FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO _________.
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)
Indicate by check mark whether the registrant (l) 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
Number of shares of common stock outstanding as of May 9, 2001: 11,357,893
(excluding 1,340,238 shares held in Treasury).
Orleans Homebuilders, Inc. and Subsidiaries
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 2001
and June 30, 2000 1
Consolidated Statements of Operations and Changes
in Retained Earnings for the three and nine months ended
March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows for the
nine months ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
(Unaudited)
March 31, June 30,
2001 2000
--------- ---------
Assets
Cash $ 2,993 $ 2,719
Restricted cash - customer deposits 7,974 8,737
Real estate held for development and sale:
Residential properties completed or under construction 110,888 65,669
Land held for development or sale and improvements 57,650 61,991
Property and equipment, at cost, less accumulated depreciation 933 439
Intangible assets, net of amortization 1,916 --
Receivables, deferred charges and other assets 15,567 10,773
--------- ---------
Total Assets $ 197,921 $ 150,328
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 18,134 $ 18,895
Accrued expenses 14,490 10,359
Customer deposits 8,718 8,737
Mortgage and other note obligations primarily secured by real
estate held for development and sale 103,514 69,344
Notes payable - related parties 7,959 4,810
Other notes payable 2,954 2,753
Deferred income taxes 2,141 2,159
--------- ---------
Total Liabilities 157,910 117,057
--------- ---------
Commitments and contingencies
Redeemable common stock 932 --
--------- ---------
Shareholders' Equity:
Preferred stock, $1 par, 500,000 shares authorized:
Series D convertible preferred stock, 7% cumulative annual
dividend, $30 stated value, issued and outstanding 100,000
shares ($3,000,000 liquidation preference) 3,000 3,000
Common stock, $.10 par, 20,000,000 shares authorized,
12,698,131 shares issued 1,270 1,270
Capital in excess of par value - common stock 17,726 17,726
Retained earnings 18,058 12,250
Treasury stock, at cost (1,340,238 shares held at
March 31, 2001 and June 30, 2000) (975) (975)
--------- ---------
Total Shareholders' Equity 39,079 33,271
--------- ---------
Total Liabilities and Shareholders' Equity $ 197,921 $ 150,328
========= =========
See notes to 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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Earned revenues
Residential properties $ 54,380 $ 40,453 $ 179,470 $ 125,238
Land sales -- -- 1,786 405
Other income 631 508 2,089 1,622
--------- --------- --------- ---------
55,011 40,961 183,345 127,265
--------- --------- --------- ---------
Costs and expenses
Residential properties 45,794 33,582 152,135 104,859
Land sales -- -- 1,664 350
Other 231 194 806 602
Selling, general and administrative 6,516 4,541 18,518 12,886
Interest
Incurred 2,582 1,908 7,278 5,629
Less capitalized (2,343) (1,758) (6,735) (5,187)
--------- --------- --------- ---------
52,780 38,467 173,666 119,139
--------- --------- --------- ---------
Income from operations before income taxes 2,231 2,494 9,679 8,126
Income tax expense 879 952 3,713 3,088
--------- --------- --------- ---------
Net income 1,352 1,542 5,966 5,038
Preferred dividends 53 53 158 158
--------- --------- --------- ---------
Net income available for common shareholders 1,299 1,489 5,808 4,880
Retained earnings, at beginning of period 16,759 8,312 12,250 4,921
--------- --------- --------- ---------
Retained earnings, at end of period $ 18,058 $ 9,801 $ 18,058 $ 9,801
========= ========= ========= =========
Basic earnings per share $ 0.11 $ 0.13 $ 0.50 $ 0.43
========= ========= ========= =========
Diluted earnings per share $ 0.08 $ 0.10 $ 0.38 $ 0.33
========= ========= ========= =========
See notes to consolidated financial statements
- 2 -
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
March 31,
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 5,966 $ 5,038
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 274 176
Deferred taxes (426) --
Noncash compensation 22 --
Changes in operating assets and liabilities net of
effects from purchase of PLC
Restricted cash - customer deposits 763 (1,494)
Real estate held for development and sale 5,074 (18,348)
Receivables, deferred charges and other assets (3,420) (1,302)
Accounts payable and other liabilities (2,430) 3,240
Customer deposits (378) 1,494
--------- ---------
Net cash provided by (used in) operating activities 5,445 (11,196)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (208) (133)
Acquisition of PLC, net of cash acquired (4,581) --
--------- ---------
Net cash used in investing activities (4,789) (133)
--------- ---------
Cash flows from financing activities:
Borrowings from loans secured by real estate assets 124,135 83,403
Repayment of loans secured by real estate assets (126,683) (78,700)
Borrowings from other note obligations 7,855 6,077
Repayment of other note obligations (5,531) (4,277)
Preferred stock dividend (158) (158)
--------- ---------
Net cash provided by (used in) financing activities (382) 6,345
--------- ---------
Net increase (decrease) in cash 274 (4,984)
Cash at beginning of year 2,719 6,738
--------- ---------
Cash at end of year $ 2,993 $ 1,754
========= =========
Supplemental disclosure of cash flow activities:
Interest paid, net of amounts capitalized $ 377 $ 135
========= =========
Income taxes paid $ 3,142 $ 1,886
========= =========
See notes to consolidated financial statements
- 3 -
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, 2000
for Orleans Homebuilders, Inc. and subsidiaries (the "Company")
for additional disclosures, including a summary of the Company's
accounting policies.
On October 13, 2000 the Company acquired all of the issued and
outstanding shares of Parker & Lancaster Corporation ("PLC").
Unless otherwise indicated, the term the "Company" includes the
accounts of PLC and its subsidiaries. PLC is engaged in
residential real estate development in North Carolina, South
Carolina and Virginia. The Consolidated Statements of Operations
and Changes in Retained Earnings and the Consolidated Statements
of Cash Flows include the accounts of PLC and its wholly owned
subsidiaries from October 13, 2000 through March 31, 2001. The
Consolidated Balance Sheets include the accounts of PLC and its
wholly owned subsidiaries as of March 31, 2001. 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.
Recent Accounting Pronouncements:
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130") effective for fiscal years beginning after December 15,
1997. The statement changes the reporting of certain items
currently reported as changes in the shareholders' equity section
of the balance sheet and establishes standards for the reporting
and display of comprehensive income and its components in a full
set of general-purpose financial statements. SFAS No. 130 requires
that all components of comprehensive income shall be reported in
the financial statements in the period in which they are
recognized. Furthermore, a total amount for comprehensive income
shall be displayed in the financial
4
statements. The Company has adopted this standard effective
January 1, 1998. The primary components of comprehensive income
are net income, foreign currency translations, minimum pension
liabilities, and the change in value of certain investments in
marketable securities classified as available-for-sale. Upon
adoption of SFAS No. 133/SFAS No. 137 (effective for the Company
on July 1, 2000), other comprehensive income was also affected by
the mark-to-market on the effective portion of hedge instruments.
Since the Company had no material such items, other comprehensive
income and net income are the same for both the three and nine
month periods ending March 31, 2001 and 2000.
New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). On June 23, 1999 the FASB
voted to defer the effectiveness of SFAS No. 133 for one year.
SFAS No. 133 is now effective for fiscal years beginning after
June 15, 2000, but earlier application is permitted as of the
beginning of any fiscal quarter subsequent to June 15, 1998. SFAS
No. 133 establishes accounting and reporting standards for
derivative financial instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as: (i) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment; (ii) a hedge of the
exposure to variable cash flows of a forecasted transaction; or
(iii) in certain circumstances a hedge of a foreign currency
exposure. The Company adopted this pronouncement, as amended by
Statement of Financial Accounting Standards No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" and Statement of
Financial Accounting Standards No. 138 "Accounting for Certain
Hedging Activities- an Amendment of FASB No. 133," July 1, 2000.
The adoption of SFAS No. 133 did not have a material financial
impact on the financial position and results of operations of the
Company because the Company has not entered into any freestanding
derivatives and has no embedded derivatives that require
bifurcation and separate treatment. However, should the Company
change its use of such derivatives, the adoption of SFAS No. 133
could have a more significant effect on the Company prospectively.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). In June 2000, the SEC staff
amended SAB 101 to provide registrants with additional time to
implement SAB 101. The Company will adopt SAB 101, as required, in
the fourth quarter of fiscal 2001. The adoption of SAB 101 is not
expected to have a material financial impact on the financial
position or results of operations of the Company.
5
In March 2000, the FASB issued FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation"
("FIN 44"). The Company was required to adopt FIN 44 effective
July 1, 2000 with respect to certain provisions applicable to new
awards, exchanges of awards in a business combination,
modifications to outstanding awards, and changes in grantee status
that occur on or after that date. FIN 44 addresses practice issues
related to the application of Accounting Practice Bulletin Opinion
No. 25, "Accounting for Stock Issued to Employees." The initial
adoption of FIN 44 by the Company did not have a material impact
on its consolidated financial position or results of operations.
(B) Acquisitions:
On October 13, 2000, the Company acquired all of the issued and
outstanding shares of PLC and entered into employment agreements
ranging from 2 to 3 years with certain of the former PLC
shareholders for combined consideration of (i) approximately
$5,000,000 in cash; (ii) $1,000,000 of subordinated promissory
notes which bear interest at the prime rate, subject to a cap of
10% and a floor of 8% (subject to the 8% floor at March 31, 2001)
with principal payable over four years; (iii) 300,000 shares of
common stock of the Company payable in equal installments on each
of the four anniversaries of the closing of the acquisition; and
(iv) contingent payments representing an aggregate of 50% of PLC's
pre-tax profits in excess of $1,750,000, for each of the fiscal
years ended June 30, 2001, 2002 and 2003, subject to an aggregate
cumulative pay-out limitation of $2,500,000. The Company also
incurred approximately $485,000 in acquisition costs to complete
this transaction.
The Company accounted for these transactions in accordance with
Accounting Principles Board Opinion No. 16 "Business Combinations"
whereby certain of these amounts were considered to be part of the
purchase price of the business and the remainder part of employee
compensation. With respect to the amounts allocated to the
purchase, such amount was allocated to the fair value of the
assets and liabilities acquired with the excess of approximately
$2,008,000 allocated to intangible assets and goodwill, both of
which are being amortized on a straight-line basis over a ten-year
period. Accumulated amortization of the intangible assets and
goodwill at March 31, 2001 was approximately $92,000.
The former shareholders of PLC have the right to cause the Company
to repurchase the common stock issued in this transaction
approximately five years after the closing of the acquisition at a
price of $3.33 per share.
6
If the PLC acquisition occurred on July1, 1999, pro forma
information for the Company would have been as follows:
Nine Months Ending March 31,
2001 2000
----------------------------------------
(Unaudited)
(in thousands, except per share amounts)
Revenue $ 203,887 $ 189,823
Income from
operations 9,863 7,355
Net income 5,900 4,345
Earnings per share:
Basic 0.51 0.37
Diluted 0.38 0.29
(C) Earnings Per Share:
Basic earnings per common share are computed by dividing net
income by weighted average number of common shares outstanding.
Basic shares outstanding includes the pro rata portion of
unconditional shares issuable as part of the purchase price of the
PLC acquisition. Diluted earnings per share include additional
common shares that would have been outstanding if the dilutive
potential common shares had been issued. The weighted average
number of shares used to compute basic earnings per common share
7
and diluted earnings per common share, and a reconciliation of the
numerator and denominator used in the computation for the three
and nine months ended March 31, 2001 and 2000, respectively, are
shown in the following unaudited table:
Three Months Ended Nine Months Ended
3/31/01 3/31/00 3/31/01 3/31/00
------------------------- --------------------------
(in thousands) (in thousands)
Total common shares issued 12,698 12,698 12,698 12,698
Unconditional shares issuable 273 - 168 -
Less: Average treasury shares outstanding (1,340) (1,340) (1,340) (1,340)
------------------------- --------------------------
Basic EPS shares 11,631 11,358 11,526 11,358
Effect of assumed shares issued under
treasury stock method for stock options 750 410 591 364
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 2,000 2,000 2,000 2,000
Effect of assumed conversion of
$ 3 million Series D Preferred Stock 2,000 2,000 2,000 2,000
------------------------- --------------------------
Diluted EPS shares 16,381 15,768 16,117 15,722
========================= ==========================
Net income available for
common shareholders $ 1,299 $ 1,489 $ 5,808 $ 4,880
Effect of assumed conversion of $3 million
Series D Preferred Stock 53 53 158 158
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 33 33 98 98
------------------------- --------------------------
Adjusted net income for diluted EPS $ 1,385 $ 1,575 $ 6,064 $ 5,136
========================= ==========================
(D) Supplemental Cash Flow Disclosure:
Non-cash assets acquired and liabilities assumed as a result of
the PLC acquisition were approximately $47,794,000 and
$43,311,000, respectively. In connection with the acquisition, the
Company issued a subordinated promissory note in the aggregate
principal amount of $1,000,000, payable over four years. In
addition, the Company agreed to issue an aggregate of 150,000
shares of common stock issuable in equal installments on each of
the next four anniversaries of the closing of the acquisition. The
former shareholders of PLC have the right to cause the Company to
repurchase the common stock issued in this transaction
approximately five years after the closing of the acquisition at a
price of $3.33 per share.
8
(E) Residential Properties Completed or under Construction:
Residential properties completed or under construction consists of
the following:
March 31, 2001 June 30, 2000
-------------- -------------
(Unaudited)
(in thousands)
Under contract for sale $ 81,883 $ 55,820
Unsold 29,005 9,849
-------------- --------------
$ 110,888 $ 65,669
============== ==============
(F) 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.
9
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources
On October 13, 2000, the Company acquired all of the issued and
outstanding shares of PLC and entered into employment agreements ranging from 2
to 3 years with certain of the former PLC shareholders for combined
consideration of (i) approximately $5,000,000 in cash; (ii) $1,000,000 of
subordinated promissory notes which bear interest at the prime rate, subject to
a cap of 10% and a floor of 8% (subject to the 8% floor at March 31, 2001) with
principal payable over four years; (iii) 300,000 shares of common stock of the
Company payable in equal installments on each of the four anniversaries of the
closing of the acquisition; and (iv) contingent payments representing an
aggregate of 50% of PLC's pre-tax profits in excess of $1,750,000, for each of
the fiscal years ended June 30, 2001, 2002 and 2003, subject to an aggregate
cumulative pay-out limitation of $2,500,000. The former shareholders of PLC have
the right to cause the Company to repurchase the common stock issued in this
transaction approximately five years after the closing at a price of $3.33 per
share. To fund the acquisition, the Company borrowed $4,000,000 from Jeffrey P.
Orleans, Chairman and Chief Executive Officer of the Company, under its existing
unsecured line of credit agreement and used funds from operations of
approximately $1,000,000. As of November 6, 2000, the Company repaid Mr. Orleans
in full from available cash and funds generated from operations.
The Company requires capital to purchase and develop land, to construct
units, to fund related carrying costs and overhead and to fund various
advertising and marketing programs to facilitate sales. These expenditures
include site preparation, roads, water and sewer lines, impact fees and
earthwork, as well as the construction costs of the homes and amenities. The
Company's sources of capital include funds derived from operations, sales of
assets and various borrowings, most of which are secured. At March 31, 2001, the
Company had approximately $73,933,000 available to be drawn under existing
revolving and construction loans for planned development expenditures, including
unsecured lines of credit of approximately $1,550,000. In addition, the Company
had $1,900,000 available to be drawn under existing unsecured line of credit and
working capital arrangements with Mr. Orleans.
During the nine months ended March 31, 2001, the Company acquired land
for future development with an aggregate purchase price of approximately
$15,783,000, including approximately $8,221,000 for land purchases in North
Carolina, South Carolina and Virginia, subsequent to the acquisition of PLC.
As of March 31, 2001 the Company had contracted to purchase, or has
under option, land and improved lots that will yield approximately 5,600 homes,
for an
10
aggregate purchase price of approximately $193,000,000. These purchase
agreements are subject to due diligence review and are contingent upon the
receipt of governmental approvals. The Company expects to utilize purchase money
mortgages, secured financings and existing capital resources to finance these
acquisitions. The Company anticipates completing a majority of these
acquisitions over the next several years.
The Company believes that funds generated from operations and financing
commitments from available lenders will provide the Company with sufficient
capital to meet its existing operating needs.
Results of Operations
The following table (unaudited) sets forth certain details as to residential
sales activity for the periods listed below. The backlog information is as of
the end of each period listed.
Nine Months Ended March 31,
2001 2000
--------------------------------------------------------------------------
(Dollars in thousands)
Average Average
Northern Region Price / Price /
New Jersey and Pennsylvania: Amount Units Unit Amount Units Unit
Revenues earned $137,499 516 $ 266 $ 125,238 566 $ 221
New orders 151,907 549 277 150,365 561 268
Backlog 142,307 442 322 126,191 420 300
October 13, 2000
(acquisition date)
To
March 31, 2001
-------------------------------------
(Dollars in thousands)
Southern Region Average
North Carolina, South Carolina Price /
and Virginia: Amount Units Unit
Revenues earned $41,971 179 $ 234
New orders 73,905 305 242
Backlog 60,424 242 250
11
Nine Months Ended March 31,
2001 2000
-----------------------------------------------------------------------------
(Dollars in thousands)
Average Average
Price / Price /
Combined Regions Amount Units Unit Amount Units Unit
Revenues earned $179,470 695 $ 258 $ 125,238 566 $ 221
New orders 225,812 854 264 150,365 561 268
Backlog 202,731 684 296 126,191 420 300
The dollar value of new orders for the nine months ended March 31, 2001
increased by approximately 50% to $225,812,000 on 854 units compared to
$150,365,000 on 561 units for the nine months ended March 31, 2000. The increase
in new order dollars and new orders is primarily attributable to the Company's
expansion into North Carolina, South Carolina and Virginia through its
acquisition of PLC. The average price per unit of new orders decreased to
$264,000 per unit for the nine months ended March 31, 2001 compared to $268,000
per unit for the nine months ended March 31, 2000, due to a change in product
mix as a result of the Company's geographic expansion. The number of orders in
the Company's new geographic area accounted for 36% of all new orders for the
nine months ended March 31, 2001. Overall, unit sales prices have increased at
the majority of communities open during the first nine months of fiscal 2001,
when compared with the same communities and units offered for sale in the first
nine months of fiscal 2000.
The dollar backlog at March 31, 2001, increased approximately 61% to
$202,731,000 on 684 homes compared to the backlog at March 31, 2000 of
$126,191,000 on 420 homes. The increase in backlog dollars is primarily
attributable to the Company's expansion into North Carolina, South Carolina and
Virginia through its acquisition of PLC on October 13, 2000.
Inflation
Inflation can have a significant impact on the Company's liquidity. Rising costs
of land, materials, labor, interest and administrative costs have generally been
recoverable in prior years through increased selling prices. However, there is
no assurance the Company will be able to continue to increase prices to cover
the effects of inflation in the future.
12
Three Months and Nine Months Ended March 31, 2001 and 2000
Operating Revenues
Earned revenues for the first nine months of fiscal 2001 increased $56,080,000
to $183,345,000, or 44.1%, compared to the first nine months of fiscal 2000.
Revenues from the sale of residential homes included 695 homes totaling
$179,470,000 during the first nine months of fiscal 2001, as compared to 566
homes totaling $125,238,000 during the first nine months of fiscal 2000. The
increase in revenues was attributable to a 23% increase in the number of homes
delivered and a 17% increase in the average price per home delivered. The
Company's expansion into North Carolina, South Carolina and Virginia on October
13, 2000 resulted in additional residential property revenue and homes delivered
during the first nine months of fiscal 2001 of $41,971,000 and 179 homes,
respectively. The increase in the average selling price per home delivered in
the first nine months of fiscal 2001 compared with the prior year period is the
result of the Company's change in product mix toward higher priced and larger
single family homes. In addition, unit sales prices have increased at the
majority of communities open during the first nine months of fiscal 2001 when
compared with the same communities and units offered for sale in the first nine
months of fiscal 2000.
Earned revenues for the third quarter ending March 31, 2001 increased
$14,050,000 to $55,011,000, or 34.3%, compared to the third quarter of fiscal
2000. Revenues from the sale of residential homes included 223 homes totaling
$54,380,000 during the third quarter of fiscal 2001, as compared to 184 homes
totaling $40,453,000 during the third quarter of fiscal 2000. The increase in
revenues was attributable to a 21% increase in the number of homes delivered and
an 11% increase in the average price per home delivered. The Company's expansion
into North Carolina, South Carolina and Virginia on October 13, 2000 resulted in
additional residential property revenue and homes delivered during the third
quarter of fiscal 2001 of $18,513,000 and 82 homes, respectively. The inclement
weather conditions in New Jersey and Pennsylvania during the third quarter of
fiscal 2001, resulted in a decrease in residential property revenues and homes
delivered during the third quarter of fiscal 2001 compared with the third
quarter of fiscal 2000, of $4,586,000 and 43 homes, respectively. The increase
in the average selling price per home delivered in the third quarter of fiscal
2001 compared with the prior year period is the result of the Company's change
in product mix toward higher priced and larger single family homes. In addition,
unit sales prices have increased at the majority of communities open during the
third quarter of fiscal 2001 when compared with the same communities and units
offered for sale in the third quarter of fiscal 2000.
Costs and Expenses
Costs and Expenses for the first nine months of fiscal 2001 increased
$54,527,000, or 45.8%, compared with the first nine months of fiscal 2000. The
cost of residential properties for the first nine months of fiscal 2001
increased $47,276,000 to $152,135,000, or 45.1%, when compared with the first
nine months of fiscal 2000. The increase in cost of residential properties is
attributable to the increase in the number of homes delivered. Gross profit
margin on residential property revenues was 15.2% for the first nine months of
fiscal 2001 compared with 16.3% for the first nine months of fiscal 2000. The
decrease in gross profit margin on residential property revenues is primarily
related to the lower gross profit margins attained on the homes delivered in
North Carolina, South Carolina and Virginia beginning with the Company's
expansion into these states on October 13, 2000 through its acquisition of PLC.
In addition, the gross profit margin is further affected when the acquired PLC
inventory is delivered because the value of the acquired PLC inventory was
increased to fair market value as a result of the application of purchase
accounting under APB No. 16, "Business Combinations".
13
For the first nine months of fiscal 2001, selling, general and administrative
expenses increased $5,632,000 to $18,518,000, or 43.7%, when compared with the
first nine months of fiscal 2000. This increase is attributable to an increase
in the number of communities in which the Company was operating, the geographic
expansion of the Company's homebuilding operations and the increase in the
number of homes sold. The selling, general and administrative expense as a
percentage of residential property revenue was 10.3%, which is consistent with
the comparable prior year period.
Costs and Expenses for the third quarter of fiscal 2001 increased $14,313,000,
or 37.2%, compared with the third quarter of fiscal 2000. The cost of
residential properties for the third quarter of fiscal 2001 increased
$12,212,000 to $45,794,000, or 36.4%, when compared with the third quarter of
fiscal 2000. The increase in cost of residential properties is attributable to
the increase in the number of homes delivered. Gross profit margin on
residential property revenues was 15.8% for the third quarter of fiscal 2001
compared with 17.0% for the third quarter of fiscal 2000. The decrease in gross
profit margin on residential property revenues is primarily related to the lower
gross profit margins attained on the homes delivered in North Carolina, South
Carolina and Virginia beginning with the Company's expansion into these states
on October 13, 2000 through its acquisition of PLC. In addition, the gross
profit margin is further affected when the acquired PLC inventory is delivered
because the value of the acquired PLC inventory was increased to fair market
value as a result of the application of purchase accounting under APB No. 16,
"Business Combinations".
For the third quarter of fiscal 2001, selling, general and administrative
expenses increased $1,975,000 to $6,516,000, or 43.5%, when compared with the
third quarter of fiscal 2000. This increase is attributable to an increase in
the number of communities in which the Company was operating, the geographic
expansion of the Company's homebuilding operations and the increase in the
number of homes sold. The selling, general and administrative expense as a
percentage of residential property revenue was 12% for the third quarter of
fiscal 2001 compared with 11.2% for the third quarter of fiscal 2000. The
increase in selling, general and administrative expense as a percentage of
residential property revenue is attributable to an increase in fixed costs as a
result of the Company's geographic expansion and the increase in the number of
communities in which the Company operates, combined with a decrease in
residential property revenue in New Jersey and Pennsylvania, due to inclement
weather, during the third quarter of fiscal 2001. The Company expects fourth
quarter selling, general and administrative expense as a percentage of
residential property revenue to be consistent with year-to-date selling, general
and administrative expense as a percentage of residential property revenue.
14
Net Income Available for Common Shareholders
Net income available for common shareholders for the first nine months of fiscal
2001 increased $928,000, or 19%, to $5,808,000 ($.50 basic and $.37 diluted
earnings per share), compared with $4,880,000 ($.43 basic and $.33 diluted
earnings per share) for the first nine months of fiscal 2000.
The increase in net income available for common shareholders is primarily
attributable to an increase in residential property revenues, as a result of an
increase in homes delivered and an increase in the average selling price per
home delivered.
Recent Accounting Pronouncements
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") effective for fiscal
years beginning after December 15, 1997. The statement changes the reporting of
certain items currently reported as changes in the shareholders' equity section
of the balance sheet and establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 requires that all components of comprehensive
income shall be reported in the financial statements in the period in which they
are recognized. Furthermore, a total amount for comprehensive income shall be
displayed in the financial statements. The Company has adopted this standard
effective January 1, 1998. The primary components of comprehensive income are
net income, foreign currency translations, minimum pension liabilities, and the
change in value of certain investments in marketable securities classified as
available-for-sale. Upon adoption of SFAS No. 133/SFAS No. 137 (effective for
the Company on July 1, 2000), other comprehensive income was also affected by
the mark-to-market on the effective portion of hedge instruments. Since the
Company had no material such items, other comprehensive income and net income
are the same for both the three and nine month periods ending March 31, 2001 and
2000.
New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). On June 23, 1999 the FASB voted to defer the effectiveness of SFAS No.
133 for one year. SFAS No. 133 is now effective for fiscal years beginning after
June 15, 2000, but earlier application is permitted as of the beginning of any
fiscal quarter subsequent to June 15, 1998. SFAS No. 133 establishes accounting
and reporting standards for derivative financial instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as: (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment;
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction;
or (iii) in certain circumstances a hedge of a foreign currency exposure. The
Company adopted this pronouncement, as amended by Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" and
Statement of Financial Accounting Standards No. 138 "Accounting for Certain
Hedging Activities- an Amendment of FASB No. 133," July 1, 2000. The adoption of
SFAS No. 133 did not have a material financial impact on the financial position
and results of operations of the Company because the Company has not entered
into any freestanding derivatives and has no embedded derivatives that require
bifurcation and separate treatment. However, should the Company change its use
of such derivatives, the adoption of SFAS No. 133 could have a more significant
effect on the Company prospectively.
15
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). In June 2000, the SEC staff amended SAB 101 to provide registrants with
additional time to implement SAB 101. The Company will adopt SAB 101, as
required, in the fourth quarter of fiscal 2001. The adoption of SAB 101 is not
expected to have a material financial impact on the financial position or
results of operations of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"). The Company was
required to adopt FIN 44 effective July 1, 2000 with respect to certain
provisions applicable to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after that date. FIN 44 addresses practice issues related to
the application of Accounting Practice Bulletin Opinion No. 25, "Accounting for
Stock Issued to Employees." The initial adoption of FIN 44 by the Company did
not have a material impact on its consolidated financial position or results of
operations.
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 Act of 1934, as amended (the
"Exchange Act"), and are subject to the Safe arbor provisions created by
statute. Generally words such as "may", "will", "should", "could", "anticipate",
"expect", "intend", "estimate", "plan"(pound) "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. We do not undertake to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
16
Forward-looking statements are based on current expectations and
involve risks and uncertainties and our future results could differ
significantly from those expressed or implied by our forward-looking statements.
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 changes in consumer confidence due to perceived uncertainty of
future employment opportunities and other factors;
o competition from national and local homebuilders in the Company's
market areas;
o building material price fluctuations;
o changes in mortgage interest rates charged to buyers of the
Company's homes;
o changes in the availability and cost of financing for the
Company's operations, including land acquisition;
o revisions in federal, state and local tax laws which provide
incentives for home ownership;
o inability to successfully integrate acquired businesses;
o delays in obtaining land development permits as a result of (i)
federal, state and local environmental and other land development
regulations, (ii) actions taken or failed to be taken by
governmental agencies having authority to issue such permits, and
(iii) opposition from third parties; and
o increased cost of suitable development land.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) None.
(b) Reports on Form 8-K.
None.
17
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
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)
May 15, 2001 /s/ Michael T. Vesey
-----------------------
Michael T. Vesey
President and Chief Operating Officer
May 15, 2001 /s/ Joseph A. Santangelo
------------------------
Joseph A. Santangelo
Treasurer, Secretary and
Chief Financial Officer
18