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, 2002
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:
Name of Each Exchange
Title of Each Class on which Registered
------------------- ----------------------------
Common Stock, $.10 Par Value Per Share American Stock Exchange
(also formerly registered under
Section 12(g) of the Act)
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.
--------
The aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant as of August 30, 2002 was approximately
$17,091,000.
Number of shares of the registrant's outstanding Common Stock as of August 30,
2002 was 11,885,899 shares (excluding 812,232 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, 2002.
TABLE OF CONTENTS
PART I
PAGE
----
ITEM 1. Business. 1
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders 11
PART II
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters 11
ITEM 6. Selected Financial Data 14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 33
ITEM 8. Financial Statements and Supplementary Data 34
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 59
PART III
ITEM 10. Directors and Executive Officers of Registrant 59
ITEM 11. Executive Compensation 59
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 59
ITEM 13. Certain Relationships and Related Transactions 59
ITEM 14. Controls and Procedures 59
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 59
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, 2002 ("fiscal 2002"), the Company delivered 1,322
homes, as compared to 1,085 homes in the fiscal year ended June 30, 2001
("fiscal 2001"). Revenues earned from residential property activities increased
by 24.3% during fiscal 2002 to $351,060,000 as compared to $282,384,000 in
fiscal 2001. The Company's backlog at June 30, 2002 was $206,064,000,
representing 647 homes, which was 10.1% greater than the backlog of
$187,098,000, representing 623 homes, at June 30, 2001.
Jeffrey P. Orleans, Chairman of the Board and Chief Executive Officer
of the Company, owns directly or indirectly approximately 7,314,128 shares of
Common Stock, par value $.10 per share ("Common Stock"), which represents
approximately 61.5% of the outstanding shares, excluding treasury shares, as of
August 30, 2002. 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 7 of Notes to Consolidated Financial
Statements) into common shares, he would then own 71.2% 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.
The following table sets forth certain information at June 30, 2002
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, 2002
Number Of Remaining Lots Total Units Under
State Communities Unit Price Range Owned Contract of Sale
- --- ----------- ---------------- -------------- ----------------
NC 27 $117,000-$376,000 430 70
NJ 18 $150,000-$882,000 942 323
PA 8 $235,000-$608,000 728 144
SC 3 $180,000-$270,000 25 16
VA 17 $196,000-$448,000 248 94
----- --------- ------
TOTAL 73 2,373 647
===== ========= ======
2
The following table sets forth certain details as to residential sales
activity. The information provided is for the twelve months ended June 30, 2002,
2001 and 2000 in the case of revenues earned and new orders, and as of June 30,
2002, 2001 and 2000 in the case of backlog.
Year Ended June 30,
--------------------------------------
2002 2001 2000
-------- -------- --------
Northern Region
New Jersey and Pennsylvania
Revenues earned $223,987 $200,108 $176,189
Homes 808 739 768
Average Price $ 277 $ 271 $ 229
New Orders $229,971 $203,102 $203,023
Homes 798 740 752
Average Price $ 288 $ 274 $ 270
Backlog $150,624 $130,893 $127,899
Homes 467 410 409
Average Price $ 323 $ 319 $ 313
Southern Region (1)
North Carolina, South Carolina and Virginia:
Revenues earned $127,073 $ 82,276 $ -
Homes 514 346 -
Average Price $ 247 $ 238 $ -
New Orders $126,308 $109,991 $ -
Homes 481 443 -
Average Price $ 263 $ 248 $ -
Backlog $ 55,440 $ 56,205 $ -
Homes 180 213 -
Average Price $ 308 $ 264 $ -
Combined Regions
Revenues earned $351,060 $282,384 $176,189
Homes 1,322 1,085 768
Average Price $ 266 $ 260 $ 229
New Orders $356,279 $313,093 $203,023
Homes 1,279 1,183 752
Average Price $ 279 $ 265 $ 270
Backlog $206,064 $187,098 $127,899
Homes 647 623 409
Average Price $ 318 $ 300 $ 313
(1) Fiscal Year 2001 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.
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. However, prices
for these goods and services may fluctuate due to various factors, including
supply and demand shortages which may be beyond the control of the Company or
its 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,
2002.
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, on-site sales office staff and inside sales
coordinators. The outside sales brokers and, in select communities, on-site
sales office staff, are responsible for the initial customer contact and sale of
the homes 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.
4
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 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.
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 qualified projects and
anticipates additional approvals during the fiscal year ending June 30, 2003;
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, and
proximity to developed areas, population growth patterns, customer preferences,
estimated cost of development and availability and cost of financing.
5
The Company engages in many phases of development activity, including
land and site planning, 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, 2002, the Company had contracted to acquire 27 parcels
of undeveloped land and approximately 2,200 improved lots in its existing
markets, totaling approximately 5,800 residential building lots for an aggregate
purchase price of approximately $233,628,000. 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. As of June 30, 2002, the Company had incurred costs associated
with the acquisition and development of these parcels aggregating $13,116,000,
including $6,028,000 of paid deposits. 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.
6
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 increasingly restrictive regulation and moratoriums by
governments due to density, sewer and 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 New Jersey
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 income housing in such
municipalities. To satisfy these requirements, these municipalities generally
approve additional lots within the residential communities the Company is
developing and require the Company to build low and moderate income housing on
those lots. The Company's gross profit on homes built on the lots approved for
low and moderate income housing is usually substantially less than the gross
profit the Company recognizes on other homes in those communities. The Company
had residential property revenue for low and moderate income housing units
totaling approximately $1,780,000 and $254,000 in fiscal 2002 and 2000,
respectively. The Company had no residential property revenue for low and
moderate income housing units in fiscal 2001. In addition, the Company
contributed $815,000, $242,000 and $133,000 to municipalities in fiscal 2002,
2001 and 2000, respectively, in order to satisfy low and moderate income housing
requirements for municipalities in which it builds. Further, the Company
currently has commitments with two municipalities for affordable housing
contributions totaling approximately $949,000, payable in installments through
December 2005.
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 extensive. In order to advertise and sell
condominiums and residential real estate in many jurisdictions, including
Pennsylvania and New Jersey, the Company has been required to prepare a
registration statement or other disclosure document and, in some cases, to file
such materials with a designated regulatory agency.
7
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
determine 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 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 Company as well as any
prior owners or operators 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 and the Company endeavors
to obtain Phase I environmental site assessments on all properties acquired.
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 10 of
Notes to Consolidated Financial Statements and Item 3, Legal Proceedings, 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. The Company competes 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.
8
Employees
The Company, as of June 30, 2002, employed 132 executive,
administrative and clerical personnel, 77 sales personnel and 158 construction
supervisory personnel and laborers, for a total of 367 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.
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.
Seasonality
The sale and construction of homes may be adversely affected by harsh
winter weather conditions in some of the regions in which the Company operates.
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 17,500
square feet. The Company also leases additional office space consisting of
approximately 6,400 square feet in Bensalem, Pennsylvania, 3,100 square feet in
Hainesport, New Jersey, a total of 10,000 square feet in two Richmond, Virginia
locations and a total of 8,700 square feet in three North Carolina locations for
certain centralized support services related to operations in those regions.
Item 3. Legal Proceedings.
General
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.
9
Colts Neck Litigation
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
other statutory law.
10
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 had
paid $650,000 on August 28, 1996 to the plaintiff class, has no liability for
the remainder of the judgment, which is to be paid solely from the proceeds of
the state court litigation against the Company's insurance carriers. 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.
As of August, 2002, settlement agreements have been reached with all
remaining insurance company defendants to settle the Colts Neck insurance
litigation. Under the terms of the settlement agreement between the Company and
the plaintiffs, the proceeds from the insurance settlements will be paid to the
plaintiffs. The Company, in turn, is relieved of all further obligations to
prosecute the Colts Neck insurance 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.
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).
11
The high and low sales prices on the American Stock Exchange for the
periods indicated below are as follows:
Fiscal year
ended June 30, High Low
-------------------- --------- --------
2002 First Quarter $ 3.180 $ 2.200
Second Quarter 7.000 2.300
Third Quarter 9.340 5.550
Fourth Quarter 9.900 6.300
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
The number of common stockholders of record of the Company as of August
30, 2002 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.
12
Equity Compensation Plan Information
Number of securities
remaining available for
Number of securities to be future issuance under
issued upon exercise of Weighted-average exercise equity compensation
outstanding options, price of outstanding plans (excluding
warrants options, warrants and securities reflected in
Plan category and rights rights column (a))
- ------------- ---------- ------ -----------
(a) (b) (c)
Equity compensation
plans approved by
security holders .................. 677,500 $1.49 255,000
Equity compensation
plans not approved by
security holders .................. (1) N/A N/A
Total ....................... 677,500 $1.49 255,000
(1) In connection with the Company's acquisition of PLC on October
13, 2000, the Company entered into employment agreements with
certain of the former PLC shareholders. Performance under the
employment agreements entitles the former PLC shareholders to
an aggregate of 150,000 shares of common stock of the Company
issuable in equal installments on each of the first four
anniversaries of the closing of the acquisition. Through June
30, 2002, the Company had issued 37,500 shares of common stock
under these agreements. The former PLC shareholders have the
right to cause the Company to repurchase the common stock
issued pursuant to the PLC acquisition and the employment
agreements approximately five years after the closing of the
acquisition at a price of $3.33 per share.
The agreement pursuant to which the Company acquired PLC on October 13,
2000 (the "Acquisition Agreement") provides for the issuance to the former PLC
shareholders of an aggregate of 150,000 shares of the Company's common stock in
equal installments on each of the first four anniversaries of the closing of the
acquisition. In addition, in connection with the Company's acquisition of PLC,
the Company entered into employment agreements the with the former PLC
shareholders (the "Employment Agreements"). Performance under the Employment
Agreements entitles the former PLC shareholders to an aggregate of 150,000
shares of the Company's common stock also to be issued in equal installments on
each of the first four anniversaries of the closing of the acquisition. During
fiscal 2002, the Company issued 75,000 shares of common stock pursuant to these
agreements. This issuance was exempt from registration under Section 4(2) of the
Securities Act of 1933 as a result of the limited number of persons to whom the
shares were issued and the fact that the obligation to issue the shares was the
result of a negotiated transaction. The Company anticipates that it will issue
the balance of the shares in accordance with the terms of the Acquisition
Agreement and the Employment Agreements.
13
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 this Form 10-K.
Year Ended June 30,
(In thousands, except per share data)
Operating Data 2002 2001 2000 1999 1998
- -------------- ---- ---- ---- ---- ----
Earned revenues $ 354,656 $ 287,222 $ 178,997 $ 150,573 $ 108,998
Net income available for
common shareholders 17,703 10,549 7,329 5,220 1,668
Per share data for net income
available for common shareholders:
Basic 1.51 0.91 0.65 0.46 0.15
Diluted 1.09 0.67 0.49 0.36 0.14
Balance at June 30,
(In thousands)
Balance Sheet Data 2002 2001 2000 1999 1998
- ------------------ ---- ---- ---- ---- ----
Residential properties $ 112,279 $ 100,950 $ 65,669 $ 51,800 $ 47,209
Land and improvements 82,699 71,739 61,991 59,763 64,044
Total assets 238,499 213,500 150,328 136,537 130,525
Mortgage obligations
secured by real estate 113,058 102,605 69,344 67,129 65,136
Subordinated debentures - - - - 601
Other notes payable 4,974 11,669 7,563 8,951 14,970
Shareholders' equity 61,655 43,820 33,271 25,942 17,719
The Company has not paid a cash dividend since December 1982.
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Orleans Homebuilders, Inc. and its subsidiaries (collectively, the
"Company", "OHB" or "Orleans") are currently engaged in residential real estate
development in New Jersey, North Carolina, Pennsylvania, South Carolina and
Virginia. 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).
Results of Operations
The tables included in "Item 1 - Business" summarize the Company's
revenues, new orders and backlog data for fiscal 2002 with comparable data for
fiscal 2001 and 2000.
Fiscal Years Ended June 30, 2002 and 2001
Orders and Backlog
The dollar value of new orders for fiscal 2002 increased $43,186,000,
or 13.8%, to $356,279,000 on 1,279 homes compared to $313,093,000 on 1,183 homes
for fiscal 2001. The increase in new order dollars and new orders is partially
attributable to the Company's expansion into North Carolina, South Carolina and
Virginia, that is, the southern region, through its acquisition of PLC on
October 13, 2000. The Company reported new orders from the southern region for
fiscal 2002 compared to the prior fiscal year reporting of new orders from the
southern region for the period October 13, 2000, the PLC acquisition date,
through June 30, 2001, approximately nine months. In addition, new orders in
Pennsylvania and New Jersey (the northern region), increased by $26,869,000, or
13.2%, when compared to new orders in the northern region for fiscal 2001. The
increase in new orders in the northern region is primarily attributable to
favorable conditions in the homebuilding industry, most notably, favorable
financing conditions. Further, average price per unit of new orders in the
combined regions increased to approximately $279,000 per home for fiscal 2002
compared to approximately $265,000 per home for fiscal 2001, due to a change in
product mix as a result of the Company's current product offerings, as well as
unit sales price increases. Overall, unit sales prices have increased at the
majority of communities open during fiscal 2002, when compared with the same
communities and units offered for sale in fiscal 2001.
15
The dollar backlog at June 30, 2002, increased $18,966,000, or
approximately 10.1%, to $206,064,000 on 647 homes compared to the backlog at
June 30, 2001 of $187,098,000 on 623 homes. The increase in backlog and backlog
dollars is primarily attributable to favorable economic conditions for the
homebuilding industry in the regions where the Company operates. These favorable
economic conditions, most notably financing conditions, have resulted in strong
customer demand and positive home pricing trends.
Operating Revenues
Earned revenues for fiscal 2002 increased $67,434,000 to $354,656,000,
or 23.5%, compared to fiscal 2001. Earned revenues principally consist of
revenues from the sale of residential properties, but also include revenue from
land sales, interest income, property management fees and mortgage processing
income. Revenues from the sale of residential homes included 1,322 homes
totaling $351,060,000 during fiscal 2002, as compared to 1,085 homes totaling
$282,384,000 during fiscal 2001. Approximately $44,797,000 of the increase in
residential revenue earned is attributable to the Company's southern region
operations in North Carolina, South Carolina and Virginia and the remaining
increase of $22,637,000 is attributable to the Company's northern region
operations in New Jersey and Pennsylvania. The average selling price per home
increased to approximately $266,000 for fiscal 2002 as compared to approximately
$260,000 for fiscal 2001. The increase in residential revenue earned is
attributable to an increase in the number of homes delivered and average selling
price per home for fiscal year 2002 compared to the prior fiscal year. The
number of homes delivered and average selling price have increased due to
favorable economic conditions in the homebuilding industry, most notably,
favorable financing conditions, and the inclusion of a full year of results for
the Company's expansion into North Carolina, South Carolina and Virginia through
its acquisition of PLC in October 2000. Favorable financing conditions have
resulted in strong customer demand and positive home pricing trends. The overall
average sales price per home varies from year-to-year depending upon current
product offerings. Average sales prices have increased at the majority of
communities open during fiscal 2002, when compared with the same communities and
units offered for sale in fiscal 2001. Earned revenues, excluding revenues from
the sale of residential properties, decreased to $3,596,000 in fiscal 2002 from
$4,838,000 in fiscal 2001 as a result of a reduction in land sales.
16
Costs and Expenses
Costs and expenses for fiscal 2002 increased $56,247,000, or 20.9%,
compared with fiscal 2001. The cost of residential properties for fiscal 2002
increased $47,464,000 to $283,593,000, or 20.1%, when compared with fiscal 2001.
The increase in cost of residential properties is primarily attributable to the
Company's growth in residential revenue. Gross profit margin on residential
property revenues was 19.2% for fiscal 2002 compared with 16.4% for fiscal 2001.
The increase in gross profit margin on residential property revenues for fiscal
2002 compared with fiscal 2001 is a result of favorable conditions in the
homebuilding industry, resulting in strong customer demand and positive home
pricing trends. Also contributing to the increase in gross profit margin on
residential property revenue was the decreased costs of construction financing,
as well as the relatively stable costs for key building materials, in fiscal
2002 when compared to the prior fiscal year.
For fiscal 2002, selling, general and administrative expenses increased
$9,117,000 to $39,298,000, or 30.2%, when compared with fiscal 2001. The
increase in selling, general and administrative expenses is partially
attributable to the reporting of fixed expenses in the southern region for
twelve months of fiscal 2002 compared to approximately nine months in fiscal
2001 due to the timing of the Company's entry into the southern region market
through its acquisition of PLC on October 13, 2000. In addition, selling,
general and administrative expenses increased due to an increase in sales
commissions of $3,495,000 and incentive compensation of $1,926,000 attributable
to the Company's growth in residential revenue and profit. The Company has a
bonus compensation plan for its executive officers and key employees calculated
at a predetermined percentage of its consolidated pretax earnings. In addition,
certain regional employees not participating in the bonus compensation plan are
awarded bonuses based upon the pretax earnings of the respective regions. The
selling, general and administrative expenses as a percentage of residential
property revenue increased to 11.2% during fiscal 2002 compared to 10.7% in the
prior fiscal year. The increase in selling, general and administrative expenses
as a percentage of residential property revenues is attributable to an increase
in fixed costs as a result of the Company's geographic expansion into North
Carolina, South Carolina and Virginia.
17
Net Income Available for Common Shareholders
Net income available for common shareholders for fiscal 2002 increased
$7,154,000, or 67.8%, to $17,703,000 ($1.51 basic and $1.09 diluted earnings per
share), compared with $10,549,000 ($.91 basic and $.67 diluted earnings per
share) for fiscal 2001. This increase in net income available for common
shareholders is attributable to favorable conditions in the homebuilding
industry resulting in strong customer demand, positive home pricing and improved
gross margins, as well as the Company's acquired operations in North Carolina,
South Carolina and Virginia through its October 13, 2000 acquisition of PLC.
Fiscal Years Ended June 30, 2001 and 2000
Orders and Backlog
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 and 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 in the regions where the Company
operates continued during fiscal 2001.
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.
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.
18
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.
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.
19
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 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.
20
Liquidity and Capital Resources
The Company requires capital to purchase and develop land, to construct
units, to fund related carrying costs and overhead and to fund various
advertising and marketing programs to facilitate sales. These expenditures
include site preparation, roads, water and sewer lines, impact fees and
earthwork, as well as the construction costs of the homes and amenities. The
Company's sources of capital include funds derived from operations, sales of
assets and various borrowings, most of which are secured. At June 30, 2002, the
Company had approximately $144,812,000 available under existing secured
revolving and construction loans for planned development expenditures. In
addition, the Company had $4,000,000 available under an existing unsecured line
of credit and working capital arrangement with Jeffrey P. Orleans, Chairman,
Chief Executive Officer and majority shareholder of the Company.
Net cash used in operating activities for fiscal 2002 was $7,305,000
compared to net cash provided by operating activities for the prior fiscal year
of $16,554,000. The increase in net cash used by operating activities is
attributable to an increase in real estate held for development and sale,
partially offset by an increase in net income and a decrease in cash provided by
accounts payable and other liabilities. The increase in real estate held for
development and sale and net income, is due to an increase in the Company's new
order activity and revenue earned for fiscal 2002 compared with the prior fiscal
year. Cash provided by the increase in accounts payable and other liabilities
for fiscal 2002 decreased by $6,432,000 when compared to the prior fiscal year.
Net cash used in investing activities for the fiscal 2002 was $2,678,000
compared to $5,126,000 for fiscal 2001. The decrease in net cash used in
investing activities is primarily attributable to a decrease in cash used to
acquire PLC for the purpose of expanding into North Carolina, South Carolina and
Virginia during fiscal 2001, partially offset by an increase in the purchase of
property and equipment for fiscal 2002 compared with the same period in the
prior fiscal year. Net cash provided by financing activities for fiscal 2002 was
$3,680,000 compared to net cash used in financing activities for the prior
fiscal year of $587,000. The increase in net cash provided by financing
activities is primarily attributable to the increase in borrowings from loans
secured by real estate assets in order to finance the increase in real estate
held for development and sale.
On August 24, 2001, the Company acquired substantially all of the
assets of Rottlund Homes of New Jersey, Inc., for approximately $15,800,000. The
assets consist primarily of land, land improvements and residential properties
under construction. The Company financed this transaction with construction
loans on the aforementioned assets of approximately $8,764,000, purchase money
mortgages of approximately $6,352,000 and $684,000 in cash.
21
In addition, during the fiscal year ended June 30, 2002, the Company
acquired land for future development that should yield approximately 1,000
building lots. The aggregate purchase price was approximately $43,569,000,
including approximately $25,989,000 for land purchases in North Carolina, South
Carolina and Virginia.
In connection with the acquisition of PLC on October 13, 2000,
contingent payments representing an aggregate of 50% of PLC's pretax profits in
excess of $1,750,000 for each of the fiscal years ended June 30, 2001, 2002 and
2003, are payable to certain of the former PLC shareholders. The contingent
payments are subject to an aggregate cumulative pay-out limitation of
$2,500,000. Contingent payments of approximately $1,529,000 and $394,000 were
earned for fiscal 2002 and 2001, respectively. The Company expects to pay the
fiscal 2002 contingent payment sometime during calendar year 2002.
As of June 30, 2002, the Company had contracted to purchase, or has
under option, land and improved lots for an aggregate purchase price of
approximately $233,628,000 that would yield approximately 5,800 homes. Including
the aforementioned lots, the Company currently controls approximately 8,300
building lots. Generally, the Company structures its land acquisitions so that
it has the right to cancel its agreements to purchase undeveloped land and
improved lots by forfeiture of its deposit under the agreement. As of June 30,
2002, the Company had incurred costs associated with the acquisition and
development of these parcels aggregating $13,116,000, including $6,028,000 of
paid deposits. 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.
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.
Inflation
Inflation can have a significant impact on the Company's business
performance and the homebuilding industry in general. Rising costs of land,
materials, labor, overhead, administrative costs and interest rates on floating
credit facilities can adversely affect the Company's business performance. In
addition, rising costs of certain items, such as lumber, can adversely affect
the expected profitability of the Company's backlog. Generally, the Company has
been able to recover any increases in costs through increased selling prices.
However, there is no assurance the Company will be able to continue to increase
selling prices to cover the effects of inflation in the future.
22
Off-balance sheet arrangements, contractual obligations and commitments
Certain off-balance sheet arrangements, contractual obligations and
commitments are disclosed in various sections of the Consolidated Financial
Statements, Notes to Consolidated Financial Statements, and below. Some typical
off-balance sheet arrangements commonly affecting homebuilders include:
o Unconsolidated real estate joint ventures--capital contribution
requirements
o Debt and debt service guarantees
o Surety bonds and standby letters of credit
o Executed contracts for construction and development activity
Each of these items are described in detail below as they directly affect the
Company.
Unconsolidated real estate joint ventures--capital contribution requirements
The Company has developed and owned projects through joint ventures,
accounted for using the equity method, with other parties in the past however,
at the present time joint venture activities do not constitute a material
portion of the Company's operations. The Company currently does not have any
unfunded commitments with respect to joint ventures.
Debt and debt service guarantees
At June 30, 2002, the Company has mortgage and other note obligations
on the balance sheet totaling $118,032,000. The Company currently does not have
any off-balance sheet debt service guarantees.
Surety bonds and standby letters of credit
As of June 30, 2002, the Company had $70,057,000 in surety bonds and
$1,916,000 in outstanding standby letters of credit, totaling $71,973,000, in
favor of local municipalities or financial institutions to guarantee the
construction of real property improvements or financial obligations. The
$70,057,000 in surety bonds are to guarantee the construction of public
improvements and infrastructure such as sewer, streets, traffic signals,
grading, and wildlife preservations in connection with the Company's various
development projects. Surety bonds are commonly required by public agencies from
homebuilders such as the Company and other real estate developers. The surety
bonds and standby letters of credit are renewable and expire upon completion of
the required improvements. Standby letters of credit are a form of credit
enhancement that is commonly required in real estate development when bonds are
issued to finance public improvements. In the past three years, no surety bonds
or standby letters of credit have been used to satisfy the Company's
obligations.
23
Executed contracts for site work and construction activity
The Company has entered into site work and construction contracts with
various suppliers and contractors. These contracts are for construction and
development activity in the numerous communities the Company has under
development, and are originated in the normal course of business. The site work
contracts generally require specific performance by the contractor to prepare
the land for construction and are written on a community by community basis. For
larger communities, site work contracts are awarded in phases, in order to limit
any long term commitment by the Company or its contractor. Generally, site work
contracts are completed in less than one year. The Company acts as a general
contractor and contracts with various subcontractors at specified prices for
construction of its homes. Subcontractors generally work on a piece meal basis
and are not awarded contracts for a specified number of homes. These commitments
are typically funded by construction loans and are originated in the normal
course of business.
The following table summarizes the Company's outstanding obligations as
of June 30, 2002 and the effect such obligations are expected to have on
liquidity and cash flow in future periods. For Mortgage and Other Note
Obligations, payments due by period are shown based on the expiration date of
the loan. Generally, the Company repays the loan obligation prior to the
expiration date of the loan. Loan obligations are repaid at a predetermined
percentage (approximately 85%) of the base selling price of a home when a sale
is completed (see Note 6 of Notes to Consolidated Financial Statements for
further details), which usually results in the loan being fully repaid before
all lots of the development are delivered.
Payments Due by Year Ended June 30,
--------------------------------------------------------------------
Obligations Total 2003 2004 2005 Thereafter
- ------------------- -------- -------- -------- -------- --------
Mortgage and Other
Note Obligations $118,032 $ 64,940 $ 18,932 $ 33,707 $ 453
Operating Leases 2,317 704 619 446 548
-------- -------- -------- -------- --------
Total Obligations $120,349 $ 65,644 $ 19,551 $ 34,153 $ 1,001
======== ======== ======== ======== ========
24
The following table summarizes the Company's outstanding commitments as
of June 30, 2002, and the effect such commitments may have on liquidity and cash
flow in future periods:
Payments Due by Year Ended June 30,
----------------------------------------------------------------
Commitments Total 2003 2004 2005 Thereafter
- -------------------------- ------- ------- ------- ------- -------
(in thousands)
Standby Letters of Credit
and Surety Bonds $71,973 $46,398 $25,418 $ 150 $ 7
======= ======= ======= ======= =======
The above tables do not include certain obligations made in the
ordinary course of business (receivables, payables, etc).
Critical Accounting Policies
The preparation of the Company's consolidated financial statements
require the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to revenue recognition, impairment of
real estate assets, capitalization of costs, environmental liability exposure,
miscellaneous litigation reserves, and income taxes. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies reflect
the more significant judgments and estimates used in the preparation of the
consolidated financial statements.
Estimates
Reserves to reduce the Company's real estate inventories to net
realizable value are recorded using several factors including management's plans
for future operations, recent operating results and projected cash flows, which
include assumptions related to expected future demand and market conditions. The
adequacy of the Company's reserves could be materially affected by changes in
market conditions.
Estimates for construction costs for homes closed are recorded in the
period when the related home is closed. These estimates are based on detailed
budgets for each home and historical experience and trends. If actual costs
change, significant variances may be encountered.
25
Reserves for the estimated cost of homes under warranty are recorded in
the period in which the related home is closed and is based on historical
experience and trends. Should actual warranty experience change, revisions to
the estimated warranty liability would be required.
Estimates for the costs to complete land development are recorded upon
completion of the related land development project. Estimates for land and land
development costs are allocated to development phases based on the total number
of lots expected to be developed within each subdivision and are based on
detailed budgets for the land development project and historical experience and
trends. If actual costs or total the number of lots developed changes,
significant variances may be encountered.
Revenue recognition
Revenue is primarily derived from residential property sales. 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, percentage-of-completion, 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. Also,
in general, specific identification and relative sales value methods are used to
determine the cost of sales. Management estimates of future costs to be incurred
after the completion of each sale are included in cost of sales. A change in
circumstances that causes these estimates of future costs to increase or
decrease significantly would affect the gain or loss recognized on future sales.
Impairment
The Company assesses the impairment of real estate assets when events
or changes in circumstances indicate that the net book value may not be
recoverable. Indicators the Company consider important which could trigger an
impairment review include the following:
- significant negative industry or economic trends;
- a significant underperformance relative to historical or projected
future operating results;
- a significant change in the manner in which an asset is used; and
- an accumulation of costs significantly in excess of the amount
originally expected to construct an asset.
26
Real estate is stated at the lower of cost or estimated fair value
using the methodology described as follows. A write-down to estimated fair value
is recorded when the Company determines that the net book value exceeds the
estimated selling prices less cost to sell. These evaluations are made on a
property-by-property basis. When the Company determines that the net book value
of an asset may not be recoverable based upon the estimated undiscounted cash
flow, an impairment write-down is recorded. Values from comparable property
sales will also be considered. The evaluation of future cash flows and fair
value of individual properties requires significant judgment and assumptions,
including estimates of market value, development absorption, and remaining
development costs. Significant adverse changes in circumstances affecting these
judgments and assumptions in future periods could cause a significant impairment
adjustment to be recorded.
Capitalization of costs
Costs capitalized include, direct construction and development costs,
including predevelopment costs, interest on indebtedness, real estate taxes,
insurance, construction overhead and indirect project costs. Costs previously
capitalized related to any abandoned development opportunities are written off
when it is determined such costs will not provide any future benefits. Any
decrease in development activity may result in a portion of capitalized costs to
be expensed as incurred.
Environmental liability exposure
Development and sale of real property creates a potential for
environmental liability on the part of the Company as owner and developer, for
its own acts as well as those of 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 Company and 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. In the event the Company incurs environmental
remediation costs, including clean up costs, consulting fees for environmental
studies and investigations, monitoring costs, and legal costs relating to clean
up, litigation defense, and the pursuit of responsible third parties, such costs
incurred in connection with properties previously sold are expensed. Costs
relating to land under development and undeveloped land are capitalized as part
of development costs. Costs incurred for properties to be sold are deferred and
charged to cost of sales when the properties are sold. Should a previously
27
undetected, substantial environmental hazard be found on the Company's
properties, significant liquidity could be consumed by the resulting clean up
requirements and a material expense may be recorded. 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 Item 3, Legal
Proceedings, and Note 10 of Notes to Consolidated Financial Statements for a
discussion of specific environmental litigation).
Income taxes
As part of the process of preparing the consolidated financial
statements, significant management judgment is required to estimate income
taxes. Estimates are based on interpretation of tax laws. The Company estimates
actual current tax due and assesses temporary differences resulting from
differing treatment of items for tax and accounting purposes. The temporary
differences result in deferred tax assets and liabilities, which are included
within the consolidated balance sheet (see Note 8 of Notes to Consolidated
Financial Statements for a discussion of income taxes). Adjustments may be
required by a change in assessment of deferred tax assets and liabilities,
changes due to audit adjustments by Federal and State tax authorities, and
changes in tax laws. To the extent adjustments are required in any given period
the adjustments would be included within the tax provision in the statement of
operations and/or balance sheet. These adjustments could materially impact the
financial position and results of operation and liquidity of the Company.
New Accounting Pronouncements
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective
for fiscal years beginning after December 15, 1997. The statement changes the
reporting of certain items 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 be reported in the financial statements in the period in
which they are recognized. Furthermore, a total amount for comprehensive income
shall be displayed in the financial statements. The Company has adopted this
standard effective July 1, 1998. The primary components of comprehensive income
are net income, foreign currency translations, minimum pension liabilities, and
28
the change in value of certain investments in marketable securities classified
as available-for-sale. Upon adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") and Statement of Financial Accounting Standards No.
137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement 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 2002, 2001 and 2000.
In June, 1998, the FASB issued 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. SFAS No. 133
establishes accounting and reporting standards for use of 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. On July 1, 2000, the Company adopted this
pronouncement, as amended by SFAS No. 137 and Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Hedging Activities - an Amendment of
FASB No. 133". 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 begin to use 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.
29
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 of 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 elected to early adopt SFAS No.
142 effective with the beginning of its new fiscal year on July 1, 2001. The
Company did not recognize 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 was required under SFAS No. 142. Upon adoption,
such intangibles, which were being amortized over ten years prior to adoption,
are no longer amortized but continue to be subject to periodic review for
impairment. Amortization of such intangibles was $167,000 for fiscal 2001.
30
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which establishes
a single accounting model for the impairment or disposal of long-lived assets,
including discontinued operations. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The provisions of
SFAS No. 144 are effective in fiscal years beginning after December 15, 2001,
with early adoption permitted and, in general, are to be applied prospectively.
The Company adopted SFAS No. 144 effective July 1, 2002 and does not expect that
the adoption will have a material impact on its consolidated results of
operations and financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). SFAS No. 145 rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt" ("SFAS No. 4"), and the amendments
to SFAS No. 4, SFAS No. 64, "Extinguishments of Debt made to Satisfy
Sinking-Fund Requirements" ("SFAS No. 64"). Through this rescission, SFAS No.
145 eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that gains
and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect. An
entity is not prohibited from classifying such gains and losses as extraordinary
items, so long as they meet the criteria in paragraph 20 of APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB No. 30"), however, due to the nature of the
Company's operations it is not expected that such treatment will be available to
the Company. Any gains or losses on extinguishments of debt that were previously
classified as extraordinary items in prior periods presented that do not meet
the criteria in APB No. 30 for classification as an extraordinary item will be
reclassified to income from continuing operations. The provisions of SFAS No.
145 are effective for financial statements issued for fiscal years beginning
after May 15, 2002. The Company adopted the provisions of this statement on July
1, 2002 and does not anticipate that adoption will have a material impact on the
Company's results of operations or financial position.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), which is
effective for exit or disposal activities initiated after December 31, 2002,
with earlier application encouraged. SFAS No. 146 addresses the accounting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". The Company does not anticipate a material
impact on the results of operations or financial position from the adoption of
SFAS No. 146.
31
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
forward-looking statements made by, or on behalf of, the Company:
o changes in consumer confidence due to perceived uncertainty of
future employment opportunities and other factors;
o competition from national and local homebuilders in the Company's
market areas;
o changes in the price and availability of building material;
o changes in mortgage interest rates charged to buyers of the
Company's homes;
o changes in the availability and cost of financing for the Company's
operations, including land acquisition;
o revisions in federal, state and local tax laws which provide
incentives for home ownership;
o inability to successfully integrate acquired businesses;
o delays in obtaining land development permits as a result of (i)
federal, state and local environmental and other land development
regulations, (ii) actions taken or failed to be taken by
governmental agencies having authority to issue such permits, and
(iii) opposition from third parties;
32
o increased cost of suitable development land; and
o possible liabilities relating to environmental laws or other
applicable regulatory provisions.
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 rate 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 a corresponding increase/decrease in cost of sales and interest
charges incurred by the Company of approximately $1,145,000 in a fiscal year, a
portion of which will be capitalized and included in cost of sales as homes are
delivered. Generally, the Company has in the past been able to increase prices
to cover portions of any increase in cost of sales and interest charges incurred
resulting from 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.
33
Item 8. Financial Statements and Supplementary Data.
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of independent accountants 35
Consolidated balance sheets at June 30, 2002
and June 30, 2001 36
Consolidated statements of operations and retained
earnings for the years ended June 30, 2002,
2001 and 2000 37
Consolidated statements of cash flows for the
years ended June 30, 2002, 2001 and 2000 38
Notes to consolidated financial statements 39
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, 2002,
excepting indebtedness incurred in the ordinary course of business.
34
Report of Independent Accountants
To the Board of Directors and Shareholders
of Orleans Homebuilders, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Orleans Homebuilders, Inc. and its subsidiaries (the "Company") at June 30, 2002
and June 30, 2001, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2002 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.
PricewaterhouseCoopers LLP
Philadelphia, PA
September 6, 2002
35
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
June 30, June 30,
2002 2001
--------- ---------
Assets
Cash and cash equivalents $ 7,257 $ 13,560
Restricted cash - customer deposits 9,230 8,424
Real estate held for development and sale:
Residential properties completed or under construction 112,279 100,950
Land held for development or sale and improvements 82,699 71,739
Property and equipment, at cost, less accumulated depreciation 1,726 979
Intangible assets, net of amortization 3,718 2,313
Receivables, deferred charges and other assets 21,590 15,535
--------- ---------
Total Assets $ 238,499 $ 213,500
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 24,199 $ 26,194
Accrued expenses 23,232 17,017
Customer deposits 9,775 9,134
Mortgage and other note obligations primarily secured by real
estate held for development and sale 113,058 102,605
Notes payable - related parties 3,750 8,576
Other notes payable 1,224 3,093
Deferred income taxes 618 2,118
--------- ---------
Total Liabilities 175,856 168,737
--------- ---------
Commitments and contingencies
Redeemable common stock 988 943
--------- ---------
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 40,502 22,799
Treasury stock, at cost (812,232 and 1,340,238 shares
held at June 30, 2002 and June 30, 2001, respectively) (843) (975)
--------- ---------
Total Shareholders' Equity 61,655 43,820
--------- ---------
Total Liabilities and Shareholders' Equity $ 238,499 $ 213,500
========= =========
See notes to consolidated financial statements
36
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
(in thousands, except per share amounts)
For the year ended June 30,
-------------------------------------------
2002 2001 2000
--------- --------- ---------
Earned revenues
Residential properties $ 351,060 $ 282,384 $ 176,189
Land sales 80 1,786 405
Other income 3,516 3,052 2,403
--------- --------- ---------
354,656 287,222 178,997
--------- --------- ---------
Costs and expenses
Residential properties 283,593 236,129 147,287
Land sales 102 1,664 350
Other 2,821 1,290 1,030
Selling, general and administrative 39,298 30,181 17,742
Interest
Incurred 7,644 8,992 7,656
Less capitalized (7,522) (8,567) (7,227)
--------- --------- ---------
325,936 269,689 166,838
--------- --------- ---------
Income from operations before income taxes 28,720 17,533 12,159
Income tax expense 10,807 6,774 4,620
--------- --------- ---------
Net income 17,913 10,759 7,539
Preferred dividends 210 210 210
--------- --------- ---------
Net income available for common shareholders 17,703 10,549 7,329
Retained earnings, at beginning of period 22,799 12,250 4,921
--------- --------- ---------
Retained earnings, at end of period $ 40,502 $ 22,799 $ 12,250
========= ========= =========
Basic earnings per share $ 1.51 $ 0.91 $ 0.65
========= ========= =========
Diluted earnings per share $ 1.09 $ 0.67 $ 0.49
========= ========= =========
See notes to consolidated financial statements
37
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the year ended June 30,
June 30,
2002 2001 2000
--------- --------- ---------
Cash flows from operating activities:
Net income $ 17,913 $ 10,759 $ 7,539
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 526 507 218
Deferred taxes (1,500) (227) -
Noncash compensation 45 33 -
Changes in operating assets and liabilities:
Restricted cash - customer deposits (806) 313 (2,609)
Real estate held for development and sale (22,289) 362 (16,097)
Receivables, deferred charges and other assets (6,055) (6,126) (613)
Accounts payable and other liabilities 4,220 10,895 4,529
Customer deposits 641 38 2,609
--------- --------- ---------
Net cash provided by (used in) operating activities (7,305) 16,554 (4,424)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (1,273) (412) (212)
Acquisition of PLC, net of cash acquired (1,405) (4,714) -
--------- --------- ---------
Net cash used in investing activities (2,678) (5,126) (212)
--------- --------- ---------
Cash flows from financing activities:
Borrowings from loans secured by real estate assets 262,981 178,119 118,590
Repayment of loans secured by real estate assets (252,528) (181,602) (116,375)
Borrowings from other note obligations 17,770 10,673 7,331
Repayment of other note obligations (24,465) (7,567) (8,719)
Stock options exercised 132 - -
Preferred stock dividend (210) (210) (210)
--------- --------- ---------
Net cash provided by (used in) financing activities 3,680 (587) 617
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (6,303) 10,841 (4,019)
Cash and cash equivalents at beginning of year 13,560 2,719 6,738
--------- --------- ---------
Cash and cash equivalents at end of year $ 7,257 $ 13,560 $ 2,719
========= ========= =========
See notes to consolidated financial statements
38
Orleans Homebuilders, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Orleans Homebuilders, Inc. and its subsidiaries (the "Company" or "OHB") 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 beginning October 13, 2000. The Consolidated Balance
Sheets include the accounts of PLC and its wholly-owned subsidiaries as of June
30, 2002 and 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 percentage-of-completion, 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 and development costs, including
predevelopment costs, interest on indebtedness, real estate taxes, insurance,
construction overhead and indirect project costs. 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.
39
Interest costs included in costs and expenses of residential properties and land
sold for fiscal years 2002, 2001 and 2000 were $11,958,000, $11,789,000 and
$7,469,000, respectively.
Intangible Assets
Effective July 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standards 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 Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No.
141"). In accordance with SFAS No. 142, upon adoption of SFAS No. 142, the
Company discontinued the amortization relating to all existing indefinite lived
intangible assets. The amortization of indefinite lived intangible assets was
approximately $167,000 during the year ended June 30, 2001.
Intangible assets that have finite useful lives will be amortized over their
useful lives. SFAS No. 142 requires an annual assessment of goodwill and
non-amortizable intangible assets to determine potential impairment of such
asset. The initial assessment was completed upon adoption and again at June 30,
2002 and no impairment charge was determined to be required.
Advertising costs
The total amount of advertising costs charged to selling, general and
administrative expense was $4,875,000, $3,858,000, and $2,612,000 for the three
years ended June 30, 2002, 2001, and 2000, 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 $515,000, $360,000, and $213,000 for the
three years ended June 30, 2002, 2001, and 2000, respectively. The Company has
operating lease commitments of $704,000, $619,000, $446,000, $370,000 and
$178,000 for the five years ended June 30, 2003, 2004, 2005, 2006 and 2007,
respectively.
Income taxes
The Company and its subsidiaries file a consolidated federal income tax return.
See Note 8 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
40
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, 2002, 2001, and 2000,
respectively, are shown in the following table.
For Year Ended June 30,
-----------------------------------------
2002 2001 2000
------- ------- -------
(in thousands)
Total common shares issued 12,698 12,698 12,698
Shares not issued, but
unconditionally issuable (1) 205 194 -
Less: Average treasury shares outstanding 1,158 1,340 1,340
------- ------- -------
Basic EPS 11,745 11,552 11,358
Effect of assumed shares issued under
treasury stock method for stock options 823 615 370
Effect of assumed shares
issued in PLC acquisition (1) - 79 -
Effect of assumed conversion of $3,000,000
Convertible Subordinated 7% Note 2,000 2,000 2,000
Effect of assumed conversion of
$3,000,000 Series D Preferred Stock 2,000 2,000 2,000
------- ------- -------
Diluted EPS shares 16,568 16,246 15,728
======= ======= =======
Net income available for
common shareholders $17,703 $10,549 $ 7,329
Effect of assumed conversion of $3,000,000
Convertible Subordinated 7% Note 130 130 130
Effect of assumed conversion of
$3,000,000 Series D Preferred Stock 210 210 210
------- ------- -------
Adjusted net income for diluted EPS $18,043 $10,889 $ 7,669
======= ======= =======
(1) Represents portion of 273,000 shares unconditionally issuable in
connection with the October 13, 2000 acquisition of PLC, not yet
issued. The shares issuable in connection with the PLC acquisition are
issuable in equal installments on each of the first four anniversaries
of the date of the acquisition.
Disclosures about fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
the Company to disclose the estimated fair market value of its financial
instruments. The Company believes that the carrying value of its financial
instruments (primarily mortgages receivable and mortgage notes payable)
approximates fair market value and that any differences are not significant.
This assessment is based upon substantially all of the Company's debt
obligations being based upon LIBOR or the prime rate of interest which are
variable market rates.
41
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 2002, 2001 and 2000, were
$122,000, $373,000 and $259,000, respectively. Income taxes paid were
$11,565,000, $6,718,000 and $5,376,000 for fiscal 2002, 2001 and 2000,
respectively.
Non-cash activity
On April 3, 2002, Benjamin D. Goldman, Vice Chairman of the Company, surrendered
47,619 shares of Company common stock, with a fair market value of $6.30 per
share, in exchange for the exercise of stock options totaling 400,000 shares of
common stock, issued from treasury stock, at $.75 per share. The fair market
value of the stock surrendered was determined by the market price for the stock
on the American Stock Exchange at the close of business on April 3, 2002.
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 they
42
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 Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133") and Statement of Financial Accounting Standards No. 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement 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 2002,
2001 and 2000.
Recent accounting pronouncements
In June, 1998, the FASB issued 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. SFAS No. 133
establishes accounting and reporting standards for use of 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. On July 1, 2000, the Company adopted this
pronouncement, as amended by SFAS No. 137 and Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Hedging Activities - an Amendment of
FASB No. 133." 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, 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.
43
In June 2001, the FASB also issued SFAS No. 142, which establishes standards for
financial accounting and reporting for intangible assets acquired individually
of 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
elected to early adopt SFAS No. 142 effective with the beginning of its new
fiscal year on July 1, 2001. The Company did not recognize 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 was
required under SFAS No. 142. Upon adoption, such intangibles, which were being
amortized over ten years prior to adoption, are no longer amortized but continue
to be subject to periodic review for impairment. Amortization of such
intangibles was $167,000 for fiscal 2001.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which establishes a single
accounting model for the impairment or disposal of long-lived assets, including
discontinued operations. SFAS No. 144 supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The provisions of SFAS No. 144
are effective in fiscal years beginning after December 15, 2001, with early
adoption permitted and, in general, are to be applied prospectively. The Company
adopted SFAS No. 144 effective July 1, 2002 and does not expect that the
adoption will have a material impact on its consolidated results of operations
and financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS No. 145"). SFAS No. 145 rescinds both SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" ("SFAS No. 4"), and the amendments to SFAS
No. 4, SFAS No. 64, "Extinguishments of Debt made to Satisfy Sinking-Fund
Requirements" ("SFAS No. 64"). Through this rescission, SFAS No. 145 eliminates
the requirement (in both SFAS No. 4 and SFAS No. 64) that gains and losses from
the extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. An entity is not
prohibited from classifying such gains and losses as extraordinary items, so
long as they meet the criteria in paragraph 20 of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB No. 30"), however, due to the nature of the Company's
operations it is not expected that such treatment will be available to the
Company. Any gains or losses on extinguishments of debt that were previously
classified as extraordinary items in prior periods presented that do not meet
the criteria in APB No. 30 for classification as an extraordinary item will be
reclassified to income from continuing operations. The provisions of SFAS No.
145 are effective for financial statements issued for fiscal years beginning
after May 15, 2002. The Company adopted the provisions of this statement on July
1, 2002 and does not anticipate that adoption will have a material impact on the
Company's results of operations or financial position.
44
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS No. 146"), which is effective for exit or
disposal activities initiated after December 31, 2002, with earlier application
encouraged. SFAS No. 146 addresses the accounting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The
Company does not anticipate a material impact on the results of operations or
financial position from the adoption of SFAS No. 146.
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, 2002 and 2001) with principal payable
over four years; (iii) 300,000 shares of common stock of the Company (150,000 of
which are issuable under certain employment agreements) 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. Through June 30, 2002, the contingent payments earned
based on PLC's share of the pre-tax profits are approximately $1,923,000. 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.
Accumulated amortization of the intangible assets and goodwill at June 30, 2001
was approximately $167,000. In accordance with SFAS No. 142, the Company
discontinued the amortization related to all intangible assets and goodwill
recorded in connection with the PLC acquisition. See also Intangible Assets in
Note 1 to these Consolidated Notes. During fiscal 2002 intangible assets and
goodwill increased by approximately $1,405,000 to $3,885,000, as a result of the
allocation of additional contingent payments earned by the former PLC
shareholders.
The former shareholders of PLC have the right to cause the Company to repurchase
the common stock issued pursuant to the PLC acquisition and related employment
agreements approximately five years after the closing of the acquisition at a
price of $3.33 per share.
45
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 available for
common shareholders 10,832 7,832
Earnings per share:
Basic 0.93 0.67
Diluted 0.69 0.51
Note 3. Certain Transactions with Related 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 2002, 2001 and 2000, 54, 48 and 32 lots, respectively, have
settled and the Company incurred additional costs of approximately $383,000,
$145,000 and $161,000, respectively, for Mr. Orleans' share of the gross profit.
As of June 30, 2002, the Company paid Mr. Orleans approximately $660,000 under
this agreement and the remaining $29,000 is included in Accrued Expenses at June
30, 2002.
Mr. Goldman and Mr. Orleans each own a 33-1/3% equity interest in a limited
partnership that has a consulting agreement with a third party real estate title
insurance company (the "Title Company"). The Company purchases real estate title
insurance and related closing services from the Title Company for various
parcels of land acquired by the Company. The Company paid the Title Company
approximately $190,000, $197,000 and $141,000, for the fiscal years 2002, 2001
and 2000, respectively. These costs are considered to approximate fair value for
services provided. In addition, the Company's homebuyers may elect to utilize
the Title Company for the purchase of real estate title insurance and real
estate closing services but, the homebuyers are under no obligation to do so.
Under the terms of the consulting agreement, which expires in July 2007, the
limited partnership providing the consulting services is entitled to receive 50%
of the pretax profits attributable to certain operations of the Title Company,
subject to certain adjustments. In addition, the limited partnership and the
principals of the limited partnership, including Mr. Goldman and Mr. Orleans,
have agreed not to engage in the real estate title insurance business or the
real estate closing business during the term of the consulting agreement.
The Company leases office space and obtains real estate title insurance for
various parcels of land acquired by the Company from companies controlled by Mr.
Russell Parker, the president of the Company's subsidiary, PLC. The annual
rental for the office space leased from an entity controlled by Mr. Parker is
approximately $65,000 and is considered to approximate a fair market value
rental. The Company paid real estate title insurance premiums to an entity
controlled by Mr. Parker, of approximately $69,000 and $12,000 for fiscal 2002
and 2001, respectively. These costs are considered to approximate fair value for
services provided.
46
Real estate title insurance paid by the Company is capitalized as a cost of
acquiring the specific parcel in accordance with the Company's real estate
capitalization and cost allocation policies and is subsequently expensed as part
of cost of sales upon consummation of sales to the third party homebuyers. See
Note 1 to the consolidated financial statements for a discussion of these
policies.
See Note 6 to the consolidated financial statements for a discussion of other
related party transactions.
Note 4. Real Estate Held for Development and Sale
Residential properties completed or under construction consist of the following:
Balance at June 30,
2002 2001
-------- --------
(in thousands)
Condominiums and townhomes $ 27,917 $ 28,100
Single-family homes 84,362 72,850
-------- --------
Total residential properties
completed orunder construction $112,279 $100,950
======== ========
Sales status of residential properties completed or under construction is as
follows:
Balance at June 30,
2002 2001
-------- --------
(in thousands)
Under contract for sale $ 76,885 $ 72,969
Unsold 35,394 27,981
-------- --------
Total residential properties
completed or under construction $112,279 $100,950
======== ========
47
Note 5. Property and Equipment
Property and equipment consists of the following:
Balance at June 30,
2002 2001
------ ------
(in thousands)
Property and equipment $3,967 $2,295
Less accumulated depreciation 2,241 1,316
------ ------
Total property and equipment, net $1,726 $ 979
====== ======
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 6 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 $526,000,
$340,000 and $218,000 during fiscal 2002, 2001 and 2000, respectively.
Note 6. Mortgage and Other Note Obligations
The maximum balance outstanding under construction and inventory loan agreements
at any month end during fiscal 2002, 2001 and 2000 was $123,497,000,
$102,103,000 and $63,366,000, respectively. The average month end balance during
fiscal 2002, 2001 and 2000 was approximately $114,491,000, $83,875,000 and
$60,676,000, respectively, bearing interest at an approximate average annual
rate of 5.63%, 7.85% and 8.31%, respectively. At June 30, 2002, the Company had
approximately $148,812,000 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 $5,507,000 and $6,095,000 at June 30, 2002 and 2001, respectively,
are due in varying installments through fiscal 2004 with annual interest at
variable rates based on LIBOR or the prime rate of interest plus a spread or on
a fixed rate of 7% per annum. The LIBOR and prime rate of interest at June 30,
2002 were 1.84% and 4.75%, respectively.
Maturities of land and improvement mortgage obligations, other than residential
property construction loans, are as follows: 2003 - $3,017,000 and 2004 -
$2,490,000. Obligations under residential property and construction loans
amounted to $107,551,000 and $96,510,000 at June 30, 2002 and 2001,
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 a majority of the former PLC
shareholders. The subordinated promissory notes of $750,000 and $1,000,000 are
included in Notes Payable - Related Parties at June 30, 2002 and 2001,
respectively. The promissory notes bear interest, payable quarterly, at the
prime rate, subject to a cap of 10% and a floor of 8% (currently incurring
interest subject to the 8% floor at June 30, 2002) with principal payable on the
anniversary date of the note in four equal installments.
48
Included in the Notes Payable - Related Parties balance at June 30, 2002 and
2001 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 2002, Mr.
Orleans agreed to extend the maturity date one year to January 1, 2005, 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, 2003.
The Company has 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, 2003 with annual interest at LIBOR plus 4% which
is payable monthly. There were no principal and interest balances outstanding
under this unsecured line of credit agreement at June 30, 2002. The total
outstanding principal and interest was $3,619,000 at June 30, 2001.
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 under the PMM were repaid during fiscal
2002. Principal and accrued interest of $88,000 is included in Notes Payable -
Related Parties at June 30, 2001.
Prior to October 22, 1993, the date of acquisition by the Company of Orleans
Construction Corp.("OCC"), a real estate company which was wholly owned by Mr.
Orleans, 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 Mr. Orleans owns a majority interest. During fiscal 2002
the Company repaid the entire outstanding principal balance and accrued interest
of approximately $900,000. At June 30, 2001, amounts owed by the Company to the
partnership aggregated $869,000. These advances bear interest at 7% annually.
Interest incurred on these advances amounted to $31,000, $90,000 and $134,000
for the years ended June 30, 2002, 2001 and 2000, 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,
2002 is $857,000 of restricted cash to be used for repayment of the bonds.
Included in Other Notes Payable is the total principal and accrued interest of
$1,115,000 and $1,318,000 at June 30, 2002 and 2001, respectively.
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 2003 through 2007.
49
The following table summarizes the components of Other Notes Payable, including
related party amounts.
Final Annual Outstanding
Maturity Interest Balance at June 30,
Date Rate 2002 2001
-------------- ------------------- ----------- -----------
(in thousands)
Convertible Subordinated 7% Note 1/2005 7% $ 3,000 $ 3,000
Subordinated Promissory Note 10/2004 8%-10% 750 1,000
Unsecured Line of Credit 6/2003 LIBOR + 4% - 3,619
Purchase Money Mortgage 12/2001 7% - 88
Unsecured Advance On demand 7% - 869
----------- -----------
Subtotal notes payable related parties (1) 3,750 8,576
----------- -----------
Property and Equipment 2002-2004 9 1/2%-11 1/2% 63 890
Unsecured Line of Credit 10/2001 LIBOR + 2 1/2% - 821
Bonds Payable
(secured by mortgage receivables) 2002-2017 10%-12% 46 64
Quaker Sewer Bonds 11/2006 7% 1,115 1,318
----------- -----------
Subtotal other notes payable 1,224 3,093
----------- -----------
Total notes payable related parties
and other notes payable $ 4,974 $ 11,669
=========== ===========
Maturities of these obligations during the next five fiscal years are (in
thousands):
2003 (2) $ 1,559
2004 1,496
2005 1,474
2006 225
2007 220
--------
Total notes payable related
parties and other notes payable $ 4,974
========
- ------
(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.
50
Note 7. Preferred Stock
On October 20, 1998, the Company issued 100,000 shares of Series D Preferred
Stock to Jeffrey P. Orleans in exchange for an aggregate amount of $3,000,000 in
Company notes formerly held by Mr. Orleans. The Series D Preferred Stock was
issued from an aggregate of 500,000 shares of Preferred Stock authorized. The
Series D Preferred 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 Preferred 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 Preferred Stock
is currently convertible into 2,000,000 shares of Common Stock.
Note 8. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
For the Year Ended June 30,
---------------------------
2002 2001 2000
-------- -------- --------
(in thousands)
Continuing operations:
Current $ 12,307 $ 6,853 $ 4,965
Deferred (1,500) (79) (345)
-------- -------- --------
Total provision (benefit) for income taxes $ 10,807 $ 6,774 $ 4,620
======== ======== ========
The differences between taxes computed at federal income tax rates and amounts
provided for continuing operations are as follows:
For the Year Ended June 30,
---------------------------
2002 2001 2000
-------- -------- --------
(in thousands)
Amount computed as statutory rate $ 9,765 $ 5,961 $ 4,134
State income taxes, net of federal tax benefit 1,132 756 486
Other, net (90) 57 -
-------- -------- --------
Total provision (benefit) for income taxes $ 10,807 $ 6,774 $ 4,620
======== ======== ========
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes". The principal components of the Company's
deferred tax liability of $618,000 and $2,118,000 at June 30, 2002 and 2001,
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:
51
For the Year Ended June 30,
---------------------------
2002 2001 2000
------- ------- -------
(in thousands)
Deferred provision (benefit) for income taxes:
Interest and real estate taxes $ 298 $ (371) $ (43)
Difference in tax accounting for land
and property sales, net (876) 107 (18)
Accrued expenses (223) 56 (278)
Gain from joint ventures 25 3 2
Deferred compensation (784) (19) (79)
Depreciation and other 41 53 27
State taxes 19 92 44
------- ------- -------
Total deferred provision (benefit) for income
taxes $(1,500) $ (79) $ (345)
======= ======= =======
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, 2002. 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.
The components of net deferred taxes payable consisted of the following:
Balance at June 30,
2002 2001
------ ------
(in thousands)
Gross deferred tax liabilities:
Capitalized interest and real estate taxes $2,791 $2,493
State income taxes 1,319 1,300
Other 144 126
------ ------
Total gross deferred tax liabilities 4,254 3,919
------ ------
Less gross deferred tax assets:
Reserve for books, not for tax 389 166
Partnership income 139 164
Executive bonus 1,515 760
Employment contracts 133 159
Vacation accrual 128 73
Inventory adjustment 1,320 444
Other 12 35
------ ------
Total gross deferred tax assets 3,636 1,801
------ ------
Net deferred tax liabilities $ 618 $2,118
====== ======
52
Note 9. Stock Option Plan and Employee Compensation
Stock Based Compensation
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 of Common
Stock of the Company. The options generally vest 25% per year beginning on the
date of grant. 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 the last three fiscal years.
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 of Common Stock
of the Company. The options vest 25% per year beginning on the date of grant. No
options were granted under the 1995 Directors Plan during the last three fiscal
years.
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
as of June 30, 2002 aggregated 677,500 options to purchase shares of Common
Stock of the Company at prices ranging from $.81 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" ("SFAS No. 123"). 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
2002, 2001 and 2000, consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share for the three years ended June 30,
2002 would have been reduced to the pro forma amounts indicated below:
For the Year Ended June 30,
2002 2001 2000
------- ------- ------
(in thousands, except for EPS data)
Net income available for common shareholders:
As reported $17,703 $10,549 $7,329
Pro forma 17,673 10,505 7,271
Diluted EPS:
As reported 1.09 0.67 0.49
Pro forma 1.09 0.67 0.48
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. There were no
options granted in the last three fiscal years.
53
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.
The following summarizes stock option activity for the three plans during the
three years ended June 30, 2002:
2002 2001 2000
---- ---- ----
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 1,185,625 $1.22 1,188,125 $1.22 1,188,125 $1.22
Granted - - - - - -
Exercised (500,625) .86 - - - -
Canceled (7,500) 1.19 (2,500) 2.06 - -
------- --------- -------
Outstanding, end
of year 677,500 1.49 1,185,625 1.22 1,188,125 1.22
======= ========= =========
Exercisable,
end of year 626,875 1.49 1,092,969 1.20 989,688 1.17
======= ========= =======
Available for grant,
end of year 255,000 247,500 245,000
======= ======= =======
The following table summarizes information about stock options outstanding at
June 30, 2002:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Lives (in yrs) Price Exercisable Price
------------------ ----------- ---------------- -------- ----------- --------
$ .81 30,000 .6 $ .81 30,000 $ .81
$1.19-$1.69 530,000 4.3 1.34 480,000 1.32
$2.00-$2.81 117,500 2.6 2.38 116,875 2.38
------- -------
$.81-$2.81 677,500 3.9 $1.49 626,875 $1.49
======= =======
54
Employee Compensation
The Company has a bonus compensation plan for its executive officers and key
employees calculated at nine percent (9%) of its consolidated operating profits
before taxes and excluding nonrecurring items, income or loss arising from
extraordinary items, discontinued operations, debt repurchase at a discount, and
the amount of awards under the bonus compensation plan ("Pre-Tax Profits").
Three percent (3%) of the Pre-Tax Profits are awarded as an incentive to the
Chairman and approximately one and one-half percent (1.5%) are awarded to each
of the Vice Chairman and President and Chief Operating Officer, respectively.
The remaining approximately 3% of the Pre-Tax Profits is awarded at the
discretion of the Chairman in consultation with the Vice Chairman to other
executive officers and key employees whose performance merits recognition under
goals and policies established by the Board of Directors. In addition certain
regional employees not participating in the bonus compensation plan are awarded
bonuses calculated at eight percent (8%) of operating profits before taxes at a
regional level. The total amount of bonus compensation charged to selling,
general and administrative expense under these plans was $3,789,000, $1,863,000
and $1,202,000 for the three years ended June 30, 2002, 2001 and 2000.
In connection with the acquisition of PLC on October 13, 2000, contingent
payments representing an aggregate of 50% of PLC's pretax profits in excess of
$1,750,000 for each of the fiscal years ended June 30, 2001, 2002 and 2003, are
payable to certain of the former PLC shareholders. The contingent payments are
subject to an aggregate cumulative pay-out limitation of $2,500,000. Contingent
payments of approximately $1,529,000 and $394,000 were earned and accrued for in
fiscal 2002 and 2001, respectively. The Company expects to pay the fiscal 2002
contingent payment sometime during calendar year 2002.
401(k) Plan
The Company has a savings and retirement plan (the "401(k) Plan"), which is a
voluntary, defined contribution plan. All employees in the northern region are
eligible to participate in the 401(k) Plan after attaining age 21 and completing
one year of continuous service with the Company. At the discretion of the Board
of Directors, the Company may make matching contributions on the participant's
behalf of up to thirty-three percent (33%) of the participant's eligible annual
contribution. The Company made gross contributions of approximately $194,000,
$152,000 and $126,000 to the 401(k) Plan for the three years ended June 30,
2002, 2001, and 2000, respectively. All employer contributions are immediately
vested.
In addition, as part of the PLC acquisition, the Company assumed the PLC savings
and retirement plan (the "PLC 401(k) Plan"), which is a voluntary, defined
contribution plan. All employees in the southern region are eligible to
participate in the PLC 401(k) Plan after attaining age 21 and completing one
year of continuous service with the Company. At the discretion of the Board of
Directors, the Company may make matching contributions on the participant's
behalf of up to fifty percent (50%) of the participant's eligible annual
contribution. The Company made gross contributions of approximately $71,000 and
$40,000 to the PLC 401(k) Plan for the years ended June 30, 2002 and 2001,
respectively. All employer contributions are immediately vested.
Note 10. Commitments and Contingencies
General
At June 30, 2002, the Company had outstanding bank letters of credit, surety
bonds and financial security agreements amounting to $71,973,000 as collateral
for completion of improvements at various developments of the Company.
55
At June 30, 2002 the Company had agreements to purchase land and approved
homesites aggregating approximately 5,800 building lots with purchase prices
totaling approximately $233,628,000. 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, 2002 and 2001, the Company had paid deposits and incurred other costs
associated with the acquisition and development of these parcels aggregating
$13,116,000 and $9,258,000, respectively, which are included in Other Assets.
The Company currently has a commitment with two municipalities for affordable
housing contributions totaling approximately $949,000, payable in installments
through December 2005.
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
generally undertaken in connection with property acquisitions by the Company,
and the Company endeavors to obtain Phase I environmental site assessments on
all properties acquired.
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.
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.
56
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 had paid $650,000 on August 28, 1996
to the plaintiff class, has no liability for the remainder of the judgment,
which is to be paid solely from the proceeds of the state court litigation
against the Company's insurance carriers. Although, under the settlement
agreement the Company is obligated to prosecute and fund the litigation against
its insurance carriers, 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.
As of August, 2002, settlement agreements have been reached with all remaining
insurance company defendants to settle the Colts Neck insurance litigation.
Under the terms of the settlement agreement between the Company and the
plaintiffs, the proceeds from the insurance settlements will be paid to the
plaintiffs. The Company, in turn, is relieved of all further obligations to
prosecute the Colts Neck insurance litigation.
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 is not aware of any other environmental liabilities associated with
any of its other projects.
Other 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.
57
Note 11. Quarterly Financial Data (Unaudited)
Unaudited summarized financial data by quarter for 2002 and 2001 are as follows
(in thousands, except per share data):
Three Months Ended
------------------
Fiscal 2002 September 30 December 31 March 31 June 30
- ----------- ------------ ----------- -------- -------
Net sales $ 80,260 $ 87,297 $ 78,243 $105,340
Gross profit 14,504 16,679 14,582 21,680
Net income available for
common shareholders 3,724 4,038 3,386 6,555
Net earnings per share:
Basic 0.32 0.35 0.29 0.55
Diluted 0.23 0.26 0.20 0.40
Fiscal 2001 (1)
- ---------------
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 0.20 0.19 0.11 0.41
Diluted 0.15 0.14 0.08 0.30
(1) Fiscal 2001 information includes the results of operations of PLC beginning
October 13, 2000, the acquisition date.
58
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, 2002.
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, 2002.
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, 2002.
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, 2002.
Item 14. Controls and Procedures.
Not applicable.
PART IV
Item 15. 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.
59
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 filed with the Secretary
of State of Delaware on 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)).
3.2 Amendment to Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on 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 with
the Secretary of State of Delaware on December 18, 1986.
3.4 Amendment to Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on 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")).
3.5 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).
3.6 Certificate of Designations, Preferences and Rights of Series D
Preferred Stock filed with the Secretary of State of Delaware on
October 14, 1998 (incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the period ended September 30, 1998).
3.7 By-Laws, as last amended on April 20, 1998 (incorporated by
reference to Exhibit 3.11 to the 1998 Form 10-K).
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
Company's Form 10-K for the fiscal year ended June 30, 1997).
4.2* Deferral Agreement to $3,000,000 Convertible Subordinated 7% Note
dated December 14, 1999.
4.3* Deferral Agreement to $3,000,000 Convertible Subordinated 7% Note
dated June 13, 2001.
4.4* Deferral Agreement to $3,000,000 Convertible Subordinated 7% Note
dated December 11, 2001.
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).
60
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** $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 Company's 1999 Form 10-K for the fiscal year
ended June 30, 1999).
10.4** 1992 Incentive Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 filed with the S.E.C.
on December 15, 1998).
10.5** 1992 Non-Employee Directors Stock Option Plan (incorporated by
reference to the Company's Information Statement filed with the
S.E.C. on November 5, 1995 (SEC File No. 1-6803)).
10.7** 1995 Stock Option Plan for Non-Employee Directors (incorporated by
reference to the Company's Registration Statement on Form S-8 filed
with the S.E.C. on December 15, 1998).
10.8* Employment Agreement between the Company and J. Russell Parker, III,
President of the Company's subsidiary, PLC.
10.9* Employment Agreement between the Company and L. Anthony Piccola,
Division Manager, Raleigh, NC
10.10* Employment Agreement between the Company and Thomas Gancsos,
Division Manager, Richmond, VA
21.* Subsidiaries of Registrant.
23.* Consents of Experts and Counsel.
99.1* Certification Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
99.2* Certification Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
99.3* Certification Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
- --------------
* Exhibits included with this filing.
** Denotes a management contract or compensatory plan or arrangement required to
be filed as an exhibit.
(b) Reports on Form 8-k
None.
61
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 23, 2002
--------------------------------
Jeffrey P. Orleans,
Chairman of the Board and
Chief Executive Officer
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 23, 2002
- ------------------------------------
Jeffrey P. Orleans
Chairman of the Board and
Chief Executive Officer
/s/Benjamin D. Goldman September 23, 2002
- ------------------------------------
Benjamin D. Goldman
Vice Chairman and Director
/s/Jerome Goodman September 23, 2002
- ------------------------------------
Jerome Goodman
Director
/s/Robert N. Goodman September 23, 2002
- ------------------------------------
Robert N. Goodman
Director
/s/Andrew N. Heine September 23, 2002
- ------------------------------------
Andrew N. Heine
Director
/s/David Kaplan September 23, 2002
- ------------------------------------
David Kaplan
Director
/s/Lewis Katz September 23, 2002
- ------------------------------------
Lewis Katz
Director
62
/s/Robert M. Segal September 23, 2002
- ------------------------------------
Robert M. Segal
Director
/s/John W. Temple September 23, 2002
- ------------------------------------
John W. Temple
Director
/s/Michael T. Vesey September 23, 2002
- ------------------------------------
Michael T. Vesey
President and Chief Operating Officer
/s/Joseph A. Santangelo September 23, 2002
- ------------------------------------
Joseph A. Santangelo
Chief Financial Officer,
Treasurer and Secretary
63
CERTIFICATION
I, Jeffrey P. Orleans, certify that:
1. I have read and reviewed this annual report of Form 10-K of
Orleans Homebuilders, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 24, 2002
------------------
/s/Jeffrey P. Orleans
------------------------
Jeffrey P. Orleans
Chief Executive Officer
64
CERTIFICATION
I, Joseph A. Santangelo, certify that:
1. I have read and reviewed this annual report of Form 10-K of
Orleans Homebuilders, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 24, 2002
------------------
/s/Joseph A. Santangelo
-----------------------
Joseph A. Santangelo
Chief Financial Officer
65
CERTIFICATION
I, Michael T. Vesey, certify that:
1. I have read and reviewed this annual report of Form 10-K of
Orleans Homebuilders, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 24, 2002
------------------
/s/Michael T. Vesey
-------------------------------------
Michael T. Vesey
President and Chief Operating Officer
66
Index to Exhibits
Exhibit
Number
- -------
3.3 Amendment to Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on December 18, 1986.
4.2 Extension of Deferral Agreement to $3,000,000 Convertible Subordinated
7% Note dated December 14, 1999.
4.3 Extension of Deferral Agreement to $3,000,000 Convertible Subordinated
7% Note dated June 13, 2001.
4.4 Extension of Deferral Agreement to $3,000,000 Convertible Subordinated
7% Note dated December 11, 2001.
10.8 Employment Agreement between the Company and J. Russell Parker, III,
President of the Company's subsidiary, PLC
10.9 Employment Agreement between the Company and L. Anthony Piccola,
Division Manager, Raleigh, NC
10.10 Employment Agreement between the Company and Thomas Gancsos, Division
Manager, Richmond, VA
21. Subsidiaries of Registrant.
23. Consents of Experts and Counsel.
99.1 Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002.
99.2 Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002.
99.3 Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002.