FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 13, 2000
Commission File No. l-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, Pennsylvania 19020
(Address of principal executive offices)
Telephone: (215) 245-7500
(Registrant's telephone number, including area code)
This Form 8-K/A amends the Registrant's Form 8-K dated October 13, 2000, which
was filed on October 26, 2000, by adding the financial statements and
information required by Item 7(a) and (b).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibit.
- ------ -----------------------------------------------------------------
(a) Financial Statements of Business Acquired Page
----
Independent Auditors Report F-3
Consolidated Balance Sheet as of June 30, 2000 F-4-5
Consolidated Statement of Operations for the year ended
June 30, 2000 F-6
Consolidated Statement of Changes in Stockholders'
Equity for the year ended June 30, 2000 F-7-8
Consolidated Statement of Cash Flows for the year
ended June 30, 2000 F-9-10
Notes to Consolidated Financial Statements F-11-19
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidated Statement
of Operations for the year ended June 30, 2000 F-21
Unaudited Pro Forma Combined and Condensed Balance
Sheet as of June 30, 2000 F-22
On October 13, 2000, Orleans Homebuilders, Inc. (Orleans) acquired all
of the issued and outstanding shares of Parker & Lancaster Corporation (Parker).
The purchase price consisted of (i) approximately $5 million in cash at closing;
(ii) subordinated promissory notes in the aggregate principal amount of $1
million, payable over four years; (iii) 150,000 shares of common stock of
Orleans issuable in equal installments on each of the first four anniversaries
of the closing of the acquisition; and (iv) 25% of the pre-tax profits of Parker
in excess of $1,750,000 for each of the fiscal years ended June 30, 2001, 2002
or 2003, subject to a cumulative payout of $1,250,000. In addition to the
purchase price, Orleans has agreed to the following with former Parker
Shareholders, conditioned upon their continued employment with Parker: (i) up to
an aggregate of 150,000 shares of common stock of Orleans, in equal installments
on each of the first four anniversaries of the closing of the acquisition; and
(ii) payments at the end of the next three fiscal years of Orleans equal to 25%
of Parker's pretax profits in excess of $1,750,000, not to exceed $1.25 million.
1
(c) Exhibits
The following Exhibit is filed as part of this report:
23. Consent of L.P. Martin & Company
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 hereunto duly authorized.
ORLEANS HOMEBUILDERS, INC.
By: S/Joseph A. Santangelo
-----------------------
Chief Financial Officer
Dated: December 19, 2000
2
PARKER & LANCASTER CORPORATION
------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
RICHMOND, VIRGINIA
F-1
TABLE OF CONTENTS
-----------------
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
- ----------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
JUNE 30, 2000:
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to the Consolidated Financial Statements 7
F-2
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
MEMBERS CERTIFIED PUBLIC ACCOUNTANTS MEMBERS
VIRGINIA SOCIETY OF 4132 INNSLAKE DRIVE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS GLEN ALLEN, VIRGINIA 23060 CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A. PHONE: (804) 346-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. FAX: (804) 346-9311 LEE P. MARTIN, C.P.A. (1945-75)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
Independent Auditors' Report
----------------------------
To the Directors and Stockholders
Parker & Lancaster Corporation
Richmond, Virginia
We have audited the accompanying consolidated balance sheet of Parker &
Lancaster Corporation as of June 30, 2000, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Parker & Lancaster
Corporation as of June 30, 2000, and the results of its operations, changes in
stockholders' equity, and cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ L.P. Martin & Company, P.C.
- -------------------------------
August 28, 2000
F-3
PARKER & LANCASTER CORPORATION
------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
JUNE 30, 2000
-------------
ASSETS
------
CASH AND CASH EQUIVALENTS $ 1,555,769
-----------
MARKETABLE SECURITIES 181,758
-----------
RECEIVABLES:
Contracts 205,961
Notes 50,586
Escrows 64,225
Officer 163,335
Income Taxes 447,242
Other 294,913
-----------
TOTAL RECEIVABLES 1,226,262
-----------
INVENTORIES:
Houses in Process of Construction 35,507,177
Land Under Development 173,056
-----------
TOTAL INVENTORIES 35,680,233
-----------
COSTS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 419,964
-----------
PROPERTY AND EQUIPMENT:
Equipment 38,273
Autos and Trucks 208,505
Office and Model Furniture and Equipment 980,095
Leasehold Improvements 100,001
-----------
Total 1,326,874
Less: Accumulated Depreciation (900,812)
-----------
NET PROPERTY AND EQUIPMENT 426,062
-----------
PREPAID EXPENSES 8,856
-----------
DEPOSITS 439,349
-----------
CASH SURRENDER VALUE 35,235
-----------
TOTAL ASSETS $39,973,488
===========
The accompanying notes are an integral part of this consolidated statement.
F-4
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
NOTES PAYABLE $27,671,475
-----------
ACCOUNTS PAYABLE, TRADE 4,618,832
-----------
ACCRUED EXPENSES:
- ----------------
Interest 240,981
Compensation 580,719
Other 232,856
-----------
TOTAL ACCRUED EXPENSES 1,054,556
-----------
DEPOSITS ON CONTRACTS 246,419
-----------
DEFERRED INCOME TAXES 213,912
-----------
TOTAL LIABILITIES 33,805,194
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
- --------------------
Common Stock:
Class A - $10 Par Value - Authorized 5,000 Shares 12,650
Class B - $1 Par Value - Authorized 5,000 Shares 70
Class C - $0 Par Value - Authorized 5,000 Shares -
Additional Paid-in Capital 170,780
Retained Earnings 5,875,739
Accumulated Other Comprehensive Income:
Unrealized Gains on Securities 109,055
-----------
TOTAL STOCKHOLDERS' EQUITY 6,168,294
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $39,973,488
===========
F-5
PARKER & LANCASTER CORPORATION
------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
REVENUES - HOME SALES $92,006,010
-----------
DIRECT COSTS:
- ------------
Cost of Homes Sold 84,652,240
Warranty, Supplies and Other Costs 919,811
-----------
TOTAL DIRECT COSTS 85,572,051
-----------
GROSS PROFIT 6,433,959
GENERAL AND ADMINISTRATIVE EXPENSES 4,516,033
INTEREST EXPENSE, NET OF INTEREST
CAPITALIZED TO INVENTORIES OF $2,578,342 362,221
-----------
OPERATING INCOME 1,555,705
-----------
OTHER INCOME:
- ------------
Commission Income, Net of Commission Expense of $46,086 8,710
Interest income 57,851
Miscellaneous Income 121,850
Gain on Sale of Property and Equipment 121,339
-----------
TOTAL OTHER INCOME 309,750
-----------
INCOME BEFORE INCOME TAXES 1,865,455
PROVISION FOR INCOME TAXES 740,344
-----------
NET INCOME $ 1,125,111
===========
The accompanying notes are an integral part of this consolidated statement.
F-6
PARKER & LANCASTER CORPORATION
------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
Common Stock
------------
Class A Class B
----------------------------------- -----------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ---------------
BALANCE - JUNE 30, 1999 1,265 $ 12,650 $ 70 $ 70
--------------- ---------------- --------------- ---------------
COMPREHENSIVE
INCOME:
Net Income - - - -
OTHER
COMPREHENSIVE
INCOME:
Unrealized Gains
on Securities,
Net of Tax of
$72,703 - - - -
--------------- ---------------- --------------- ---------------
TOTAL
COMPREHENSIVE
INCOME - - - -
--------------- ---------------- --------------- ---------------
BALANCE - JUNE 30, 2000 1,265 $ 12,650 70 $ 70
=============== ================ =============== ===============
The accompanying notes are an integral part of this consolidated statement.
F-7
Common Stock
------------ Accumulated
Class C Additional Other
----------------------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
--------------- ---------------- -------------------- ------------ ------------- -------------
1,100 $ - $ 170,780 $ 4,750,628 $ - $ 4,934,128
--------------- ---------------- --------------- ------------- ------------- -------------
- - - 1,125,111 - 1,125,111
- - - - 109,055 109,055
--------------- ---------------- --------------- ------------- ------------- -------------
- - - 1,125,111 109,055 1,234,166
--------------- ---------------- --------------- ------------- ------------- -------------
1,100 $ - $ 170,780 $ 5,875,739 $ 109,055 $ 6,168,294
=============== ================ =============== ============= ============= =============
F-8
PARKER & LANCASTER CORPORATION
------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
OPERATING ACTIVITIES:
- --------------------
Net Income $ 1,125,111
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation 148,666
Loss on Sale of Property and Equipment 3,661
Deferred Income Taxes 89,461
Changes in Operating Assets and Liabilities:
Increase in Receivables (830,633)
Increase in Inventories (3,123,857)
Increase in Costs in Excess of Billings
on Uncompleted Contracts (72,538)
Increase in Prepaid Expenses (4,445)
Increase in Deposits (72,068)
Decrease in Accounts Payable (983,086)
Increase in Accrued Expenses 188,331
Decrease in Deposits on Contracts (76,340)
Decrease in Income Taxes Payable (706,531)
-----------
NET CASH USED BY OPERATING ACTIVITIES (4,314,268)
-----------
INVESTING ACTIVITIES:
- --------------------
Purchase of Property and Equipment (139,879)
Proceeds from Sale of Property and Equipment 10,043
-----------
NET CASH USED BY INVESTING ACTIVITIES (129,836)
-----------
FINANCING ACTIVITIES:
- --------------------
Principal Payments on Installment Loans (18,205)
Proceeds from Construction Loans 57,223,818
Principal Payments on Construction Loans (53,784,815)
Proceeds from Working Capital and Other Loans 1,476,750
Principal Payments on Working Capital and Other Loans (983,714)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,913,834
-----------
(Continued)
F-9
PARKER & LANCASTER CORPORATION
------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
DECREASE IN CASH AND CASH EQUIVALENTS $ (530,270)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 2,086,039
-----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,555,769
===========
SUPPLEMENTAL DISCLOSURE:
Cash Paid During the Year for Interest, Net of
Amounts Capitalized $ 362,221
===========
Cash Paid During the Year for Income Taxes $ 1,817,259
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
OPERATING, INVESTING AND FINANCING
ACTIVITIES:
Increase in Marketable Securities and Unrealized
Gains on Securities, Net of Deferred Income
Taxes of $72,703 $ 109,055
===========
Sale of Property and Equipment:
Book Value of Property $ 123,658
Note Payable Assumption $ 127,250
Accrued Expenses $ 3,592
Gain on Sale $ 125,000
The accompanying notes are an integral part of this consolidated statement.
F-10
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
-------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business and Accounting Method - The Company is primarily a builder of
residential homes in Virginia and North Carolina. Homes are built primarily on
lots owned by the Company. Therefore, the deposit method of income recognition
is used whereby sales of homes are recognized upon closing. The accompanying
consolidated financial statements include the accounts of Parker & Lancaster
Corporation and its wholly-owned operating subsidiary, P&L Realty, Inc. (the
Company) after eliminating all material intercompany transactions and balances.
Inventory - Inventories of houses are stated at the lower of cost or estimated
net realizable value with cost being determined as the actual cost of land,
construction, all carrying and development costs and certain indirect costs
incurred by the Company. Inventories of land under development are stated at the
lower of cost or estimated net realizable value with cost being determined as
the actual cost of land and all carrying and development costs incurred by the
Company. Costs in excess of billings on uncompleted contracts represents all
construction costs incurred in excess of amounts billed for all joint venture
houses in process of construction at year end (see Note 6).
Depreciation - Property and equipment is stated at cost. Expenditures for
renewals and betterments are capitalized and maintenance, repairs and minor
renewals are expensed as incurred. Depreciation is computed by straight-line and
accelerated methods with estimated useful lives ranging from 5 to 27.5 years.
Advertising Costs - Advertising costs are expensed when incurred. Advertising
costs incurred were $246,120 for the year ended June 30, 2000.
Income Taxes - Temporary differences in the basis of assets and liabilities for
financial statement and income tax reporting arise primarily from the
recognition of income and expenses related to inventory costs capitalized and
interest costs. Provision has been made for income taxes due on taxable income
and for the deferred taxes on the temporary differences. Deferred income taxes
are determined based on the expected income tax rates for the years in which
these taxes will be payable or refundable.
Statement of Cash Flows - The statement of cash flows is presented using the
indirect method which reconciles net income to net cash flow from operating
activities. The Company's definition of cash and cash equivalents includes items
such as short term, highly liquid investments with maturities of three months or
less at date of purchase.
(Continued)
F-11
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
- --------------------------------------------------------------
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - MARKETABLE EQUITY SECURITIES
- -------------------------------------
The following is a summary of investment securities classified as available for
sale at June 30, 2000:
Gross
Unrealized
Fair Value Gains Cost Basis
--------------- ---------------- ---------------
Trigon Healthcare, Inc. $ 181,758 $ 181,758 $ -
The change in unrealized holding gain on securities available for sale, net of
tax, that has been included as a separate component of stockholders' equity for
the year ended June 30, 2000 was $109,055.
NOTE 3 - NOTES PAYABLE
- ----------------------
The following comprise the Company's notes payable at June 30, 2000:
Residential construction loans payable on demand, with
interest at prime plus .5% to 1.0% on certain loans and
LIBOR plus 2.50% to 3.05% on other loans. Secured by
deeds of trust on lots and the personal guarantee of the
majority stockholder and his wife. Total construction
lines of credit of $78,500,000 at June 30, 2000, with
the lines expiring beginning November 1, 2000 through
February 1, 2001. $ 27,111,171
(Continued)
F-12
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 3 - NOTES PAYABLE, CONTINUED
Installment notes payable over 36 to 60 months
including interest at 3.90% to 8.99%.
Secured by automobiles. $ 33,897
Note payable on demand without interest, unsecured. 30,000
Working capital loan payable on demand with interest at
prime plus 1.25%, unsecured. 500,000
-----------
27,675,068
Less finance charges included in above balances (3,593)
-----------
TOTAL NOTES PAYABLE $27,671,475
===========
The maturities of debt as of June 30, 2000 are as follows:
Year Ending
June 30, Amount
--------------- ---------------
2001 $ 27,661,506
2002 4,415
2003 4,415
2004 1,139
---------------
TOTAL $ 27,671,475
===============
In addition to the above, the Company has two working capital lines of credit
which total $1,100,000 that allow for borrowing at the rate of prime plus 1.25%.
As of June 30, 2000, the Company has no borrowings under these lines of credit.
(Continued)
F-13
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 4 - PROFIT SHARING PLAN
- ----------------------------
The Company has a profit-sharing plan which covers substantially all employees
who were employed by the Company for at least twelve months at the end of the
fiscal year. The Company's contribution to the Plan, as determined by the Board
of Directors, is discretionary and in no event will exceed the amount permitted
under the Internal Revenue Code as a deductible expense.
The Plan was amended January 1, 1994 to allow for employees to make
contributions to the Plan of a portion of their compensation. The Company shall
contribute matching contributions to the Plan equal to fifty percent of the
employee elective contributions not to exceed three percent of compensation. The
Company made employee matching contributions of $69,568 for the year ended June
30, 2000.
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The amount due from an officer at June 30, 2000 represents interest bearing
advances with no specific repayment terms. Included in other receivables are
non-interest bearing amounts due from employees and related parties in the
amount of $282,611 as of June 30, 2000.
The Company leases office and warehouse space from a partnership of which its
majority stockholder is a general partner. Annual lease payments in connection
with this lease were $60,600 for the year ended June 30, 2000. The Company is
also a partner in two related party real estate partnerships with its
investments being included in deposits in the amount of $52,506 as of June 30,
2000.
Included in cost of homes sold are expenses incurred with related parties in the
amount of $153,208 for the year ended June 30, 2000. Included in home sales for
the year ended June 30, 2000 is a sale to a related party in the amount of
$81,844 with a corresponding cost of home sold of $79,749.
On June 30, 2000, the Company sold certain property and equipment with a book
value of $123,658 to the majority stockholder in exchange for the stockholder
assuming the associated debt on the property in the amount of $127,250 plus
additional consideration to be received of $125,000. The total gain recognized
by the Company in connection with this transaction amounted to $125,000.
(Continued)
F-14
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS, CONTINUED
- ----------------------------------------------
Subsequent to June 30, 2000, the Company transferred certain houses in process
of construction and the corresponding construction financing to a related party
home builder. The cost of the transferred houses approximated $1,070,000 as of
June 30, 2000 and the amount of the transferred debt approximated $530,000 as of
June 30, 2000. Additional consideration of approximately $540,000 was received
by the Company resulting in no profit or loss being recognized by the Company in
connection with this related party transaction.
NOTE 6 - JOINT VENTURES
- -----------------------
The Company (PLC) has entered into several joint venture agreements with Builder
Resource and Development Co., L. P. (BRD). The purpose of the agreements are to
purchase land and construct and sell homes in certain areas of Virginia and
North Carolina. Under certain agreements, PLC receives 65% of the net profits
from the sale of homes constructed and sold under the agreements. Under certain
other agreements, BRD receives a fee equal to 4% of the gross sales price of
each home with PLC receiving the remaining net profits. As of June 30, 2000,
construction of homes under agreements with BRD was ongoing.
For all homes built in connection with these joint venture agreements, sales of
homes are recognized upon closing. Contract costs include direct materials,
labor, subcontractors and allocated indirect costs related to contract
performance.
The amounts reflected in the financial statements related to the joint ventures
are presented below.
Revenues - Home Sales $ 6,721,006
===========
Cost of Homes Sold $ 6,175,549
===========
Accrued Expenses - Other $ 2,521
===========
Costs Incurred on Uncompleted Contracts $ 1,253,516
Less: Applicable Billings (833,552)
-----------
Costs in Excess of Billings on Uncompleted Contracts $ 419,964
===========
(Continued)
F-15
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 7 - CONCENTRATION OF CREDIT RISK
- --------------------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash. As of June 30, 2000, the Company has
$276,161 of cash deposits in excess of federally insured limits being held by a
federally insured financial depository institution.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
At June 30, 2000, the Company has specific performance commitments for the
purchase of lots in the approximate amount of $4,300,000. In connection with
these commitments, the Company has $377,500 of outstanding letters of credit
naming the respective developers as beneficiaries.
The Company leases certain office and warehouse space under operating leases
that expire during 2001 and 2002. These leases require minimum monthly payments
that currently range from $1,675 to $2,063. The Company also leases vehicles
under operating leases that expire during 2001 through 2004. The auto leases
require minimum monthly payments that range from $267 to $762. The Company also
leases office equipment under operating leases that expire during 2001 through
2004. The equipment leases require minimum monthly payments that range from $72
to $727. Lease expense incurred in connection with these office, vehicle and
equipment leases for the year ended June 30, 2000 amounted to $234,511.
The following is a schedule of minimum rental payments required on the
previously mentioned leases as of June 30, 2000:
Year Ending
June 30, Total
----------------- -----------
2001 $ 128,073
2002 38,999
2003 12,434
2004 3,877
----------
TOTAL $ 183,383
==========
(Continued)
F-16
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES, CONTINUED
- -------------------------------------------------
The Company, in the ordinary course of business, is the subject of, or a party
to, various threatened legal actions. Management believes that any ultimate
liability arising from these actions should not have a material adverse effect
on the financial position of the Company. Due to uncertainties in the settlement
process, it is at least reasonably possible that management's estimate of any
ultimate liability will change in the near term.
The Company has guaranteed the indebtedness of a related party home builder in
connection with three construction lines of credit and a working capital line of
credit of the related party in the total authorized lines of credit amount of
$5,000,000 as of June 30, 2000.
NOTE 9 - INCOME TAXES
- ---------------------
The components of the provision for income taxes are reflected on the statement
of operations included in these financial statements as follows:
Current Provision $ 650,883
Deferred Provision 89,461
-----------
Total Provision for Income Taxes $ 740,344
===========
The differences between taxes computed at the statutory federal income tax rate
and taxes computed for financial reporting purposes are as follows:
Taxes Computed at Federal Statutory Rate $ 634,255
State Income Taxes, Net of Federal Tax Benefit 91,162
Federal Taxes on Expenses not Deductible for Federal Tax Purposes 14,122
Other 805
---------
Actual Income Tax Provision $ 740,344
=========
(Continued)
F-17
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 9 - INCOME TAXES, CONTINUED
- --------------------------------
The financial statements include a deferred income tax provision of $89,461 for
the year ended June 30, 2000, which results from the following. A deferred tax
liability of $463,334 has been recognized for the taxable temporary difference
related to expensing currently for income tax purposes interest incurred to
finance lot costs and post construction period interest. A deferred tax asset of
$253,055 has been recognized for the deductible difference related to
capitalizing for income tax purposes certain inventory related costs. A deferred
tax asset of $29,869 has been recognized for the deductible difference related
to not being able to currently deduct for tax purposes the accrued bonus to a
stockholder of the Company. A deferred tax asset of $39,201 has been recognized
for the deductible difference related to not being able to currently deduct for
tax purposes accrued warranty expense. A valuation allowance on the deferred tax
asset is not deemed necessary based on the anticipated realization of the
benefit.
The components of the deferred tax asset and liability are reflected on the
balance sheet included in these financial statements as follows:
Liabilities:
Deferred Income Taxes $ 463,334
Deferred Income Tax Benefit (322,125)
----------
141,209
Deferred Tax Liability for the Taxable Temporary
Difference Related to Unrealized Gains on
Marketable Equity Securities 72,703
----------
Net Deferred Income Taxes $ 213,912
==========
NOTE 10 - CLASS C COMMON STOCK
Effective January 1, 1999, the Company authorized the issuance of a third class
of common stock. The Class C common shares have no voting rights and are not
entitled to the payment of dividends. The Class C common shares are also not
entitled to any distribution of assets or capital including distributions upon
dissolution or liquidation except in the case of a change in control as defined
in the respective articles of amendment to the corporate articles of
incorporation.
(Continued)
F-18
PARKER & LANCASTER CORPORATION
------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
YEAR ENDED JUNE 30, 2000
------------------------
NOTE 11 - PENDING CHANGE IN OWNERSHIP
- -------------------------------------
On June 2, 2000, the stockholders of the Company entered into a letter of intent
with a third party corporation whereby the third party would acquire all
outstanding equity securities of the Company. The closing on this equity
security purchase has yet to occur as of August 28, 2000. No adjustments have
been reflected in the accompanying financial statements in connection with the
provisions associated with this letter of intent.
F-19
PRO FORMA FINANCIAL INFORMATION
-------------------------------
The following unaudited pro forma combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations for future periods or
the results that actually would have been realized had Parker and Orleans been a
combined company during the specified periods. The pro forma combined financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical
consolidated financial statements, including the notes thereto of Parker.
The following pro forma combined financial statements give effect to
the acquisition of Parker using the purchase method of accounting. The pro forma
combined financial statements are based on the respective historical audited
consolidated financial statements and the notes thereto of Parker and Orleans.
The purchase price was allocated to the estimated fair value of assets acquired
and liabilities assumed. The purchase price allocation is based on Orleans'
preliminary estimates of fair value, which is subject to change. However,
management does not expect the finalization of these estimates to have a
material effect on the purchase price allocation.
The pro forma combined balance sheets assume that the business
combination occurred on June 30, 2000. The pro forma combined statements of
income assume the business combination occurred as of July 1, 1999.
F-20
ORLEANS AND PARKER
COMBINED STATEMENT OF OPERATION
YEAR ENDED JUNE 30, 2000
In Thousands, Except Per Share Amounts
PRO FORMA PRO FORMA
ORLEANS PARKER ADJUSTMENTS COMBINED
------- ------ ----------- ---------
Revenue $ 178,997 $ 92,316 $271,313
Costs and Expenses
Residential Properties 147,287 85,572 $ (4,883)(F) 227,976
Selling General & Adm 17,742 4,516 5,308(D)(E) 27,566
Interest 429 362 522(H) 1,313
Other 1,380 29(D) 1,409
Amortization of
Intangible Assets 100(G) 100
------- ------- -------- -------
166,838 90,450 1,076 258,364
Income from Operations
Before Taxes 12,159 1,866 (1,076) 12,949
Income Tax Expense 4,620 740 (270) 5,090
------- ------- -------- -------
Net Income 7,539 1,126 (806) 7,859
Preferred Dividends 210 210
------- ------- -------- -------
Net Income Available for
Common Shareholders $ 7,329 $ 1,126 $ (806) $ 7,649
Basic earnings per share $ 0.65 $ 0.66(I)
Diluted earnings per share $ 0.49 $ 0.50(I)
F-21
ORLEANS AND PARKER
Unaudited Pro Forma Combined and Condensed Balance Sheet
6/30/2000 (In Thousands)
PRO FORMA PROFORMA
ORLEANS PARKER ADJUSTMENTS COMBINED
------- ------ ----------- --------
Cash $ 2,719 $ 1,736 $ (1,472)(A)(B) $ 2,983
Restricted Cash-Customer Deposits 8,737 8,737
Inventory 127,660 36,099 300 (F) 164,059
Property and Equipment (Net) 439 426 (186)(C) 679
Intangible Assets 996 (A)(G) 996
Other Assets 10,773 1,712 (306)(C) 12,179
-------- --------- -------- --------
Total Assets $ 150,328 $ 39,973 $ (668) $189,633
========= ========= ======== ========
Accounts Payable $ 18,895 $ 4,619 $ 23,514
Accrued Expenses 10,359 1,055 11,414
Related Parties 4,810 $ 5,000 (A)(B) 9,810
Customer Deposits 8,737 246 8,983
Construction and Land Loans 69,344 27,671 97,015
Other Notes Payable 2,753 2,753
Deferred Taxes 2,159 214 2,373
-------- --------- -------- --------
Total Liabilities 117,057 33,805 5,000 155,862
Redeemable Common Stock 500 (A) 500
Shareholder Equity 33,271 6,168 ( 6,168) 33,271
--------- --------- -------- --------
Total Liabilities and Equity $ 150,328 $ 39,973 $( 668) $189,633
========= ========= ======== ========
F-22
Notes to Unaudited Pro Forma Financial Statements
Note 1. Basis of Presentation
- ------- ---------------------
The pro forma combined balance sheet assumes that the business
combination occurred on June 30, 2000 and combines Parker and Orleans audited
June 30, 2000 balance sheets. The pro forma combined statements of operation
assume the business combination occurred as of July 1, 1999. On a combined basis
there were no transactions between Orleans and Parker during the period
presented. The purchase price was allocated to the estimated fair value of
assets acquired and liabilities assumed.
Note 2. Pro Forma Adjustments
- ------- ---------------------
(A) Adjustments to record the components of the purchase price
- - $5 million in cash, $1 million subordinated promissory note, which accrues
interest at Prime and is payable in four equal installments on each of the first
four anniversaries of the closing, and 150,000 shares of common stock of
Orleans, issuable in equal installments on each of the first four anniversaries
of the closing of the acquisition. The former shareholders of Parker have the
right to cause Orleans to repurchase the common stock issued five years after
the closing at a price of $3.33 per share. An additional component of the
purchase price is contingent. The sellers are entitled to additional purchase
price of 25% of the pre-tax profits of Parker in excess of $1,750,000 for each
of the fiscal years ended June 30, 2001, 2002 or 2003, subject to a cumulative
payout of $1,250,000. The pro forma statement of operations for the year ended
June 30, 2000 reflects the effect of the contingent payment earned as if the
transaction was completed on July 1, 1999. Additional adjustments were made to
reflect the estimated acquisition-related expenses of approximately $472,000,
which are considered a component of the purchase price.
(B) To finance the acquisition, Orleans borrowed $4,000,000
from Jeffrey P. Orleans, Chairman, under its existing unsecured line of credit
agreement. The unsecured line of credit agreement accrues interest at Libor plus
4% payable monthly.
(C) To eliminate assets retained by the sellers.
(D) In addition to the purchase price, Orleans has agreed to
the following with former Parker Shareholders, conditioned upon their continued
employment with Parker:
F-23
(i) up to an aggregate of 150,000 shares of
common stock of Orleans, in equal
installments on each of the first four
anniversaries of the closing of the
acquisition. The former shareholders of
Parker have the right to cause Orleans to
repurchase the shares five years after
closing at a price of $3.33 per share. The
pro forma combined statement of operations
for fiscal year ended June 30, 2000 reflects
a charge to the selling, general and
administrative expenses of $125,000 for this
transaction; and
(ii) payments at the end of the next three fiscal
years of Orleans equal to 25% of Parker's
pre-tax profits in excess of $1,750,000, not
to exceed $1.25 million. The pro forma
combined statement of operations for fiscal
year ended June 30, 2000 reflects a charge
to other expenses of $29,000 for this
transaction.
(E) The reclassification of selling expenses, totaling
$5,183,000 to conform the accounting policies of Orleans and Parker.
(F) Fair value of inventory at date of acquisition exceeded
its cost basis by approximately $300,000. An adjustment was made to the Pro
Forma Statement of Operations assuming the inventory was sold in the initial
year of combined operations.
(G) Orleans acquired an immediate and substantial presence in
four important markets in Virginia and North Carolina, as well as the assembled
work force in these locations. Approximately $1,000,000 of the purchase price
was allocated to these intangibles. The intangibles were determined to have a
useful life of ten years. The amortization reflected is for the period July 1,
1999 through June 30, 2000.
(H) Interest expense on acquisition related debt. See
footnotes A and B for a description of the acquisition debt. If interest rates
were to increase by 1/8 of 1%, interest expense would increase by approximately
$6,000.
F-24
(I) The shares used in computing pro forma earnings per share
are as follows:
Total common shares issued and outstanding 11,357,893
Shares to be issued in connection with the
acquisition of Parker 150,000
----------
Basic EPS shares 11,507,893
Effect of assumed shares under Treasury Stock
method for stock options 370,204
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 2,000,000
Effect of assumed conversion of $3 million
Series D Preferred Stock 2,000,000
----------
Diluted EPS shares 15,878,097
==========
Net income available for common shareholders $7,649,000
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 130,200
Effect of assumed conversion of $3 million
Series D Preferred Stock 210,000
----------
Adjusted net income for diluted shares $7,989,200
==========
F-25