FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6830
ORLEANS HOMEBUILDERS, INC.
(formerly FPA Corporation)
(Exact name of registrant as specified in its charter)
Delaware 59-0874323 One Greenwood Square, #101
(State or other jurisdiction of (I.R.S. Employer 3333 Street Road
incorporation or organization) Identification No.) Bensalem, PA 19020
(Address of Principal Executive Office)
(215) 245-7500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
------------------- on which Registered
---------------------------
Common Stock, $.10 Par Value Per Share
(also formerly registered under
Section 12(g) of the Act) American
Securities Registered Pursuant to Section
12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant as of September 7, 2001 was approximately
$8,413,000.
Number of shares of the registrant's outstanding Common Stock as of September 7,
2001 was 11,357,893, shares (excluding 1,340,238 shares held in Treasury).
Documents incorporated by reference:
Part III is incorporated by reference to the proxy statement for the annual
meeting of Stockholders scheduled to be held in December, 2001.
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. Business. 1
ITEM 2. Properties. 8
ITEM 3. Legal Proceedings 8
ITEM 4. Submission of Matters to a Vote of Security Holders 8
PART II
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters 9
ITEM 6. Selected Financial Data 10
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 20
ITEM 8. Financial Statements and Supplementary Data 21
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 46
PART III
ITEM 10. Directors and Executive Officers of Registrant 46
ITEM 11. Executive Compensation 46
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 46
ITEM 13. Certain Relationships and Related Transactions 46
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 46
Item l. Business.
General
Orleans Homebuilders, Inc. and its subsidiaries (collectively, the
"Company", "OHB" or "Orleans") primarily develops residential communities in
Southeastern Pennsylvania, Central and Southern New Jersey, and the metropolitan
areas of Richmond, Virginia and Charlotte, Greensboro and Raleigh, North
Carolina. The Company has operated in the Pennsylvania and New Jersey areas for
over 80 years and began operations in North Carolina, South Carolina and
Virginia in fiscal 2001 through the acquisition of Parker & Lancaster
Corporation ("PLC"), a privately-held residential homebuilder (See Note 2 of
Notes to Consolidated Financial Statements for further details on the
acquisition).
The Company operates as a land developer, primarily for its own use,
and as a builder. The Company builds and sells condominiums, townhouses and
single-family homes to first-time homebuyers, first and second-time move-up
homebuyers, luxury homebuyers, empty nesters and active adult homebuyers. During
the fiscal year ended June 30, 2001, the Company delivered 1,085 homes, as
compared to 768 homes in fiscal 2000. Revenues earned from residential property
activities increased by 60.3% during fiscal 2001 to $282,384,000 as compared to
$176,189,000 in fiscal 2000. At June 30, 2001 the Company's backlog increased by
46.3% to $187,098,000, representing 623 homes, compared to $127,899,000,
representing 409 homes, at June 30, 2000.
Jeffrey P. Orleans, Chairman of the Board and Chief Executive Officer
of the Company, owns directly or indirectly approximately 7,324,828 shares of
Common Stock, par value $.10 per share ("Common Stock"), which represents
approximately 64.5% of the outstanding shares, excluding treasury shares, as of
September 7, 2001. In addition, if Mr. Orleans were to convert his Convertible
Subordinated 7% Note (See Note 6 of Notes to Consolidated Financial Statements)
and his Series D Preferred Stock (See Note 8 of Notes to Consolidated Financial
Statements) into common shares, he would then own 73.7% of the then outstanding
shares.
Residential
The Company's activities in developing residential communities include
the sale of residential properties and the sale of land and developed homesites
to independent builders. The Company occasionally participates in joint ventures
in certain of these activities.
1
The following table sets forth certain information at June 30, 2001
with respect to active communities of the Company under development and those
where construction is expected to commence in the near future, range of base
sales prices and lots controlled by the Company.
RESIDENTIAL DEVELOPMENTS AS OF JUNE 30, 2001
State Number Of Unit Price Range Remaining Lots Total Units Under
----- --------- ---------------- -------------- -----------------
Communities Owned Contract of Sale
----------- ----- ----------------
NC 21 $147,000-$340,000 327 139
NJ 18 $112,000-$877,000 1,078 318
PA 9 $130,000-$534,000 648 92
SC 3 $196,000-$293,000 29 10
VA 15 $145,000-$390,000 194 64
-- ----- ---
TOTAL 66 2,276 623
== ===== ===
2
The following table sets forth certain details as to residential sales
activity. The information provided is for the twelve months ended June 30, 2001,
2000 and 1999 in the case of revenues earned and new orders, and as of June 30,
2001, 2000 and 1999 in the case of backlog.
Year Ended June 30,
2001 2000 1999(2)
---- ---- -------
(in thousands)
Northern Region
New Jersey and Pennsylvania:
Revenues earned $ 200,108 $ 176,189 $ 143,827
Homes 739 768 718
Average Price $ 271 $ 229 $ 200
New Orders $ 203,102 $ 203,023 $ 173,897
Homes 740 752 803
Average Price $ 274 $ 270 $ 217
Backlog $ 130,893 $ 127,899 $ 101,065
Homes 410 409 425
Average Price $ 319 $ 313 $ 238
Southern Region (1)
North Carolina, South Carolina and Virginia:
Revenues earned $ 82,276 $ - $ -
Homes 346 - -
Average Price $ 238 $ - $ -
New Orders $ 109,991 $ - $ -
Homes 443 - -
Average Price $ 248 $ - $ -
Backlog $ 56,205 $ - $ -
Homes 213 - -
Average Price $ 264 $ - $ -
Combined Regions
Revenues earned $ 282,384 $ 176,189 $ 143,827
Homes 1,085 768 718
Average Price $ 260 $ 229 $ 200
New Orders $ 313,093 $ 203,023 $ 173,897
Homes 1,183 752 803
Average Price $ 265 $ 270 $ 217
Backlog $ 187,098 $ 127,899 $ 101,065
Homes 623 409 425
Average Price $ 300 $ 313 $ 238
(1) Information on revenue earned and new orders is for the period
beginning October 13, 2000, the date the Company entered this market through its
acquisition of PLC, through June 30, 2001.
(2) Included in revenues earned and new order data for fiscal 1999 are
four low income housing units purchased by Jeffrey P. Orleans, Chairman and
Chief Executive Officer of the Company. The units had an aggregate sales value
of $176,000. The selling price of all units, which are determined by state
statute, are the same as if the units had been sold to unaffiliated third
parties. These transactions will satisfy, in part, the Company's low income
housing requirements in Mount Laurel Township, New Jersey.
3
Operating Policies
Construction
The Company has historically designed its own products with the
assistance of unaffiliated architectural firms as well as supervised the
development and building of its communities. When the Company constructs units,
it acts as a general contractor and employs subcontractors at specified prices
for the installation of site improvements and construction of its residential
units. Agreements with subcontractors provide for a fixed price for work
performed or materials supplied and are generally short-term.
The Company generally begins construction of condominium and townhouse
buildings after commitments for at least 50% of the homes in that building. In
addition, a majority of the single family detached homes are constructed after
contracts are signed and mortgage approval has been obtained. Depending on the
market conditions and the specific community, the Company may also build
speculative homes. Speculative homes are homes that are under construction or
completed but for which the Company does not have a signed contract. These homes
are often marketed to individuals who are relocating and have immediate housing
needs. Many of these homes are sold while under construction. The Company
monitors its speculative inventory to determine adequate return on investment.
The Company does not manufacture any of the materials or other items
used in the development of its communities, nor does the Company maintain
substantial inventories of materials. Standard building materials, appliances
and other components are purchased in volume. The Company has not experienced
significant delays in obtaining materials needed by it to date and has
long-standing relationships with many of its major suppliers and contractors.
None of the Company's suppliers accounted for more than 10% of the Company's
total purchases in the fiscal year ended June 30, 2001.
Sales and Customer Financing
The Company conducts a marketing program that is directed to purchasers
of primary residences. In New Jersey and Pennsylvania, A.P. Orleans, Inc., a
wholly owned subsidiary of the Company, is the exclusive sales agent. The
residential communities are sold principally through on-site sales offices
utilizing the Company's own sales team as well as outside sales brokers. In
North Carolina, South Carolina and Virginia, the Company utilizes a combination
of outside sales brokers and inside sales coordinators. The outside sales
brokers are responsible for the initial customer contact and sale of the home
and are generally compensated on a commission basis. The inside sales
coordinators are responsible for managing the customer through the new home
orientation and selection process. The inside sales coordinators are generally
compensated with both salary and commission.
Fully furnished and landscaped model homes and sales centers are
constructed to promote sales. A variety of custom changes are permitted at the
request of the homebuyers. The Company advertises
4
extensively using newspapers, radio, billboards, direct mail advertising,
illustrated brochures and via the internet, through its own website as well as
websites of others. The Company's websites, orleanshomes.com and
parkerorleans.com, are designed to provide a visitor with information regarding
the Company's communities, including model type and elevation, floor plan layout
and price range, as well as a multimedia gallery offering panoramic video tours
or streaming video presentations of some of its homes. The Company also has a
Preferred Buyer Program, a special discount program which makes it easy for
anyone living in an Orleans home to move into another Orleans community.
The Company's customers generally require mortgage financing to
complete their purchases. The Company has a mortgage department to assist its
homebuyers in obtaining financing from unaffiliated lenders and the Company
receives a fee for this service. In addition, the Company offers numerous
special mortgage programs designed to attract the homebuyer. In April 2001, the
Company formed Alambry Funding LLC ("Alambry") a limited liability company whose
sole member is the Company. Alambry has absorbed the Company's mortgage
department into its operations. Alambry is currently authorized to do business
in the states of Delaware, Florida, New Jersey, North Carolina, Pennsylvania,
South Carolina and Virginia.
The Company applies for project financing approvals from the Federal
Housing Administration, the Veterans Administration and the Federal National
Mortgage Association for many of its moderately priced communities. These
approvals assist customers in their ability to obtain competitive fixed and
adjustable rate mortgages with moderate down payments and liberal underwriting
requirements. The Company has obtained approvals for most projects and
anticipates additional approvals during fiscal 2002; however there can be no
assurance additional approvals will be obtained.
Land Policy
The Company acquires land in order to provide an adequate and
well-located supply for its residential building operations. The Company's
strategy for land acquisition and development is dictated by specific market
conditions where the Company conducts its operations. In general, the Company
seeks to minimize the overall risks associated with acquiring undeveloped land
by structuring purchase agreements that allow the Company to control the process
of obtaining environmental and other regulatory approvals, but defer the
acquisition of such land until the approval process has been completed and the
Company is ready to commence construction. In certain regions, the Company
acquires improved lots from land developers on a lot takedown basis. Under a
typical agreement with a land developer, a minimal number of lots are purchased
initially, and the remaining lot takedowns are subject to the terms of an option
agreement. In evaluating possible opportunities to acquire land, the Company
considers a variety of factors including, feasibility of development, proximity
to developed areas, population growth patterns, customer preferences, estimated
cost of development and availability and cost of financing.
The Company engages in many phases of development activity, including
land and site planning,
5
obtaining environmental and other regulatory approvals, and the construction of
roads, sewer, water and drainage facilities, recreation facilities and other
amenities.
The Company considers economic and market conditions for residential
lots in each of its various communities in assessing the relative desirability
of constructing homes or selling lots to other builders.
As of June 30, 2001, the Company had contracted to acquire 28 parcels
of undeveloped land and approximately 1,900 improved lots in its existing
markets, totaling approximately 5,200 residential building lots for an aggregate
purchase price of approximately $185,000,000. 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, the agreements are generally subject to obtaining
the required regulatory approval. Contingent on the aforementioned, the Company
anticipates completing a majority of these acquisitions during the next several
years.
Joint Ventures
From time to time, the Company has developed and owned projects through
joint ventures with other parties. Determinations by the Company to enter into
joint ventures have traditionally been based upon a number of factors, including
principally the use of the joint venture as an alternative source for land
acquisition financing. The Company will continue to evaluate joint venture
opportunities. At the present time joint venture activities do not constitute a
material portion of the Company's operations.
Government Regulation
The Company and its subcontractors are subject to continuing compliance
requirements of various federal, state and local statutes, ordinances, rules and
regulations regarding zoning, plumbing, heating, air conditioning and electrical
systems, building permits and similar matters. The intensity of development in
recent years in areas in which the Company is actively developing real estate
has resulted in increased restrictive regulation and moratoriums by governments
due to density, sewer, water, ecological and similar factors. Further expansion
and development will require prior approval of federal, state and local
authorities and may result in delay or curtailment of development activities and
costly compliance programs.
In January 1983, the New Jersey Supreme Court rendered a decision known
as the "Mount Laurel II" decision, which has the effect of requiring certain
municipalities in New Jersey to provide housing for persons of low and moderate
income. In order to comply with such requirements, municipalities in that state
may require developers, including the Company, in connection with the
development of residential communities, to contribute funds or otherwise assist
in the achievement of a fair share of low or moderate housing in such
municipalities.
In recent years, regulation by federal and state authorities relating
to the sale and advertising of condominium interests and residential real estate
has become more restrictive and intense. In order to advertise and sell
condominiums and residential real estate in many jurisdictions, including
Pennsylvania
6
and New Jersey, the Company has been required to prepare a registration
statement or other disclosure document and, in some cases, to file such
materials with a designated regulatory agency.
Despite the Company's past ability to obtain necessary permits and
authorizations for its projects, more stringent requirements may be imposed on
developers and home builders in the future. Although the Company cannot predict
the effect of such requirements, they could result in time-consuming and
expensive compliance programs and substantial expenditures for environmental
controls which could have a material adverse effect on the results of operations
of the Company. In addition, the continued effectiveness of permits already
granted is subject to many factors which are beyond the Company's control,
including changes in policies, rules and regulations and their interpretation
and application.
Environmental Regulation and Litigation
Development and sale of real property creates a potential for
environmental liability on the part of the developer, owner, or any mortgage
lender for its own acts or omissions as well as those of current or prior owners
of the subject property or adjacent parcels. If hazardous substances are
discovered on or emanating from any of the Company's properties, the owner or
operator of the property (including the prior owners) may be held liable for
costs and liabilities relating to such hazardous substances. Environmental
studies are generally undertaken in connection with property acquisitions by the
Company. Further governmental regulation on environmental matters affecting
residential development could impose substantial additional expense to the
Company, which could adversely affect the results of operations of the Company
or the value of properties owned, or under contract of purchase by the Company.
(See Note 11 of Notes to Consolidated Financial Statements for a discussion of
specific environmental litigation.)
Competition
The real estate industry is highly competitive. The Company competes on
the basis of its reputation, location, design, price, financing programs,
quality of product and related amenities, with regional and national home
builders in its areas of development, some of which have greater sales,
financial resources and geographical diversity than the Company. Numerous local
residential builders and individual resales of residential units and homesites
provide additional competition.
Employees
The Company, as of June 30, 2001, employed 112 executive,
administrative and clerical personnel, 51 sales personnel, 147 construction
supervisory personnel and laborers, for a total of 310 employees.
The level of construction and sales employees varies throughout the
year in relation to the level of activities at the Company's various
developments. The Company has had no work stoppages and considers its relations
with employees to be good.
7
Economic Conditions
The Company's business is affected by general economic conditions in
the United States and its related regions and particularly by the level of
interest rates. The Company cannot predict whether interest rates will be at
levels attractive to prospective home buyers or whether mortgage and
construction financing will continue to be available.
Item 2. Properties.
Lease of Executive Offices
The Company leases office space for its corporate headquarters at 3333
Street Road, Bensalem, Pennsylvania 19020, consisting of approximately 16,500
square feet. The Company also leases office space consisting of approximately
3,100 square feet in Hainesport, New Jersey, a total of 10,000 square feet in
two Richmond, Virginia locations and a total of 6,700 square feet in three North
Carolina locations for certain centralized support services related to
operations in those regions.
Item 3. Legal Proceedings.
The Company is a plaintiff or defendant in various cases arising out of
its business operations. The Company believes that it has adequate reserves,
insurance or meritorious defenses in all pending cases in which it is a
defendant and that adverse decisions in any or all of the cases would not have a
material effect upon the Company. (See Note 11 of Notes to Consolidated
Financial Statements for a discussion of specific litigation).
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
8
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The principal market on which the Company's Common Stock is traded is
the American Stock Exchange, Inc. (Symbol: OHB).
The high and low sales prices on the Exchange for the periods indicated
are as follows:
Fiscal year
ended June 30, High Low
-------------------- --------- --------
2001 First Quarter $ 2.188 $ 1.375
Second Quarter 3.500 1.563
Third Quarter 4.250 2.000
Fourth Quarter 3.240 2.080
2000 First Quarter $ 1.875 $ 1.500
Second Quarter 1.750 1.250
Third Quarter 2.313 1.438
Fourth Quarter 2.125 1.438
The number of common stockholders of record of the Company as of
September 7, 2001 was approximately 300.
The Company has not paid a cash dividend since December 1982. Payment
of dividends will depend upon the earnings of the Company, its funds derived
from operations, its working capital needs, its debt service requirements, its
general financial condition and other factors (including, without limitation,
restrictions in certain financing agreements). No assurance can be given that
the Company will pay dividends in the future.
9
Item 6. Selected Financial Data
The following table sets forth selected financial data for the
Company and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included under Item 8 of the
Form 10-K.
Year Ended June 30,
(In thousands, except per share data)
Operating Data 2001 2000 1999 1998 1997
-------------------------- ----------------- ---------------- ----------------- ---------------- ----------------
Earned revenues $ 287,222 $ 178,997 $ 150,573 $ 108,998 $ 101,996
Net income before preferred
dividends 10,759 7,539 5,367 1,668 1,615
Per share data for net income
available for common shareholders:
Basic 0.91 0.65 0.46 0.15 0.14
Diluted 0.67 0.49 0.36 0.14 0.14
Balance at June 30,
(In thousands)
Balance Sheet Data 2001 2000 1999 1998 1997
-------------------------- ----------------- ---------------- ----------------- ---------------- --------------
Residential properties $ 100,950 $ 65,669 $ 51,800 $ 47,209 $ 35,355
Land and improvements 71,739 61,991 59,763 64,044 60,067
Total assets 213,500 150,328 136,537 130,525 107,613
Mortgage obligations
secured by real estate 102,605 69,344 67,129 65,136 53,637
Subordinated debentures - - - 601 601
Other notes payable 11,669 7,563 8,951 14,970 13,618
Shareholders' equity 43,820 33,271 25,942 17,719 16,051
The Company has not paid a cash dividend since December 1982.
10
Item 7. 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
two to three 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 June 30, 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 from Mr. Orleans and used funds from
operations of approximately $1,000,000. Approximately one month after the
acquisition, 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 June 30, 2001, the
Company had approximately $98,069,000 available under existing secured revolving
and construction loans for planned development expenditures, and approximately
$1,279,000 available under existing unsecured lines of credit. In addition, the
Company had $381,000 available under an existing $4,000,000 unsecured line of
credit and working capital arrangement with Mr. Orleans.
During the fiscal year ended June 30, 2001, the Company acquired
land for future development for an aggregate purchase price of approximately
$37,321,000, including approximately $17,489,000 for land purchases, subsequent
to the acquisition of PLC, in North Carolina, South Carolina and Virginia.
As of June 30, 2001, the Company had contracted to purchase, or
had under option, land and
11
improved lots for an aggregate purchase price of approximately $185,000,000. The
improved lots are expected to yield approximately 5,200 homes. 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.
Subsequent to June 30, 2001, the Company acquired approximately
245 improved lots including work-in-process on some of the lots, from a third
party homebuilder. The purchased lots are located within the Company's current
operating area in New Jersey. The total purchase price of the transaction was
approximately $14,700,000, of which $8,400,000 was financed through the
Company's usual and customary construction loan financing arrangements and
$6,300,000 was financed by the issuance of promissory notes with interest,
payable monthly, ranging from prime to prime minus 100 basis points. The
promissory notes are payable within one year from the date of the transaction.
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.
Overview of Operations
The tables included in "Item 1 - Business" summarize the Company's
revenues, new orders and backlog data for the year ended June 30, 2001 with
comparable data for fiscal 2000 and 1999.
The dollar value of new orders for fiscal 2001 increased by
approximately $110,070,000, or 54.2%, to $313,093,000 on 1,183 homes compared to
$203,023,000 on 752 homes for fiscal 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 home of new orders decreased to $265,000 in fiscal 2001,
compared to $270,000 in fiscal 2000. The decrease in average price per home of
new orders is primarily due to the change in product mix as a result of the
Company's geographic expansion. Overall, the average selling price of new orders
has increased at the majority of communities open during fiscal 2001 when
compared with the same communities offered for sale in fiscal 2000.
The dollar backlog at June 30, 2001 increased by approximately
$59,199,000, or 46.3%, to $187,098,000 on 623 homes, compared to the backlog at
June 30, 2000 of $127,899,000 on 409 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. In addition, favorable
economic conditions
12
in the regions where the Company operates continued during fiscal 2001.
Inflation
Inflation can have a significant impact on the Company's
liquidity. Rising costs of land, materials, labor, interest and administrative
costs have generally been recoverable in prior years through increased selling
prices. However, there is no assurance the Company will be able to continue to
increase prices to cover the effects of inflation in the future.
Fiscal Years Ended June 30, 2001 and 2000
Results of Operations
Operating Revenues
Earned revenues for fiscal 2001 increased by $108,225,000 to
$287,222,000, or 60.5%, compared to fiscal 2000. Revenues from the sale of
residential homes included 1,085 homes totaling $282,384,000 during fiscal 2001,
as compared to 768 homes totaling $176,189,000 during fiscal 2000. Approximately
$82,276,000 of the increase in residential revenue earned is attributable to the
Company's expansion into North Carolina, South Carolina and Virginia through its
acquisition of PLC. In addition, although homes delivered in the northern region
decreased to 739 in fiscal 2001 from 768 in fiscal 2000 (approximately 3.8%),
residential revenue increased by approximately $23,919,000, or 13.6%, during the
same time period. The increase in residential revenue earned in the northern
region during fiscal 2001, as compared to fiscal 2000, is primarily attributable
to a change in product mix toward higher priced and larger single family homes
delivered. The average selling price per home in the northern region increased
from $229,000 in fiscal 2000 to $271,000 in fiscal 2001. The increase in average
selling price is due to a number of factors, including increases in the base
price per unit, option revenue per unit and a change in product mix.
Land sales and other income consist primarily of land and lot
sales, interest income, purchase discounts and contract rebates, property
management fees and mortgage processing income. Revenues from land sales for
fiscal 2001 increased by $1,381,000 to $1,786,000 compared to $405,000 for
fiscal 2000. Although the Company primarily purchases land and engages in land
development activities to support its own homebuilding activities, the Company
occasionally sells land or improved lots to other third parties. Land sale
opportunities are generally evaluated on an individual basis. Risk factors and
return on investment are among the factors considered in determining whether to
sell land and improved lots or complete homebuilding activities.
13
Costs and Expenses
Costs and expenses for fiscal 2001 increased $102,851,000, or
61.6%, compared with fiscal 2000. The cost of residential properties for fiscal
2001 increased $88,842,000 to $236,129,000, or 60.3%, when compared with fiscal
2000. Approximately $70,096,000 of the increase in cost of residential
properties is attributable to the Company's expansion into North Carolina, South
Carolina and Virginia, through its acquisition of PLC. The remaining increase in
residential property costs and expenses of $18,746,000 is due to the increase in
sales in the northern region. Gross profit margins on residential property
revenues were 16.4% for fiscal 2001 compared with the same amount for fiscal
2000. The gross profit margins on residential property increased to 17% in New
Jersey and Pennsylvania in fiscal 2001 compared with 16.4% in fiscal 2000. The
increase in gross profit margins on residential property revenues in New Jersey
and Pennsylvania in fiscal 2001 compared with fiscal 2000 is a result of
favorable economic conditions in the homebuilding industry, resulting in strong
customer demand and positive home pricing. This increase is offset by lower
gross profit margins in North Carolina, South Carolina and Virginia. The lower
gross profit margins in North Carolina, South Carolina and Virginia are
partially a result of the application of purchase accounting, under APB No. 16,
"Business Combinations", associated with the acquisition of PLC. APB No. 16
requires the allocation of a portion of the purchase price to completed and
partially completed units based on their relative fair value at the date of
purchase, including PLC's builder profit accrued prior to the acquisition,
rather than at historical cost to the predecessor. As a result, sales of these
completed and partially completed units subsequent to the acquisition result in
lower relative margins compared to those units built and sold subsequent to the
acquisition.
Costs and expenses from land sales for fiscal 2001 increased by
$1,314,000 to $1,664,000 compared to $350,000 for fiscal 2000. The increase in
costs of land sales is due to the increase in land sales.
For fiscal 2001, selling, general and administrative expenses
increased $12,439,000 to $30,181,000, or 70.1%, when compared with fiscal 2000.
Approximately $9,779,000 of the increase in selling, general and administrative
expenses for fiscal 2001 is attributable to selling, general and administrative
expenses incurred in the southern region as a result of the Company's
acquisition of PLC. In addition, $2,660,000 of this increase is attributable to
an increase in northern region incentives, sales office expense and advertising
costs related to the increase in revenues earned from higher priced and larger
single family homes. The selling general and administrative expenses as a
percentage of residential property revenue increased to 10.7% during fiscal 2001
compared to 10.1% in fiscal 2000. The increase
14
in selling, general and administrative expenses as a percentage of residential
property revenue is primarily due to start-up costs associated with the
Company's expansion into new markets, particularly North Carolina, South
Carolina and Virginia.
Net Income Available for Common Shareholders
Net income available for common shareholders for fiscal 2001
increased $3,220,000, or 43.9%, to $10,549,000 ($.91 basic and $.67 diluted
earnings per share), compared with $7,329,000 ($.65 basic and $.49 diluted
earnings per share) for fiscal 2000. This increase in net income available for
common shareholders is partially attributable to the Company's acquired
operations in North Carolina, South Carolina and Virginia through its October
13, 2000 acquisition of PLC. Additionally, increased residential property
revenues in New Jersey and Pennsylvania as a result of a change in product mix
toward higher priced and larger single family homes and positive home pricing,
also contributed to the increase in net income available for common
shareholders.
Fiscal Years Ended June 30, 2000 and 1999
Results of Operations
Operating Revenues
Earned revenues for fiscal 2000 increased by $28,424,000 to
$178,997,000, or 18.9% compared with fiscal 1999. Revenues from the sale of
residential homes included 768 homes totaling $176,189,000 during fiscal 2000,
as compared to 718 homes totaling $143,827,000 during fiscal 1999. The increase
in revenues for fiscal 2000, as compared to fiscal 1999, is attributable to the
number of units delivered and an increase in average selling price, which is the
result of the expanding geographic scope of the Company's operations, and
favorable economic conditions affecting unit sales volume and price. The average
selling price per unit increased to approximately $229,000 during fiscal 2000,
as compared to approximately $200,000 during fiscal 1999. The increase in
average selling price is partially due to an increase in the base price per
unit, and an increase over the prior comparable period in the percentage of
single family homes delivered when compared to total homes delivered for the
period. Fiscal 2000 revenue from land sales decreased approximately $4,214,000
to $405,000 as compared to $4,619,000 in fiscal 1999. This decrease is primarily
due to a decrease in the number and size of developed homesites sold during
fiscal 2000 compared with fiscal 1999.
15
Costs and Expenses
Costs and expenses for fiscal 2000 increased $24,922,000 to
$166,838,000, or 17.6%, compared with fiscal 1999. The fiscal 2000 cost of
residential properties increased $26,472,000 to $147,287,000, or 21.9% when
compared with fiscal 1999. This increase in residential property costs is less
than the percentage increase in residential property revenues when compared with
the prior fiscal year. Overall profit margins on residential properties improved
as the gross profit of residential properties as a percentage of residential
property revenues was 16.4% for fiscal 2000, compared with 16% for fiscal 1999.
The increase in gross profit of residential property revenues is primarily due
to an increase in base selling prices per unit in excess of an increase in the
cost of residential properties per unit when compared to the prior comparable
period. In addition, the cost of land sales for fiscal 2000 decreased $3,531,000
when compared to fiscal 1999. The decrease in the cost of land sales is due to
the overall decrease in land sale revenues. The gross profit of land sales as a
percentage of land sale revenues was 13.6% for fiscal 2000 compared with 16% for
fiscal 1999.
Fiscal 2000 selling, general and administrative expenses increased
$2,227,000 to $17,742,000, or 14.4% when compared with fiscal 1999. The fiscal
2000 increase in selling, general and administrative expenses is attributable to
an increase in sales incentives, sales office expense and advertising costs, as
a result of the increase in residential property revenues. The selling, general
and administrative expenses as a percentage of residential property revenues
decreased to 10.1% during fiscal 2000, compared to 10.8% in the prior fiscal
year. The decrease in selling, general and administrative expenses as a
percentage of residential property revenue can be attributed to an increase in
revenues, combined with the fixed portion of costs related to advertising, sales
office expenses and administrative office expense, remaining relatively
consistent with the prior comparable period.
Net Income Available for Common Shareholders
Net income available for common shareholders for fiscal 2000 was
$7,329,000 ($.65 basic and $.49 diluted earnings per share), compared with
$5,220,000 ($.46 basic and $.36 diluted earnings per share) for fiscal 1999.
This increase in net income available for common shareholders is primarily
attributable to an increase in residential revenues as a result of unit sales
volume, combined with a decrease in selling, general and administrative costs as
a percentage of residential property revenues.
16
Recent Accounting Pronouncements
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 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 adopted this standard effective July 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), comprehensive income was also affected by the mark-to-market on the
effective portion of hedge instruments. Since the Company had no such material
items, comprehensive income and net income are the same for fiscal year 2001,
2000 and 1999.
New Accounting Standards
In June 1998, the FASB issued SFAS 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 SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" and SFAS 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
17
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 has adopted
SAB 101, as required, in the fourth quarter of fiscal 2001. The adoption of SAB
101 did not 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.
In June, 2001, the FASB issued SFAS No. 141, "Business
Combinations" ("SFAS No. 141"), which establishes standards for reporting
business combinations entered into after June 30, 2001 and supercedes APB
Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises". Among other things, SFAS
No. 141 requires that all business combinations be accounted for as purchase
transactions and provides specific guidance on the definition of intangible
assets which require separate treatment. The statement is applicable for all
business combinations entered into after June 30, 2001 and also requires that
companies apply its provisions relating to intangibles from pre-existing
business combinations.
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), which establishes standards for financial
accounting and reporting for intangible assets acquired individually or with a
group of other assets for the reporting of goodwill and other intangible assets
acquired in a business acquisition subsequent to initial accounting under SFAS
No. 141. SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets" and
related interpretations. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001, however, companies with fiscal years beginning after
March 15, 2001 may elect to adopt the provision of SFAS No. 142 at the beginning
of its
18
new fiscal year. Accordingly, the Company intends early adoption of SFAS No. 142
effective with the beginning of its new fiscal year on July 1, 2001. The Company
does not believe that there will be any charge to earnings for the cumulative
effect upon adoption because all such intangibles relate to the Company's recent
acquisition of PLC for which no impairment is expected to be required under the
provisions of SFAS No. 142. Prospectively, such intangibles, which are currently
being amortized over ten years will no longer be amortized but continue to be
subject to periodic review for impairment.
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 Harbor provisions created by the
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. We do 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 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 foward-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;
19
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact the
financial position, results of operations or cash flows of the Company, due to
adverse changes in financial and commodity market prices and interest rates. The
Company is exposed to market risk in the area of interest rate changes. A
majority of the Company's debt is variable based on LIBOR and prime rate, and,
therefore, affected by changes in market interest rates. Based on current
operations, an increase/decrease in interest rates of 100 basis points will
result in an equivalent increase/decrease in cost of sales and interest incurred
by approximately $700,000. Generally, the Company has been able to increase
prices to cover portions of any increase in interest rates. As a result, the
Company believes that reasonably possible near-term changes in interest rates
will not result in a material negative effect on future earnings, fair values or
cash flows of the Company.
20
Item 8. Financial Statements and Supplementary Data.
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of independent accountants 22-23
Consolidated balance sheets at June 30, 2001
and June 30, 2000 24
Consolidated statements of operations and retained
earnings for the years ended June 30, 2001,
2000 and 1999 25
Consolidated statements of cash flows for the
years ended June 30, 2001, 2000 and 1999 26
Notes to consolidated financial statements 27
All other schedules have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
The individual financial statements of the Registrant's
subsidiaries have been omitted since the Registrant is primarily an operating
company and all subsidiaries included in the consolidated financial statements,
in the aggregate, do not have minority equity interest and/or indebtedness to
any person other than the Registrant or its consolidated subsidiaries in amounts
which together exceed 5 percent of total consolidated assets at June 30, 2001,
excepting indebtedness incurred in the ordinary course of business.
21
Report of Independent Accountants
To the Board of Directors and Shareholders
of Orleans Homebuilders, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Orleans
Homebuilders, Inc. and its subsidiaries (the "Company") at June 30, 2001 and
2000, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 2001 in conformity with accounting
principles generally accepted in the United States of America. 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 audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. The financial statements of the Company for
the year ended June 30, 1999 were audited by other independent accountants whose
report dated October 11, 1999 expressed an unqualified opinion on those
statements.
PricewaterhouseCoopers LLP
September 12, 2001
22
Independent Auditors' Report
The Board of Directors and Shareholders
of Orleans Homebuilders, Inc.
We have audited the accompanying consolidated statements of operations and
retained earnings, and cash flows of Orleans Homebuilders, Inc. and subsidiaries
for the year ended June 30, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Orleans Homebuilders, Inc. and subsidiaries for the year ended
June 30, 1999 in conformity with generally accepting accounting principles.
KPMG LLP
Philadelphia, Pennsylvania
October 11, 1999
23
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
June 30, June 30,
2001 2000
---------- ---------
Assets
Cash $ 13,560 $ 2,719
Restricted cash - customer deposits 8,424 8,737
Real estate held for development and sale:
Residential properties completed or under construction 100,950 65,669
Land held for development or sale and improvements 71,739 61,991
Property and equipment, at cost, less accumulated depreciation 979 439
Intangible assets, net of amortization 2,313 -
Receivables, deferred charges and other assets 15,535 10,773
---------- ----------
Total Assets $ 213,500 $ 150,328
========== ==========
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 26,194 $ 18,895
Accrued expenses 17,017 10,359
Customer deposits 9,134 8,737
Mortgage and other note obligations primarily secured by real
estate held for development and sale 102,605 69,344
Notes payable - related parties 8,576 4,810
Other notes payable 3,093 2,753
Deferred income taxes 2,118 2,159
---------- ----------
Total Liabilities 168,737 117,057
---------- ----------
Commitments and contingencies
Redeemable common stock (Note 2) 943 -
---------- ----------
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 22,799 12,250
Treasury stock, at cost (1,340,238 shares held at
June 30, 2001 and June 30, 2000) (975) (975)
---------- ----------
Total Shareholders' Equity 43,820 33,271
---------- ----------
Total Liabilities and Shareholders' Equity $ 213,500 $ 150,328
========== ==========
See notes to consolidated financial statements
- 24 -
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
(in thousands, except per share amounts)
For the year ended June 30,
2001 2000 1999
------ ------ ------
Earned revenues
Residential properties $ 282,384 $ 176,189 $ 143,827
Land sales 1,786 405 4,619
Other income 3,052 2,403 2,127
--------- --------- ---------
287,222 178,997 150,573
--------- --------- ---------
Costs and expenses
Residential properties 236,129 147,287 120,815
Land sales 1,664 350 3,881
Other 1,290 1,030 1,098
Selling, general and administrative 30,181 17,742 15,515
Interest
Incurred 8,992 7,656 7,597
Less capitalized (8,567) (7,227) (6,990)
--------- --------- ---------
269,689 166,838 141,916
--------- --------- ---------
Income from operations before income taxes 17,533 12,159 8,657
Income tax expense 6,774 4,620 3,290
--------- --------- ---------
Net income 10,759 7,539 5,367
Preferred dividends 210 210 147
--------- --------- ---------
Net income available for common shareholders 10,549 7,329 5,220
Retained earnings (deficit), at beginning of period 12,250 4,921 (299)
--------- --------- ---------
Retained earnings, at end of period $ 22,799 $ 12,250 $ 4,921
========= ========= =========
Basic earnings per share $ 0.91 $ 0.65 $ 0.46
========= ========= =========
Diluted earnings per share $ 0.67 $ 0.49 $ 0.36
========= ========= =========
See notes to consolidated financial statements
- 25 -
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Twelve Months Ended
June 30,
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income $ 10,759 $ 7,539 $ 5,367
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 507 218 326
Deferred taxes (227) - -
Noncash compensation 33 - -
Changes in operating assets and liabilities net of
effects from purchase of PLC:
Restricted cash - customer deposits 313 (2,609) (2,226)
Real estate held for development and sale 362 (16,097) (310)
Receivables, deferred charges and other assets (6,126) (613) 485
Accounts payable and other liabilities 10,895 4,529 646
Customer deposits 38 2,609 2,226
-------- -------- --------
Net cash provided by (used in) operating activities 16,554 (4,424) 6,514
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (412) (212) (382)
Acquisition of PLC, net of cash acquired (4,714) - -
-------- -------- --------
Net cash used in investing activities (5,126) (212) (382)
-------- -------- --------
Cash flows from financing activities:
Borrowings from loans secured by real estate assets 178,119 118,590 107,463
Repayment of loans secured by real estate assets (181,602) (116,375) (105,470)
Repayment of subordinated debentures - - (601)
Borrowings from other note obligations 10,673 7,331 1,521
Repayment of other note obligations (7,567) (8,719) (4,540)
Stock options exercised - - 3
Preferred stock dividend (210) (210) (147)
Distribution of minority interests - - (456)
-------- -------- --------
Net cash provided by (used in) financing activities (587) 617 (2,227)
-------- -------- --------
Net increase (decrease) in cash 10,841 (4,019) 3,905
Cash at beginning of year 2,719 6,738 2,833
-------- -------- --------
Cash at end of year $ 13,560 $ 2,719 $ 6,738
======== ======== ========
See notes to consolidated financial statements
- 26 -
Orleans Homebuilders, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Orleans Homebuilders, Inc. and its subsidiaries ("OHB" or "the Company") are
currently engaged in residential real estate development in New Jersey, North
Carolina, Pennsylvania, South Carolina and Virginia. A summary of the
significant accounting principles and practices used in the preparation of the
consolidated financial statements is as follows:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. 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" or
"OHB" 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 Retained Earnings and
the Consolidated Statements of Cash Flows include the accounts of PLC and its
wholly-owned subsidiaries from October 13, 2000 through June 30, 2001. The
Consolidated Balance Sheets include the accounts of PLC and its wholly-owned
subsidiaries as of June 30, 2001. All material intercompany transactions and
accounts have been eliminated.
Earned revenues from real estate transactions
The Company recognizes revenues from sales of residential properties at the time
of closing. The Company also sells developed and undeveloped land in bulk and
under option agreements. Revenues from sales of land and other real estate are
recognized when the Company has received an adequate cash down payment and all
other conditions necessary for profit recognition have been satisfied. To the
extent that certain sales or portions thereof do not meet all conditions
necessary for profit recognition, the Company uses other methods to recognize
profit, including the cost recovery and the deposit methods. These methods of
profit recognition defer a portion or all of the profit to the extent it is
dependent upon the occurrence of future events.
Real estate capitalization and cost allocation
Residential properties completed or under construction are stated at cost or
estimated net realizable value, whichever is lower. Costs include land and land
improvements, direct construction costs, construction overhead costs, interest
on indebtedness and real estate taxes. Selling and advertising costs are
expensed as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification methods.
Land and improvement costs include land, land improvements, interest on
indebtedness and real estate taxes. Appropriate costs are allocated to projects
on the basis of acreage, dwelling units and relative sales value. Land held for
development and sale and improvements are stated at cost or estimated net
realizable value, whichever is lower.
Land and land improvements applicable to condominiums, townhomes and
single-family homes, are transferred to construction in progress when
construction commences.
27
Interest costs included in Costs and Expenses of residential properties and land
sold for fiscal years 2001, 2000 and 1999 were $11,789,000, $7,469,000 and
$7,564,000, respectively.
Intangible Assets
Intangible assets are amortized on a straight-line basis over their estimated
useful lives. Goodwill and other intangible assets resulting from the Company's
acquisition of PLC is being amortized over ten years and is reported in the
Consolidated Statements of Operations as Other Expense. Amortization of other
intangible assets was approximately $167,000 during the year ended June 30,
2001. (See also Recent Accounting Pronouncements in Note 1 to these Consolidated
Financial Statements).
Advertising costs
The total amount of advertising costs charged to expense was $3,858,000,
$2,612,000 and $2,377,000 for the three years ended June 30, 2001, 2000 and
1999, respectively.
Depreciation, amortization and maintenance expense
Depreciation and amortization is primarily provided on the straight-line method
at rates calculated to amortize the cost of the assets over their estimated
useful lives. Expenditures for maintenance, repairs and minor renewals are
expensed as incurred; major renewals and betterments are capitalized. At the
time depreciable assets are retired or otherwise disposed of, the cost and the
accumulated depreciation of the assets are eliminated from the accounts and any
profit or loss is recognized.
Leases
The Company's leasing arrangements as lessee include the leasing of certain
office space and equipment. These leases have been classified as operating
leases. Rent expense was approximately $360,000, $213,000 and $200,000 for the
three years ended June 30, 2001, 2000 and 1999, respectively.
Income taxes
The Company and its subsidiaries file a consolidated federal income tax return.
See Note 9 for an additional discussion of income tax matters.
Earnings per share
Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding. 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 and diluted earnings per common
share, and a reconciliation of the numerator and denominator used in the
computation for the three years ended June 30, 2001, 2000 and 1999,
respectively, are shown in the following table.
28
For Year Ended June 30,
-----------------------
2001 2000 1999
-----------------------------------------------------
(In thousands)
Total common shares issued 12,698 12,698 12,698
Unconditional shares issuable (1) 194 - -
Less: Average treasury shares outstanding (1,340) ( 1,340) ( 1,341)
------- -------- -------
Basic EPS shares 11,552 11,358 11,357
Effect of assumed shares issued under
treasury stock method for stock options 615 370 466
Effect of assumed shares issued in
PLC acquisition (2) 79 - -
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 2,000 2,000 2,000
Effect of assumed conversion of $3 million
Series D Preferred Stock 2,000 2,000 1,386
------- -------- -------
Diluted EPS shares 16,246 15,728 15,209
======= ======== =======
Net income available for common shareholders $10,549 $ 7,329 $ 5,220
Effect of assumed conversion of $3 million
Convertible Subordinated 7% Note 130 130 130
Effect of assumed conversion of $3 million
Series D Preferred Stock 210 210 147
------- -------- -------
Adjusted net income for diluted EPS $10,889 $ 7,669 $ 5,497
======= ========= =======
(1) Represents portion of 273,000 shares issues from treasury shares in
connection with the acquisition of PLC on October 13, 2000 which are
considered to be outstanding for a portion of the year for the
computation of Basic EPS.
(2) Represents adjustment with regard to the 273,000 shares issued in
connection with the PLC acquisition since these shares were issued
unconditionally and are assumed to have been outstanding for the entire
year.
Disclosures about fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
the Company to disclose the estimated fair market value of its financial
instruments. The Company believes that the carrying value of its financial
instruments (primarily mortgages receivable and mortgage notes payable)
approximates fair
29
market value and that any differences are not significant. This assessment is
based upon substantially all of the Company's debt obligations being based upon
LIBOR or the prime rate of interest which are variable market rates.
Segment reporting
Since the Company operates primarily in a single extended geographical market
with similar products at its various development projects, it is considered to
represent a single operating segment for financial reporting purposes.
Management's estimates and assumptions
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidated statements of cash flows
For purposes of reporting cash flows, short-term investments with original
maturities of ninety days or less are considered cash equivalents. Interest
payments, net of amounts capitalized, for fiscal 2001, 2000 and 1999, were
$373,000, $259,000 and $440,000, respectively. Income taxes paid were
$6,718,000, $5,376,000 and $3,451,000 for fiscal 2001, 2000 and 1999,
respectively.
On October 20, 1998, the Company issued 100,000 shares of Series D Preferred
Stock (the "Series D Stock") to Jeffrey P. Orleans in exchange for an aggregate
amount of $3,000,000 in Company notes held by Mr. Orleans.
Non-cash assets acquired and liabilities assumed as a result of the PLC
acquisition were approximately $47,234,000 and $43,089,000, 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 300,000 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.
In fiscal 2000, a subsidiary of the Company dedicated a waste water spray
irrigation facility to the municipal authority for the Company's Willistown
Chase Community in Chester County, Pennsylvania. The net asset value of the
waste water spray irrigation facility was approximately $1,503,000 at
dedication. The waste water spray irrigation facility was offset against
deferred revenue that was collected for this purpose and there was no gain or
loss recognized on this transaction.
Comprehensive income
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 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
30
they are recognized. Furthermore, a total amount for comprehensive income shall
be displayed in the financial statements. The Company has adopted this standard
effective July 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), 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, comprehensive income and net income are the same for
fiscal 2001, 2000 and 1999.
Recent accounting pronouncements
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 use of derivative financial instruments and hedging
activities. It reuires 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 has adopted SAB 101, as
required, in the fourth quarter of fiscal 2001. The adoption of SAB 101 did not
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.
In June, 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No.
141"), which establishes standards for reporting business combinations entered
into after June 30, 2001 and supercedes APB Opinion No. 16, "Business
Combinations" and SFAS No. 38, "Accounting for Preacquisition
31
Contingencies of Purchased Enterprises". Among other things, SFAS No. 141
requires that all business combinations be accounted for as purchase
transactions and provides specific guidance on the definition of intangible
assets which require separate treatment. The statement is applicable for all
business combinations entered into after June 30, 2001 and also requires that
companies apply its provisions relating to intangibles from pre-existing
business combinations.
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), which establishes standards for financial accounting
and reporting for intangible assets acquired individually or with a group of
other assets and for the reporting of goodwill and other intangible assets
acquired in a business acquisition subsequent to initial accounting under SFAS
No. 141. SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets" and
related interpretations. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001, however, companies with fiscal years beginning after
March 15, 2001 may elect to adopt the provision of SFAS No. 142 at the beginning
of its new fiscal year. Accordingly, the Company intends early adoption of SFAS
No. 142 effective with the beginning of its new fiscal year on July 1, 2001. The
Company does not believe that there will be any charge to earnings for the
cumulative effect upon adoption because all such intangibles relate to the
Company's recent acquisition of PLC for which no impairment is expected to be
required under the provisions of SFAS No. 142. Prospectively, such intangibles,
which are currently being amortized over ten years will no longer be amortized
but continue to be subject to periodic review for impairment.
Note 2. Acquisitions
On October 13, 2000, the Company acquired all of the issued and outstanding
shares of PLC and entered into employment agreements ranging from two to three
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 June 30, 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 $2,480,000
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 June 30, 2001 was approximately $167,000. (See
also Recent Accounting Pronouncements in Note 1 to these Consolidated Financial
Statements).
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.
32
If the PLC acquisition occurred on July 1, 1999, pro forma information for the
Company would have been as follows:
For the Year Ended June 30,
2001 2000
---------------------------------------
(unaudited)
(In thousands, except per share amounts)
Revenue $306,867 $271,003
Income from operations 17,623 12,784
Net income 10,832 7,832
Earnings per share:
Basic .93 .67
Diluted .69 .51
Note 3. Certain Transactions with Related Parties
During fiscal 1999, Jeffrey P. Orleans, Chairman and Chief Executive Officer of
the Company, purchased four (4) low income homes, with an aggregate sales value
of approximately $176,000. These transactions satisfied, in part, the Company's
low income housing requirements in Mount Laurel Township, New Jersey. The
selling prices for these homes, which are determined by state statute, are the
same as if the homes had been sold to unaffiliated third parties.
In December 1997, the Company purchased land approved for the development of 181
lots from Mr. Orleans in exchange for a $500,000 Purchase Money Mortgage, plus a
share of one-half of the gross profit in excess of 16% on 134 of the lots.
During fiscal 2001 and 2000, 48 lots and 32 lots, respectively, have settled and
the Company incurred additional costs of approximately $145,000 and $161,000,
respectively, for Mr. Orleans' share of the gross profit. As of June 30, 2001,
the Company paid Mr. Orleans approximately $276,000 under this agreement and the
remaining $30,000 is included in Accrued Expenses at June 30, 2001.
The Company leases office space from entities controlled by the president of its
subsidiary, PLC. The annual rent of this office space approximates $65,000 and
is considered a fair market value rental.
See Note 6 to the consolidated financial statements for a discussion of other
related party transactions.
33
Note 4. Real Estate Held for Development and Sale
Residential properties completed or under construction consist of the following:
June 30,
------------------------------
2001 2000
------------------------------
(In thousands)
Condominiums and townhomes $ 28,100 $ 22,695
Single-family homes 72,850 42,974
-------- --------
$100,950 $ 65,669
======== ========
Sales status of above properties is as follows:
June 30,
------------------------------
2001 2000
------------------------------
(In thousands)
Under contract for sale $ 72,969 $ 55,820
Unsold 27,981 9,849
-------- --------
$100,950 $ 65,669
======== ========
Note 5. Property and Equipment
June 30,
------------------------------
2001 2000
------------------------------
(In thousands)
------------------------------
Property and equipment consists of the following:
Equipment and fixtures $ 2,295 $ 1,446
less accumulated depreciation ( 1,316) ( 1,007)
-------- --------
$ 979 $ 439
======== =========
During fiscal 1998, a subsidiary of the Company used the proceeds from a 1997
Chester County Industrial Development Authority Wastewater Treatment Revenue
Bond Offering to construct and operate a waste water spray irrigation facility.
See Note 7 for additional information on the revenue bonds. In fiscal 2000, the
waste water spray irrigation facility was dedicated to the municipal authority
for the Company's Willistown Chase Community in Chester County, Pennsylvania.
See Note 1 under consolidated statements of cash flows for additional
information on the dedication of the waste water spray irrigation facility.
Depreciation expense, included in Other Costs and Expenses on the Company's
Consolidated Statements of Operations and Retained Earnings, was $340,000,
$218,000 and $326,000 during fiscal 2001, 2000 and 1999, respectively.
Note 6. Mortgage and Other Note Obligations
The maximum balance outstanding under construction and inventory loan agreements
at any month end during fiscal 2001, 2000 and 1999 was $102,103,000, $63,366,000
and $56,308,000, respectively. The average month end balance during fiscal 2001,
2000 and 1999 was approximately $83,875,000, $60,676,000 and $49,980,000,
respectively, bearing interest at an approximate average annual rate of
34
7.85%, 8.31% and 8.35%, respectively. At June 30, 2001, the Company had
approximately $98,069,000 available to be drawn under existing secured revolving
and construction loans for planned development expenditures. Mortgage
obligations secured by land held for development and sale and improvements
aggregating $6,095,000 and $10,469,000 at June 30, 2001 and 2000, respectively,
are due in varying installments through fiscal 2003 with annual interest based
on LIBOR, the prime rate of interest or a fixed rate of 7%. The LIBOR and prime
rate of interest at June 30, 2001 were 3.86% and 6.75%, respectively.
Maturities of land and improvement mortgage obligations, other than residential
property construction loans, are as follows: 2002 - $3,175,000 and 2003 -
$2,920,000. Obligations under residential property and construction loans
amounted to $96,510,000 and $58,875,000 at June 30, 2001 and 2000, respectively,
and are repaid at a predetermined percentage (approximately 85% on average) of
the selling price of a unit when a sale is completed. The repayment percentage
varies from community to community and over time within the same community.
As partial consideration for the October 13, 2000 acquisition of PLC, the
Company issued $1,000,000 of subordinated promissory notes to certain former PLC
shareholders. The Company, via certain employment agreements entered into as a
result of the acquisition, currently employs the former PLC shareholders. The
subordinated promissory notes of $1,000,000 are included in Notes Payable -
Related Parties at June 30, 2001. The promissory notes bear interest, payable
quarterly, at the prime rate, subject to a cap of 10% and a floor of 8% (subject
to the 8% floor at June 30, 2001) with principal payable on the anniversary date
of the note in four equal installments.
Included in the Notes Payable - Related Parties balance at June 30, 2001 and
2000 is a $3,000,000 Convertible Subordinated 7% Note dated August 8, 1996
issued to Jeffrey P. Orleans. This note is convertible into Orleans
Homebuilders, Inc. common stock at $1.50 per share. During fiscal 2001, Mr.
Orleans agreed to extend the maturity date one year to January 1, 2004, provided
the terms of the original Convertible Subordinated 7% Note are not modified.
Interest is payable quarterly and principal is due in annual installments of
$1,000,000 beginning January 1, 2002.
During fiscal 1999, the Company entered into a $4,000,000 unsecured line of
credit agreement with Mr. Orleans. This agreement provides for an annual review
for a one-year extension and currently expires June 30, 2002 with annual
interest at LIBOR plus 4% payable monthly. The total outstanding principal and
interest was $3,619,000 at June 30, 2001. There were no principal and interest
balances outstanding under this unsecured line of credit agreement at June 30,
2000.
At June 30, 1998, the Company had a $2,000,000 Variable Rate Note and a
$1,746,000 Demand Note due to Mr. Orleans with interest at prime plus 2%,
payable quarterly. In October, 1998, the Company issued 100,000 shares of Series
D Preferred Stock in exchange for the $2,000,000 Variable Rate Note and
$1,000,000 of the Demand Note. See Note 8 for additional information on the
Series D Preferred Stock. The remaining portion of the Demand Note was paid in
full in November, 1998.
In December 1997, the Company purchased land from Mr. Orleans in exchange for a
$500,000 Purchase Money Mortgage ("PMM") plus a share of one-half of the gross
profit in excess of 16% on certain specified lots to be developed and sold. See
Note 3 for additional information on the gross profit sharing arrangement. The
PMM will be repaid from the proceeds of units sold at this development and bears
interest at 7% annually, due no later than 60 months from the date of issuance.
The total principal and accrued interest of $88,000 and $177,000, respectively,
is included in Notes Payable - Related Parties at June 30, 2001 and 2000.
35
Prior to October 22, 1993, the date of acquisition by the Company of Orleans
Construction Corp., a real estate company which was wholly owned by Jeffrey P.
Orleans, Chairman and Chief Executive Officer of the Company, OCC had advanced
funds to, borrowed funds from, and paid expenses and debt obligations on behalf
of Orleans Builders and Developers, L.P., a partnership in which Jeffrey P.
Orleans owns a majority interest. At June 30, 2001 and 2000, amounts owed by the
Company to the partnership aggregated $869,000 and $1,633,000, respectively.
These advances are payable on demand and bear interest at 7% annually. Interest
incurred on these advances amounted to $90,000, $134,000 and $149,000 for the
years ended June 30, 2001, 2000 and 1999, respectively.
In June, 1997, the Chester County Industrial Development Authority issued bonds
in the amount of $1,855,000 and loaned the proceeds thereof to a subsidiary of
the Company. The bonds mature November 1, 2006 and bear interest at 7% annually.
The bonds will be repaid at a predetermined amount from settlement proceeds for
each home sold with minimum annual repayments of approximately $200,000
commencing on November 1, 1998. The proceeds from this obligation were used to
construct and operate a waste water spray irrigation facility which is servicing
the Company's Willistown Chase community in Chester County, Pennsylvania.
Included in Other Assets on the Company's Consolidated Balance Sheet at June 30,
2001 is $985,000 of restricted cash to be used for repayment of the bonds. The
total principal and accrued interest of $1,318,000 and $1,505,000, respectively,
is included in Other Notes Payable at June 30, 2001 and 2000.
In addition, the Company has various working capital and property and equipment
note obligations which require various monthly repayment terms with maturity
dates primarily from fiscal 2002 through 2007.
36
The following table summarizes the components of Other Notes Payable, including
related party amounts.
Outstanding
Balance
Final as of June 30,
Maturity Interest -----------------
Note Date Rate 2001 2000
---- -------- -------- ---- ----
(In thousands)
Convertible Subordinated 7% Note 1/2004 7% $ 3,000 $ 3,000
Subordinated Promissory Note 10/2004 8-10% 1,000 -
Unsecured Line of Credit 6/2002 LIBOR +4% 3,619 -
Purchase Money Mortgage 12/2001 7% 88 177
Unsecured advance On demand 7% 869 1,633
-------- -------
Subtotal - related party notes payable(1) 8,576 4,810
-------- -------
Property & Equipment 2001-2004 9 1/2%-11 1/2% 890 1,103
Unsecured line of credit 10/2001 LIBOR +2 1/2% 821 -
Bonds Payable (secured
by mortgage receivables) 2001-2017 10%-12% 64 145
Quaker Sewer Bonds 11/2006 7% 1,318 1,505
-------- -------
Subtotal - other notes payable 3,093 2,753
-------- -------
$ 11,669 $ 7,563
======== =======
Maturities of these obligations during the next five fiscal years are (in thousands):
2002(2) $ 7,541
2003 1,621
2004 1,531
2005 467
2006 225
Thereafter 284
--------
$ 11,669
========
-----------
(1) Except for the subordinated promissory note, the holders of the related
party notes payable are Jeffrey P. Orleans or Orleans Builders and
Developers, L.P.
(2) Includes all demand notes and unsecured advances payable on demand.
37
Note 7. Subordinated Debentures
On September 8, 1980, the Company sold 25,000 Units, each consisting of a $1,000
debenture bearing interest at 14 l/2% per annum and 5 shares of Common Stock.
The debentures, which were unsecured obligations of the company, required
semi-annual interest payments each September and March with the principal
balance due on September 1, 2000. The Company repaid the debentures in full in
March, 1999. No gain or loss was recognized on the repayment.
Note 8. Preferred Stock
On October 20, 1998, the Company issued 100,000 shares of Series D Stock to
Jeffrey P. Orleans in exchange for an aggregate amount of $3,000,000 in company
notes held by Mr. Orleans. (See Note 6 for additional information on the notes.)
The Series D Stock was issued from an aggregate of 500,000 shares of Preferred
Stock authorized. The Series D Stock has a liquidation value of $3,000,000, or
$30.00 per share, and requires annual dividends of 7% of the liquidation value.
The dividends are cumulative and are payable quarterly on the first day of
March, June, September and December. The Series D Stock may be redeemed by the
Company at any time after December 31, 2003, in whole or in part, at a cash
redemption price equal to the liquidation value plus all accrued and unpaid
dividends on such shares to the date of redemption. The Series D Stock is
currently convertible into 2,000,000 shares of Common Stock.
Note 9. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
For Year Ended June 30,
---------------------------------
2001 2000 1999
---------------------------------
(In Thousands)
---------------------------------
Continuing operations
Current $6,853 $4,965 3,747
Deferred (79) (345) (457)
------ ------ -----
$6,774 $4,620 $3,290
====== ====== ======
The differences between taxes computed at federal income tax rates and amounts
provided for continuing operations are as follows:
For Year Ended June 30,
---------------------------------
2001 2000 1999
---------------------------------
(In Thousands)
---------------------------------
Amount computed at statutory rate $5,961 $4,134 $2,944
State income taxes, net of federal
tax benefit 756 486 346
Other, net 57 - -
------ ------ ------
$6,774 $4,620 $3,290
====== ====== ======
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes". The principal components of the
38
Company's deferred tax liability of $2,118,000 and $2,159,000 at June 30, 2001
and 2000, respectively, are temporary differences arising from interest and real
estate taxes incurred prior to commencing active construction being capitalized
for financial reporting purposes while being expensed for tax purposes. In
addition, temporary differences arise from net realizable value adjustments
recognized for financial reporting purposes, but not for tax purposes. These
temporary differences reverse ratably as the communities sellout. The principal
items making up the deferred income tax provisions (benefits) from continuing
operations are as follows:
For Year Ended June 30,
-------------------------------
2001 2000 1999
---- ---- ----
(In thousands)
Interest and real estate taxes ($371) $( 43) $(253)
Difference in tax accounting for
land and property sales (net) 107 (18) (6)
Accrued expenses 56 (278) 80
Gain (loss) from joint ventures 3 2 (7)
Deferred compensation (19) (79) (305)
Depreciation and other 53 27 (47)
State taxes 92 44 81
---- ----- -----
($79) $(345) $(457)
==== ===== =====
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. SFAS No. 109 requires the Company to record a valuation allowance
when it is "more likely than not that some portion or all of the deferred tax
assets will not be realized." It further states that "forming a conclusion that
a valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years." The Company does not have a
valuation allowance for deferred tax assets at June 30, 2001. The ultimate
realization of certain tax assets depends on the Company's ability to generate
sufficient taxable income in the future, including the effects of future
anticipated arising/reversing temporary differences.
39
The components of net deferred taxes payable consisted of the following:
June 30,
-------------------------
2001 2000
(In Thousands)
-------------------------
Capitalized interest and real estate taxes $2,493 $2,424
State income taxes 1,300 1,300
Other 126 18
------ ------
Gross deferred tax liabilities 3,919 3,742
------ ------
Reserves for books (166) (330)
Partnership income (164) (166)
Related party interest (1) (9)
Executive bonus (760) (486)
Employment contracts (159) (259)
Vacation accrual (73) (73)
Inventory adjustment (444) (187)
Fixed assets (20) (59)
Other (14) (14)
------ ------
Gross deferred tax assets (1,801) (1,583)
------ ------
Net deferred tax liabilities $2,118 $2,159
====== ======
The deferred tax assets and liabilities at June 30, 2000 exclude those of PLC.
As of June 30, 2001, the Company had no remaining federal net operating loss or
alternative minimum tax credit carryforwards.
Note 10. Stock Option Plan
In December 1992, the Board of Directors adopted (i) the 1992 Stock Incentive
Option Plan and (ii) the Non-Employee Directors Stock Option Plan. The 1992 Plan
allows for the grant of options to purchase up to 1,210,000 shares (increased in
December 1998 from 910,000 shares) of Common Stock of the Company. The
Non-Employee Directors Stock Option Plan allows for the grant of options to
purchase up to 100,000 shares of Common Stock of the Company. No options were
granted under either plan during fiscal 2001 and 2000. During fiscal 1999,
options were granted under these plans totaling 10,625 options at an exercise
price of $2.06 per share. The aforementioned options vest 25% per year beginning
on the date of grant.
In February, 1995, the Board of Directors adopted the 1995 Stock Option Plan for
Non-Employee Directors (the "1995 Directors Plan"). The 1995 Directors Plan
allows for the grant of options to purchase up to 125,000 shares (increased in
December, 1998 from 100,000 shares) of Common Stock of the Company. No options
were granted under the 1995 Directors Plan during fiscal 2001, 2000 and 1999.
The options vest 25% per year beginning on the date of grant.
40
The option price per share under all plans is established at the fair market
value on the date of each grant. Total outstanding options under all three plans
aggregated 1,185,625 options to purchase shares of Common Stock of the Company
at prices ranging from $.69 to $2.81 per share. All options expire between
December 2002 and December 2008.
Effective in fiscal 1997, the Company was required to adopt the provisions of
SFAS No. 123 "Accounting for Stock Based Compensation". As permitted, the
Company has elected to continue to utilize the intrinsic value method and not to
charge the fair value of such options as earned directly to the financial
statements but to disclose the effects of such a charge. Had compensation costs
for the option plans been determined based on the fair value at the grant date
for awards and recognized over the related vesting period in 2001, 2000 and
1999, consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per share for the three years ended June 30, 2001 would have been
reduced to the pro forma amounts indicated below:
For Year Ended June 30
----------------------
2001 2000 1999
-----------------------------------
(In thousands, except for EPS data)
Net Income - as reported $10,549 $7,329 $5,220
Net Income - pro forma $10,505 7,271 5,148
Diluted EPS - as reported .67 .49 .36
Diluted EPS - pro forma .67 .48 .35
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option - Pricing Model with the following weighted average
assumptions used for options granted in fiscal 1998 through fiscal 1999:
dividend yield of 0% for all years; expected volatility of 73.9%; risk free
interest rates for treasuries of comparable duration and expected lives of 10
years for all grants. The weighted average fair value of grants per share for
fiscal 1999 and 1998 was $1.67 and $.98 per share, respectively. Note there were
no options granted in fiscal 2001 and 2000.
The fiscal 1998 option grants were included in the pro forma calculation for
fiscal 1999, as they were not approved by the shareholders until December 1998.
The pro forma disclosures above may not be indicative of the effects on reported
net income and net income per share for future years, as the pro forma
disclosures include the effects of only those awards granted on or after July 1,
1995.
41
The following summarizes stock option activity for the three plans during the
three years ended June 30, 2000:
2001 2000 1999
---- ---- ----
Weighted- Weighted- Weighted
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- -------------- --------- -------------- --------- --------------
Outstanding,
beginning of year 1,188,125 $1.22 1,188,125 $1.22 967,500 $ 1.21
Granted - - - 230,625 1.23
Exercised - - - (1,875) 1.19
Canceled (2,500) 2.06 - - (8,125) 1.19
--------- ------
Outstanding,
end of year 1,185,625 1.22 1,188,125 1.22 1,188,125 1.22
========= ========= =========
Exercisable,
end of year 1,092,969 1.20 989,688 1.17 884,531 1.15
========= ======= =======
Available for grant,
end of year 247,500 245,000 245,000
======= ======= =======
The fiscal 1999 grants include 220,000 options granted in fiscal 1998 subject to
shareholder approval, which was obtained during fiscal 1999.
The following table summarizes information about stock options outstanding at
June 30, 2001.
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (in yrs) Price Exercisable Price
-------- ----------- ------------- -------- ----------- ---------
$ .69 - $ .81 480,000 1.5 $ .75 480,000 $ .75
$1.19 - $1.63 562,500 5.4 1.32 482,500 1.30
$2.00 - $2.81 143,125 3.6 2.43 130,469 2.47
--------- ---------
$ .69 - $2.81 1,185,625 3.6 $ 1.22 1,092,969 $ 1.20
========= =========
42
Note 11. Commitments and Contingencies
General
At June 30, 2001, the Company had outstanding bank letters of credit, surety
bonds and financial security agreements amounting to $47,789,000 as collateral
for completion of improvements at various developments of the Company.
At June 30, 2001 the Company had agreements to purchase land and approved
homesites aggregating approximately 5,200 building lots with purchase prices
totaling approximately $185,000,000. 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 contingent upon obtaining
all governmental approvals and satisfaction of certain requirements by the
Company and the Sellers. The Company expects to utilize purchase money
mortgages, secured financings and existing capital resources to finance these
acquisitions. Contingent on the aforementioned, the Company anticipates
completing a majority of these acquisitions during the next several years. As of
June 30, 2001 and 2000, the Company had paid deposits and incurred other costs
associated with the acquisition and development of these parcels aggregating
$9,258,000 and $4,627,000, respectively, which are included in Other Assets.
Environmental Liability Exposure
Development and sale of real property creates a potential for environmental
liability on the part of the developer, owner or any mortgage lender for its own
acts or omissions as well as those of current or prior owners of the subject
property or adjacent parcels. If hazardous substances are discovered on or
emanating from any of the Company's properties, the owner or operator of the
property (including the prior owners) may be held strictly liable for all costs
and liabilities relating to such hazardous substances. Environmental studies are
undertaken in connection with property acquisitions by the Company.
Pursuant to an Order dated February 6, 1996 issued by the New Jersey Department
of Environmental Protection ("NJDEP"), the Company submitted a
Closure/Post-Closure Plan ("Plan") and Classification Exception Area ("CEA") for
certain affected portions of Colts Neck Estates, a single family residential
development built by the Company in Washington Township, Gloucester County, New
Jersey. The affected areas include those portions of Colts Neck where solid
waste allegedly was deposited. NJDEP approved the Plan and CEA on July 22, 1996
and the Company carried it out thereafter. NJDEP as a standard condition of its
approval of the Plan and CEA reserves the right to amend its approval to require
additional remediation measures if warranted. Neither the implementation of the
Plan nor CEA is expected to have a material adverse effect on the Company's
results of operations or its financial position.
Approximately 145 homeowners at Colts Neck instituted three lawsuits against the
Company, which were separately filed in state and Federal courts between April
and November, 1993. These suits were consolidated in the United States District
Court for the District of New Jersey and were subject to court-sponsored
mediation. Asserting a variety of state and federal claims, the plaintiffs in
the consolidated action alleged that the Company and other defendants built and
sold them homes which had been constructed on and adjacent to land which had
been used as a municipal waste landfill and a pig farm. The complaints asserted
claims under the federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Solid Waste Disposal Act, the New Jersey Sanitary
Landfill Facility Closure and Contingency Act, the New Jersey Spill Compensation
and Control Act, as well as under state common law and statutory law.
43
In September, 1993 the Company brought an action in New Jersey state court
against more than 30 of its insurance companies seeking indemnification and
reimbursement of costs of defense in connection with the three Colts Neck
actions referred to above.
As a result of the court sponsored mediation, the Company and the plaintiffs in
the consolidated federal litigation entered into a settlement agreement. Under
that agreement, which has been approved by the Court, a $6,000,000 Judgment was
entered against the Company in favor of a class comprising most of the current
and former homeowners. The Company, which has paid $650,000 on August 28, 1996
to the class, has no liability for the remainder of the Judgment. The remainder
of the Judgment is to be paid solely from the proceeds of the state court
litigation against the Company's insurance companies. Although, under the
settlement agreement the Company is obligated to prosecute and fund the
litigation against its insurance companies, the Company is entitled to obtain
some reimbursement of those expenses. Specifically, under the settlement
agreement, the Company may obtain reimbursement of its aggregate litigation
expenses in excess of $100,000 incurred in connection with its continued
prosecution of the insurance claims to the extent that settlements are reached
and to the extent that the portion of those settlement funds designated to fund
the litigation are not exhausted. The Company's right to reimbursement may,
under certain circumstances, be limited to a total of $300,000.
The Company is actively pursuing the litigation against its insurance companies
in state court pursuant to its settlement agreement. The likelihood of a
favorable judgment or additional settlements in the litigation is uncertain.
The Company has accrued estimated costs of environmental testing as well as all
other reasonably estimable future investigatory, engineering, legal and
litigation costs and expenses. The Company believes that neither the
implementation of the settlement agreement nor the resolution of the insurance
claims through further litigation will have a material effect on its results of
operations or its financial position.
The Company is not aware of any other environmental liabilities associated with
any of its other projects.
Other Significant Litigation
From time to time, the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be accurately
predicted, in the opinion of the Company any such liability will not have a
material adverse effect on the financial position or operating results of the
Company.
44
Note 12. Quarterly Financial Data (Unaudited)
Unaudited summarized financial data by quarter for 2001 and 2000 are as follows
(in thousands, except per share data):
Three Months Ended
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Fiscal 2001
Net sales $52,982 $73,894 $54,380 $102,914
Gross profit 8,336 10,535 8,586 18,920
Net income available for
common shareholders 2,276 2,233 1,299 4,741
Net earnings per share:
Basic .20 .19 .11 .41
Diluted .15 .14 .08 .30
Fiscal 2000
Net sales $41,475 $43,715 $40,453 $50,951
Gross profit 6,287 7,276 6,871 8,523
Net income available for
common shareholders 1,458 1,933 1,489 2,449
Net earnings per share:
Basic .13 .17 .13 .22
Diluted .10 .13 .10 .16
45
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There are no matters required to be reported hereunder.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated herein by reference from the Company's definitive
proxy statement for its Annual Meeting of Stockholders to be held in December,
2001.
Item 11. Executive Compensation.
Incorporated herein by reference from the Company's definitive
proxy statement for its Annual Meeting of Stockholders to be held in December,
2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the Company's definitive
proxy statement for its Annual Meeting of Stockholders to be held in December,
2001.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the Company's definitive
proxy statement for its Annual Meeting of Stockholders to be held in December,
2001.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements
The financial statements listed in the index on the
first page under Item 8 are filed as part of this
Form 10-K.
2. Financial Statement Schedules
None.
46
3. Exhibits
Exhibit Number
--------------
2.1 Stock Purchase Agreement dated as of October 12, 2000, by and among the
Company, Parker & Lancaster Corporation, and the selling stockholders
party thereto (incorporated by reference to Exhibit 2 to the Company's
Form 8-K filed with the Securities and Exchange Commission on October
27, 2000).
3.l Certificate of Incorporation of the Company dated September 4, 1969
(incorporated by reference to Exhibit 2.l of the Company's Registration
Statement on Form S-7, filed with the Securities and Exchange
Commission (S.E.C. File No. 2-68662) (herein referred to as "Form
S-7")).
3.2 Amendment to Certificate of Incorporation of the Company filed July 25,
1983 (incorporated by reference to Exhibit 3.2 of Amendment No. 2 to
the Company's Registration Statement on Form S-2 filed with the
Securities and Exchange Commission (S.E.C. File No. 2-84724)).
3.3 Amendment to Certificate of Incorporation of the Company filed May 27,
1992 (incorporated by reference to Exhibit 3.6 of Amendment No. 2 to
the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (S.E.C. File No. 33-43943) (the
"Form S-1")).
3.4 Agreement and Plan of Merger dated as of October 22, 1993, by and among
the Company, FPA Merger Subsidiary, Inc. a Pennsylvania corporation;
Orleans Construction Corp. ("OCC"); and Jeffrey P. Orleans, including
the Certificate of Designation respecting the Series C Preferred Stock
incorporated by reference to Exhibit 3.5 to the Company's Form 8-K
dated October 22, 1993 filed with the Securities and Exchange
Commission (the "1993 Form 8-K").
3.5 Certificate of Designation filed by the Company on September 6, 1991
with the Secretary of State of Delaware respecting the Series A
Preferred Stock and Series B Junior Preferred Stock (incorporated by
reference to Exhibit 4.4 of the Company's Form 8-K dated September 11,
1991 ("1991 Form 8- K")).
3.6 Subsequent Certificate to Certificate of Designations, Preferences and
Rights of Series A Preferred Stock and Series B Junior Preferred Stock
of FPA Corporation adopted September 14, 1992 and filed with the
Secretary of State of Delaware. (incorporated by reference to Exhibit
4.19 to Registrant's Form 10-K for the fiscal year ended June 30,
1994).
3.7 Subsequent Certificate to Certificate of Designations, Preferences and
Rights of Series A Preferred Stock and Series B Junior Preferred Stock
of FPA Corporation filed on September 2, 1993 with the Secretary of
State of Delaware.
3.8 Certificate of Designations, Preferences and Rights of Series C
Preferred Stock filed by the Company on October 21, 1993 with the
Secretary of State of Delaware respecting the Series C Preferred Stock.
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated October 22, 1993).
3.9 Certificate of Elimination to Certificate of Designations, Preferences
and Rights of Series C Preferred Stock of FPA Corporation filed on
October 18, 1996 with the Secretary of State of Delaware (incorporated
by reference to Exhibit 3.9 to the 1998 Form 10-K).
47
3.10 Amendment to Certificate of Incorporation filed with the Secretary of
State of Delaware on July 13, 1998 (incorporated by reference to
Exhibit 3.10 to the 1998 Form 10-K).
3.11 By-Laws, as last amended on April 20, 1998 (incorporated by reference
to Exhibit 3.11 to the 1998 Form 10-K).
3.12 Certificate of Designations, Preferences and Rights of Series D
Preferred Stock of Orleans Homebuilders, Inc. filed October 14, 1998
(incorporated by reference to Exhibit 3.1 to the September 30, 1998
Form 10-Q).
4.1 Form of Note Purchase Agreement, dated as of August 1, 1996, together
with form of $3,000,000 Convertible Subordinated 7% Note due January 1,
2002 (incorporated by reference to Exhibit 4.9 to the 1997 Form 10-K).
10.1 Form of Indemnity Agreement executed by the Company with Directors of
the Company (incorporated by reference to Exhibit B to the Company's
Proxy Statement respecting its 1986 Annual Meeting of Stockholders).
10.2 Employment Agreement between the Company and Jeffrey P. Orleans, dated
June 26, 1987 (incorporated by reference to Exhibit 10.2 to the Form
S-1.)
10.3 Mortgage dated March 17, 1992 granted by the Company to Jeffrey P.
Orleans, respecting property in Washington Township, Gloucester County,
New Jersey (incorporated by reference to Exhibit 10.3 to the 1992 Form
8-K).
10.4 Exchange Agreement dated as of October 14, 1998 between Orleans
Homebuilders, Inc. and Jeffrey P. Orleans (incorporated by referenced
to Exhibit 10.1 to the September 30, 1998 Form 10-Q).
10.5 $4,000,000 Unsecured Line of Credit Agreement with Jeffrey P. Orleans
dated as of June 30, 1999 (incorporated by reference to Exhibit 10.4 to
the 1999 Form 10-K).
21.* Subsidiaries of Registrant.
23.* Consents of Experts and Counsel.
25.* Power of Attorney (included on Signatures page).
--------------
* Exhibits included with this filing.
(b) Reports on Form 8-K
None.
48
SIGNATURES
and
POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) 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.
By: s/Jeffrey P. Orleans September 24, 2001
---------------------------------
Jeffrey P. Orleans,
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jeffrey P. Orleans, Benjamin D. Goldman and Joseph A.
Santangelo and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or each of them, of their or his
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
s/ Jeffrey P. Orleans September 24, 2001
--------------------------------------
Jeffrey P. Orleans
Chairman of the Board and
Chief Executive Officer
s/ Benjamin D. Goldman September 24, 2001
---------------------------------
Benjamin D. Goldman
Vice Chairman and Director
s/Jerome Goodman September 24, 2001
-------------------------------------
Jerome Goodman
Director
49
s/ Robert N. Goodman September 24, 2001
-------------------------------------
Robert N. Goodman
Director
s/ Andrew N. Heine September 24, 2001
-------------------------------------
Andrew N. Heine
Director
s/ David Kaplan September 24, 2001
-------------------------------------
David Kaplan
Director
s/ Lewis Katz September 24, 2001
-------------------------------------
Lewis Katz
Director
s/ Michael T. Vesey September 24, 2001
-------------------------------------
Michael T. Vesey
President and Chief Operating Officer
s/ Joseph A. Santangelo September 24, 2001
-------------------------------------
Joseph A. Santangelo
Chief Financial Officer,
Treasurer and Secretary
50