10-Q 1 e10-q.txt ORIOLE HOMES CORP. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: June 30, 2000 Commission File No. 1-6963 ORIOLE HOMES CORP. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-1228702 ------------------------------ ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1690 S. Congress Ave., Suite 200 Delray Beach, Fl. 33445 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (561) 274-2000 -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. 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 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the close of the period covered by this report. Class Outstanding at July 24, 2000 ----------------------------------------- ---------------------------------- Common Stock, Class A, par value $.10 1,863,649 Common Stock, Class B, par value $.10 2,761,875 2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
June 30, December 31, 2000 1999 ----------- ------------ (Unaudited) (Audited) Cash and cash equivalents $13,226,441 $ 18,708,081 ----------- ------------ Receivables Mortgage notes -- 262,240 Inventories Land 47,103,181 49,170,778 Homes completed or under construction 28,006,766 27,562,235 Model homes 4,611,752 3,856,810 ----------- ------------ 79,721,699 80,589,823 Less estimated costs of completion included in inventories 6,725,138 7,574,038 ----------- ------------ 72,996,561 73,015,785 ----------- ------------ Property and equipment, at cost Land 81,544 152,448 Buildings 1,370,268 2,671,438 Furniture, fixtures and equipment 3,066,656 2,595,802 ----------- ------------ 4,518,468 5,419,688 Less accumulated depreciation 2,387,985 2,978,526 ----------- ------------ 2,130,483 2,441,162 ----------- ------------ Investments in and advances to joint ventures -- 1,242,240 Land held for investment, at cost 1,857,300 1,857,300 Other Prepaid expenses 1,696,134 1,075,934 Unamortized debt issuance costs 473,254 661,429 Other assets 2,103,152 2,776,732 ----------- ------------ 4,272,540 4,514,095 ----------- ------------ Total assets $94,483,325 $102,040,903 =========== ============
See notes to the consolidated financial statements -1- 3 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31, 2000 1999 ----------- ------------ (Unaudited) (Audited) Liabilities Line of credit $ 10,000 $ 10,000 Mortgage notes payable 3,097,458 4,306,372 Accounts payable and accrued liabilities 8,440,608 8,555,721 Customer deposits 7,219,638 4,583,143 Senior notes 36,153,864 42,648,760 ----------- ------------ Total liabilities 54,921,568 60,103,996 Shareholders' equity Class A common stock, $.10 par value Authorized - 10,000,000 shares, issued and outstanding - 1,863,649 in 2000 and 1999, respectively 186,365 186,365 Class B common stock, $.10 par value Authorized - 10,000,000 shares, issued and outstanding - 2,761,875 in 2000 and 1999, respectively 276,188 276,188 Additional paid-in capital 19,267,327 19,267,327 Retained earnings 19,831,877 22,207,027 ----------- ------------ Total shareholders' equity 39,561,757 41,936,907 ----------- ------------ Total liabilities and shareholders' equity $94,483,325 $102,040,903 =========== ============
See notes to the consolidated financial statements -2- 4 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended Three Months Ended June 30, June 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenues Sales of homes $ 28,532,546 $ 44,198,085 $ 12,455,920 $ 19,581,677 Other operating revenues 56,779 1,896,685 20,502 962,629 Gain on sale of property and equipment held for sale, net -- 3,745,618 -- 3,745,618 Gain (loss) on sale of land held for investment and other assets, net 674,740 1,828,753 147,601 (38,638) Interest, rentals and other income 1,151,278 1,591,405 589,584 547,748 ------------ ------------ ------------ ------------ 30,415,343 53,260,546 13,213,607 24,799,034 ------------ ------------ ------------ ------------ Costs and Expenses Cost of homes sold 25,704,441 39,991,093 11,579,080 17,555,700 Inventory valuation adjustment -- 2,480,695 -- 2,480,695 Costs relating to other operating revenues 130,362 1,657,625 55,178 854,610 Selling, general and administrative expenses 6,915,460 7,701,100 3,161,727 3,704,453 Interest costs incurred 2,744,269 3,778,822 1,306,991 1,729,796 Interest capitalized (deduct) (2,704,039) (3,537,231) (1,306,991) (1,635,204) ------------ ------------ ------------ ------------ 32,790,493 52,072,104 14,795,985 24,690,050 ------------ ------------ ------------ ------------ Income (loss) before provision for (benefit from) income taxes (2,375,150) 1,188,442 (1,582,378) 108,984 Provision for (benefit from) income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net income (loss) $ (2,375,150) $ 1,188,442 $ (1,582,378) $ 108,984 ============ ============ ============ ============ Net income (loss) per Class A and B common share available for common stockholders - Basic and Diluted $ (.51) $ .26 $ (.34) $ .03 ============ ============ ============ ============ Weighted average number of common stock outstanding - Basic 4,625,524 4,625,524 4,625,524 4,625,524 ============ ============ ============ ============
See notes to the consolidated financial statements -3- 5 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities Net income (loss) $ (2,375,150) $ 1,188,442 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 248,812 624,546 Amortization 315,279 386,348 Gain on sales of property and equipment and land held for investment, net (674,740) (5,574,371) (Increase) decrease in operating assets Receivables 262,240 690,140 Inventories 137,030 14,546,466 Other assets 53,380 527,883 Increase (decrease) in operating liabilities Accounts payable and accrued liabilities (115,113) (1,720,132) Customer deposits 2,636,495 (1,010,014) ------------ ------------ Total adjustments 2,863,383 8,470,866 ------------ ------------ Net cash provided by operating activities 488,233 9,659,308 ------------ ------------ Cash flows from investing activities Return on investment in joint ventures 1,242,240 26,463 Capital expenditures (876,584) (344,389) Proceeds from the sale of property and equipment 1,495,385 19,801,556 ------------ ------------ Net cash provided by investing activities 1,861,041 19,483,630 ------------ ------------ Cash flows from financing activities Payment of mortgage notes (1,603,157) (12,908,785) Proceeds of mortgage notes 394,243 -- Repurchase of senior notes (6,622,000) (6,079,000) ------------ ------------ Net cash (used in) financing activities (7,830,914) (18,987,785) ------------ ------------ Net (decrease)increase in cash and cash equivalents (5,481,640) 10,155,153 Cash and cash equivalents at beginning of period 18,708,081 10,557,772 ------------ ------------ Cash and cash equivalents at end of period $ 13,226,441 $ 20,712,925 ============ ============ Supplemental disclosures of cash flow information Cash paid during the period for: Interest (net of amount capitalized) $ 396,518 $ 523,377 Income taxes $ -- $ --
See notes to the consolidated financial statements -4- 6 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of June 30, 2000 and the related statements of operations and cash flows for the three months and six months ended June 30, 2000 and 1999 of Oriole Homes Corp. (together with its consolidated subsidiaries, the "Company") have been prepared by the Company without audit. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited interim periods have been reflected herein. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1999 annual report on Form 10K. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. The results of operations for the three months and the six months ended June 30, 2000 are not necessarily indicative of the results for the entire year. The Company allocates certain costs to units delivered based upon estimates of the number of units projected to be delivered and the associated timing of the deliveries. When it becomes apparent that the number of deliveries in a project will vary significantly from the estimates, the Company will revise these cost allocations, which will affect results of operations. 3. Backlog of contracts for sales of homes:
June 30, 2000 December 31, 1999 ---------------------------- -------------------------- Units Amounts Units Amounts ----------- ----------- ----------- ---------- Single-family 153 $29,851,186 122 $21,888,567 Multi-family 178 23,624,231 52 7,292,293 ----------- ----------- ----------- ----------- Total 331 $53,475,417 174 $29,180,860 =========== =========== =========== ===========
4. Senior notes On January 13, 1993, the Company issued 12 1/2% senior notes ("Senior Notes"), due January 15, 2003. The Senior Notes have a face value of $70,000,000 and were issued at a discount of $1,930,600. The Senior Notes are senior unsecured obligations of the Company subject to redemption at the Company's option on or after January 15, 1998 at 105% of the principal amount and thereafter at prices declining annually to 100% of the principal amount on or after January 15, 2001. Under the terms of the indenture ("Indenture"), the Company must make Senior Notes sinking fund payments of $17,500,000 by January 15, 2001 and January 15, 2002. The Indenture also contains provisions restricting the amount and type of indebtedness the Company may incur, the purchase by the Company of its stock and the payment of cash dividends. At June 30, 2000, the payment of cash dividends is prohibited and will be restricted until the Company posts cumulative net income in excess of $76,900,000. The Company has satisfied the sinking fund requirement of January 15, 2001 through prior year purchases and retirement of Senior Notes. During the six months ended June 30, 2000, the Company repurchased $6,622,000 of Senior Notes to be used as part of the January 15, 2002 -5- 7 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS sinking fund requirement and has accumulated $15,998,000 toward the $17,500,000 payment due January 15, 2002. 5. Line of credit The Company may borrow up to $10,000,000 at an interest rate of prime plus 1.5% under a revolving loan agreement (line of credit) with a bank, secured by a mortgage on certain real property. At June 30, 2000, $9,990,000 was available under this line of credit. The loan agreement expires July 1, 2001. The line of credit can be used to finance ongoing development and construction of residential real estate and short-term capital needs and only requires monthly interest payments. The loan agreement contains typical restrictions and covenants, the most restrictive of which are: a. the Company shall maintain, at all times through the life of the loan, a consolidated tangible net worth of not less than $39,000,000, and; b. the Company's ability to incur additional debt is restricted. 6. Income taxes At June 30, 2000, the Company has no deferred tax benefit related to its net operating loss as the Company's ability to realize these benefits is not "more likely than not" as defined by SFAS Statement No. 109 "Accounting for Income Taxes". 7. Gain on sale of property and equipment held for sale On June 30, 1999, the Company sold a 480 unit rental apartment complex for a gain of $3.75 million. A portion of the gross proceeds of $19.2 million was used to reduce the balance of related long-term debt by $12.2 million. -6- 8 8. Segment information The Company has the following two reportable segments: home building and rental operations. The homebuilding segment develops and sells residential properties and planned communities. The rental operations segment consists of 23 units at June 30, 2000 and 529 units at June 30, 1999. Selected segment information is set forth below (in thousands):
Six Months Ending Three Months Ending June 30, June 30, --------------------- --------------------- 2000 1999 2000 1999 $ $ $ $ ------- ------- ------- ------- Revenues Home Building 30,155 47,288 13,095 19,941 Rental Operations 57 1,896 21 962 Other 203 4,077 97 3,896 ------- ------- ------- ------- Total 30,415 53,261 13,213 24,799 ======= ======= ======= ======= Segment net income (loss) Home Building (2,396) (2,961) (1,597) (3,805) Rental Operations (74) 238 (35) 107 Other 95 3,911 50 3,807 ------- ------- ------- ------- Total (2,375) 1,188 (1,582) 109 ======= ======= ======= =======
9. Commitments and contingencies The Company is involved, from time to time, in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the Company's consolidated financial position or results of operations. The Company is also subject to the normal obligations associated with entering into contracts for the purchase, development and sale of real estate in the routine conduct of its business. -7- 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW GENERAL The results of operations for interim periods during the year are not necessarily indictive of results of operations for the fiscal year. The Company allocates certain costs to units delivered based upon estimates of the number of annual units projected to be delivered and the associated timing of the deliveries. In past years, the Company has experienced inventory valuation adjustments reducing net income when expected deliveries fell short of expectations. These included adjustments of $13.9 million in 1995, $21.6 million in 1997 and $4.9 million in 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 The Company's revenues from home sales decreased $7.1 million (36.4%) to $12.5 million during the second quarter of 2000 as compared to the comparable quarter of 1999 primarily as a result of a reduction in the number of homes delivered. Oriole delivered 82 homes in the 2000 second quarter compared to 125 in the same period in 1999. The average selling price of homes delivered decreased from $156.7 to $151.9. The number of contracts signed at 143 and the aggregate dollar value of those contracts at $22.5 million increased in the 2000 second quarter from 113 and $18.0 million, respectively, from the same period in 1999. Non-homebuilding revenues decreased by $4.5 million to $0.2 million during the quarter ended June 30, 2000 compared to the same period in 1999. This was primarily due to the 1999 sale of certain properties which had been held for investment and a reduction in associated rental revenue as a result of the latter sale of a 480 unit apartment complex. Interest, rentals and other income remained at the same level during the second quarter of 2000 as compared to the same period in 1999. Cost of home sales for the decreased to $11.6 million (34.0%) from $17.6 million in 1999 as a result of a decrease in the number of home delivered. As a percentage of home sales, cost of sales increased to 93.0% from 89.7% in the second quarter of 2000 primarily due to the Company's decision to reduce sales prices on model homes to close out completed communities. Selling, general and administrative expenses decreased $543,000 in dollar value but increased as a percentage of revenues to 23.9% from 14.9% as compared to the same period in 1999 due to the $11.6 million decrease in revenues. The Company incurred a net loss for the quarter ended June 30, 2000 of $1.6 million or $0.34 per share compared to a net income of $0.1 million during the same period in 1999. Included in the 1999 period is a non-cash pre-tax charge of $2.5 million representing an inventory valuation adjustment affecting the value of land inventory for approximately 84 unsold housing units located in two developments. The Company determined that this inventory valuation adjustment was appropriate because of its decision to lower the price for homes in these developments to a price point lower than originally anticipated in order to meet market conditions. The adjustment aslo reflected the adverse effect of accumulated capitalized interest on the cost of homes. Earnings before interest, taxes, depreciation and amortization, (EBITDA) decreased $5.1 million in the second quarter of 2000 as compared to the same period in 1999 primarily due to the 1999 one-time sales of certain properties and equipment during the second quarter. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 The Company's revenues from home sales decreased $15.7 million (35.4%) to $28.5 million during the six month period of 2000 as compared to 1999 as a result of the number of homes delivered. Oriole delivered 179 homes in the first six months of 2000 compared to 289 in the same period in 1999. -8- 10 The average selling price of homes delivered increased from $152.9 to $159.4. The number of contracts signed at 336 and the aggregate dollar value of those contracts at $53.5 million increased in the 2000 first six months from 255 and $39.0 million, respectively, from the same period in 1999. Non-homebuilding revenues decreased to $0.7 million in the six month period of 2000 from $7.5 million primarily due to the 1999 sales of certain properties which had been held for investment. Interest, rentals and other income decreased by $0.4 primarily as the result of a greater gain on the repurchase of Senior Notes in 1999. Cost of home sales decreased to $25.7 million (35.7%) in 2000 from $40.0 million in 1999 as a result in the decrease in the number of homes delivered. As a percentage of home sales, cost of sales decreased to 90.1% from 90.5% in the first six months of 1999. This reduction was primarily due to the positive impact of the prior year inventory valuation adjustments. Selling, general and administrative expenses decreased $0.8 million to $6.9 million in the first six months of 2000 when compared to the same period in 1999. These expenses increased as a percentage of revenues to 22.7 % from 14.5% for the same period in 1999 due to the decrease in revenues related to home deliveries and the sales of property and equipment. The Company's net loss for the six month period of 2000 was $2.4 million, or $0.51 per share, as compared to a net income of $1.2 million, or $0.26 per share in the same period of 1999. Net income during this period in 1999 was decreased by a non-cash pre-tax charge of $2.5 million to write-down the value of certain inventory to its fair market value less cost to sell and was increased by $4.8 million due to the one-time sales of certain property and equipment. EBITDA decreased $8.3 million to $0.4 million in the first six months of 2000 from $8.7 million in 1999 due to the decrease in the gain on one-time sales of properties and equipment during this period. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements vary from period to period depending upon changes in inventory, land acquisition and development requirements, construction in progress and, to a lesser extent, the Company's current net income. The Company obtains funds for its cash requirements from operations, the sale of investment property and borrowings. In connection with land acquisitions and development, the Company may borrow money secured by land and improvements. During the first six months of 2000, the Company used a portion of available cash provided by operations to purchase $6.6 million of senior notes and to pay down $1.6 million of mortgage notes. At June 30, 2000, the Company had approximately $13.2 million in cash and cash equivalents and the availability of substantially all of it's $10.0 million revolving line of credit. The Company believes that these resources are sufficient to provide for its cash requirements through June 30, 2001. FORWARD LOOKING STATEMENTS Certain statements made in this document, including certain statements made in Management's Discussion and Analysis, contain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the expectations of management with respect to revenues, profitability, marketplace conditions, adequacy of funds from operations and regulatory conditions applicable to the Company, among other things. Management cautions the these statements are qualified by their terms and/or important factors, many of which are outside the control of the Company, that could cause actual results and events to differ materially from the statements made herein, including, but not limited to the following: changes in consumer preferences, increases in interest rates, a reduction in labor availability, increases in the cost of labor and materials, changes in the regulatory environment particularly as relates to zoning and land use, competitive pricing pressures and the general state of the economy, both nationally and in the Company's market and unseasonable weather trends. -9- 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits and Reports on Form 8K (a) Exhibits Exhibit 10.37- Stock Option Agreement with Paul Lehrer dated May 10, 2000. Exhibit 10.38- Stock Option Agreement with George Richards dated May 10, 2000. Exhibit 27- Financial Data Schedule (b) There were no reports on Form 8-K filed for the three months ended June 30, 2000. -10- 12 SIGNATURES Pursuant to the requirements of Section 13, of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORIOLE HOMES CORP. (Registrant) Date: July 31, 2000 /s/ R.D. Levy -------------------------------------- R.D. Levy, Chairman of the Board, Chief Executive Officer, Director Date: July 31, 2000 /s/ J. Pivinski -------------------------------------- J. Pivinski, Vice President - Finance, Treasurer, Chief Financial Officer -11-