10-Q 1 g65502e10-q.txt ORIOLE HOMES 9/30/00 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: September 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 November 3, 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 September 30, December 31, 2000 1999 ------------ ------------ (Unaudited) (Audited) Cash and cash equivalents $ 10,618,939 $ 18,708,081 ------------ ------------ Receivables Mortgage notes -- 262,240 Inventories Land 67,310,510 49,170,778 Homes completed or under construction 41,005,558 27,562,235 Model homes 4,566,505 3,856,810 ------------ ------------ 112,882,573 80,589,823 Less estimated costs of completion included in inventories 13,393,900 7,574,038 ------------ ------------ 99,488,673 73,015,785 ------------ ------------ Property and equipment, at cost Land 81,379 152,448 Buildings 1,064,806 2,671,438 Furniture, fixtures and equipment 2,898,106 2,595,802 ------------ ------------ 4,044,291 5,419,688 Less accumulated depreciation 2,224,181 2,978,526 ------------ ------------ 1,820,110 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 1,818,770 1,075,934 Unamortized debt issuance costs 452,849 661,429 Other assets 1,911,668 2,776,732 ------------ ------------ 4,183,287 4,514,095 ------------ ------------ Total assets $117,968,309 $102,040,903 ============ ============ See notes to the consolidated financial statements -1- 3 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31, 2000 1999 ------------ ------------ (Unaudited) (Audited) Liabilities Line of credit $ 10,000 $ 10,000 Mortgage notes payable 21,501,337 4,306,372 Accounts payable and accrued liabilities 9,988,002 8,555,721 Customer deposits 12,430,844 4,583,143 Senior notes 35,981,685 42,648,760 ------------ ------------ Total liabilities 79,911,868 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 18,326,561 22,207,027 ------------ ------------ Total shareholders' equity 38,056,441 41,936,907 ------------ ------------ Total liabilities and shareholders' equity $117,968,309 $102,040,903 ============ ============ See notes to the consolidated financial statements -2- 4 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenues Sales of homes $ 49,422,164 $ 59,682,424 $ 20,889,618 $ 15,484,339 Sales of land 9,000 -- 9,000 -- Other operating revenues 68,525 1,954,465 11,746 57,780 Gain on sale of property and equipment held for sale, net -- 3,745,618 -- -- Gain (loss) on sale of land held for investment and other assets, net 794,034 1,742,782 119,294 (85,971) Interest, rentals and other income 1,788,882 2,307,039 637,604 715,634 ------------ ------------ ------------ ------------ 52,082,605 69,432,328 21,667,262 16,171,782 ------------ ------------ ------------ ------------ Costs and Expenses Cost of homes sold 44,877,568 53,852,726 19,173,127 13,861,633 Costs of land sold 10,058 -- 10,058 -- Inventory valuation adjustment -- 2,480,695 -- -- Costs relating to other operating revenues 162,777 1,790,182 32,415 132,557 Selling, general and administrative expenses 10,872,438 10,921,530 3,956,978 3,220,430 Interest costs incurred 4,002,372 5,391,830 1,258,103 1,613,008 Interest capitalized (deduct) (3,962,142) (5,063,865) (1,258,103) (1,526,634) ------------ ------------ ------------ ------------ 55,963,071 69,373,098 23,172,578 17,300,994 ------------ ------------ ------------ ------------ Income (loss) before provision for (benefit from) income taxes (3,880,466) 59,230 (1,505,316) (1,129,212) Provision for (benefit from) income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net income (loss) $ (3,880,466) $ 59,230 $ (1,505,316) $ (1,129,212) ============ ============ ============ ============ Net income (loss) per Class A and B common share available for common stockholders - Basic and Diluted $ (.84) $ .01 $ (.33) $ (.25) ============ ============ ============ ============ Weighted average number of common stock outstanding - Basic 4,625,524 4,625,524 4,625,524 4,625,524 ============ ============ ============ ============
See notes to consolidated financial statements -3- 5 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities Net income (loss) $ (3,880,466) $ 59,230 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities Depreciation 363,678 726,689 Amortization 390,005 645,565 Gain on sales of property and equipment and land held for investment, net (794,034) (5,488,400) (Increase) decrease in operating assets Receivables 262,240 690,399 Inventories (69,959) 14,385,011 Other assets 323,814 662,479 Increase (decrease) in operating liabilities Accounts payable and accrued liabilities 329,866 (3,956,871) Customer deposits 5,155,546 (470,125) ------------ ------------ Total adjustments 5,961,156 7,194,747 ------------ ------------ Net cash provided by operating activities 2,080,690 7,253,977 ------------ ------------ Cash flows from investing activities Return on investment in joint ventures 1,242,240 598,173 Acquisition of project, net of cash acquired (22,672,617) -- Capital expenditures (879,284) (531,881) Proceeds from the sale of property and equipment 1,767,864 19,837,889 ------------ ------------ Net cash (used in) provided by investing activities (20,541,797) 19,904,181 ------------ ------------ Cash flows from financing activities Proceeds of mortgage notes 22,305,497 1,000,000 Payment of mortgage notes (5,110,532) (12,908,785) Repurchase of senior notes (6,823,000) (12,043,000) ------------ ------------ Net cash provided by (used in) financing activities 10,371,965 (23,951,785) ------------ ------------ Net (decrease) increase in cash and cash equivalents (8,089,142) 3,206,373 Cash and cash equivalents at beginning of period 18,708,081 10,557,772 ------------ ------------ Cash and cash equivalents at end of period $ 10,618,939 $ 13,764,145 ============ ============ Supplemental disclosures of cash flow information Cash paid during the period for: Interest (net of amount capitalized) $ 1,175,872 $ 2,281,873 Income taxes $ -- $ --
See notes to consolidated financial statements -4- 6 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of September 30, 2000 and the related statements of operations and cash flows for the three months and nine months ended September 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. The Company's consolidated balance sheet at September 30, 2000 reflects the fair market value of the acquisition of the Vizcaya Project on August 8, 2000 as described in Note 9 below. 2. The results of operations for the three months and the nine months ended September 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. The Company's consolidated statements of operations for the three- and nine-month periods ended September 30, 2000 include revenues and expenses from the date of acquisition of the Vizcaya Project. Accordingly, the results of operations for the three- and nine-month periods ended September 30, 2000 are not directly comparable to the results of operations for the three- and nine-month periods ended September 30, 1999. See the discussion of the pro forma effect of the acquisition in Note 9 below. 3. Backlog of contracts for sales of homes: September 30, 2000 December 31, 1999 ------------------------- ------------------------- Units Amounts Units Amounts ----------- ----------- ----------- ----------- Single-family 295 $60,721,687 122 $21,888,567 Multi-family 232 32,075,373 52 7,292,293 ----------- ----------- ----------- ----------- Total 527 $92,797,060 174 $29,180,860 =========== =========== =========== =========== The Vizcaya Project contributed 135 of the 527 total homes, and $25.5 million of the $92.8 million backlog as at September 30, 2000. -5- 7 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 September 30, 2000, the payment of cash dividends is prohibited and will be restricted until the Company posts cumulative net income in excess of $80,000,000. The Company has satisfied the sinking fund requirement of January 15, 2001 through prior year purchases and retirement of Senior Notes. During the nine months ended September 30, 2000, the Company repurchased $6,823,000 of Senior Notes to be used as part of the January 15, 2002 sinking fund requirement and has accumulated $16,199,000 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 September 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 $37,000,000, and; b. the Company's ability to incur additional debt is restricted. 6. Mortgage Notes In connection with the Vizcaya Project, a wholly owned subsidiary of the Company borrowed an aggregate principal amount of $26,787,200, of which $9,580,430 is for future construction costs (the "Vizcaya Loan"). The Vizcaya Loan is evidenced by a mortgage note, which is due on February 8, 2003 and bears interest at a floating rate equal to the Prime Rate, currently 9.5% per annum. The Vizcaya Loan is secured by real property and other assets acquired in connection with the acquisition of the Vizcaya Project. The Company has agreed to guarantee up to an aggregate of $2.0 million of the Vizcaya Loan. Certain individual guarantors, not related to the Company, have agreed to jointly and severally guarantee the Vizcaya Loan. -6- 8 7. Income taxes At September 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". 8. 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. 9. Acquisition of Vizcaya Project On August 8, 2000, pursuant to a Purchase and Sale Agreement and a Builder's Agreement dated as of the same date between a wholly owned subsidiary of the Company (OH Investments, Inc.) and the Seller, the Company acquired a real estate project known as Vizcaya. This community consists of 504 single-family units being marketed to active adults at least 55 years of age. The Seller is a homebuilder with operations in Southeast Florida. The total cost for the acquisition of the Vizcaya Project was $27,510,034, which consists of amounts paid to Seller, liabilities assumed and transaction costs paid by the Company. The Company invested $6,500,000 in cash in OH Investments, Inc. and provided a limited guaranty of the Vizcaya Loan in an amount not to exceed $2,000,000. Since the acquisition of the Vizcaya Project consisted of developed and undeveloped land, no goodwill was recorded in connection with the acquisition. Under the terms of the Builder's Agreement, Centerline Homes at Delray, Inc. ("Centerline-Delray") agreed, among other things, to complete and manage the Vizcaya Project. The Builder's Agreement provides that Centerline-Delray will be entitled to receive certain bonus payments depending upon the performance of the Project after the Company has been repaid its cash investment of $6.5 million and a preferred return of 25% per annum on its cash investment. The accompanying consolidated statement of operations of the Company includes results of operations relating to the Vizcaya Project from August 8, 2000, the acquisition date. Unaudited pro forma consolidated revenues and net income (loss) of the Company, giving effect to the acquisition of the Vizcaya Project as of January 1, 2000, equal revenues of $65,122,917 and a loss of $3,486,332 for the nine-month period ended September 30, 2000. These pro forma results do not include any adjustments and do not purport to be indicative of the actual results of operations that would have been reported had the acquisition of the Vizcaya Project occurred on January 1, 2000. -7- 9 10. Segment information The Company has the following two reportable segments: home building and rental operations. The home building segment develops and sells residential properties and planned communities. The rental operations segment consists of 14 units at September 30, 2000 and 529 units at September 30, 1999. Selected segment information is set forth below (in thousands): Nine Months Ending Three Months Ending September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 $ $ $ $ ------- ------- ------- ------- Revenues Home Building 51,676 63,293 21,520 16,005 Rental Operations 69 1,954 12 58 Other 338 4,185 135 108 ------- ------- ------- ------- Total 52,083 69,432 21,667 16,171 ======= ======= ======= ======= Segment net income (loss) Home Building (3,958) (4,074) (1,562) (1,113) Rental Operations (94) 164 (21) (74) Other 172 3,969 78 58 ------- ------- ------- ------- Total (3,880) 59 (1,505) (1,129) ======= ======= ======= ======= 11. 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. -8- 10 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 indicative 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 This discussion reflects the impact on the results of operations of the acquisition of the Vizcaya Project. Among other things, the acquisition contributed the delivery of 23 homes producing aggregate revenue of $4.2 million and net income of $225,000 to results for the three- and nine-month periods ended September 30, 2000. The Company's backlog at September 30, 2000 related to the Vizcaya Project is 135 homes having aggregate revenue of $25.5 million. THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999 The Company's revenues from home sales increased $5.4 million (34.8%) to $20.9 million during the third quarter of 2000 as compared to the comparable quarter of 1999 primarily as a result of an increase in the number of homes delivered. Oriole delivered 122 homes in the 2000 third quarter compared to 99 in the same period in 1999. The average selling price of homes delivered increased from $156.4 thousand per home to $171.2 thousand, primarily as the result of the higher selling prices of homes that were part of the Vizcaya Project. The number of contracts signed at 318 and the aggregate dollar value of those contracts at $60.2 million increased in the 2000 third quarter from 99 and $15.9 million, respectively, from the same period in 1999, primarily due to the Vizcaya Project and initial sales in a new real estate development. Non-homebuilding revenues and Interest, rentals and other income reduced slightly during the third quarter of 2000 as compared to the same period in 1999. Cost of home sales increased to $19.2 million (38.3%) from $13.9 million in 1999 primarily as a result of an increase in the number of homes delivered. As a percentage of home sales, cost of sales increased to 91.8% from 89.5% in the third 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 increased $736,000 in dollar value but decreased as a percentage of revenues to 18.3% from 19.9% as compared to the same period in 1999 due to the $5.4 million increase in revenues. The Company incurred a net loss for the quarter ended September 30, 2000 of $1.5 million or $0.33 per share compared to a net loss of $1.1 million or $0.25 per share during the same period in 1999. Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased $.3 million to $.4 million in the third quarter of 2000 as compared to the same period in 1999. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 The Company's revenues from home sales decreased $10.3 million (17.2%) to $49.4 million during the nine-month period of 2000 as compared to 1999 as a result of a decrease in the number of homes delivered. Oriole delivered 301 homes in the first nine months of 2000 compared to 388 in the same period in 1999. The average selling price of homes delivered increased from $153.8 thousand per home to $164.2 thousand. The number of contracts signed at 654 and the aggregate dollar value of those contracts at $113.0 million increased in the first nine months of 2000 from 354 and $54.9 million, -9- 11 respectively, during the same period in 1999, primarily due to the Vizcaya Project and initial sales in a new real estate development. Non-homebuilding revenues decreased to $.9 million in the nine month period of 2000 from $7.4 million primarily due to the 1999 sales of certain properties which had been held for investment and the related loss of rental income. Interest, rentals and other income decreased by $0.5 million primarily as the result of a greater gain on the purchase of senior notes in 1999 than the gain realized on senior note purchases in 2000. Cost of home sales decreased to $44.9 million (16.7%) in 2000 from $53.9 million in 1999 as a result of the decrease in homes delivered. As a percentage of home sales, cost of sales increased to 90.8% from 90.2% in the first nine months of 1999 due to a slight increase in interest expense. Selling, general and administrative expenses decreased $50,000 in the first nine months of 2000 when compared to the same period in 1999. These expenses increased as a percentage of revenues to 20.9 % from 15.7% for the same period in 1999 due to the decrease in revenues. The Company's net loss for the nine-month period of 2000 was $3.9 million, or $.84 per share, as compared to a net income of $60,000, or $0.01 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 increased by a gain of $4.8 million due to the one-time sales of certain properties and equipment. Results for the nine-month period of 1999 also included $1.9 million in rental income derived from a project subsequently sold. EBITDA decreased $8.6 million to $.8 million in the first nine months of 2000 from $9.4 million in 1999 due to the decrease in the gain on one-time sales of property 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 the Vizcaya Project, the Company borrowed $26,787,000. In connection with land acquisitions and development, the Company may borrow money secured by land and improvements. During the first nine months of 2000, the Company used a portion of available cash to invest $4.5 million in the Vizcaya Project, to purchase $6.8 million of senior notes and to pay down $1.1 million of mortgage notes. At September 30, 2000, the Company had approximately $10.6 million in cash and cash equivalents and the availability of substantially all of its $10.0 million revolving line of credit. The Company believes that these resources are sufficient to provide for its cash requirements through September 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, unseasonable weather trends, competitive pricing pressures and the general state of the economy, both nationally and in the Company's market. -10- 12 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits and Reports on Form 8K (a) Exhibits Exhibit 27-Financial Data Schedule (b) There were no reports on Form 8-K filed for the three months ended September 30, 2000. -11- 13 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: , 2000 /s/ R.D. LEVY ----------------------- R.D. Levy, Chairman of the Board, Chief Executive Officer, Director DATE: , 2000 /s/ J. PIVINSKI --------------------------- J. Pivinski, Vice President - Finance, Treasurer, Chief Financial Officer -12-