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 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-6830
FPA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-0874323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 Street Road, Bensalem, PA 19020
(Address of principal executive offices) (Zip Code)
(215) 947-8900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange on
Title which registered
----- ----------------
Common Stock, $.10 Par Value Per Share
(also formerly registered under
Section 12(g) of the Act)................ American
14 1/2% Subordinated Debentures due
September 1, 2000........................ American
Securities Registered Pursuant to Section
12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
----------
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of September 23, 1996 was approximately $2,200,000
Number of shares of outstanding Common Stock as of September 23, 1996 was
11,356,018, shares (excluding 1,342,113 shares held in Treasury).
Part III (except for information included under Part I relating to executive
officers of the registrant) is incorporated by reference from the proxy
statement for the annual meeting of Stockholders scheduled to be held in
December, 1996.
TABLE OF CONTENTS
PART I
------
PAGE
ITEM 1. Business. ----
General 1
ITEM 2. Properties
Residential Community Development 3
Operating Policies 7
Government Regulation 11
Environmental Regulation and Litigation 13
Competition 13
Employees 14
Economic Conditions 14
Lease of Executive Offices 15
ITEM 3. Legal Proceedings 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
Executive Officers of the Registrant 16
PART II
-------
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters 18
ITEM 6. Selected Financial Data 19
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
ITEM 8. Financial Statements and Supplementary Data 34
-i-
PAGE
----
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 61
PART III
--------
ITEM 10. Directors and Executive Officers of the Registrant 61
ITEM 11. Executive Compensation 61
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 61
ITEM 13. Certain Relationships and Related Transactions 61
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 62
-ii-
Item l. Business.
General
The Registrant, FPA Corporation (the "Company"), develops residential
communities in Pennsylvania and New Jersey. The Company's operations in
Pennsylvania and New Jersey are in the Philadelphia metropolitan area, primarily
in Bucks County in Pennsylvania and in Burlington, Camden and Gloucester
counties in New Jersey. In fiscal 1997, the Company expects to acquire property
in Chester and Delaware Counties in Pennsylvania and is further endeavoring to
increase its scope of operations in these counties.
The Company operates as both a developer and builder. The Company
builds and sells condominiums, townhouses and single-family homes; and sells
land and developed homesites. During the fiscal year ended June 30, 1996, the
Company delivered 531 residential units as compared to 612 units in fiscal 1995.
Revenues earned from residential property activities during fiscal 1996 were
$86,061,000. During fiscal 1995 revenues earned from residential property
activities were $102,384,000. At June 30, 1996, the Company's backlog was
$40,206,000, representing 219 units, compared to $45,829,000 and 264 units, at
June 30, 1995. In addition, as of
1
June 30, 1996, there were reservation deposits relating to 32 units at the
Company's various developments which had an aggregate sales value of $5,286,000
as compared to 15 units aggregating $2,562,000 at June 30, 1995.
The Company's predecessor, Florida Palm-Aire Corporation, was formed in
1959 and was merged into FPA Corporation, which had been incorporated in
Delaware on September 4, 1969. Unless otherwise indicated, the terms the
"Company" and "FPA" include FPA Corporation and all of its Subsidiaries.
In 1965, the late Marvin Orleans and Orleans Construction Co., a
general partnership substantially owned and controlled by Marvin Orleans and his
late father, A.P. Orleans, acquired the controlling interest in the Company.
Jeffrey P. Orleans, the son of Marvin Orleans and Chairman of the Board
and Chief Executive Officer of the Company, beneficially owns, directly or
indirectly, approximately 7,887,247 shares (including 1,179,501 shares held by
the Trust of Selma Orleans, the mother of Jeffrey P. Orleans, of which Jeffrey
P. Orleans, is a trustee) of Common Stock, par value $.10 per share ("Common
Stock"), which represents approximately 69.5% of the outstanding shares,
excluding treasury shares, as of September 23, 1996.
2
Item 2. Properties
Residential Community Development
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 participates in joint ventures in certain
of these activities.
The following table sets forth certain information as of June 30, 1996
with respect to the active communities of the Company under development and
those where construction is expected to commence in fiscal 1997.
3
RESIDENTIAL
DEVELOPMENTS
UNDER CONSTRUCTION
At June 30, 1996
--------------------------------------------------
Total units
Year delivered Total Dwelling
Name and construct- Total through units Reserva- unit Remaining
Location of ion units June 30, under tion price approved
development started approved 1996 contract deposits range(1) units(2)
===================================================================================================================================
Saddlebrook $154,990
Washington Township, NJ 1980 1,002 840 21 2 $199,240 139
===================================================================================================================================
Newtown Grant $142,490
Newtown Township, PA 1985 1,750 1,620 12 0 $179,990 118
===================================================================================================================================
Players Place $ 85,490
Gloucester Township, NJ 1987 470 435 15 4 $103,490 16
===================================================================================================================================
The Hills at Northampton $299,990
Northampton Township, PA 1990 397 275(3) 12 1 $412,490 109
===================================================================================================================================
Versailles at Europa $142,990
Cherry Hill Township, NJ 1993 102 62 8 5 $186,990 27
===================================================================================================================================
Mill Ridge/Deer Run $ 90,990
Warwick Township, PA 1994 330 177 43 4 $211,990 106
===================================================================================================================================
Lakes at Alluvium $175,000
Voorhees Township, NJ 1994 32 18 5 1 $190,490 8
===================================================================================================================================
Estates at Newtown Farms $223,990
Newtown Township, PA 1995 63 22 10 1 $260,990 30
===================================================================================================================================
Larchmont $ 92,990
Mount Laurel Township, NJ 1974 5,985 5,380 33 5 $160,490 567
===================================================================================================================================
Stonegate $ 98,490
Mount Laurel Township, NJ 1989 782 570 18 4 $185,000 190
===================================================================================================================================
Hidden Lake $259,990
Mount Laurel Township, NJ 1995 33 7 13 3 $335,990 10
===================================================================================================================================
Bridlewood $254,990
Mount Laurel Township, NJ 1991 103 95 2 0 $335,990 6
===================================================================================================================================
Union Mill $129,990
Mount Laurel Township, NJ 1995 240 22 27 2 $193,990 189
===================================================================================================================================
Continued...
4
RESIDENTIAL
DEVELOPMENTS
ANTICIPATED TO COMMENCE
IN FISCAL 1997
At June 30, 1996
---------------------------------------------------
Total units
Year delivered Total Dwelling
Name and construct- Total through units Reserva- unit Remaining
Location of ion units June 30, under tion price approved
development started approved 1996 contract deposits range(1) units(2)
===================================================================================================================================
Jones Farm
Lumberton Township, NJ - 252 252
===================================================================================================================================
Newtown Ridge
Newtown Township, PA - 12 12
===================================================================================================================================
Piarulli Tract
Mount Laurel Township, NJ - 72 72
===================================================================================================================================
Weiland Farm
Mount Laurel Township, NJ - 90 90
===================================================================================================================================
1. Range of base prices of residential dwelling units currently being
offered for sale by the Company. In addition, the Company sells homesites
from time to time at its various developments to unaffiliated builders at
prices substantially lower than its dwelling units.
2. Although zoning and certain preliminary master plan approvals have been
received for these units, final plans are subject to substantial review
and approval by appropriate governmental agencies. No assurance can be
given that the Company will be able to obtain the required final
approvals for the indicated units or will ultimately elect to develop the
properties in accordance with presently anticipated development plans.
3. Includes fiscal 1996 lot sales.
5
The following table sets forth certain detail as to residential sales activity.
The FPA Corporation information provided is for the twelve months ended June 30,
1996, 1995 and 1994 in the case of revenues earned and new orders, and as of
June 30, 1996, 1995 and 1994 in the case of backlog.
Year Ended June 30,
--------------------------------
1996 1995 1994
--------------------------------
(Dollars in thousands)
Revenues earned $ 86,061 $102,384 $ 64,452
Units 531 612 378
Average price per unit $ 162 $ 167 $ 171
New orders* $ 80,438 $ 78,252 $104,104
Units 486 489 601
Average price per unit $ 166 $ 160 $ 173
Backlog $ 40,206 $ 45,829 $ 69,961
Units 219 264 387
Average price per unit $ 184 $ 174 $ 181
*FPA Corporation acquired Orleans Construction Corp.("OCC") on October 22, 1993.
Included in new orders for the year ended June 30, 1994 are 192 units totaling
$28,744,000 of OCC backlog units which existed as of October 22, 1993 which were
obtained as a result of the acquisition. If the Companies were combined as of
July 1, 1993, the combined proforma information would be as follows: Revenues
earned of $73,552,000 on deliveries of 445 units, new orders of $85,191,000 on
477 units and backlog of $69,961,000 consisting of 387 units.
6
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 projects. 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 does not manufacture any of the materials or other items
used in the development of its projects, nor does the Company maintain
substantial inventories of materials. Standard building materials, appliances
and other components are purchased in volume. The Company has not experienced
significant delays in obtaining materials needed by it to date and has
long-standing relationships with many of its major suppliers and contractors.
None of the Company's suppliers accounted for more than 10% of the Company's
total purchases in the fiscal year ended June 30, 1996.
Sales and Customer Financing
The Company conducts a marketing program that is directed to
purchasers of primary residences. In Pennsylvania and New Jersey,
7
A.P. Orleans Inc., an affiliate of the Company controlled by Jeffrey P. Orleans,
is the exclusive sales agent. The Company believes that the compensation
arrangement with A.P. Orleans, Inc. is no less favorable to the Company that
could be obtained from an unaffiliated sales agent. This compensation includes
payment to A.P. Orleans, Inc. of $25.00 for each house settled in its
Pennsylvania and New Jersey communities.
Model homes and sales centers are constructed to promote sales. A
variety of custom changes are permitted at the request of purchasers. The
Company advertises extensively using newspapers, billboards and other types of
media. The Company also uses brochures to describe each community.
The Company's customers generally require mortgage financing to
complete their purchases. During fiscal 1996, the Company established a mortgage
department to assist its home buyers in obtaining financing from unaffiliated
lenders. The Company receives a fee of 1% of the mortgage amount for its
services.
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
8
with moderate down payments and liberal underwriting requirements. The Company
has obtained approvals for most projects and anticipates additional approvals
during fiscal 1997; however, there can be no assurance that 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. In evaluating
possible opportunities to acquire land, the Company considers such factors as
the feasibility of development, proximity to developed areas, population growth
patterns, customer preferences, estimated cost of development and availability
and cost of financing.
Subsequent to June 30, 1996, the Company purchased three (3) tracts of
land (an aggregate of approximately 100 homesites) with an aggregate purchase
price of $3,600,000. As of June 30, 1996, the Company was committed to
purchasing an additional nine (9) tracts for an aggregate purchase price of
$24,000,000. The Company anticipates completing a majority of these acquisitions
in calendar 1998.
The Company will continue to monitor economic and market conditions for
residential units in each of its various communities in assessing the relative
desirability of constructing units or
9
selling parcels to other builders.
The Company engages in many phases of development activity, including
land and site planning, obtaining environmental and other regulatory approvals,
construction of roads, sewer, water and drainage facilities, recreation
facilities and other amenities.
Joint Ventures
From time to time, the Company has developed and owned projects through
joint ventures with other parties.
As discussed in Note 1 to the Consolidated Financial Statements, the
Company, through a wholly owned subsidiary, is the General Partner in Versailles
Associates, L.P., a limited partnership with private investors to purchase and
develop a 102 multi-family unit community in Cherry Hill, New Jersey.
Construction of the development began in 1993.
As also discussed in Note 1 to the Consolidated Financial Statements,
Orleans Construction Corp. ("OCC") has entered into a joint venture with
Bridlewood Associates, L.P. OCC is the managing general partner in this limited
partnership formed to develop an 85 acre parcel of land in Mount Laurel, New
Jersey.
Determinations by the Company to enter into joint ventures have
traditionally been based upon a number of factors, including principally an
alternative source for land acquisition financing.
10
At the present time joint venture activities do not constitute a material
portion of the Company's operations.
Government Regulation
The Company and its subcontractors are subject to continuing compliance
requirements of various Federal, state and local statutes, ordinances, rules and
regulations regarding zoning, plumbing, heating, air conditioning and electrical
systems, building permits and similar matters. The intensity of development in
recent years in areas in which the Company is actively developing real estate
has resulted in increased restrictive regulation and moratoriums by governments
with respect to density, sewer, water, ecological and similar matters. Further
expansion and development will require prior approval of Federal, state and
local authorities and may result in delay or curtailment of development
activities and costly compliance programs.
In January 1983, the New Jersey Supreme Court rendered a decision known
as the "Mount Laurel II" decision, which has the effect of requiring certain
municipalities in New Jersey to provide housing for persons of low and moderate
income. In order to comply with such requirements, municipalities in that state
may require the Company, in connection with its future residential communities,
to contribute funds, on a per unit basis, or
11
otherwise assist in the achievement of a fair share of low or moderate housing
in such municipalities.
In recent years, regulation by Federal and state authorities relating
to the sale and advertising of condominium interests and residential real estate
has become more restrictive and intense. In order to advertise and sell
condominiums and residential real estate in many jurisdictions, including
Pennsylvania and New Jersey, the Company has been required to prepare a
registration statement or other disclosure document and, in some cases, to file
such materials with a designated regulatory agency.
Despite the Company's past ability to obtain necessary permits and
authorizations for its projects, more stringent requirements may be imposed on
developers and home builders in the future. Although the Company cannot predict
the effect of such requirements, they could result in time-consuming and
expensive compliance programs and substantial expenditures for environmental
controls which could have a material adverse effect on the results of operations
of the Company. In addition, the continued effectiveness of permits already
granted is subject to many factors, including changes in policies, rules and
regulations and their interpretation and application, which are beyond the
Company's control.
12
Environmental Regulation and Litigation
Development and sale of real property creates a potential for
environmental liability on the part of the developer, owner or any mortgage
lender for its own acts or omissions as well as those of current or prior owners
of the subject property or adjacent parcels. If hazardous substances are
discovered on or emanating from any of the Company's properties, the owner or
operator of the property (including the prior owners) may be held strictly
liable for all costs and liabilities relating to such hazardous substances.
Environmental studies are undertaken in connection with property acquisitions by
the Company. Further governmental regulation on environmental matters affecting
residential development could impose substantial additional expense to the
Company, which could adversely affect the results of operations of the Company
or the value of properties owned, or under contract to purchase by the Company.
(See Note 14 of Notes to Consolidated Financial Statements for a discussion of
specific litigation.)
Competition
The real estate industry is highly competitive. The Company competes on
the basis of its reputation, location, design, price, financing programs,
quality of product and related amenities, with regional and national home
builders in its areas of development,
13
some of which have greater sales, financial resources and geographical diversity
than the Company. Numerous local residential builders and individual resales of
residential units and homesites provide additional competition.
Employees
The Company, as of June 30, 1996, employed 158 persons, 62 of whom were
executive, administrative and clerical personnel, 33 were sales personnel, and
63 were construction supervisory personnel and laborers.
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 major 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. Further, the current
economic climate and lack of consumer confidence within the Company's customer
base have lessened the
14
demand for new housing. In response to these conditions, the Company has
continued to offer incentives to increase sales activity. These actions have
reduced gross profits and cash proceeds from residential sales.
Lease of Executive Offices
The Company is currently leasing office space comprising approximately
12,000 square feet at One Greenwood Square at 3333 Street Road, Bensalem,
Pennsylvania. The annual rent is $213,000 with a lease expiring in March, 1997.
The Company is currently negotiating a new five year lease agreement under
similar terms with the lessor.
Item 3. Legal Proceedings.
The Company is a plaintiff or defendant in various cases arising out of
its usual and customary business. The Company believes that it has adequate
insurance or meritorious defenses in all pending cases in which it is a
defendant and that adverse decisions in any or all of the cases would not have a
material effect upon the Company. (See Note 14 of Notes to Consolidated
Financial Statements for a discussion of specific litigation).
Item 4.
Submission of Matters to a Vote of Security Holders.
There are no matters to be reported hereunder.
15
Item A. Executive Officers of the Registrant.
The following list contains certain information relative to
executive officers of the Company. There are no family relationships among any
executive officers. The term of each executive officer expires at the next
annual meeting of the Board of Directors following the annual meeting of
Stockholders scheduled to be held in December, 1996 or until their successors
are duly elected and qualified.
Position Principal occupation and offices
Name Age or office past 5 years
- ----------- ----- ------------ ----------------------------------------
Jeffrey P. 50 Chairman of Served as Chairman of the Board
Orleans the Board and Chief Executive Officer since
and Chief September 1986. From September,
Executive 1986 to May 1992 he also served as
Officer President. In addition, Mr. Orleans
served for five years as Chief Executive
Officer of Orleans Construction
Corporation.
Benjamin D. 50 President, Elected President, Chief Operating
Goldman Chief Operating Officer and a Director of the
Officer and Company on May 27, 1992. From May,
Director 1989 to May 27, 1992 served as
Executive Vice President and
Secretary of the Company. In
addition, Mr. Goldman served as the
President of Orleans Construction
Corporation.
Michael T. 37 Executive Vice Elected Executive Vice President on
Vesey President- July 18, 1994. Since joining the
Project Company in July, 1987, he has been
Management responsible for project management of the
Company's Pennsylvania communities.
16
Joseph A. 42 Chief Financial Elected Chief Financial Officer of the
Santangelo Officer, Company on July 18, 1994. Mr. Santangelo
Treasurer and was elected Secretary of the Company on
Secretary May 27, 1992 and has been Treasurer
since joining the Company in March 1987.
Mr. Santangelo is a Certified Public
Accountant. In addition, he served in an
executive capacity for Orleans
Construction Corporation.
17
PART II
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: FPO)
The high and low sales prices on the Exchange (based on reports by
National Quotation Bureau, Inc.) for the periods indicated are as follows:
Fiscal year
ended June 30, High Low
---------------------- ------- -------
1995 First Quarter $ 2.250 $ 1.625
Second Quarter 1.812 1.250
Third Quarter 1.688 1.062
Fourth Quarter 1.625 1.000
1996 First Quarter $ 2.000 $ 1.000
Second Quarter 2.063 1.000
Third Quarter 1.188 .938
Fourth Quarter 1.500 .875
The number of common stockholders of record of the Company as of
September 23, 1996 was 346.
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, and no assurance can be given
that the Company will pay dividends in the future.
18
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.
(In thousands except per share data)
Year Ended June 30,
-------------------------------------------
Operating Data 1996 1995 1994(2) 1993 1992
- -------------- ------ ------ -------- ------ -----
Earned revenues $94,359 $107,840 $66,618 $42,584 $38,346
Income (loss) from
continuing operations 1,235 1,201 (766) (8,513) (2,634)
Primary income (loss) per
share from continuing
operations .10 .10 (.07) (1.32) (.55)
Fully-diluted income (loss)
per share from continuing
operations .10 .10 (.07) (1.27) (.34)
June 30,
--------------------------------------------
Balance Sheet Data(1) 1996 1995 1994(3) 1993 1992
- ------------------ ------ ------ -------- ------ -----
Residential properties $34,263 $ 35,757 $35,016 $12,863 $11,768
Land and improvements 46,654 52,921 46,681 32,389 42,087
Total assets 92,866 102,274 97,754 57,235 70,763
Mortgage and other
note obligations 42,807 40,721 36,806 25,097 33,425
Senior notes - 371 664 6,376 5,695
Subordinated
debentures 618 2,231 2,363 3,653 3,251
Other Notes Payable 9,473 9,455 10,509 2,761 2,559
Shareholders' equity
(deficit) 13,949 12,146 10,945 (403) 7,931
- ------------
(1) The Company has not paid a cash dividend since December 1982.
(2) Includes results of operations of OCC from October 22, 1993 (date of
acquisition) through June 30, 1994.
(3) Includes balance sheet data of OCC, acquired by the Company on October
22, 1993.
19
Item 7. Management's Discussion and Analysis of Financial Condition And Results
of Operations
Liquidity and Capital Resources
The Company requires capital to purchase and develop land, to
construct units, fund related carrying costs and overhead and to fund various
advertising and marketing programs to facilitate sales. 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, 1996, the Company had
approximately $47,500,000 available to be drawn under existing secured
improvement and construction loans for planned development expenditures. These
expenditures include site preparation, roads, water and sewer lines, impact fees
and earthwork, as well as the construction costs of the units and amenities.
During the second half of fiscal 1996, the Company implemented a
recapitalization plan to acquire land, to obtain more favorable pricing from the
Company's contractors by reducing outstanding accounts payable balances and
retire outstanding debt at a discount. Funding of this plan was obtained from
additional secured borrowings, land sales and an investment from Jeffrey P.
Orleans, aggregating approximately $18,000,000.
The Company entered into an agreement with an unaffiliated third
party to sell improved lots at its Northampton community for
20
an aggregate sales price of approximately $9,000,000. The sale was structured in
two phases. The initial phase occurred in fiscal 1996 for a sales price of
approximately $4,700,000. The remaining lots are scheduled to be sold in fiscal
1997.
Mr. Orleans' investment is now evidenced by a $3,000,000
convertible Subordinated 7% Note dated August 8, 1996 due January 1, 2002 and an
agreement to defer payments due him under the terms of FPA's Series A and Series
B Notes of $1,350,000. Amounts outstanding as of June 30, 1996 under these
agreements totaled approximately $2,800,000 and $750,000, respectively. In
addition, Mr. Orleans has provided to the Company an additional source of
capital via a $2,000,000 variable rate note due September 30, 2000. No amounts
were outstanding under the variable rate note as of June 30, 1996.
As of September 1, 1996, the Company had reduced accounts payable
balances by approximately $9,200,000 compared to June 30, 1995, retired 14 1/2%
Subordinated Debenture debt of approximately $1,500,000, retired notes payable
of approximately $1,800,000 and acquired three new communities with an aggregate
purchase price of $3,600,000. The favorable pricing obtained from our
contractors increased gross profits by 1% in fiscal 1996 and is expected to
benefit the company in fiscal 1997 and beyond.
21
During fiscal 1997, the Company expects to commence construction
at three new communities located in Delaware and Chester Counties in
Pennsylvania. This will mark the Company's entry into these counties south and
west of Philadelphia which are experiencing steady economic and job growth. The
Company is expanding its land acquisition efforts and is currently focusing on
this area along with central New Jersey and its traditional marketing areas. As
of June 30, 1996, the Company is committed to purchasing 9 additional tracts for
an aggregate purchase price of approximately $24,000,000. These purchase
agreements are subject to due diligence review and are contingent upon the
receipt of governmental approvals. The Company expects to utilize purchase money
mortgages to finance a majority of these acquisitions. The Company anticipates
completing a majority of these acquisitions in calendar 1998.
The Company believes that the funds generated from operations and
financing commitments from commercial lenders will provide the Company with
sufficient capital to meet its operating needs through fiscal 1997.
Economic Conditions
The sluggish growth of the general economy in the Northeastern
United States, contradictory economic data, and lack
22
of consumer confidence caused primarily by the uncertainty of future employment
have continued to effect the homebuilding industry in the Company's marketing
areas during fiscal 1996. The Company has continued to feel the effects of the
increase in interest rates and lack of consumer confidence. In response to these
economic conditions, the Company has continued to offer various incentives at
certain communities to increase sales velocity. These actions continue to
suppress gross profits and cash proceeds from residential property sales. Any
significant further downturn in economic factors affecting the real estate
industry may require additional incentives or reductions in net sales prices.
The tables included in "Item 2 - Properties" summarize the
Company's revenues, new orders and backlog data for the year ended June 30, 1996
with comparable data for fiscal 1995 and 1994.
New orders for fiscal 1996 were 486 units totaling $80,438,000
compared with 489 units totaling $78,252,000 for 1995. At June 30, 1996, the
Company had a backlog of 219 units with a sales value of $40,206,000 compared to
264 units totaling $45,829,000 at June 30, 1995. The Company anticipates
delivering substantially all of its backlog units during fiscal 1997. The
decline in backlog is due to the substantial completion of a
23
successful condominium community in Warwick Township, Bucks County, Pennsylvania
and slow sales activity in May, 1996. In addition, the Company did not commence
marketing at any new communities in fiscal 1996. The economic factors and the
severe winter weather both discussed previously adversely affected new orders
and revenues during fiscal 1996. While the company has maintained its market
share during fiscal 1996, management is focusing its efforts on geographic
diversification within the Pennsylvania and New Jersey markets to increase
volume in fiscal 1997.
Inflation
Inflation can have a significant impact on the Company's
liquidity. Rising costs of land, materials, labor, interest and administrative
costs have generally been recoverable in prior years through increased selling
prices. The Company has been able to increase prices to cover portions of the
significant increases in lumber and other building products in recent years.
However, there is no assurance the Company will be able to continue this
practice in the future due to the current sluggish growth in the general economy
in the Northeastern United States and the other factors discussed under economic
conditions.
Joint Ventures
The Company is a general partner in two joint ventures with
24
private investors which are developing communities in Cherry Hill and Mt.
Laurel, New Jersey. These activities have provided additional operating funds to
the Company without the need for land acquisition funds.
Tax Matters
The Company adopted the accounting for income taxes prescribed by
SFAS 109 effective July 1, 1993. The cumulative effect of this change in
accounting principles was to increase net income by $3,970,000 in fiscal 1994.
(See Note 12 to the Consolidated Financial Statements.)
1993 Recapitalization Transactions
As part of its continuing efforts to restructure its operations,
eliminate high interest indebtedness, obtain new capital for operations and
improve its market share in its primary operating areas, the Company consummated
several transactions with various of its principal stockholders, creditors and
investors during fiscal 1994 (herein collectively called the "1993
Recapitalization Transactions"). The 1993 Recapitalization Transactions include:
(i) acquisition of Orleans Construction Corporation ("OCC"); (ii) issuance of
new notes by the Company and sale of Common Stock by Jeffrey P. Orleans ("Mr.
Orleans"); (iii) a corporate debt restructuring; (iv) capital transactions with
the
25
Flora Group and (v) a mortgage debt restructuring. See Note 2 to Consolidated
Financial Statements for a complete discussion of these transactions.
Other Matters
In August, 1995, the Company's corporate offices were destroyed by
fire. These premises were under a long term operating lease from a related
party. The settlement of the claim with the insurance carrier is in
negotiations. The Company does not expect to incur a loss in connection with the
fire and the resolution of its insurance claim.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
The following important factors, among others, in some cases
have affected, and in the future could affect, FPA's actual results and could
cause FPA's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of FPA
Corporation:
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;
26
o building material price fluctuations;
o changes in mortgage interest rates charged to buyers
of the Company's units;
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 delays in obtaining land development permits as a result
of (i) federal, state and local environmental and other
land development regulations, (ii) actions taken or
failed to be taken by governmental agencies having
authority to issue such permits, and (iii) opposition
from third parties; and
o increased cost of suitable development land.
27
Fiscal Years Ended June 30, 1996 and 1995
Results of Operations
Operating Revenues
Revenues for fiscal 1996 decreased $13,481,000 as compared to
fiscal 1995. Revenues from the sale of residential units included 531 units
totaling $86,061,000 compared to 612 units totaling $102,384,000 during fiscal
1995. The reduction in units delivered is due primarily to the economic
conditions discussed previously and severe winter weather conditions experienced
in 1996 and 1994 which hampered construction activity and delayed deliveries at
all of the Company's communities. Revenues from land sales increased by
$2,799,000 primarily due to the consummation of land sale transactions at the
Company's Northampton, Pennsylvania community aggregating $4,700,000 during
fiscal 1996.
Costs and Expenses
Costs and expenses for the fiscal year ended June 30, 1996
decreased $12,863,000 as compared to fiscal 1995. The decrease in costs and
expenses is due primarily to decreases in the cost of real estate properties
sold (including land) and selling, general and administrative expenses of
$11,749,000 and $582,000, respectively. These decreases are consistent with the
decrease in earned revenues from real estate properties discussed under
28
operating revenues. Overall gross profit on units sold during fiscal 1996
increased approximately 1% compared to fiscal 1995 due to more favorable pricing
obtained from contractors. The other expense increase of $131,000 from 1995 is
primarily an increase in snow removal costs of $240,000 due to severe weather
conditions in fiscal 1996 partially offset by other reductions. The fiscal 1995
accrual for environmental litigation expenses of $750,000 also contributed to
the overall decrease in costs and expenses.
Extraordinary Items
During the second quarter of fiscal 1996, the Company completed a
transaction to fully satisfy a note payable with an outstanding balance of
approximately $380,000 and reacquired 116,823 shares of Common Stock in exchange
for a cash payment of $235,000. These shares have been retained by the Company
as treasury stock. This transaction resulted in an extraordinary gain of
$170,000, net of income tax expense of $30,000.
In June, 1996, the Company satisfied $1,522,000 of its then
outstanding Subordinated Debentures and related accrued interest for a cash
payment of $907,000. This transaction resulted in an extraordinary gain of
$523,000, net of income tax expense of $92,000.
29
Net Income (Loss)
Net income for fiscal 1996 was $1,928,000 ($.16 primary and fully
diluted earnings per share) compared to fiscal 1995 net income of $1,201,000
($.10 primary and fully diluted earnings per share). This increase is due to the
extraordinary items, a reduction in the deferred tax asset valuation account of
$527,000 and the fiscal 1995 environmental litigation accrual of $750,000 and
were offset by the reduction in real estate sold during fiscal 1996 compared to
fiscal 1995.
30
Fiscal Years Ended June 30, 1995 and 1994
Results of Operations
Earned Revenues
The significant increase in revenues earned and units delivered
from the sale of residential properties of $37,932,000 and 234 units,
respectively, is due to the introduction of sales at the Company's Warwick
Township, Bucks County, Pennsylvania condominium community and increases in
deliveries at a majority of the Company's other communities coupled with the
inclusion of Orleans Construction Corp. ("OCC") operations for a full year in
fiscal 1995. In addition, the severe winter weather experienced during January
through March, 1994, which hampered construction activity, resulted in reduced
deliveries during the prior year. Revenue from land sales for the twelve months
ended June 30, 1995 increased $3,380,000 due to a second quarter fiscal 1995
land sale of $3,336,000. This land sale, to an unaffiliated third party, related
to property acquired by the Company upon exercise of its option to purchase a
section of land located in East Brunswick, New Jersey under an Option Agreement
with Orleans Builders and Developers.
Costs and Expenses
Costs and expenses for the fiscal year ended June 30, 1995
31
increased $39,089,000 compared to fiscal 1994. The increase is primarily the
result of increases in costs of residential properties sold, and selling,
general and administrative expenses of $32,930,000 and $2,739,000, respectively.
The increase in costs of residential properties is directly correlated with the
increase in units sold. Overall gross profit on units sold during fiscal 1995 is
consistent with fiscal 1994. The increases in selling, general and
administrative expenses is consistent with both the increase in revenues from
residential property sales and the inclusion of the former OCC operations for a
full year in fiscal 1995. Moreover, the Company commenced marketing at six new
communities during fiscal 1995 which also contributed to the aforementioned
increase.
Extraordinary Items
As more fully discussed in Note 2 to Consolidated Financial
Statements, the Company had several extraordinary items during fiscal 1994, each
of which resulted from the early extinguishment of debt. These transactions are:
(i) the retirement of mortgage note obligations secured by real estate which
resulted in extraordinary gains of $3,622,000 net of related income tax expense
of $1,821,000, (ii) the Flora transactions which resulted in the extraordinary
gain on early extinguishment of the subordinated note
32
payable of $616,000, net of income tax expense of $377,000 and (iii) the
extraordinary gain on the early extinguishment of Senior Notes and Subordinated
Debentures which resulted in an extraordinary gain of $3,718,000 net of related
income taxes of $1,989,000. The combined effect of these transactions resulted
in extraordinary gains aggregating $7,956,000 net of related income taxes for
the twelve months ended June 30, 1994.
Net Income (Loss)
Net income for fiscal 1995 of $1,201,000 ($.10 primary earnings
per share; $.10 fully diluted earnings per share) is a significant decrease from
the fiscal 1994 net income of $11,160,000 ($1.08 primary income per share; $1.05
fully diluted income per share). This decrease is due largely to the previously
discussed extraordinary gains of $7,956,000 ($.77 per primary share and $.75 per
fully diluted share) and the cumulative effect of the change in accounting
principle adjustment of $3,970,000 ($.38 per primary share and $.37 per fully
diluted share). Income from operations during fiscal 1995 of $1,201,000
represents a substantial improvement over the fiscal 1994 loss from operations
of $766,000. This improvement is directly attributable to the increase in
revenues previously discussed.
33
Item 8. Financial Statements and Supplementary Data.
FPA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of independent accountants 35
Consolidated balance sheets at June 30, 1996
and June 30, 1995 36
Consolidated statements of operations and retained
earnings for the years ended June 30, 1996,
1995 and 1994 37-38
Consolidated statements of cash flows for the
years ended June 30, 1996, 1995 and 1994 39
Notes to consolidated financial statements 40-59
Financial statement schedule
Valuation and qualifying accounts (Schedule II) 60
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, 1996,
excepting indebtedness incurred in the ordinary course of business.
34
Report of Independent Accountants
To the Board of Directors and Shareholders
of FPA Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of FPA
Corporation and its subsidiaries at June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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 the opinion expressed
above.
Price Waterhouse LLP
New York, New York
September 23, 1996
35
FPA Corporation and Subsidiaries
Consolidated Balance Sheets
June 30,
----------------
1996 1995
----------------
Assets (In thousands)
- ------ ----------------
Cash $ 2,617 $ 2,324
Receivables
Trade accounts 3,622 3,636
Mortgage and other notes 554 1,674
Real estate held for development and sale
Residential properties completed
or under construction 34,263 35,757
Land held for development or sale
and improvements 46,654 52,921
Property and equipment, at cost, less
accumulated depreciation 468 523
Deferred charges and other assets 4,688 5,439
------ -------
$92,866 $102,274
====== =======
Liabilities and Shareholders' Equity
Liabilities
Accounts payable $12,251 $ 21,445
Accrued expenses 5,389 6,246
Amounts due to related parties 3,026 3,657
Customer deposits 2,591 2,739
Mortgage and other note obligations
primarily secured by:
Mortgage notes receivable 283 1,419
Residential properties 24,232 27,998
Land held for development or sale
and improvements 18,292 11,304
Senior notes 371
Subordinated debentures 618 2,231
Other notes payable 9,473 9,455
Deferred income taxes 2,056 2,583
Minority interests 706 680
------ -------
Total liabilities 78,917 90,128
------ -------
Shareholders' equity
Preferred stock, $1 par, 500,000 shares
authorized
Common stock, $.10 par, 20,000,000 shares
authorized, 12,698,131 shares issued at
June 30, 1996 and 1995 1,270 1,270
Capital in excess of par value - common stock 17,726 17,726
Retained earnings (deficit) (4,176) (6,104)
Treasury stock, at cost (1,158,936 and
1,002,513 shares at
June 30, 1996 and 1995) (871) (746)
------ -------
Total shareholders' equity 13,949 12,146
------ -------
Commitments and contingencies
------ -------
$92,866 $102,274
====== =======
See notes to consolidated financial statements
36
FPA Corporation and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
For the year ended June 30,
----------------------------
1996 1995 1994
- ---------------------------------------------------------------
(In thousands, except per share data)
- ---------------------------------------------------------------
Earned revenues
Residential properties $ 86,061 $102,384 $ 64,452
Land sales 6,889 4,090 710
Other income 1,409 1,366 1,456
- ---------------------------------------------------------------
94,359 107,840 66,618
- ---------------------------------------------------------------
Costs and expenses
Residential properties 73,546 88,435 55,505
Land sales 6,520 3,380 570
Other 798 667 472
Selling, general and
administrative 11,316 11,898 9,159
Interest
Incurred 6,838 6,184 4,511
Less capitalized (5,538) (5,019) (3,503)
Environmental litigation
expenses 750
Minority interests 26 74 71
Recapitalization expenses 495
- ---------------------------------------------------------------
93,506 106,369 67,280
- ---------------------------------------------------------------
Income (loss) before income taxes 853 1,471 (662)
Income tax (expense) benefit 382 (270) (104)
- ---------------------------------------------------------------
Income (loss)from operations
before extraordinary items and
cumulative effect of change
in accounting principle 1,235 1,201 (766)
- ---------------------------------------------------------------
Extraordinary items, net 693 7,956
Cumulative effect of change in
accounting principle 3,970
- ---------------------------------------------------------------
Net income 1,928 1,201 11,160
Retained earnings (deficit)
at beginning of year (6,104) (7,305) (18,465)
- ---------------------------------------------------------------
Retained earnings (deficit) at
end of year $ (4,176) $ (6,104) $ (7,305)
- ---------------------------------------------------------------
Continued...
37
FPA Corporation and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
For the year ended June 30,
---------------------------
1996 1995 1994
- --------------------------------------------------------------
Primary earnings (loss) per share:
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle $ .10 $ .10 $ (.07)
Extraordinary gains .06 .77
Cumulative effect of change
in accounting principle .38
- ---------------------------------------------------------------
Total $ .16 $ .10 $ 1.08
- ---------------------------------------------------------------
Fully diluted earnings (loss)
per share:
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle $ .10 $ .10 $ (.07)
Extraordinary gains .06 .75
Cumulative effect of change
in accounting principle .37
- ---------------------------------------------------------------
Total $ .16 $ .10 $ 1.05
- ---------------------------------------------------------------
See notes to consolidated financial statements
38
FPA Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended June 30,
---------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
(In thousands)
- ---------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,928 $ 1,201 $ 11,160
Adjustments to reconcile net income
to net cash used by operating
activities:
Extraordinary gains on early
extinguishments of debt (693) (7,956)
Reduction in deferred tax asset
valuation allowance (527)
Cumulative effect of change in
accounting principle (3,970)
Depreciation and amortization 128 205 116
Changes in operating assets and liabilities:
Receivables 1,134 2,778 1,700
Real estate held for development and
sale 7,761 (6,981) (7,981)
Deferred charges and other assets 751 (497) 614
Accounts payable and other liabilities (10,656) 3,010 2,731
Customer deposits (148) (2,172) 819
Deferred income taxes 45 (75)
- ---------------------------------------------------------------------------
Net cash used by operating
activities (322) (2,411) (2,842)
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (73) (207) (145)
Cash acquired from business combination 265
- ---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (73) (207) 120
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings from loans secured by real
estate assets 78,567 81,709 60,205
Repayment of loans secured by real
estate assets (75,345) (77,313) (58,283)
Repayment of loans secured by mortgages
receivable (1,136) (481) (3,164)
Repayment of subordinated debentures and
senior notes payable (1,461) (425) (326)
Borrowings from other note obligations 5,597 1,127 6,144
Repayments of other note obligations (5,409) (2,181) (304)
Purchase of treasury stock (125)
- ---------------------------------------------------------------------------
Net cash provided by
financing activities 688 2,436 4,272
- ---------------------------------------------------------------------------
Net increase (decrease) in cash 293 (182) 1,550
Cash at beginning of year 2,324 2,506 956
- ---------------------------------------------------------------------------
Cash at end of year $ 2,617 $ 2,324 $ 2,506
===========================================================================
See notes to consolidated financial statements
39
FPA Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
FPA Corporation and its subsidiaries (the Company) are currently engaged in
residential real estate development in Pennsylvania and New Jersey.
A summary of the significant accounting principles and practices used in the
preparation of the consolidated financial statements follows:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. The financial statements
include the consolidated financial position and results of operations of
Versailles Associates, L.P., and Bridlewood Associates, L.P., joint ventures in
which a subsidiary of the Company is the sole General Partner. The outside
limited partners have been allocated their portion of the income or loss and
equity. These amounts are presented as minority interests in the financial
statements. 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 except as discussed below.
The Company 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 cost recovery and the deposit methods. These methods of profit
recognition defer a portion or all of the profit and recognition of the profit
is dependent upon the occurrence of future events.
40
Real estate capitalization and cost allocation
Residential properties completed or under construction are stated at cost or
estimated net realizable value, whichever is lower. Costs include land and land
improvements, direct construction costs, construction overhead costs, interest
on indebtedness and real estate taxes. Selling and advertising costs are
expensed as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification methods.
Land and improvement costs include land, land improvements, interest on
indebtedness and real estate taxes. Appropriate costs are allocated to projects
on the basis of acreage, dwelling units and relative sales value. Land held for
development or sale and improvements are stated at cost or estimated net
realizable value, whichever is lower.
In March, 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (SFAS No. 121). The provisions of
SFAS No. 121 must be implemented by the Company in fiscal 1997. The Company
believes that its current impairment policy is substantially similar to SFAS No.
121 and, accordingly, the adoption of SFAS No. 121 is not currently expected to
have a significant effect on the Company's financial position or results of
operations upon adoption.
Land and land improvements applicable to condominiums, townhomes, single-family
homes and other projects are transferred to construction in progress when
construction commences.
Interest costs included in Costs and Expenses for fiscal years 1996, 1995 and
1994 were $4,588,000, $5,236,000 and $4,473,000, 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.
41
Leases
The Company's leasing arrangements as lessee include the leasing of certain
office space, residential units and equipment. These leases have been classified
as operating leases.
Income taxes
In February, 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". The Company has adopted the principles of SFAS 109, as required,
effective July 1, 1993 on a prospective basis. The cumulative effect of adoption
of SFAS 109 was approximately $3,970,000, as adjusted.
The Company and its subsidiaries file a consolidated federal income tax return.
See Note 12 for an additional discussion of income tax matters.
Earnings per share
Primary earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding and common
stock equivalents. The weighted average number of shares used to compute primary
earnings (loss) per common share was 11,781,425 shares in 1996, 11,974,618
shares in 1995 and 10,355,805 shares in 1994.
Fully diluted earnings per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding and
all potentially dilutive securities. There were 11,781,425 shares in 1996,
11,974,618 shares in 1995 and 10,644,693 shares in 1994.
The fiscal 1994 shares for both primary and fully diluted assume the conversion
of the Series C preferred stock effective October 22, 1993 and that the options
(as described in Note 13) were outstanding as of July 1, 1993.
On a proforma basis, if the $3,000,000 Convertible Subordinated Notes issued in
August, 1996 (See Note 9) were converted into 2,000,000 shares of common stock,
primary and fully diluted earnings per share have been $.16 and $.14 for the
fiscal year ended June 30, 1996.
42
Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 107), 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) approximate 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 the prime rate of
interest which is a variable market rate.
Reclassifications
Certain amounts in the accompanying financial statements have been reclassified
for comparative 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.
Supplemental disclosures of cash flow information:
(In thousands)
1996 1995 1994
----------------------
Cash paid during the year for:
Interest (net of amounts capitalized) $ 143 $ 205 $ 97
Income taxes 165 297 1,023
During the second quarter of fiscal 1996, the Company completed a transaction to
fully satisfy a note payable with an outstanding balance of approximately
$380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash
payment of $235,000. These shares have been retained by the Company as treasury
stock. This transaction resulted in an extraordinary gain of approximately
$170,000, net of income tax expense of approximately $30,000.
43
In June, 1996, the Company fully satisfied $1,522,000 of its then outstanding
Subordinated Debentures and related accrued interest for a cash payment of
$907,000. This transaction resulted in an extraordinary gain of $523,000, net of
income tax expense of $92,000.
The 1993 Recapitalization Transactions (Note 2) include significant
non-cash components. The following schedule summarizes these
items:
Acquisition Other 1993
of OCC Recapitalization
10/22/93 Transactions
-------- ------------
(in thousands)
Cash $ 265 $
Receivables 1,814 (223)
Real estate held for development
and sale 29,843 (1,379)
Property and equipment 447
Deferred charges and other assets 2,760 (10)
------ ------
$ 35,129 $ (1,612)
====== ======
Accounts payable and accrued
liabilities $ 12,768 $ (356)
Customer deposits 1,660
Mortgage and other note obligations
primarily secured by:
Real estate held for development
or sale 18,475 (5,524)
Senior notes (5,505)
Subordinated debentures (1,192)
Other notes payable 769 1,139
Deferred taxes 1,169
------ ------
$ 34,841 $(11,438)
------ ------
Mandatorily redeemable series
A preferred stock (2,000)
Series C preferred stock 50
Capital in excess of par -
preferred 238
Common stock
Capital in excess of par - common 646
Retained earnings 11,926
Treasury stock (746)
------ ------
288 9,826
------ ------
$ 35,129 $ (1,612)
====== ======
44
On October 22, 1993, the Company acquired Orleans Construction Corporation as
more fully described in Note 2. The assets acquired, liabilities assumed and
other noncash effects of this transaction have not been reflected in the
Consolidated Statements of Cash Flows.
As discussed in Note 2, on October 22, 1993, a transaction was completed between
the Company and Jeffrey P. Orleans whereby the Company issued $1,800,000 of
Series B Notes in exchange for $6,331,000 aggregate principal and accrued
interest of 12 5/8% Senior Notes due August 15, 1996, and $1,371,000 aggregate
principal and accrued interest of 1991 Subordinated Debentures due September 1,
2000 owned by Mr. Orleans. This transaction resulted in an extraordinary gain of
$3,718,000, net of income taxes of $1,989,000.
The Flora transactions described in Note 2 include certain non cash items which
have not been reflected in the Consolidated Statements of Cash Flows. These
items include approximately $1,500,000 of real estate assets given in exchange
for the retirement of the Company's Subordinated Note payable with a principal
balance of $2,559,380 plus accrued interest. Further, $2,100,000 of new notes
payable were issued in exchange for 50,000 shares of Series A Preferred Stock,
which has been canceled, and the reacquisition of 1,002,513 shares of the
Company's Common Stock.
As discussed in Note 2, in September, 1993 the Company consummated an agreement
with the Federal Deposit Insurance Corporation ("FDIC") under which the Company
was able to fully satisfy mortgage obligations at less than the carrying value
of the debt. An extraordinary gain on early extinguishment of debt of $3,185,000
net of income tax expense of $1,821,000 is reflected in the fiscal 1994
financial statements.
Also discussed in Note 2, during fiscal 1994, the Company entered into an
agreement with one of its lenders to satisfy several mortgage obligations
aggregating $4,272,000 at less than the carrying value of the debt. An
extraordinary gain on early extinguishment of debt of $437,000, net of income
tax expense has been reflected in the fiscal 1994 financial statements.
During fiscal 1994, the Company issued payment-in-kind obligations to a majority
of its Senior Note holders in lieu of scheduled cash
45
interest payments aggregating approximately $159,000.
Note 2. 1993 Recapitalization Transactions
As part of its continuing efforts to restructure its operations, eliminate high
interest indebtedness, obtain new capital for operations and improve its market
share in its primary operating areas, the Company consummated several
transactions with various of its principal stockholders, creditors and investors
during fiscal 1994 (herein collectively called the "1993 Recapitalization
Transactions"). The 1993 Recapitalization Transactions include: (i) acquisition
of Orleans Construction Corporation ("OCC"); (ii) issuance of new notes by the
Company and sale of Common Stock by Jeffrey P. Orleans ("Mr. Orleans");(iii) a
corporate debt restructuring; (iv) capital transactions with the Flora Group;
and (v) a mortgage debt restructuring.
Acquisition of Orleans Construction Corporation
On October 22, 1993, the Company completed a transaction among the Company, OCC,
a Pennsylvania corporation, and Mr. Orleans, Chairman of the Board and Chief
Executive Officer of the Company and formerly the owner of all of the
outstanding stock of OCC. Mr. Orleans exchanged his OCC stock for newly-created
Series C Preferred Stock, which was converted into 6,000,000 shares of Common
Stock in September, 1994. This acquisition was recorded at the OCC historical
cost basis at the date of the transfer, since it was conducted with an entity
deemed to be under common control. The total assets and liabilities assumed at
the date of the OCC acquisition were $35,129,000 and $34,841,000, respectively.
If the Companies were combined as of July 1, 1993, the proforma results would
have been as follows: Earned revenues $75,839,000, loss from continuing
operations $1,090,000 and net income of $10,836,000. Primary and fully diluted
earnings per share would have been $.75 and $.73, respectively.
Issuance of Series A Notes by the Company and Sale of Common Stock by
Jeffrey P. Orleans.
During the second quarter of fiscal 1994, the Company issued an aggregate
principal amount of $3,000,000 of newly-created Series A Notes to investors in
a private placement (the "Series A Investors"), including Mr. Orleans and other
executive officers,
46
directors and key personnel of the Company for cash consideration. The Series A
Notes bear interest at 2% over the prime rate with a maturity date of September
15, 1998.
Contemporaneously with the sale by the Company of the Series A Notes, Mr.
Orleans sold 1,674,000 shares of Common Stock of the Company owned by him to the
other Series A Investors. The shares sold by Mr. Orleans were previously issued
shares. In addition, Mr. Orleans was issued $1,000,000 in new Series B Notes for
cash consideration. The Notes have similar terms to the Series A Notes.
Corporate Debt Restructuring.
During the second quarter of fiscal 1994, the Company issued $1,800,000 of
Series B Notes in exchange for $7,700,000 aggregate principal and accrued
interest of Senior Notes and Subordinated Debentures owned by Mr. Orleans. This
transaction resulted in a second quarter fiscal 1994 extraordinary gain of
$3,718,000, net of income taxes of $1,989,000.
Transactions with Flora Group.
On August 27, 1993, the Company consummated a Note and Stock Acquisition
Agreement with the Flora Group, a group of entities which were formerly
principal stockholders and creditors of the Company. The transactions included
the exchange of cash and certain real estate assets owned by the Company for the
retirement of subordinated notes, the retirement of the Series A mandatorily
redeemable Preferred Stock in exchange for new debt securities and the
repurchase of 1,002,513 shares of Common Stock in exchange for the issuance of
new debt securities.
The Company exchanged land in Florida with a carrying value of approximately
$1,500,000 and a cash payment of $250,000 for the retirement of the Company's
Subordinated Floating Rate Notes due April 1, 1997 with an aggregate unpaid
principal balance of $2,559,380 plus accrued interest. This transaction resulted
in an extraordinary gain of approximately $616,000, which is net of estimated
tax effect of $377,000.
The Company issued a Note to Flora in the original principal amount of
$1,100,000 due August 31, 2023, which accrued interest at 5.5% per annum until
December 31, 1995 and at 10% thereafter, in exchange for 50,000 shares of Series
A Preferred Stock held by Flora.
47
Additionally, the Company issued new debt securities to the Flora Group in
exchange for the retirement of mandatorily redeemable preferred stock and the
repurchase of 1,002,513 shares of Common Stock. This stock is being retained by
the Company as treasury stock.
Mortgage Debt Restructuring.
On September 14, 1993, the Company consummated an agreement with the Federal
Deposit Insurance Corporation ("FDIC") under which the Company was able to fully
satisfy mortgage obligations aggregating approximately $10,700,000 in exchange
for a payment of approximately $5,700,000. An extraordinary gain on early
extinguishment of debt of $3,185,000, net of income tax expense of $1,821,000
has been reflected in the accompanying fiscal 1994 financial statements. The
Company also recognized an extraordinary gain on early extinguishment of debt of
$437,000, net of related income tax expense, during fiscal 1994, as a result of
a similar transaction with an unrelated lender.
Note 3. Joint Ventures
In October, 1992, a wholly owned subsidiary of the Company, Versailles at
Europa, Inc. was established to act as the General Partner in a newly formed
Versailles Associates, L.P. (the "Partnership"). The Partnership was formed to
purchase and develop a tract of land in Cherry Hill, New Jersey. The terms of
the Partnership Agreement provide that the General Partner be allocated 55% of
the net profits and losses of the Partnership and have exclusive management and
control over the development of the property. The financial statements of the
Partnership are included in the consolidated financial statements of the
Company. The limited partner's share of the income and capital from this entity
has been presented as minority interest in the accompanying consolidated
financial statements.
Orleans Construction Corporation (OCC) has entered into a joint venture
agreement with Bridlewood Associates, L.P., a limited partnership formed to
develop an 85 acre parcel of land in Mount Laurel, New Jersey. OCC is the
managing general partner. OCC and the limited partner share equally in the
profits or losses of the entity. The financial statements of the Partnership are
included in the consolidated financial statements of the Company. The limited
partner's share of the income and capital from this entity has been
48
presented as minority interest in the accompanying consolidated financial
statements.
Note 4. Certain Transactions with Related Parties
Prior to October 22, 1993, OCC had advanced funds to, borrowed funds from, and
paid expenses and debt obligations on behalf of Orleans Builders and Developers
("OB&D"), a limited partnership whose partners include Jeffrey P. Orleans and
the Trust of Selma Orleans. At June 30, 1996 amounts owed by the Company to the
partnership aggregated $3,026,000. These advances are payable on demand and bear
interest at 7%. Interest incurred on these advances amounted to $236,000,
$369,000 and $168,000 for the twelve months ended June 30, 1996 and 1995 and
eight months ended June 30, 1994, respectively.
The Company has exercised its option to purchase sections of land from OB&D
under the terms of an existing option agreement. These parcels were subsequently
sold to an unaffiliated third party for a purchase price of $1,901,000 and
$3,336,000 during fiscal 1996 and 1995, respectively. These transactions
resulted in a profit before income taxes of $301,000 and $548,000, respectively.
The remaining real estate under the option agreement with OB&D is under an
option agreement of sale for approximately its option price plus current
carrying value with the above referenced buyer.
Note 5. Receivables
Trade accounts receivable result primarily from escrow deposits on residential
units, accrued interest and net proceeds due from residential closings. Mortgage
and other notes receivable, which are due in varying installments through 2017,
bear interest at rates from 8% to 12%. Mortgage and other notes receivable
consist of the following:
49
June 30,
-------------------
1996 1995
-------------------
(In thousands)
- ----------------------------------------------------------------
Mortgage subsidiary receivables $ 290 $ 1,438
First mortgage notes, secured by
residential and other properties 264 266
- ----------------------------------------------------------------
554 1,704
Less: Deferred sales proceeds and allow-
ance for uncollectible accounts - (30)
- -----------------------------------------------------------------
$ 554 $ 1,674
- ----------------------------------------------------------------
Due within one year $ 147 $ 383
- ----------------------------------------------------------------
Note 6. Real Estate Held for Development and Sale
Residential properties consist of the following:
June 30,
-------------------
1996 1995
-------------------
(In thousands)
- ----------------------------------------------------------------
Condominiums and townhomes $20,293 $22,368
Single-family homes 13,970 13,389
- ----------------------------------------------------------------
$34,263 $35,757
- ----------------------------------------------------------------
Residential properties completed or under construction consist of the following:
June 30,
-------------------
1996 1995
-------------------
(In thousands)
- ----------------------------------------------------------------
Under contract for sale $21,243 $23,242
Unsold 13,020 12,515
- ----------------------------------------------------------------
$34,263 $35,757
- ----------------------------------------------------------------
Note 7. Mortgage Subsidiaries
The Company has a wholly-owned financing subsidiary which had been involved,
through unaffiliated companies, in issuing mortgage-collateralized bonds.
Condensed financial information for the finance subsidiary is as follows:
50
June 30,
------------------
1996 1995
------------------
(In thousands)
- ---------------------------------------------------------------
Total assets, principally
mortgage notes receivable $ 351 $ 1,586
Total liabilities, principally
bonds payable 283 1,444
- ----------------------------------------------------------------
Advances from
parent company $ 68 $ 142
- ----------------------------------------------------------------
Net income for the year ended $ 32 $ 27
- ----------------------------------------------------------------
During fiscal 1996, the Company completed a transaction to sell approximately
$1,000,000 of the mortgage receivables without recourse for assumption of the
related bond liability and proceeds of approximately $100,000.
Note 8. Property and Equipment
Property and equipment consists of the following:
June 30,
------------------
1996 1995
------------------
(In thousands)
- ---------------------------------------------------------------
Equipment and fixtures $ 815 $ 1,151
Less accumulated depreciation (347) (628)
- -----------------------------------------------------------------
$ 468 $ 523
- ----------------------------------------------------------------
Depreciation expense was $128,000, $205,000 and $95,000 during fiscal 1996, 1995
and 1994, respectively.
In August, 1995, the Company's corporate offices were destroyed by fire. These
premises were under a long term operating lease from a related party. The claim
with the insurance carrier is being negotiated. The Company does not expect to
incur a loss in connection with the fire and the resolution of its insurance
claim.
Note 9. Mortgage and Other Note Obligations
The maximum balance outstanding under construction and inventory loan agreements
at any month end during fiscal 1996, 1995 and 1994 was $33,473,000, $27,998,000
and $19,835,000, respectively. The average month end balance during fiscal 1996,
1995 and 1994 was approximately $29,327,000, $22,940,000 and $12,100,000,
respectively, bearing interest at an approximate average annual rate of 9.5%,
9.2% and 7.2%, respectively. Mortgage obligations
51
secured by land held for development or sale and improvements are due in varying
installments through fiscal 1999 with interest primarily at 1% above the prime
rate.
Maturities of land and improvement mortgage obligations, other than residential
property construction loans, during the next five fiscal years are: 1997 -
$3,119,000; 1998 - $10,121,000; 1999 - $2,112,000 and 2000 - $2,940,000.
Obligations under residential property and construction loans amounted to
$24,232,000 at June 30, 1996 and are repaid at a predetermined percentage of the
selling price of a unit when a sale is completed.
Included in the Other Notes Payable balance of $9,473,000 at June 30, 1996 are
cash advances made to the Company by Jeffrey P. Orleans aggregating
approximately $2,800,000. Upon an additional advance in August, 1996 of
$200,000, the Company issued Mr. Orleans a $3,000,000 Convertible Subordinated
7% Note dated August 8, 1996 which matures January 1, 2002. Pursuant to its
terms, this Note subject to approval for listing by the American Stock Exchange
of the underlying shares, would be convertible into FPA Corporation common stock
at $1.50 per share with quarterly interest payments and principal due in annual
installments of $1,000,000 beginning January 1, 2000.
Also included in the aggregate Other Note Payable balance of $9,473,000 are
Series A and Series B Notes Payable held by Mr. Orleans and other certain
officers, directors and key personnel of the Company (Note 2) of approximately
$3,525,000 which mature in fiscal 1999. Repayment of these obligations will be
from proceeds from the sale of units at certain residential properties. During
fiscal 1996, Mr. Orleans agreed to defer up to $1,350,000 of interest and
principal payments due him pursuant to the repayment terms of the Series A and B
Notes. As of June 30, 1996, the Company has deferred approximately $750,000 of
these payments which are also included in Other Notes Payable. Promissory Notes
issued in the Flora Group Transactions aggregated $1,649,000 at June 30, 1996
and were to be amortized over a 30 year term with a maturity date in fiscal
2024. As discussed in Note 1, the Company retired one of the Flora Group notes
with an outstanding balance of $380,000 for a cash payment of $235,000 resulting
in an extraordinary gain of $170,000 net of income tax expense of $30,000.
In July, 1996, the Company retired the remainder of the Flora Group
52
notes for a cash payment of $1,061,000 resulting in a Fiscal 1997 extraordinary
gain of $594,000 net of income tax expense of $100,000. The Company also
reacquired 183,177 shares of its common stock in this transaction which will be
held as treasury stock.
In addition, the Company has various working capital and property and equipment
note obligations which require various monthly repayment terms with maturity
dates from 1996 through 1999.
Note 10. Senior Notes
The Company retired the remaining 125/8% Senior Notes pursuant to their terms on
February 15, 1996.
Note 11. Subordinated Debentures
On September 8, 1980, the Company sold 25,000 Units, each consisting of a $1,000
debenture bearing interest at 14 l/2% per annum and 5 shares of Common Stock.
The debentures, which are unsecured obligations and are subordinated to senior
indebtedness, as defined, mature September l, 2000 and require semi-annual
interest payments each September and March with the balance due on September 1,
2000. Optional prepayments may be made at 100% of the principal amount thereof.
The debentures contains certain default provisions and imposes restrictions on
the amount of dividends or distributions to shareholders. The debentures are
presented net of unamortized debt discount, which is being amortized as
additional interest over the life of the debentures. As of June 30, 1996, a
total principal amount of $575,000 of original subordinated debentures remain
outstanding.
Note 12. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
53
For Year Ended June 30,
--------------------------
1996 1995 1994
--------------------------
(In Thousands)
- --------------------------------------------------------------
Continuing operations
Current $ 145 $ 270 $ 104
Deferred (527)
- --------------------------------------------------------------
$ (382) $ 270 $ 104
- --------------------------------------------------------------
Extraordinary Item
Current $ 117 $ 4,336
Deferred (149)
- ---------------------------------------------------------------
$ 117 $ $ 4,187
- --------------------------------------------------------------
The differences between taxes computed at federal income tax rates and amounts
provided for continuing operations are as follows:
For Year Ended June 30,
----------------------------
1996 1995 1994
----------------------------
(In thousands)
- ----------------------------------------------------------------
Amount computed at statutory rate $ 290 $ 500 $ (225)
State income taxes, net of federal
tax benefit 21 17 75
Unrealized (realized) benefits from
net operating loss carry forwards
and other tax credits (693) (247) 254
- -----------------------------------------------------------------
$ (382) $ 270 $ 104
- -----------------------------------------------------------------
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 and regulations. These "temporary differences"
are determined in accordance with Financial Accounting Standards Board Statement
No. 109 ("SFAS 109") (Note 1). The principal component of the Company's deferred
tax liability of $2,056,000 at June 30, 1996 are temporary differences arising
from interest and real estate taxes incurred prior to commencing active
construction being capitalized for book purposes while being expensed for tax
purposes. In addition, temporary differences arise from net realizable value
adjustments recognized for book 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 from continuing operations
are as follows:
54
For Year Ended June 30,
---------------------------
1996 1995 1994
---------------------------
(In thousands)
- ----------------------------------------------------------------
Interest and real estate taxes $ 238 $ 424 $ 461
Difference in tax accounting for
land and property sales (net) (29) 7 46
Unrealized (realized) tax net
operating loss carryforwards (435) (370) 1,430
Reserves for book not tax 142 (144) (129)
Gain (loss) from joint ventures 2
Deferred compensation 34 99
Depreciation and other 48 (16) 25
Debt redemption (1,919)
Recapitalization expenses 86
Reduction to deferred tax asset
valuation reserve (527)
- ---------------------------------------------------------------
$ (527) $ $
- ---------------------------------------------------------------
The Company adopted the principles of SFAS 109, as required, effective July 1,
1993 on a prospective basis. The cumulative effect of adoption of SFAS 109 was
approximately $3,970,000, as adjusted. This gain was primarily the result of the
effects of previously unrecognized net operating losses and other carryforward
tax benefits in excess of net deferred taxable items and net of a valuation
reserve of approximately $1,000,000. The valuation reserve reflected the excess
of the carryforwards over existing net deferred taxable items and expected
taxable gains on certain of the 1993 Recapitalization Transactions.
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. SFAS 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 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 Company has undergone substantial
capital and operational restructuring in recent years and currently anticipates
acquiring additional projects at favorable prices. Further, the Company reported
income from
55
continuing operations in fiscal 1996 and 1995. While the Company anticipates
that total deferred tax assets will be fully realized by future operating
results and future tax planning strategies, losses in recent years along with
volatility in the real estate market make it appropriate to continue to record a
valuation allowance. Accordingly, the Company has provided a valuation allowance
equal to 50% and 100% of the total deferred income tax assets which are
dependent upon future taxable income for realization in certain tax
jurisdictions at June 30, 1996 and 1995, respectively.
As of June 30, 1996, the Company has deferred tax assets aggregating $1,055,000
and an offsetting valuation reserve of approximately $528,000 included in its
net deferred tax liability of $2,056,000.
At June 30, 1996, the Company had alternative minimum tax credits of
approximately $856,000 which may be used to reduce or eliminate ordinary federal
income taxes. These alternate minimum tax credits, which do not have an
expiration date, are part of the deferred tax assets discussed previously.
Note 13. Stock Option Plan
In December 1992, the Board of Directors adopted (i) the 1992 Stock Incentive
Option Plan relating to options for up to 560,000 shares (increased in August,
1994 to 660,000 shares) of Common Stock of the Company and (ii) the Non-Employee
Directors Stock Option Plan relating to a maximum of 100,000 shares. Prior to
fiscal 1995, the Stock Option Committee had granted options aggregating 540,000
shares to certain employees of the Company under the 1992 Incentive Stock Option
Plan and options aggregating 75,000 to three non-employee Directors. During
fiscal 1996, 80,000 options were granted at an exercise price of $1.25 to $2.00
per share and 50,000 options were granted at an exercise price of $1.25 or the
fair market value on the date of vesting, whichever is greater.
In February, 1995, the Board of Directors adopted the 1995 Stock Option Plan for
Non-Employee Directors which provides for options for up to 100,000 shares. On
February 28, 1995, 75,000 options were granted under this plan to three
additional non-employee Directors.
The option price per share under all plans was established at the
56
fair market value at the dates of each grant which was $.69 to $2.81 per share.
Total outstanding options under all three plans aggregated 825,000 shares with
expiration dates between fiscal 2004 and 2006.
Note 14. Commitments and Contingencies
At June 30, 1996, the Company had outstanding bank letters of credit amounting
to $14,653,000 as surety for completion of improvements at various developments
of the Company.
At June 30, 1996 the Company had agreements to purchase land and approved
homesites aggregating approximately 1,100 building lots with purchase prices
totaling approximately $27,600,000. 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 to finance a majority of these acquisitions. The
Company anticipates completing a majority of these acquisitions in calendar
1998. The Company has made deposits totaling approximately $1,100,000 under
these agreements which are included in deferred charges and other assets.
Development and sale of real property creates a potential for environmental
liability on the part of the developer, owner or any mortgage lender for its own
acts or omissions as well as those of current or prior owners of the subject
property or adjacent parcels. If hazardous substances are discovered on or
emanating from any of the Company's properties, the owner or operator of the
property (including the prior owners) may be held strictly liable for all costs
and liabilities relating to such hazardous substances. Environmental studies are
undertaken in connection with property acquisitions by the Company.
Pursuant to an Order dated February 6, 1996 issued by the New Jersey Department
of Environmental Protection ("NJDEP"), the Company submitted a
Closure/Post-Closure Plan ("Plan") and Classification Exception Area ("CEA") for
certain affected portions of Colts Neck Estates, a single family residential
development built by the Company in Washington Township, Gloucester County, New
Jersey. The affected areas include those portions of Colts Neck where solid
waste allegedly was deposited. NJDEP approved the Plan and CEA on July 22, 1996.
The Plan, in part, requires the Company to (i) perform gas monitoring for
methane on a quarterly basis for
57
a period of one year; (ii) vegetate and cover with clean fill affected areas;
and (iii) deed restrict portions of the affected open space owned by it. NJDEP's
approval of the CEA imposes restrictions on the use of ground water within the
affected area. 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 although 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.
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 theories of private nuisance, public nuisance,
common law fraud, latent defects, negligent misrepresentation, consumer fraud,
negligence, strict liability, vendor liability, and breach of warranty, among
others.
In September, 1993 the Company brought a state court action 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. That
action has been stayed, and the Company's claims against its insurers have also
been brought as third-party claims in the consolidated Colts Neck litigation in
Federal court along with third-party claims against the former owners and
operators of the Colts Neck property as well as claims against the generator of
the municipal waste allegedly disposed on the property.
As a result of the court sponsored mediation, the Company and the plaintiffs in
the consolidated 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
58
favor of a class comprising most of the current and former homeowners. The
Company, which has paid $650,000 on August 28, 1996 to the class, has no
liability for the remainder of the Judgment. The remainder of the Judgment is to
be paid solely from the proceeds of the state and federal court litigation
against the Company's insurance companies. Although, under the settlement
agreement the Company is obligated to prosecute and fund the litigation against
its insurance companies, the Company is entitled to obtain some reimbursement of
those expenses. Specifically, under the settlement agreement, the Company may
obtain reimbursement of its aggregate litigation expenses in excess of $100,000
incurred in connection with its continued prosecution of the insurance claims to
the extent that settlements are reached and to the extent that the portion of
those settlement funds designated to fund the litigation are not exhausted. The
Company's right to reimbursement may, under certain circumstances, be limited to
a total of $300,000.
The Company has accrued estimated costs of environmental testing as well as all
other reasonably estimable future investigatory, engineering, legal and
litigation costs and expenses. During fiscal 1995, the Company increased its
recorded reserves to give effect to the net amounts to be paid under the
settlement agreement, and the anticipated unreimbursed costs to the Company of
the insurance litigation. The Company believes that neither the implementation
of the settlement agreement nor the resolution of the insurance claims through
further litigation will have a material effect on its results of operations or
its financial position.
The Company is not aware of any other environmental liabilities associated with
any of its other projects.
59
FPA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended June 30, 1996, 1995 and 1994
($000 omitted)
- -------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------------
Balance at Charged to costs Charged to other Deduc- Balance at
Description beginning of period and expenses accounts - describe tions end of period
- --------------------------------------------------------------------------------------------------------------------
Provision for uncollectibility
of receivables:
Year ended June 30, 1996 $ 30 $ - $ 30 $ -
====== ====== ====== =====
Year ended June 30, 1995 $ 35 $ - $ 5 $ 30
====== ====== ====== ======
Year ended June 30, 1994 $ 55 $ - $ 20 $ 35
====== ====== ====== ======
60
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,
1996. Information concerning the executive officers is included under the
separate caption Item A. "Executive Officers of the Registrant" under Part I of
this Form 10-K.
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, 1996.
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, 1996.
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, 1996.
61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) l. Financial Statements
The financial statements and schedule listed in the index on the
first page under Item 8 are filed as part of this Form 10-K.
(b) Reports on Form 8-K. The Company did not file a Form 8-K for the
quarter ended June 30, 1996.
(c) Exhibits
Exhibit
Number
3.l Certificate of Incorporation of the Company dated September 4,
1969 {incorporated by reference to Exhibit 2.l of the
Company's Registration Statement on Form S-7, filed with the
Securities and Exchange Commission (S.E.C. File No. 2-68662)
(herein referred to as "Form S-7")}.
3.2 Amendment to Certificate of Incorporation of the Company filed
July 25, 1983 {incorporated by reference to Exhibit 3.2 of
Amendment No. 2 to the Company's Registration Statement on
Form S-2 filed with the Securities and Exchange Commission
(S.E.C. File No. 2-84724)}.
3.3 Amendment to Certificate of Incorporation of the Company filed
May 27, 1992 (incorporated by reference to Exhibit 3.6 of
Amendment No. 2 to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission
(S.E.C. File No. 33-43943) (the "Form S-1")).
3.4 Agreement and Plan of Merger dated as of October 22, 1993, by
and among the Company, FPA Merger Subsidiary, Inc. a
62
Pennsylvania corporation; Orleans Construction Corp. ("OCC"); and
Jeffrey P. Orleans, including the Certificate of Designation respecting
the Series C Preferred Stock incorporated by reference to Exhibit 3.5
to the Company's Form 8-K dated October 22, 1993 filed with the
Securities and Exchange Commission (the "1993 Form 8-K").
3.5 Certificate of Designation filed by the Company on September 6, 1991
with the Secretary of State of Delaware respecting the Series A
Preferred Stock and Series B Junior Preferred Stock (incorporated by
reference to Exhibit 4.4 of the Company's Form 8-K dated September 11,
1991 ("1991 Form 8-K")).
3.6 Subsequent Certificate to Certificate of Designations, Preferences and
Rights of Series A Preferred Stock and Series B Junior Preferred Stock
of FPA Corporation adopted September 14, 1992 and filed with the
Secretary of State of Delaware. (incorporated by reference to Exhibit
4.19 to Registrant's Form 10-K for the fiscal year ended June 30,
1994.)
3.7 Subsequent Certificate to Certificate of Designations, Preferences and
Rights of Series A Preferred Stock and Series B Junior Preferred Stock
of FPA Corporation filed on September 2, 1993 with the Secretary of
State of Delaware.
3.8 Certificate of Designations, Preferences and Rights of Series C
Preferred Stock filed by the Company on October 21, 1993 with the
Secretary of State of Delaware respecting the Series C Preferred Stock.
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated October 22, 1993).
3.9 By-Laws, as last amended March 16, 1990 (incorporated by reference to
Exhibit 3.1 to the Company's Form 8-K dated April 11, 1990, filed with
the Securities and Exchange Commission (the "1990 Form 8-K")).
4.l Form of the Company's 14 l/2% Subordinated Debentures due September l,
2000 (contained in, and beginning on page 12 of, Exhibit 4.2).
4.2 Form of Indenture dated September l, 1980, between the Company and The
Fidelity Bank (the "Debenture Indenture"), relating to the Company's 14
l/2% Subordinated Debentures due September l, 2000 (incorporated by
reference to Exhibit 2.3 of Amendment
63
No. 2 to the Company's Form S-7).
4.3 Form of Second Supplemental Indenture dated March 30, 1990 to the
Debenture Indenture (incorporated by reference to Exhibit 4.3 to the
1990 Form 8-K).
4.4 Note Exchange Agreement, dated September 11, 1991, respecting the
issuance of $5,032,935.38 aggregate principal amount of 12 5/8% Senior
Notes due February 15, 1996, with the form of the Company's 12 5/8%
Senior Notes due February 15, 1996 attached as Exhibit A thereto
(incorporated by reference to Exhibit 4.5
to the 1991 Form 8-K).
4.5 Debenture Exchange Agreement, dated September 11, 1991,
respecting the issuance of $2,356,282.50 aggregate principal
amount of 1991 14 1/2% Subordinated Debentures due September
1, 2000 with the form of the Company's 1991 14 1/2%
Subordinated Debentures due September 1, 2000 attached as
Exhibit A thereto (incorporated by reference to Exhibit 4.6 to
the 1991 Form 8-K).
4.6 Form of Note Purchase Agreement dated as of October 22, 1993, together
with form of Series A Variable Rate Notes due September 15, 1998 issued
by the Company attached thereto (incorporated by reference to Exhibit
4.2 to the 1993 Form 8- K).
4.7 Form of Note Purchase Agreement dated October 22, 1993, together with
form of Series B Variable Rate Mortgage Notes due September 15, 1998
issued by the Company attached thereto (incorporated by reference to
Exhibit 4.24 to the 1993 Form 8- K).
4.8 Form of Note Purchase Agreement, dated as of August 1, 1996, together
with form of $2,000,000 Variable Rate Note due September 30, 2000.
4.9 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.
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
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Meeting of Stockholders).
10.2 Employment Agreement between the Company and Jeffrey P. Orleans, dated
June 26, 1987 (incorporated by reference to Exhibit 10.2 to the Form
S-1.)
10.3 Mortgage dated March 17, 1992 granted by the Company to Jeffrey P.
Orleans, respecting property in Washington Township, Gloucester County,
New Jersey (incorporated by reference to Exhibit 10.3 to the 1992 Form
8-K).
22. Subsidiaries of Registrant.
25. Power of Attorney (included on Signatures page).
27. Financial Data Schedule (included in electronic filing format
only).
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