant expertise in this area. The Company intends to
complete the acquisition of undeveloped land after all governmental approvals
are in place. In certain circumstances, however, when all extensions have been
exhausted, the Company must make a decision on whether to proceed with the
purchase even though all governmental approvals have not yet been received. In
these circumstances, the Company performs reasonable due diligence to ascertain
the likelihood that the necessary governmental approvals will be granted. At
December 31, 2004, the Company owned one parcel that is expected to yield 646
building lots for which preliminary governmental approval for the construction
of homes has not been obtained. The $10,584,000 invested in the parcel, of which
$9,274,000 pertains to land and $1,310,000 pertains to site improvements, is
included in the balance sheet caption "Land deposits and costs of future
development," at December 31, 2004.
Improved Lot Acquisitions
The process of acquiring improved building lots from developers is extremely
competitive. The Company competes with many national homebuilders to acquire
improved building lots, some of which have greater financial resources than the
Company. The acquisition of improved lots is usually less risky than the
acquisition of undeveloped land as the contingencies and risks involved in the
land development process are borne by the developer. In addition, governmental
approvals are generally in place when the improved building lots are acquired.
At December 31, 2004, the Company had contracted to purchase or had under option
approximately 1,790 improved building lots for an aggregate purchase price of
approximately $146,801,000, including $6,320,000 of deposits. There were no
deposits forfeited during the six months ended December 31, 2004 with respect to
improved building lots.
The Company expects to utilize primarily the new secured revolving credit
facility as described above as well as other existing capital resources, to
finance the acquisitions of undeveloped land and improved lots described above.
The Company anticipates completing a majority of these acquisitions during the
next several years.
Critical Accounting Policies
For a discussion the Company's critical accounting policies, see "Critical
Accounting Policies" under Item 7 of the Company's Annual Report on Form 10-K
for fiscal year ended June 30, 2004 filed with the Securities and Exchange
Commission.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The
FASB issued a revised FIN 46 in December 2003 which modifies and clarifies
various aspects of the original interpretations. A Variable Interest Entity
("VIE") is created when (i) the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated
financial support from other parties or (ii) equity holders
36
either (a) lack direct or indirect ability to make decisions about the entity,
(b) are not obligated to absorb expected losses of the entity or (c) do not have
the right to receive expected residual returns of the entity if they occur. If
an entity is deemed to be a VIE, pursuant to FIN 46, an enterprise that absorbs
a majority of the expected losses of the VIE is considered the primary
beneficiary and must consolidate the VIE. For VIEs created before January 31,
2003, FIN 46 was deferred to the end of the first interim or annual period
ending after March 15, 2004. The Company fully adopted FIN 46 effective
March 31, 2004.
Based on the provisions of FIN 46, the Company has concluded that whenever it
enters into an option agreement to acquire land or lots from an entity and pays
a significant deposit that is not unconditionally refundable, a VIE is created
under condition (ii) (b) of the previous paragraph. The Company has been deemed
to have provided subordinated financial support, which refers to variable
interests that will absorb some or all of an entity's expected theoretical
losses if they occur. For each VIE created the Company will compute expected
losses and residual returns based on the probability of future cash flows as
outlined in FIN 46. If the Company is deemed to be the primary beneficiary of
the VIE it will consolidate the VIE on its balance sheet. The fair value of the
VIEs inventory will be reported as "Inventory Not Owned - Variable Interest
Entities."
At December 31, 2004, the Company consolidated twenty-four VIEs as a result of
its option to purchase land or lots from the selling entities. The Company paid
cash or issued letters of credit deposits to these twenty-four VIEs totaling
$8,488,000 and incurred additional pre-acquisition costs totaling $1,424,000.
The Company's deposits and any costs incurred prior to acquisition of the land
or lots, represent our maximum exposure to loss. The fair value of the VIEs
inventory will be reported as "Inventory Not Owned - Variable Interest
Entities." The Company recorded $93,927,000 in Inventory Not Owned - Variable
Interest Entities as of December 31, 2004. The fair value of the property to be
acquired less cash deposits and pre-acquisition costs, which totaled $86,156,000
at December 31, 2004, was reported on the balance sheet as Obligations related
to inventory not owned. Creditors, if any, of these VIEs have no recourse
against the Company.
The Company will continue to secure land and lots using options. Including the
deposits and other costs capitalized in connection with the VIEs above, the
Company had total costs incurred to acquire land and lots at December 31, 2004
of approximately $30,004,000, including $20,231,000 of cash deposits. The total
purchase price under these cancelable contracts or options is approximately
$523,028,000. The maximum exposure to loss is limited to the deposits, although
some deposits are refundable, and costs incurred prior to the acquisition of the
land or lots.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
"Accounting for Certain Financial Instruments With Characteristics of Both
Liabilities and Equity" ("SFAS No. 150"). This standard requires issuers to
classify as liabilities the following three types of freestanding financial
instruments: (1) mandatory redeemable financial instruments, (2) obligations to
repurchase the issuer's equity shares by transferring assets; and (3) certain
obligations to issue a variable number of shares. The Company adopted
SFAS No. 150 effective July 1, 2003. The adoption of SFAS No. 150
37
did not have a material impact on the financial position or results of
operations of the Company.
In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"),
"Revenue Recognition" which supersedes SAB 101, "Revenue Recognition in
Financial Statements." SAB 104's primary purpose is to rescind the accounting
guidance contained in SAB 101 related to multiple element revenue arrangements,
superseded as a result of the issuance of EITF 00-21. The Company adopted the
provisions of this statement immediately, as required, and it did not have a
significant impact on the Company's Consolidated Financial Statements.
EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables,"
issued during the third quarter of 2003, provides guidance on revenue
recognition for revenues derived from a single contract that contain multiple
products or services. EITF 00-21 also provides additional requirements to
determine when these revenues may be recorded separately for accounting
purposes. The Company adopted EITF 00-21 on July 1, 2003, as required, and it
did not have a significant impact on the Company's Consolidated Financial
Statements.
In December 2004, the FASB revised FAS 123 through the issuance of FAS No. 123
"Share Based Payment", revised ("FAS 123-R"). FAS 123-R is effective for the
Company commencing July 1, 2005. FAS 123-R, among other things, eliminates the
alternative to use the intrinsic value method of accounting for stock based
compensation and requires entities to recognize the cost of employee services
received in exchange for awards of equity instruments based on the grant-date
fair value of those awards (with limited exceptions). The fair value based
method in FAS 123-R is similar to the fair-value-based method in FAS 123 in most
respects, subject to certain key differences. The Company is in the process of
evaluating the impact of such key differences between FAS 123 and FAS-123R, but
does not currently believe that the adoption of FAS 123-R will have a material
impact on the Company.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
In addition to historical information, this report contains statements relating
to future events or our future results. These statements are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and are subject to the Safe Harbor provisions created by statute.
Generally words such as "may", "will", "should", "could", "anticipate",
"expect", "intend", "estimate", "plan", "continue", and "believe" or the
negative of or other variation on these and other similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this report. The Company does not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
Forward-looking statements are based on current expectations and involve risks
and uncertainties and the Company's future results could differ significantly
from those expressed or implied by the Company's forward-looking statements.
38
Many factors, including those listed below, 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, the Company:
o Future increases in interest rates or a decrease in the availability of
mortgage financing could lead to fewer home sales, which could adversely
affect the Company's total earned revenues and earnings.
o Changes in consumer confidence due to perceived uncertainty of future
employment opportunities or other factors could lead to fewer home sales
by the Company.
o The Company is subject to substantial risks with respect to the land and
home inventories it maintains and fluctuations in market conditions may
affect the Company's ability to sell its land and home inventories at
expected prices, if at all, which could reduce the Company's total
earned revenues and earnings.
o The Company's business is subject to governmental regulations that may
delay, increase the cost of, prohibit or severely restrict the Company's
development and homebuilding projects and reduce its total earned
revenues and growth.
o States, cities and counties in which the Company operates have adopted,
or may adopt, slow or no growth initiatives which would reduce the
Company's ability to build and sell homes in these areas and could
adversely affect the Company's total earned revenues and earnings.
o The Company may not be successful in its effort to identify, complete or
integrate acquisitions, which could disrupt the activities of the
Company's current business and adversely affect the Company's results of
operations and future growth.
o The Company is dependent on the services of certain key employees and
the loss of their services could harm the Company's business.
o The Company may not be able to acquire suitable land at reasonable
prices, which could result in cost increases the Company is unable to
recover and reduce the Company's total earned revenues and earnings.
o The Company's significant level of debt could adversely affect its
financial condition and prevent it from fulfilling its debt service
obligations.
o The competitive conditions in the homebuilding industry could increase
the Company's costs, reduce its total earned revenues and earnings and
otherwise adversely affect its results of operations or limit its
growth.
o The Company may need additional financing to fund its operations or to
expand its business, and if the Company is unable to obtain sufficient
financing or such
39
financing is obtained on adverse terms, the Company may not be able to
operate or expand its business as planned, which could adversely affect
the Company's results of operations and future growth.
o Shortages of labor or materials and increases in the price of materials
can harm the Company's business by delaying construction, increasing
costs, or both.
o The Company depends on the continued availability and satisfactory
performance of its subcontractors which, if unavailable, could have a
material adverse effect on the Company's business by limiting its
ability to build and deliver homes.
o The Company is subject to construction defect, product liability and
warranty claims arising in the ordinary course of business that could
adversely affect its results of operations.
o The Company is subject to mold litigation and mold claims arising in the
ordinary course of business for which the Company has no insurance that
could adversely affect the Company's results of operations.
o The Company's business, total earned revenues and earnings may be
adversely affected by natural disasters or adverse weather conditions.
o The Company may be subject to environmental liabilities that could
adversely affect its results of operations or the value of its
properties.
o Increases in taxes or government fees could increase the Company's costs
and adverse changes in tax laws could reduce customer demand for the
Company's homes, either of which could reduce the Company's total earned
revenues or profitability.
o There are a number of laws, regulations and accounting pronouncements,
recently adopted or proposed, that could affect the Company's corporate
governance or accounting practices.
o Acts of war or terrorism may seriously harm the Company's business.
o Jeffrey P. Orleans, Chairman and Chief Executive Officer and the
Company's majority shareholder, can cause the Company to take certain
actions or preclude the Company from taking actions without the approval
of the other shareholders and may have interests that could conflict
with the interests of other shareholders.
o The Company has entered into several transactions with related parties,
including entities controlled by Mr. Jeffrey P. Orleans, which may
create conflicts of interest.
40
Item 3. 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's
principal market risk exposure continues to be interest rate risk. A majority of
the Company's debt is variable based on LIBOR or the prime rate, and, therefore,
affected by changes in market interest rates. Based on current operations, an
increase or decrease in interest rates of 100 basis points will result in a
corresponding increase or decrease in cost of sales and interest charges
incurred by the Company of approximately $3,900,000 in a fiscal year, a portion
of which will be capitalized and included in cost of sales as homes are
delivered. The Company believes that reasonably possible near-term interest rate
changes will not result in a material negative effect on future earnings, fair
values or cash flows of the Company. Generally, the Company has been able to
recover any increased costs of borrowing through increased selling prices;
however, there is no assurance the Company will be able to continue to increase
selling prices to cover the effects of any increase in near-term interest rates.
Changes in the prices of commodities that are a significant component of home
construction costs, particularly lumber, may result in unexpected short term
increases in construction costs. Since the sales price of the Company's homes is
fixed at the time the buyer enters into a contract to acquire a home and because
the Company generally contracts to sell its homes before construction begins,
any increase in costs in excess of those anticipated may result in gross margins
lower than anticipated for the homes in the Company's backlog. The Company
attempts to mitigate the market risks of price fluctuation of commodities by
entering into fixed-price contracts with its subcontractors and material
suppliers for a specified period of time, generally commensurate with the
building cycle.
There have been no material adverse changes to the Company's (1) exposure to
risk and (2) management of these risks, since June 30, 2004.
Item 4. Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer, President and Chief Operating Officer, and Chief Financial
Officer, evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer, President and Chief Operating Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are functioning effectively to provide reasonable assurance that
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. There has been
no change in the Company's internal control over financial reporting during the
Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
41
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On December 2, 2004, the Company held its Annual Meeting of Stockholders
pursuant to a notice dated October 18, 2004. Definitive proxy materials were
filed with the Securities and Exchange Commission prior to the meeting. A total
of 16,961,014 shares were voted at the meeting constituting 97.2% of the
17,455,133 shares entitled to vote.
At the Annual Meeting, the ten nominees (Benjamin D. Goldman, Jerome S. Goodman,
Robert N. Goodman, Andrew N. Heine, David Kaplan, Lewis Katz, Jeffrey P.
Orleans, Robert M. Segal, John W. Temple and Michael T.Vesey) for election to
the Company's Board of Directors were all elected. The results of the vote were
as follows:
Shares for Which
Share Voted For Vote was Withheld
--------------- -----------------
Benjamin D. Goldman 16,443,975 517,039
Jerome S. Goodman 16,935,366 25,648
Robert N. Goodman 16,921,646 39,368
Andrew N. Heine 16,915,196 45,818
David Kaplan 16,935,366 25,648
Lewis Katz 16,444,137 516,877
Jeffrey P. Orleans 16,445,660 515,354
Robert M. Segal 16,444,705 516,309
John W. Temple 16,822,844 138,170
Michael T. Vesey 16,445,910 515,104
In addition, approval of an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares from 20 million to 23
million was voted upon as follows: shares voted for - 16,490,382; shares voted
against - 467,832; and abstentions - 2,800.
Approval of the Orleans Homebuilders, Inc. 2004 Omnibus Stock Incentive Plan was
also voted upon as follows: shares voted for - 14,348,756; shares voted
against - 598,748; abstentions - 5,550; and broker non-votes - 2,007,960.
42
Item 6. Exhibits.
(a) Exhibits.
3.1* Certificate of Incorporation of the Company, as amended, as
effective December 3, 2004.
3.2 By-laws of Orleans Homebuilders, Inc. as of August 26, 2004
(Incorporated by reference to Exhibit 3.1 to the Company's
Form 8-K filed with the Commission on December 7, 2004).
10.1 Revolving Credit Loan Agreement among Greenwood Financial,
Inc. and certain other subsidiaries of Orleans Homebuilders,
Inc., Orleans Homebuilders, Inc. and Wachovia Bank, National
Association and certain other lenders, dated December 22, 2004
(Incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K filed with the Commission on December 29, 2004).
10.2 2004 Omnibus Stock Incentive Plan and form of option grant
(Incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K filed with the Commission on December 6, 2004).
10.3 First Amendment to the Bridge Loan Agreement made by and among
Orleans Homebuilders, Inc. and Wachovia National Bank dated
November 17, 2004 (Incorporated by reference to Exhibit 10.1
to the Company's Form 8-K filed with the Commission on
November 19, 2004).
10.4 Guaranty by Orleans Homebuilders, Inc., dated December 22,
2004 (Incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K filed with the Commission on December 29,
2004).
31.1* Certification of Jeffrey P. Orleans pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2* Certification of Michael T. Vesey pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.3* Certification of Joseph A. Santangelo pursuant to Section 302
Sarbanes-Oxley Act of 2002.
32.1* Certification of Jeffrey P. Orleans pursuant to Section 906
Sarbanes-Oxley Act of 2002.
32.2* Certification of Michael T. Vesey pursuant to Section 906
Sarbanes-Oxley Act of 2002.
43
32.3* Certification of Joseph A. Santangelo pursuant to Section 906
Sarbanes-Oxley Act of 2002.
* Exhibits filed herewith electronically.
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORLEANS HOMEBUILDERS, INC.
(Registrant)
February 14, 2005
----------------------------------------
Michael T. Vesey
President and Chief Operating Officer
February 14, 2005
----------------------------------------
Joseph A. Santangelo
Treasurer, Secretary and Chief Financial
Officer
45
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Company, as amended, as effective
December 3, 2004.
3.2 By-laws of Orleans Homebuilders, Inc. as of August 26, 2004
(Incorporated by reference to Exhibit 3.1 to the Company's Form 8-K
filed with the Commission on December 7, 2004).
10.1 Revolving Credit Loan Agreement among Greenwood Financial, Inc. and
certain other subsidiaries of Orleans Homebuilders, Inc., Orleans
Homebuilders, Inc. and Wachovia Bank, National Association and certain
other lenders, dated December 22, 2004 (Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed with the Commission on
December 29, 2004).
10.2 2004 Omnibus Stock Incentive Plan and form of option grant (Incorporated
by reference to Exhibit 10.1 to the Company's Form 8-K filed with the
Commission on December 6, 2004).
10.3 First Amendment to the Bridge Loan Agreement made by and among Orleans
Homebuilders, Inc. and Wachovia National Bank dated November 17, 2004
(Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
filed with the Commission on November 19, 2004).
10.4 Guaranty by Orleans Homebuilders, Inc., dated December 22, 2004
(Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K
filed with the Commission on December 29, 2004).
31.1 Certification of Jeffrey P. Orleans pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Michael T. Vesey pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification of Joseph A. Santangelo pursuant to Section 302
Sarbanes-Oxley Act of 2002.
32.1 Certification of Jeffrey P. Orleans pursuant to Section 906
Sarbanes-Oxley Act of 2002.
32.2 Certification of Michael T. Vesey pursuant to Section 906 Sarbanes-Oxley
Act of 2002.
32.3 Certification of Joseph A. Santangelo pursuant to Section 906
Sarbanes-Oxley Act of 2002.
46