10-K405 1 g68169e10-k405.txt ORIOLE HOMES CORP. 12/31/2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 File No. 1-6963 ORIOLE HOMES CORP. -------------------------------------------------------------------------------- 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (561) 274-2000 FLORIDA 59-1228702 ------------------------- -------------------------- (State of Incorporation) (I.R.S. Employer I.D.) Securities registered pursuant of Section 12(b) of the act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------------------------- -------------------------- Class A Common Stock, $.10 par Value American Stock Exchange Class B Common Stock, $.10 par Value American Stock Exchange The Registrant (1) HAS filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding twelve months; and (2) HAS been subject to the filing requirements for at least the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. As of March 14, 2001, the Company had outstanding 1,863,649 shares of its Class A Common Stock and 2,761,875 shares of its Class B Common Stock. The aggregate market value of voting stock held by non-affiliates of the Registrant is $7,404,200 as of March 14, 2001. Part III of this Report is incorporated by reference to the Registrant's Proxy Statement which will be filed for the 2001 Annual Meeting, to be held on May 10, 2001. 2 ORIOLE HOMES CORP. FORM 10-K TABLE OF CONTENTS
PAGE ---- Part I Item 1. Business ...................................................................... 1 Item 2. Properties .................................................................... 11 Item 3. Legal Proceedings ............................................................. 11 Item 4. Submission of Matters to a Vote of Security-Holders ........................... 11 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................................................. 12 Item 6. Selected Financial Data ....................................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................... 20 Item 8. Financial Statements and Supplementary Data ................................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................................... 44 Part III Item 10. Directors and Executive Officers of the Registrant ........................... 44 Item 11. Executive Compensation ....................................................... 44 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................................. 44 Item 13. Certain Relationships and Related Transactions ............................... 44 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......................................................... 45 Signatures .................................................................................... 48 Exhibit Index................................................................................... 49
3 PART I ITEM 1 BUSINESS GENERAL Oriole Homes Corp. (together with its consolidated subsidiaries, the "Company" or "Oriole") builds and sells single-family homes, patio homes, townhomes, villas, duplexes and low and mid-rise condominiums, principally in southeast Florida. Oriole was incorporated in the State of Florida in 1968 as the successor to six corporations that had engaged in the construction and sale of single-family homes in Florida since 1963. The Company's executive office is located at 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445, and its telephone number is (561) 274-2000. The Company is a leader in the "active adult" (age 55 and over) market in south Florida. In 2000, approximately 92% of the Company's home sales were derived from sales of homes in communities designed exclusively for active adults. Oriole designs its product mix in response to the preferences of active adults, a demographic group which, according to U.S. Census reports, enjoys a high percentage of discretionary income in this marketplace and is the fastest growing segment of the population in the United States. In 2000, homes in the Company's active adult communities sold at prices that ranged from $100,000 to $205,000. Approximately 51% of these sales were for cash. During the year ended December 31, 2000, the average sales price for homes delivered by the Company was $163,700. 1 4 HOME BUILDING DATA (IN 000's) The following table sets forth information concerning sales, new contracts and backlog for each of the past five years for the Company's homes: Years Ended December 31, (Dollars in Thousands)
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Total Sales Sales value $ 91,989 $77,454 $82,737 $106,788 $100,661 Number of homes 562 501 522 676 597 Total New Contracts Sales value $150,770 $73,082 $75,876 $102,392 $110,122 Number of homes 848 463 491 653 670 Total Backlog Sales value $ 87,962 $29,181 $33,553 $ 40,414 $ 44,810 Number of homes 460 174 212 243 266
The Company anticipates delivering substantially all backlog, both in number of homes and dollar amount, within a twelve month period. It generally takes eight to twelve months after execution of a contract to deliver a home. OPERATING STRATEGIES The Company has attempted to maximize its financial return by (i) acquiring tracts of developed and undeveloped land and marketing this land in phases, (ii) developing planned communities, which permit the Company to take advantage of certain economies of scale, (iii) generally beginning construction only after a home is contracted for, and (iv) acting as general contractor and hiring subcontractors on a fixed-price or other negotiated cost-effective basis. In 1999, Oriole implemented certain strategic initiatives to help enhance profit margins, including the installation of a new information technology system. This system provided the infrastructure to support the evaluation, modification and automation of certain business processes in order to reduce home delivery time, enhance the quality of home construction and standardize options. 2 5 To leverage this infrastructure, in 2000 Oriole implemented additional strategic initiatives to increase site traffic, customer referrals and new sales. These included new merchandising programs to better focus on the needs of our primary target market, an e-commerce initiative to enhance responsiveness to our customers, and homebuyer surveys through an independent organization to improve customer satisfaction. Market-driven attributes which have contributed to Oriole's success include, (i) construction of quality homes within communities that offer a significant range of amenities, and therefore satisfy customers who have provided a continual source of referrals, (ii) the offering of a wide selection of competitively priced housing, which includes a substantial product mix, (iii) extensive knowledge of the Florida market, (iv) a land acquisition and development strategy that both permits development and construction in phases and ensures availability of strategically located land for future marketing, and (v) a merchandising program which promotes community lifestyle advantages. The Company will continue to adhere to most of its current operating strategies but will also adopt new strategies as it deems appropriate to meet evolving and increasingly competitive market conditions. In this regard, the Company continues to extend its geographic market into the central Florida area to take advantage of accelerated demand in those areas. In the past, it has reduced reliance on the outright purchase of large tracts of land with the use of "rolling" options, which allows the Company an exclusive right to the future purchase of a predetermined quantity of land at a price fixed at the original contract date, thereby allowing it to reduce market and investment risk. The Company also pursues strategic alliances. A typical strategic alliance allows for shared resources and risk between homebuilders and/or vendors in the purchase, development and marketing of parcels of land. An alliance may take various forms; i.e., direct investment, joint ventures, etc The Company's acquisition, through its wholly owned subsidiary, of certain assets of a real estate project known as the "Vizcaya Project" in August, 2000, is an example of a strategic alliance structured as a direct investment. Under the terms of the transaction, the Company's subsidiary acquired the Vizcaya Project with a $6.5 million capital contribution from the 3 6 Company and a portion of the acquisition and development loan facility obtained by the subsidiary, $2.0 million of which was guaranteed by the Company. The Company's subsidiary then entered into a Builders Agreement with another developer to manage the Vizcaya Project. Certain affiliates of that developer also provided guarantees for the subsidiary's acquisition and construction loan. Pursuant to various agreements between the Company's subsidiary and the managing developer, the Company's subsidiary is entitled to priority with respect to return of its capital and a preferred return while the managing developer earns a development fee and a bonus based upon shares in profits. By sharing resources and risk with the managing developer, this structure permitted the Company to reduce its market and investment risk. See also Notes B and I to Consolidated Financial Statements. QUALITY CONSTRUCTION AND DIVERSE AMENITIES. The Company creates a total lifestyle experience for the active adult. The communities usually include extensive product mix and recreational facilities, which range from intimate social clubhouses and swimming pools to multi-million dollar clubhouse environments which include tennis courts, indoor and outdoor swimming pools, theaters for the performing arts, health clubs/spas and other amenities. PRODUCT DIVERSIFICATION AND MERCHANDISING. The Company spends considerable effort in developing design, marketing and merchandising concepts for each of its communities. The design concepts determine the size, style and price range of homes, the layout of common areas and individual lots and the overall community presentation. The product line offered depends upon many factors, including the housing generally available in the area and the needs of a particular target market. After establishing design concepts and a marketing plan, the Company undertakes development activities which can include site planning and engineering and the construction of roads, sewer, water and drainage facilities and recreational facilities. Oriole seeks to appeal to a wide variety of buyers in different geographic locations with different individual risk profiles and lifestyle preferences and, accordingly, the Company offers a diversity of home styles and price ranges including single family, patio, townhomes, villas, duplexes and low and mid-rise condominiums. Sales prices range from $100,000 to $450,000, with an average price of $163,700 for homes delivered during 2000. See "COMMUNITIES CURRENTLY UNDER DEVELOPMENT OR CONSTRUCTION", at page 6. The Company offers a variety of options and upgrades for each of its homes. Options permit buyers some flexibility to customize their homes on a design fee basis. Options also provide the Company with higher margins while 4 7 allowing the Company to maintain the efficiencies of a production builder. The Company believes the availability of options increases the appeal of its homes and makes them desirable to a wide variety of buyers. LAND ACQUISITION AND DEVELOPMENT. The Company selects locations for its developments on the basis of accessibility to infrastructure such as major highways and thoroughfares, shopping areas, medical facilities and community cultural and recreation centers. The land is then separated into development phases and concepts. The Company generally develops tracts of land that require site improvements prior to construction. This work sometimes requires that the Company maintain performance bonds with the appropriate regulatory authorities. Oriole's general policy is not to begin construction of single-family homes prior to the execution of a sales contract, which minimizes the costs and risk of completed but unsold inventory. The Company will, however, begin multi-family construction (duplex, townhouse, villa and multi-story complexes) when (a) sales contracts are executed for a predetermined percentage of the total units available and (b) profit can be enhanced by matching production schedule to deliveries. LAND SALES. In the normal course of its business, the Company has and may sell land which either can be sold at an advantageous price due to market conditions or because it no longer meets the Company's marketing needs. Sales of this land may also be made because it is located in areas where the Company considers its inventory to be excessive or because the land has been zoned for commercial use. 5 8 COMMUNITIES CURRENTLY UNDER DEVELOPMENT OR CONSTRUCTION The following table summarizes information as of December 31, 2000 with respect to the Company's principal projects under development or construction during 2000.
TOTAL UNITS SOLD UNITS SOLD NAME AND YEAR UNITS AND AND LOCATION OF DEVELOPMENT PLANNED DELIVERED DELIVERED IN UNITS UNDER UNITS UNDER REMAINING DEVELOPMENT STARTED TYPE (2) THRU 2000 2000 CONSTRUCTION(1) CONTRACT UNITS(2) ----------------------------- -------- ------------ ------------ -------------- ------------------ ------------ -------------- AT DECEMBER 31, 2000 ------------------------------------------------ Country Glen 1993 Single 300 154 17 14 47 82 Cooper City Family Coral Lakes 1992 Active 1,372 (3) 789 229 72 141 213 Delray Beach Adult Palm Isles West 1995 Active 235 189 42 2 0 4 Boynton Beach Adult Majestic Isles 1994 Active 450 382 63 3 4 1 Boynton Beach Adult Addison Green 1998 Active 130 4 29 4 26 71 Boynton Beach Adult Summer Chase 1989 Active 221 210 10 0 0 1 Lake Worth Adult Stonecrest 1995 Active 715 (4) 274 102 24 44 295 Ocala Adult Terrace Homes 1999 Mixed 99 -- -- 0 75 24 Celebration Vizcaya 2000 Active 504 145 70 81 123 236 Delray Beach Adult
--------- (1) Includes model units. (2) Includes model units and potential units to be constructed. (3) Reduction in original number of units purchased. (4) Includes purchase of additional land. 6 9 COUNTRY GLEN is a community of single-family homes located in Cooper City. The community consists of 300 units with recreational facilities under development and construction. Prices range from $298,000 to $500,000. CORAL LAKES is an active adult community in Boynton Beach with a multi-million dollar on-site clubhouse which includes substantial amenities. The community of 1,372 units features condominiums in four-story buildings, coach homes and single-family residences including the enclave of Tuscany. Prices range from under $98,000 to $232,500. PALM ISLES WEST, an active adult community in Boynton Beach, features 235 duplex and single-family residences priced from $120,000 to $186,000. Residents of this community enjoy the convenience of a swimming pool and sun deck within the community and share other amenities with Palm Isles, a completed Oriole active adult community. MAJESTIC ISLES is an active adult community of 450 duplex and single-family residences located in Boynton Beach. Prices range from $128,000 to $183,000. The community features an intimate, luxury clubhouse with swimming pool and tennis courts. ADDISON GREEN is a gated community with a private recreation area in a section of the Aberdeen Golf and Country Club located in Boynton Beach. Aberdeen with its Tennis and Fitness Center overlooks an 18-hole golf course. Oriole's 130 single-family residences, with two-car garages, are priced from $160,000 to $190,000. SUMMER CHASE is a community for active adults located in Lake Worth. The community features 221 single-family residences with two-car garages. The price range is $145,000 to $169,000. A social clubhouse is available to all residents along with tennis courts and pool. STONECREST is an active adult community located in Marion County consisting of 715 single-family homes priced from $82,500 to $262,000, offering championship golf and a recreational clubhouse which includes indoor and outdoor pools. TERRACE HOMES AT CELEBRATION, located in Disney's planned community in Osceola County near Orlando, will feature multi-family condominium residences priced between $130,000 and $205,000. Land development began in the fall of 2000, with construction and deliveries expected in 2001. VIZCAYA, located in Delray Beach, is an active adult community being developed as part of a strategic alliance with Centerline Homes at Delray, Inc. The community features a multi-million dollar on-site clubhouse and other amenities. 7 10 CONSTRUCTION Oriole is normally the general contractor for the construction of its developments. Company employees monitor the construction of each project, participate in design and building decisions, coordinate the activities of subcontractors and suppliers, maintain quality and cost controls and monitor compliance with zoning and building codes. Subcontractors typically are retained for a specified phase of development pursuant to a contract that obligates construction at a fixed price. Agreements with subcontractors are generally subject to competitive bidding, with the Company continuously negotiating prices and other significant terms with its subcontractors At December 31, 2000, the Company employed approximately 49 full-time people in the construction operation. Most materials are obtained by subcontractors and are readily available from numerous sources at commercially reasonable prices. The Company has not experienced any material delays in construction due to shortages of materials or labor, but has experienced cost increases due to shortages of certain types of experienced labor. There has been a significant increase in construction activity in Florida that has resulted in material shortages for some competitors and could, but has not yet, affected the Company's supply of labor and materials. MARKETING AND SALES The Company sells its homes primarily through commissioned employees who typically work in model sales centers or from offices located in model homes in the communities. The Company may also sell through independent brokers. Oriole's sales and marketing organization consists of approximately 41 full-time employees, many of whom are licensed real estate agents in Florida. The Company advertises in newspapers and magazines, by direct mail, on billboards and by radio, television and via the Internet through its website. In fiscal 2000, the Company's aggregate advertising cost was about $2.7 million. Oriole maintains model homes in most of its communities and management believes that these units play a particularly important role in the Company's marketing and merchandising efforts. 8 11 COMPETITION AND MARKET INFLUENCES The business of developing and selling residential properties and planned communities is highly competitive and fragmented. The Company competes with numerous large and small builders on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality and price. Some competing builders have nationwide operations and substantially greater financial resources. The Company's products must also compete with resales of existing homes and available rental housing. As discussed, management believes that the Company's primary competitive strengths have been location, reputation, price, design, value engineering, amenities and over 24,000 satisfied customers who provide Oriole with a continuous source of referrals. In general, the housing industry is cyclical and is affected by consumer confidence levels, prevailing economic conditions and interest rates. A variety of factors affect the demand for new homes, including the availability and cost of labor and materials, changes in costs associated with home ownership, changes in consumer preferences, demographic trends and the availability and cost of mortgage financing. The Company has enjoyed doing business in a geographic area with relatively positive market demand factors for a number of years including higher than U.S. average population growth, employment growth and household and per capita income. In addition, market demographics is strongly weighted in favor of the Company's primary customer base, namely older segments of the population with an average head of household age of 54 + years. There is no guarantee, however, that these positive trends will continue. REGULATION AND ENVIRONMENTAL MATTERS In developing a community, the Company must obtain the approval of numerous government authorities that regulate such matters as permitted land uses, density levels, the installation of utilities such as water, drainage and waste disposal, and the dedication of acreage for open space, parks, schools and other community purposes. Several authorities in Florida have imposed impact fees as a means of defraying the costs of providing certain governmental services to developing areas. The amount of these fees has increased significantly during recent years. Building codes generally require the use of specific construction materials which increases the energy efficiency of homes. In addition, each county in which the Company is building has imposed restrictive zoning and density requirements in order to limit the number of persons who live and work within certain boundaries. Counties and cities within Florida have also, at times, declared moratoriums on the issuance of building 9 12 permits and imposed other restrictions in the areas where sewage treatment facilities and other public facilities do not reach minimum standards. Certain permits and approvals will be required to complete the communities under development and currently being planned by Oriole. To date, restrictive zoning laws, impact fees, and imposition of moratoriums have not had a material adverse effect on the Company's development activities. However, there is no assurance that such restrictions will not adversely affect the Company in the future. The Company is also subject to a variety of federal, state and local statutes, ordinances, rules and regulations concerning protection of the environment. Environmental laws vary greatly depending on the community's location, the site's environmental conditions and the present and former uses of the site. These environmental laws may result in delays, causing the Company to incur substantial compliance and other costs, and prohibit or severely restrict development. Prior to consummating the purchase of land, the Company engages independent environmental engineers to evaluate the land for the presence of hazardous or toxic materials, wastes, or substances. Oriole has not been adversely affected to date by the presence or potential presence of such materials, but there is no assurance that environmental issues will not adversely affect the Company in the future. The Florida Local Government Comprehensive Planning and Land Development Regulation Act (the "Act") provides that public facilities, including, but not limited to: sewer, solid waste, drainage, potable water, parks, roads and recreation facilities, shall be available concurrently with the impact of land development projects that would use such facilities. This requirement is known as the "concurrency" requirement and counties and cities are required to implement concurrency by adopting local comprehensive plans and land development regulations. These plans and regulations establish the guidelines for concurrency review and the exemptions from the concurrency requirement. All of the Company's projects have been found to satisfy concurrency requirements. The Company must also comply with regulations by federal and state authorities relating to the sale and advertising of residential real estate, including the preparation of registration statements or other disclosure type documents to be filed with designated regulatory agencies. 10 13 CUSTOMER FINANCING AND SERVICES The Company arranges title insurance for, and provides closing services to, buyers of the Company's homes and other outside customers. Oriole also works with mortgage lenders to provide buyers with conventional financing programs. By making available a variety of attractive programs, the Company is able to more efficiently expedite the entire sales transaction by assuring that necessary mortgage commitments and other conditions of sale are expedited. The State of Florida requires that certain customer deposits be held in segregated bank accounts. As of December 31, 2000, the Company has posted bonds of $1.25 million and had entered into an escrow agreement with a bank and the State of Florida which allows the Company to use customer deposits under certain circumstances. EMPLOYEES The Company employs approximately 129 full-time persons, 6 of whom are senior executives and 22 of whom are management personnel. The Company has had no major work stoppages as a result of labor disputes and believes that relations with its employees and its subcontractors are good. There are no collective bargaining agreements with employees. ITEM 2 PROPERTIES The Company leases 19,700 square feet of space in a two-story office building in Delray Beach as its principal business office. The lease expires December 31, 2002 and can be renewed, at the Company's option, for an additional five year period. ITEM 3 LEGAL PROCEEDINGS The Company is a party to various lawsuits, all of which are of a routine nature and are incidental to the Company's present business activities. These proceedings are not material, nor would the adverse resolution thereof materially affect the business or properties of the Company. ITEM 4 SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS No matters were submitted to security holders during the 4th quarter. The Annual Meeting of Shareholders of the Registrant has been scheduled for May 10, 2001. The Company will file its definitive proxy materials pursuant to Regulation 14A on or prior to April 30, 2001. 11 14 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY The Company has two classes of common stock, Class A Common Stock and Class B Common Stock, which, at December 31, 2000, were held by approximately 230 and 193 shareholders of record, respectively. Both the Class A Common Stock and the Class B Common Stock are traded on the American Stock Exchange under the symbols OHC.A and OHC.B. The following sets forth the range of high and low sale prices: CLASS A CLASS B ---------- --------- QUARTER 2000 HIGH LOW HIGH LOW ------------ ---- ---- ---- --- First 3.25 1.56 3.00 1.13 Second 2.75 1.88 2.13 1.63 Third 1.88 1.50 1.63 1.13 Fourth 2.00 1.38 1.38 .75 CLASS A CLASS B ---------- --------- QUARTER 1999 HIGH LOW HIGH LOW ------------ ---- ---- ---- --- First 2.69 2.00 2.50 1.81 Second 2.00 1.50 2.00 1.50 Third 2.75 1.88 2.81 1.06 Fourth 2.38 1.50 1.50 .88 On March 14, 2001, the last reported sales prices of the Class A Common Stock and Class B Common Stock were $1.75 and $1.50 per share, respectively. On the same date, there were 230 shareholders of record of Class A Common Stock and 193 shareholders of record of Class B Common Stock. The Company currently intends to retain its future earnings to finance the development of its business. In addition, the Company is currently restricted from the payment of cash dividends on its Common Stock under the terms of the indenture governing the $70.0 million 12 1/2% Senior Notes, due January 15, 2003. Accordingly, the Company does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The payment of any dividends will ultimately be at the discretion of the Company's Board of 12 15 Directors and will depend upon, among other things, future earnings, the success of the Company's development activities, capital requirements, restrictions in financing arrangements, the general financial condition of the Company and general business conditions. ITEM 6 SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Company and its consolidated subsidiaries and should be read in conjunction with the financial statements included elsewhere in this Form 10-K. The data set forth below as of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 have been derived from the Company's audited consolidated financial statements.
---------------------------------------------------------------------------------------------------------------------- IN THOUSANDS (EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------------- Revenues 95,655 87,936 91,065 116,190 111,619 Net income (loss) (2,581) (5,042) 82 (20,850) 85 Shareholders' equity 39,355 41,937 46,979 46,897 67,747 Average Shareholders' Return on Equity (7.0%) (12.02%) .17% (44.46%) .13% Total Assets 114,578 102,041 135,226 145,060 175,546 Net income (loss) per share (Class A and B) (.56) (1.09) .02 (4.51) .02 Dividends- Class A -- -- -- -- -- Dividends- Class B -- -- -- -- -- Average Shares Outstanding 4,626 4,626 4,626 4,626 4,626
13 16 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW REVENUES. The following table sets forth for the periods indicated certain components of the revenues expressed as a percentage of total revenues. See "Results of Operations" for a discussion of factors affecting the components during the periods indicated.
-------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF TOTAL REVENUES YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------- Sale of homes 96.2% 88.1% 90.9% Sales of land -- -- -- Other operating revenues 0.1 2.3 4.2 Interest, rentals and other income 2.7 2.7 3.5 Gain on sales of property and equipment and land held for investment, net 1.0 6.9 1.4 Selling, general and administrative expenses 15.7 16.0 16.6 Net income (loss) (2.6) (5.0) .1 --------------------------------------------------------------------------------------------------------------------
BACKLOG. The following table sets forth the Company's backlog at December 31, 2000, 1999 and 1998. Backlog generally represents units under a standard contract for which a full deposit has been received and any statutory rescission right has expired. The Company generally fills backlog within twelve months and estimates that the period between receipt of a sales contract and delivery of the completed home to be eight to twelve months. Trends in the Company's backlog are subject to change from period to period corresponding to changes in certain economic conditions, including consumer confidence levels and the availability and cost of financing. ----------------------------------------------------------------------------- NUMBER AGGREGATE OF VALUE DECEMBER 31 UNITS (DOLLARS IN MILLIONS) ----------------------------------------------------------------------------- 2000 460 88.0 1999 174 29.2 1998 212 33.6 ----------------------------------------------------------------------------- 14 17 EVENT IMPACTING COMPARABILITY 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 70 homes producing aggregate revenue of $13.1 million and net income of $401,000 to results for the year ended December 31, 2000. The Company's backlog at December 31, 2000 related to the Vizcaya Project is 123 homes having an aggregate sales volume of $24.0 million. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Revenues from home sales increased $14.5 million (18.8%) during the fiscal year 2000 as compared to 1999 primarily due to an increase in the number of homes delivered as a result of the acquisition of the Vizcaya Project. As compared to the 501 homes delivered in 1999, Oriole delivered 562 homes in 2000, 70 of which for $13.1 million were contributed by the Viscaya Project. There was a 5.9% increase in the average selling price of homes delivered in 2000 to $163,700 from $154,600. The number of contracts executed and the aggregate dollar value of those contracts increased to 848 and $150.8 million respectively, in 2000, from 463 and $73.1 million, respectively, in 1999. Of this amount, 193 and $37.1 million, respectively, related to the Vizcaya Project. The average selling price of homes contracted in 2000 increased 12.7 % to $177,800 from $157,800 in 1999. Non-homebuilding revenues decreased to $1.0 million in 2000 as compared to $8.0 million in 1999. This decrease occurred because the prior year included both proceeds from the sale of certain properties held for investment and the associated rental income derived from those properties. These income streams were not duplicated in 2000 due to the sale of the underlying assets in 1999. Interest, rentals and other income was approximately the same in 2000 as it was in 1999. Cost of home sales increased to $82.9 million (18.0%) in 2000 from $70.3 million in 1999. However, cost of sales actually decreased as a percentage of home sales in 2000 to 90.1% from 90.8% in 1999 due to higher average selling prices. Selling, general and administrative expenses increased $1.0 million (6.9%) in 2000 as a result of the Vizcaya Project. These expenses decreased as a percentage of total revenue to 15.7% from 16.0% due to the increase in total revenue. The Company incurred a net loss in 2000 of $2.6 million or $0.56 per share, as compared to a net loss of $5.0 million, or $1.09 per share, in 1999. 15 18 Significantly, the 1999 net loss was affected by several one-time transactions which included (a) a loss of $4.9 million to write down the value of land inventory for 250 unsold housing units to fair market value less cost to sell; (b) a loss of $1.4 million to write down the value of an investment in a joint venture; and (c) a gain of $6.1 million from the sale of certain properties and equipment. In addition,1999 also included an additional $2.0 million in rental income derived from the properties and equipment sold. EBITDA, adjusted to exclude the 1999 non-cash valuation adjustments and gains on property and equipment, increased $0.9 million to $4.4 million for 2000 from $3.5 million in 1999, primarily due to the impact of the Vizcaya Project. EBITDA was also effected by the other factors influencing net income discussed above. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Revenues from home sales decreased $5.3 million (6.4%) during the fiscal year 1999 as compared to 1998 primarily as a result of a reduction in the number of homes delivered. Oriole delivered 501 homes in 1999 compared to 522 in 1998, with a slight decrease in the average selling price of deliveries from $158,500 to $154,600. The number of new contracts signed and the aggregate dollar value of those contracts decreased to 463 and $73.1 million, respectively, in 1999 from 491 and $75.9 million, respectively, in 1998. The average selling price of homes contracted in 1999 was approximately the same as in 1998. Non-homebuilding revenues increased $3.0 million in 1999 as compared to the same period in 1998 due to the sale of certain property and equipment and land held for investment. Interest, rentals and other income decreased $0.8 million in 1999 compared to the same period in 1998 primarily as the result of a decrease in rental income due to one of the property sales noted above. Cost of home sales decreased by $1.1 million (1.5%) to $70.3 million in 1999 as compared to 1998. As a percentage of home sales, cost of sales actually increased in 1999 to 90.8% from 86.3% in 1998 due to the impact of higher previously capitalized interest. Selling, general and administrative expenses decreased $1.0 million (6.8%). This improvement was the result of reductions in advertising, promotion and sales commission expense associated with a workforce reduction program. The Company incurred a net loss in 1999 of $5.0 million, or $1.09 per 16 19 share, as compared to net income of $0.1 million, or $0.02 per share in 1998. Included in this net loss are non-cash pre-tax charges of $4.9 million representing an inventory valuation adjustment affecting the value of land inventory for approximately 250 unsold housing units located in four developments and a write-down of $1.4 million of an investment in a joint venture. EBITDA, adjusted to exclude the 1999 non-cash valuation adjustments and gains on property and equipment, increased $0.5 million to $9.8 million in 1999 from $9.3 million in 1998 primarily due to the increase in non-homebuilding revenues. EBITDA was also affected by the other factors influencing net income discussed above. 17 20 FINANCIAL POSITION. The following table sets forth selected balance sheet items of the Company at December 31, 2000 and 1999. ------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, (DOLLARS IN MILLIONS) ------------------------------------------------------------------------------- 2000 1999 ------------------------------------ Cash $21.7 $18.7 Inventories 84.9 73.0 Senior Notes, at face value 34.9 43.1 Other Liabilities 40.6 17.0 ------------------------------------------------------------------------------- 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, proceeds from the sale of investment property and from borrowings. In connection with land acquisitions and development, the Company may borrow money secured by land and improvements. In addition, the Company has a revolving line of credit in the amount of $10.0 million (the "Revolving Line of Credit") available for general cash requirements. As of December 31, 2000, the Company had approximately $21.7 million in cash and cash equivalents and substantially the entire amount of the Revolving Line of Credit was available. The Revolving Line of Credit expires on June 30, 2001 and the Company anticipates that it will be able to renew this credit facility on terms comparable to the current arrangement. The Company believes that these resources are sufficient to provide for its cash requirements during 2001. In 2000 the Company used available cash to repurchase $8.3 million of the Company's 12 1/2% Senior Notes due January 15, 2003 and invested $4.5 million in the Vizcaya project. As of December 31, 2000, Senior Notes having a face value of $34.9 million were outstanding. Under the terms of the Senior Notes indenture (the "Indenture"), the Company may redeem the Senior Notes at 100% of their principal amount after January 15, 2001. 18 21 The Indenture required the Company to meet sinking fund payments on the original $70.0 million issue of $17.5 million on each of January 15, 2001 and 2002. These payments have been made. In addition, the Indenture restricts the amount and type of additional indebtedness that the Company may incur and restricts the purchase by the Company of its common stock and the payment of cash dividends until the Company has achieved cumulative net income in excess of $77.3 million. As of December 31, 2000, the Company was not permitted to purchase common stock or pay cash dividends. Borrowings under the Revolving Line of Credit are secured by a mortgage on certain real property of the Company. Under the terms of the Revolving Line of Credit, the Company is subject to customary covenants and restrictions, including those relating to maintenance of consolidated tangible net worth and the issuance of certain types of additional debt. Oriole believes that it will be able to further extend the Revolving Line of Credit beyond its scheduled June 30, 2001 expiration date or obtain a replacement credit facility if necessary, but there can be no assurance that it will be able to extend its existing facility or obtain a replacement credit facility. Oriole has mortgages on certain property. The interest rate on one mortgage is adjusted periodically to a LIBOR market rate index plus .275%, or the bank's prime rate, at the Company's option and, with respect to the other mortgage loan, adjusts periodically to the bank's prime rate. As of December 31, 2000, the Company had no firm commitments for capital expenditures. FORWARD LOOKING STATEMENTS Certain statements made in this document, including certain statements made in Management's Discussion and Analysis, are "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. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," or similar expressions, or which involve hypothetical events. In addition, any statements concerning future financial performance (including future revenues, earnings, or growth rates), ongoing business strategies or prospects, and possible future 19 22 Company actions, which may be provided by management, are also forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company, economic and market factors and the industry in which the Company does business, among other things. These statements are not guaranties of future performance and the Company has no specific intention to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause the Company's actual performance and future events and actions to differ materially from such forward-looking statements, include but are 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, changes in federal income tax laws, the general state of the economy, both nationally and in the Company's market, and unseasonable weather trends. INFLATION The Company, as well as the home building industry in general, may be adversely affected during periods of high inflation, primarily because of higher land and construction costs. In addition, higher mortgage interest rates may affect the affordability and availability of permanent mortgage financing to prospective purchasers. Inflation also increases the cost of labor and materials. The Company attempts to pass through to its customers any increases in its costs through increased selling prices. During the last three years, the Company has experienced a reduction in gross margins on the sale of homes due in part to the inability to pass on increased construction costs. There is no assurance that inflation will not have an adverse impact on the future results of operations of the Company. INTEREST RATES Overall housing demand is adversely affected by increases in interest costs. If mortgage interest rates increase significantly, this may negatively impact the ability of a homebuyer to secure adequate financing. Although about 51% of the Company's current sales are for cash, there is no guarantee that future sales will be made on such terms in comparable amounts. As such, higher interest rates may adversely affect the Company's revenues, gross margins and/or net income. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK NOT APPLICABLE. 20 23 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE ---- Consolidated Balance Sheets as of December 31, 2000 and 1999 ....................................................................................... 22 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 ................................................................................. 24 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 ................................................................................. 25 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ................................................................................. 26 Notes to Consolidated Financial Statements ....................................................................... 27 Management's Responsibility for Financial Statements ............................................................. 42 Report of Independent Accountants ................................................................................ 43
21 24 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31,
2000 1999 ------------ ------------ ASSETS Cash and cash equivalents $ 21,707,756 $ 18,708,081 ------------ ------------ Receivables Mortgage notes -- 262,240 ------------ ------------ Inventories Land 62,346,437 49,170,778 Homes completed or under construction 34,445,028 27,562,235 Model homes 4,310,488 3,856,810 ------------ ------------ 101,101,953 80,589,823 Less estimated costs of completion included in inventories 16,242,461 7,574,038 ------------ ------------ 84,859,492 73,015,785 ------------ ------------ Property and equipment, at cost Land 81,379 152,448 Buildings 664,065 2,671,438 Furniture, fixtures and equipment 3,044,175 2,595,802 ------------ ------------ 3,789,619 5,419,688 Less accumulated depreciation 2,127,155 2,978,526 ------------ ------------ 1,662,464 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 1,713,099 1,075,934 Unamortized debt issuance costs 392,752 661,429 Other assets 2,384,853 2,776,732 ------------ ------------ 4,490,704 4,514,095 ------------ ------------ Total assets $114,577,716 $102,040,903 ============ ============
The accompanying notes are an integral part of these statements 22 25 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED DECEMBER 31, LIABILITIES AND SHAREHOLDERS' EQUITY
1999 2000 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Line of credit $ 10,000 $ 10,000 Mortgage notes payable 20,415,730 4,306,372 Accounts payable and accrued liabilities 10,022,048 8,555,721 Customer deposits 10,190,140 4,583,143 Senior notes 34,584,277 42,648,760 ------------ ------------ Total liabilities 75,222,195 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 and 1,864,144 in 1998 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 and 2,761,375 in 1998 276,188 276,188 Additional paid-in capital 19,267,327 19,267,327 Retained earnings 19,625,641 22,207,027 ------------ ------------ Total shareholders' equity 39,355,521 41,936,907 ------------ ------------ Total liabilities and shareholders' equity $114,577,716 $102,040,903 ============ ============
The accompanying notes are an integral part of these statements. 23 26 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
2000 1999 1998 ------------ ------------ ------------ Revenues Sales of homes $ 91,989,406 $ 77,454,410 $ 82,736,768 Sales of land 15,000 -- 8,500 Other operating revenues 73,115 2,003,522 3,873,699 Gain on sale of property and equipment, net 930,872 3,745,618 -- Gain on sales of land held for investment and other assets, net -- 2,305,603 1,225,190 Interest, rentals and other income 2,646,882 2,426,739 3,221,183 ------------ ------------ ------------ 95,655,275 87,935,892 91,065,340 ------------ ------------ ------------ Costs and expenses Cost of homes 82,939,937 70,308,875 71,420,904 Inventory valuation adjustment -- 4,860,636 -- Cost of land sold 11,603 -- 2,097 Loss on joint venture investment -- 1,430,083 -- Costs relating to other operating revenues 190,475 1,892,866 3,289,012 Selling, general and administrative expenses 15,054,416 14,074,117 15,095,165 Interest costs incurred 6,003,735 6,888,691 8,764,448 Interest capitalized (deduct) (5,963,505) (6,477,555) (7,588,039) ------------ ------------ ------------ 98,236,661 92,977,713 90,983,587 ------------ ------------ ------------ Net income (loss) $ (2,581,386) $ (5,041,821) $ 81,753 ============ ============ ============ Net income (loss) per Class A and Class B common share available for common stockholders - Basic and Diluted $ (.56) $ (1.09) $ .02 ============ ============ ============ Weighted average number of common stock outstanding - Basic and Diluted 4,625,524 4,625,524 4,625,524 ============ ============ ============
The accompanying notes are an integral part of these statements. 24 27 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMON STOCK ------------------------------------------------------- CLASS A CLASS B ADDITIONAL -------------------------- ----------------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ---------- --------- --------- -------- ----------- --------------- Balance at January 1, 1998 1,864,149 $ 186,415 2,761,375 $276,138 19,267,327 $ 27,167,095 Net income for 1998 -- -- -- -- -- 81,753 ---------- --------- --------- -------- ----------- --------------- Balance at December 31, 1998 1,864,149 $ 186,415 2,761,375 $276,138 19,267,327 $ 1,227,248,848 Net loss for 1999 -- -- -- -- -- (5,041,821) Stock conversion (500) (50) 500 50 -- -- ---------- --------- --------- -------- ----------- --------------- Balance at December 31, 1999 1,863,649 $ 186,365 2,761,875 $276,188 $19,267,327 $ 22,207,027 Net loss for 2000 -- -- -- -- -- (2,581,386) Balance at December 31, 2000 1,863,649 $ 186,365 2,761,875 $276,188 $19,267,327 $ 19,625,641 ========== ========= ========= ======== =========== ===============
The accompanying notes are an integral part of this statement. 25 28 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities Net income (loss) $ (2,581,386) $ (5,041,821) $ 81,753 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 312,585 892,446 1,320,976 Amortization 481,194 759,715 785,769 Gain on sales of property, equipment and land held for investment, net (970,289) (6,051,221) (1,225,190) Inventory valuation adjustment -- 4,860,636 -- Loss on joint venture investment -- 1,430,083 -- (Increase) decrease in operating assets Receivables 262,240 691,044 (685,961) Income taxes receivable -- -- 765,437 Inventories 14,578,211 17,601,052 (3,651,987) Other assets (35,200) 878,440 1,121,158 Increase (decrease) in operating liabilities Accounts payable and accrued liabilities 363,912 (3,109,137) (1,476,633) Customer Deposits 2,914,842 (512,039) (1,293,963) ------------ ------------ ------------ Total adjustments 17,907,495 17,441,019 (4,340,394) ------------ ------------ ------------ Net cash provided by (used in) operating activities 15,326,109 12,399,198 (4,258,641) ------------ ------------ ------------ Cash flows from investing activities Return from joint ventures 1,242,240 616,273 1,206,404 Acquisition of project, net of cash acquired (22,672,617) -- -- Capital expenditures (1,109,945) (694,787) (1,084,857) Sales of property and equipment and land held for investment 2,364,530 20,661,638 2,354,403 ------------ ------------ ------------ Net cash provided by (used in) investing activities (20,175,792) 20,583,124 2,475,950 ------------ ------------ ------------ Cash flows from financing activities Proceeds from mortgage notes 28,631,913 1,575,101 3,750,000 Payment of mortgage notes (12,522,555) (13,239,114) (218,060) Repurchase of senior notes (8,260,000) (13,168,000) (11,022,000) ------------ ------------ ------------ Net cash provided by (used in) investing activities 7,849,358 (24,832,013) (7,490,060) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 2,999,675 8,150,309 (9,272,751) Cash and cash equivalents at beginning of year 18,708,081 10,557,772 19,830,523 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 21,707,756 $ 18,708,081 $ 10,557,772 ============ ============ ============ Supplemental disclosures of cash flow information Cash paid during the year for: Interest (net of amount capitalized) $ 1,358,648 $ 820,159 $ 1,620,812 Income taxes $ -- $ -- $ 2,627
The accompanying notes are an integral part of these statements 26 29 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION BASIS OF PRESENTATION AND BUSINESS The consolidated financial statements include the accounts of Oriole Homes Corp. and all wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions, if any, have been eliminated in consolidation. Certain prior year balances have been reclassified to conform to the current year presentation. The Company, a Florida corporation, is engaged principally in the design, construction, marketing and sale of single-family homes, patio homes, townhomes, villas, duplexes and low and mid-rise condominiums in Palm Beach, Broward, Martin, Lee, Marion and Osceola counties in Florida. REVENUE RECOGNITION The Company records sales of real estate in accordance with generally accepted accounting principles governing profit recognition for real estate transactions. INVENTORIES Inventories are carried at land cost, plus accumulated development and construction costs (including capitalized interest and real estate taxes). Homes which are completed and being held for sale aggregate approximately $8,213,000 in 2000 and $10,200,000 in 1999. The accumulated costs of land and homes is not in excess of estimated fair value less cost to sell. Estimated fair value less cost to sell is based upon sales and backlog in the normal course of business less estimated cost to complete and dispose of the property. The Company's management, on a continuous basis, reviews individual projects in inventory for potential adjustments to fair value. The Company capitalizes certain interest costs incurred on land under development and homes under construction. Such capitalized interest is included in cost of home sales when the units are delivered. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. The Company provides for depreciation of property and equipment by the straight-line method over the following estimated useful lives of the various classes of depreciable assets: Buildings 25 to 31.5 years Furniture, fixtures and equipment 5 to 7 years 27 30 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION - Continued SENIOR NOTE ISSUANCE COSTS AND UNAMORTIZED DISCOUNT Costs incurred in connection with the Senior Notes have been deferred and are being amortized by using the interest method over the term of the debt. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with maturities of one month or less when purchased. NET INCOME (LOSS) PER SHARE Net income (loss) per common share is computed by dividing net income (loss) by the weighted average shares outstanding during each year. The computation of diluted net income (loss) per share includes all dilutive common stock equivalents in the weighted average shares outstanding during each year, except in loss years when their inclusion would be antidilutive. ADVERTISING The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2000, 1999 and 1998 was $2,557,809, $1,584,483 and $2,079,033, respectively. ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This statement requires an asset and liability approach to account for income taxes. The Company provides deferred income taxes for temporary differences that will result in taxable or deductible amounts in future years based on the reporting of certain costs in different periods for financial statement and income tax purposes. A valuation allowance is established for deferred tax assets when it is more likely than not that a tax benefit will not be realized. NOTE B - ACQUISITION 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 the "Vizcaya Project". 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. 28 31 NOTE B - ACQUISITION- Continued 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. Among other things, the acquisition resulted in the delivery of 70 homes producing aggregate revenue of approximately $13.1 million and net income of $401,000 for the period ended December 31, 2000. The backlog at December 31, 2000 related to the Vizcaya Project is 123 homes having an aggregate value of $23,972,656. Unaudited pro forma consolidated revenues and net loss of the Company, giving effect to the acquisition of the Vizcaya Project as if it had occurred on January 1, 2000, equal revenues of $108,695,587 and a loss of $2,216,106 for the year ended December 31, 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 actually occurred on January 1, 2000. NOTE C - MORTGAGE NOTES First and second mortgage notes receivable bear interest at rates ranging from 7.75% to 10.0%. The Company's receivables are primarily mortgages, which are collateralized by real estate. The amounts were paid in full during 2000. 29 32 NOTE D - INVENTORIES Information related to the interest component capitalized in the Company's inventories is as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 ----------- ------------ ------------ Interest capitalized in inventories, beginning of period $10,593,706 $ 14,221,491 $ 12,626,682 Interest capitalized 5,963,505 6,477,555 7,588,039 Interest expensed to cost of sales - operations 5,971,739 (6,480,654) (5,993,230) Interest expensed - valuation adjustment -- (3,624,686) -- ----------- ------------ ------------ Interest capitalized in inventories, end of period $10,585,472 $ 10,593,706 $ 14,221,491 =========== ============ ============
NOTE E - INVENTORY AND FIXED ASSET VALUATION ADJUSTMENTS The Company follows Statement of Financial Accounting Standards ("SFAS") No. 121, which requires that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes indicate that the net book value of the asset may not be recoverable. An impairment loss is recognized if the sum of the undiscounted expected future cash flows from the use of the asset is less than the net book value of the asset. The Company periodically reviews the carrying value of its assets and, if such reviews indicate a lack of recovery of the net book value, adjusts the assets accordingly. In this regard, the Company recorded in the second and fourth quarters of 1999, non-cash valuation adjustments totaling $2,480,695 and $2,379,941 respectively or $.54 and $.42 per common share, respectively. These adjustments reduced certain inventory to estimated fair value less cost to sell. The inventory adjustments pertained to land inventory for approximately 344 unsold housing units located in four developments. NOTE F - LIFE INSURANCE The Company has purchased life insurance on the lives of two of its officers and their spouses who own significant shares of common stock of the Company. An irrevocably designated trustee of the officers is the beneficiary. Upon the death of the officers or termination of the policies, the Company shall receive an amount equal to the aggregated premiums paid less any policy loans and unpaid interest or cash withdrawals received by the Company. The accumulated premiums paid by the Company on the above policies through the years ended December 31, 2000 and 1999 were $1,160,466 and $1,007,713, respectively, and are classified as other assets. 30 33 NOTE F - LIFE INSURANCE - Continued In connection with the policies, the Company has an option with the officers to acquire all or any part of the Class A or Class B common stock of the Company owned by such individuals at the market price of such securities at the time of their death. NOTE G - INVESTMENT IN JOINT VENTURE The Company had one investment in a joint venture in 1999. The joint venture constructed and sold homes. During the year ended December 31, 1999, there was no advance from the Company to the joint venture. In January, 2000, the Company received $1,242,240 from the sale of its remaining lots. The balance of the Company's investment of $1,430,183 was unrecoverable and was written off as of December 31, 1999. NOTE H - 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 December 31, 2000, $9,990,000 was available under this line of credit. 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, among other things, restricts the Company from incurring additional debt and requires a consolidated tangible net worth (as amended) of not less than $37,000,000. The loan agreement expires June 30, 2001. The average interest rate and balance outstanding for the revolving line of credit payable to the bank, based on a weighted average, is as follows: 2000 1999 ---------- ---------- Daily average outstanding borrowings $ 75,753 $ 10,000 Average interest rate during the period 11.0% 9.6% Interest rate at the end of the period 11.0% 10.0% Maximum outstanding during the year $ 510,000 $ 10,000 31 34 NOTE I - MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 2000 and 1999, are as follows:
2000 1999 -------------- ---------- Acquisition loan/mortgage note, interest at the specified LIBOR Market Rate Index plus 0.275% or the prime rate of the bank as selected each month by the Company. At December 31, 2000, the interest rate was 9.5% ; secured by certain land and improvements; accrued interest paid monthly and partial payments of principal to be made upon the delivery of homes. Principal must be paid in full at maturity on December 31, 2001. $2,167,046 $3,306,372 Promissory note, dated July 21, 1999, interest at 8.0% principal and accrued interest due January 21, 2000. Promissory note of $1,000,000 was paid in full on January 21, 2000. -- 1,000,000 Vizcaya Project mortgage note, interest at the prime rate of the bank. At December 31, 2000, the interest rate was 9.5%; secured by certain land and improvements; accrued interest paid monthly and partial payments of principal to be made upon delivery of homes. Principal must be paid in full at maturity on February 08, 2003. 18,248,684 -- -------------- ----------- $20,415,730 $ 4,306,372 ============== ============
On December 22, 1998, the Company entered into a Construction Loan Agreement with a bank providing for a loan totaling $6,750,000 (the "Loan") and a letter of credit facility in the amount of $200,000 in connection with the Company's acquisition of certain real property (the "Land") and the construction of single family residential homes thereon (the "Homes"). The Loan is comprised of a $3,750,000 acquisition loan (the "Acquisition Loan") relating to the purchase of the Land and a revolving credit facility in an amount of up to $3,000,000 outstanding at any time to be used to finance construction of the Homes (the "Revolving Loan"). At December 31, 2000, $2,167,046 was outstanding, none of which was attributable to the revolving credit facility. On August 8, 2000, 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 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. At December 31, 2001, $18,248,684 was outstanding. 32 35 NOTE J - INCOME TAXES Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the consolidated financial statement amounts and liabilities and their respective tax bases. As of December 31, 2000 and 1999, the significant components of the Company's deferred tax assets and liabilities were:
2000 1999 ------------ ------------ AMT credit carryover $ 113,877 $ 113,877 Federal net operating loss carryforward 9,269,465 7,261,430 State net operating loss carryforward 2,286,892 1,962,063 Inventory valuation adjustment 1,715,847 3,019,334 Reserve for warranties 334,472 572,170 Percentage of completion 441,224 89,663 Inventory capitalization 51,433 134,073 ------------ ------------ Total deferred tax asset, before valuation allowance 14,193,210 13,152,610 Less valuation allowance 12,092,561 11,045,277 ------------ ------------ Total deferred tax assets, net of valuation allowance 2,100,649 2,107,333 ------------ ------------ Deferred expenses (2,090,708) (2,068,124) Accelerated depreciation (9,941) (39,209) ------------ ------------ Total deferred tax liabilities (2,100,649) (2,107,333) ------------ ------------ Net deferred tax (liability) asset $ -- $ -- ============ ============
The net change in the valuation allowance for the years ended December 31, 2000 and 1999 were increases of $1,047,284 and $2,082,368, respectively. The principal reasons for the difference between the total tax expense and the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes is the valuation allowance and the effects of state income taxes. At December 31, 2000, the Company has federal and state net operating loss carryforwards (NOLs) of $27,263,133 and $41,579,867, respectively. Of this amount, $6,128,138 of the federal NOLs expire in 2012 and $21,134,995 will begin to expire in 2018. The Company's state NOLs expire principally in the years 2012 through 2014. The complete realization of the value of the NOLs is dependent on various factors, including future profitability. NOTE K - CUSTOMER DEPOSITS Certain customer deposits, pursuant to statutory regulations of the State of Florida or by agreement between the customer and the Company, are held in segregated bank accounts. At December 31, 2000 and 1999, cash in the amounts of approximately $3,631,248 and $416,000, respectively, was so restricted. 33 36 NOTE K - CUSTOMER DEPOSITS - Continued The Company entered into an escrow agreement with a certain bank and the Division of Florida Land Sales and Condominiums which allows the Company to use customer deposits which were previously maintained in an escrow account. Deposits of up to $107,229 in 2000 and $357,000 in 1999, which could be released to the Company, are guaranteed by performance bonds aggregating $1,250,000 and $1,000,000 for 2000 and 1999. NOTE L - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities include the following: 2000 1999 ----------- ---------- Accounts payable $ 5,978,314 $3,903,935 Accrued interest 2,513,191 2,506,592 Accrued warranties on homes 941,974 1,480,016 Other accrued liabilities 588,569 665,178 ----------- ---------- $10,022,048 $8,555,721 =========== ========== NOTE M - SENIOR NOTES Senior notes consist of the following:
2000 1999 ------------ ------------ 12 1/2% senior notes due January 15, 2003 at par with an effective interest rate of 13.02% $ 70,000,000 $ 70,000,000 Repurchase of senior notes to be used as part of sinking fund (35,136,000) (26,876,000) Unamortized discount (279,723) (475,240) ------------ ------------ $ 34,584,277 $ 42,648,760 ============ ============
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, 2001 at 100% of the principal amount. 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. As of December 31, 2000, the Company has satisfied the requirements of the sinking fund payments. 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 December 31, 2000, the payment of cash dividends is prohibited and will be restricted until the Company posts cumulative net income in excess of $77,350,000. 34 37 NOTE N - INCOME (LOSS) PER SHARE Included in diluted income per share are common stock equivalents relating to options to purchase 61,000 shares for 1998. In the years 2000 and 1999, options were excluded in the computation of loss per share as they would be antidilutive. Options to purchase 35,400 shares of common stock at prices ranging from $1.50 to $8.62 per share, which were outstanding during 2000, were not included in the computation of diluted per share data because the exercise prices were greater than the average market price of the common shares during such period. NOTE O - STOCK OPTIONS The Company has two stock option plans accounted for under APB Opinion 25 and related interpretations. The plans allow the Company to grant options to employees for the purchase of up to 400,000 shares of Class B common stock and non-employee Directors for the purchase of up to 20,000 shares of Class B common stock. The options have terms of five years for employees and ten years for non-employee Directors when issued. The stock options for employee's vest at the end of the second year, and stock options for non-employee Directors vest 50% after each of the first and second year of service on the Board. The exercise price of each option equals the market price of the Company's Class B Common stock on the date of grant. Accordingly, no compensation cost has been recognized for the plans. Had compensation cost for the plans been determined based on the fair value of the options at the grant dates consistent with the method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income (loss) and income (loss) per share would have been reduced to the proforma amounts indicated below.
2000 1999 1998 ---------------- --------------- --------------- Net income (loss) As reported $ (2,581,386) $ (5,041,821) $ 81,753 Pro forma $ (2,587,140) $ (5,047,666) $ 70,936 Basic income (loss) per share As reported $ (.56) $ (1.09) $ .02 Pro forma $ (.56) $ (1.09) $ .02
The fair value of each option grant is estimated on the date of grant using the binomial options-pricing model with the following weighted-average assumptions used for grants in 2000, 1999 and 1998, respectively: expected volatility of 37.06, 37.59 and 36.52 percent; risk-free interest rate of 6.30, 5.91 and 6.91 percent; and expected life of 7.3, 6.3 and 5.8 years. 35 38 NOTE O - STOCK OPTIONS - Continued A summary of the status of the Company's stock option plans as of December 31, 2000, 1999 and 1998, and changes during the years ending on those dates is presented below:
2000 1999 1998 -------------------------- --------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Shares Exercise Shares Exercise (000) Price (000) Price (000) Price --------------- -------------- --------------- -------------- -------------- ----------- Outstanding at beginning of year 71.3 $5.99 61.0 $7.06 92.3 $7.34 Granted 2.4 1.81 19.0 2.06 2.4 4.50 Exercised -- -- -- -- -- -- Forfeited 25.9 6.88 8.7 7.37 33.7 5.7 ----- ----- ----- ----- ----- ----- Outstanding at end of year 47.8 $5.08 71.3 $5.99 61.0 $ .17 Options Exercisable at year end 39.2 $5.77 52.3 $7.28 57.4 $7.28 Weighted- average fair value of options granted during the year -- $1.27 -- $1.20 -- $2.49
The following information applies to options outstanding at December 31, 2000: Number outstanding 47,800 Range of exercise prices $1.50 to $8.62 Weighted-average exercise price $5.08 Weighted-average remaining contractual life 2.86 NOTE P - COMMON STOCK Class A and Class B common stock have identical dividend rights with the exception that the Class B common stock is entitled to a $.025 per share additional dividend. Class A common stock is entitled to one vote per share while Class B common stock is entitled to one-tenth vote per share. Holders of Class B common stock are entitled to elect 25% of the Board of Directors as long as the number of outstanding shares of Class B common stock is at least 10% of the number of outstanding shares of both classes of common stock. At the option of the holder of record, each share of Class A common stock may be converted at any time into one share of Class B common stock. 36 39 NOTE Q - LEASING ARRANGEMENTS RENTAL PROPERTIES In connection with certain developments, the Company leases recreation facilities. These leases are accounted for as operating leases. The following schedule provides an analysis of the Company's property under operating leases (included in property and equipment) by major classes as of December 31, 2000 and 1999:
2000 1999 ---------- ---------- Land $ 81,379 $ 152,448 Buildings 664,065 2,671,438 ---------- ---------- 745,444 2,823,886 Less accumulated depreciation 582,198 1,478,276 ---------- ---------- $ 163,246 $1,345,610 ========== ==========
On June 30, 1999, the Company sold a 480 rental apartment complex for $19.0 million, which resulted in a gain on sale of property and equipment in the amount of $3.75 million. The approximate future minimum rental income expected under these leases as of December 31, 2000 is $31,626 annually through the year 2005. Subsequently, the leases are subject to rental escalations for cost of living and expire through various periods ending 2019, 2021 and 2069. OFFICE AND OTHER LEASES The Company leases its headquarters office, a warehouse and certain model homes under lease agreements extending through 2003, with options to renew for up to five years, accounted for as operating leases. The approximate future minimum rental payments as of December 31, 2000 are as follows: 2001 $ 439,715 2002 450,522 2003 223,560 ----------- $ 1,113,797 =========== Total rent expense, including common area maintenance expenses, for each of the years ended December 31, 2000, 1999 and 1998 amounted to approximately $360,000, $384,000 and $366,000, respectively. 37 40 NOTE R - DEFERRED COMPENSATION PLAN The Company has a defined contribution plan (the "Plan") established pursuant to Section 401(k) of the Internal Revenue Code. Participant employees may elect to contribute up to 15% of pretax annual compensation as defined in the Plan, subject to certain limitations. The Company will match 25% of the participant's contributions, not to exceed 6% of the participant's annual compensation. The Company's contributions to the Plan amounted to $65,925 in 2000, $47,925 in 1999 and $44,688 in 1998. NOTE S - FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS The carrying amount approximates fair value because of the short maturity of those instruments. MORTGAGE NOTES RECEIVABLES The carrying amount approximates fair value due to interest rates currently offered for loans with similar terms to borrowers of similar credit quality not being significantly different. LINE OF CREDIT The carrying amount of the line of credit approximates fair value due to the length of the maturity and interest rate being tied to market indices. MORTGAGE NOTES PAYABLE The carrying amount of the mortgage notes payable approximates fair value due to the interest rate not being significantly different from the current market rates available to the Company. SENIOR NOTES The Senior Notes are not listed on any exchange. Prices offered to the Company by individual holders and dealers in the Senior Notes are used to estimate fair value of the Company's Senior Notes. The estimated fair value of the outstanding Senior Notes at December 31, 2000 and 1999 is $ 32,772,160 and $41,399,040, respectively. NOTE T - 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. On January 1, 1999, the rental operations segment consisted of 529 units in two separate properties. On June 30, 1999 the Company sold a 480 rental apartment complex. The accounting policies used to develop segment information correspond to those described in the summary of significant accounting policies and other information. Segment net income or loss is based on income or loss from operations before income taxes, the cumulative effect of changes in accounting principles, and the allocation of selling, general or administrative costs. 38 41 NOTE T - SEGMENT INFORMATION - Continued The following information about the two segments is for the years ended December 31, 2000, 1999 and 1998, in thousands (000).
Home Rental Building Operations Other Total -------- ---------- ----- ----- DECEMBER 31, 2000 Revenues $ 94,986 -- $ 669 $ 95,655 Interest expense 6,012 -- -- 6,012 Depreciation and amortization 476 -- -- 476 Segment net income (loss) (2,822) -- 241 (2,581) Segment assets 113,833 -- 745 114,578 Expenditures for segment assets 1,110 -- -- 1,110 DECEMBER 31, 1999 Revenues $ 81,613 $ 2,003 $4,320 $ 87,936 Interest expense 6,892 -- -- 6,892 Depreciation and amortization 1,251 450 1 1,702 Segment net income (loss) (9,195) 111 4,042 (5,042) Segment assets 99,876 1,734 431 102,041 Expenditures for segment assets 695 -- -- 695 DECEMBER 31, 1998 Revenues $ 86,610 $ 3,874 $ 581 $ 91,065 Interest expense 7,170 -- -- 7,170 Depreciation and amortization 1,313 792 2 2,107 Segment net income (loss) (740) 585 237 82 Segment assets 119,669 14,779 778 135,226 Expenditures for segment assets 689 396 -- 1,085
During 1999, the Company recorded valuation adjustments to its homebuilding segment in the amount of $6,290,719. 39 42 NOTE U - SELECTED QUARTERLY FINANCIAL DATA (Unaudited) A summary of selected quarterly information for the years ended December 31 is as follows:
1999 Quarter Ended --------------------------------------------------------- (In thousands, except per share data) March 31(2) June 30(3) September 30 December 31(4) ----------- ---------- ------------ -------------- Total revenue $28,462 $24,799 $ 16,172 $ 18,503 Net income (loss) before taxes 1,079 109 (1,129) (5,101) Net income (loss) 1,079 109 (1,129) (5,101) Net income (loss) per Class A and B common share - Basic & Diluted 0.23 0.03 (0.25) (1.10)
2000 Quarter Ended --------------------------------------------------------- (In thousands, except per share data) March 31 June 30 September 30 December 31(4) ----------- ---------- ------------ -------------- Revenue $ 17,202 $ 13,214 $21,667 (1) $43,572 (1) Net income (loss) before taxes (793) (1,582) (1,505) 1,299 Net income (loss) (793) (1,582) (1,505) 1,299 Net income (loss) per Class A and B common share - Basic & Diluted (0.17) (0.34) (0.33) 0.28
--------------------------------------------------- (1) Includes the acquisition of the Vizcaya Project, which contributed aggregate revenue of $4.2 million and $8.9 million in the third and forth quarters, respectively. (2) Includes gain on sale of property of $1.9 million. (3) Includes a non-cash inventory valuation adjustment of $2.5 million and gain on the sale of a rental apartment complex of $3.75 million. (4) Includes a non-cash inventory valuation adjustment of $2.4 million and the write-down of a joint venture investment of $1.4 million. NOTE V - RELATED PARTY TRANSACTIONS In December 2000 the Company sold and leased back nine model homes used by the Vizcaya Project from an entity controlled by certain officers/shareholders of the Company (the "Related Party"). In connection with this transaction, the results of operations for the fiscal year 2000 includes revenue of $1,953,810, rent expense of $18,630 and interest income of $3,925. The Related Party paid $1,365,010 in cash and issued a promissory note subordinate to the buyer purchase money loan in the amount of $588,800. Interest on the note of 8.0% per annum is payable monthly beginning December 30, 2000 and the principal must be paid in full no later than maturity on December 30, 2003. The selling prices of the model homes approximated fair market value. 40 43 NOTE W - 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 and customary obligations associated with entering into contracts for the purchase, development and sale of real estate in the routine conduct of its business. 41 44 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Oriole Homes Corp. is responsible for the preparation of the accompanying consolidated financial statements and related information and for their integrity and objectivity. Management believes that the consolidated financial statements reasonably present the Company's financial position and results of operations in accordance with generally accepted accounting principles. Management also has included in the Company's financial statements amounts that are based on management's best estimates and judgments. The Board of Directors, through the Audit Committee, is responsible for ensuring that both management and the independent auditors fulfill their respective responsibilities with regard to the financial statements. The Audit Committee is composed of two non-management independent Directors. The Committee meets periodically with management and the independent auditors to assure that each is carrying out its responsibilities. The opinion of the independent auditors, based upon their audit of the consolidated financial statements, is contained in this annual report. Joseph Pivinski Vice President - Finance Chief Financial Officer 42 45 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Oriole Homes Corp. We have audited the accompanying consolidated balance sheets of Oriole Homes Corp. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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 in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oriole Homes Corp. and Subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Grant Thornton LLP Miami, Florida February 23, 2001 43 46 ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated herein by reference to Registrant's definitive proxy statement to be filed pursuant to Regulation 14A, in conjunction with the Company's Annual Meeting of Shareholders. ITEM 11 EXECUTIVE COMPENSATION The information required by the Item 11 is incorporated herein by reference to Registrant's definitive proxy statement to be filed pursuant to Regulation 14A, in conjunction with the Company's Annual Meeting of Shareholders scheduled to be held on May 10, 2001. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated herein by reference to Registrant's definitive proxy statement to be filed pursuant to Regulation 14A, in conjunction with the Company's Annual Meeting of Shareholders scheduled to be held on May 10, 2001. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated herein by reference to Registrant's definitive proxy statement to be filed pursuant to Regulation 14A, in conjunction with the Company's Annual Meeting of Shareholders scheduled to be held on May 10, 2001. 44 47 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements See Item 8 (b) Reports on Form 8-K There were no reports on Form 8-K for the three months ended December 31, 2000. (c) Exhibits Exhibit Number ------ 3.1 Articles of Incorporation, as amended, of Registrant. 3.2 Composite By-Laws of Registrant. 4.1 Form of 12-1/2% Senior Note. 4.2 Form of Indenture between the Registrant and Sun Bank National Association, Trustee. 10.1 Lease Agreement, dated May 7, 1991 between the Registrant and Arbors Associates, Ltd. 10.2 First Amendment to Lease Agreement dated as of April 30, 1998, between Registrant and Arbors Associates, Ltd. 10.3 Revolving Loan Agreement dated July 13, 1993, between Ohio Savings Bank, F.S.B. and the Registrant. 10.4 First Amendment to Revolving Loan Agreement. 10.5 Second Amendment to Revolving Loan Agreement. 10.6 Mortgage and Security Agreement dated as of July 13, 1993. 10.7 Mortgage, Assignment and Financing Statement Spreader Agreement dated May 31, 1995. 10.8 Future Advance, Mortgage, Assignment and Financing Statement Extension, Modification and Spreader Agreement dated August 23, 1995. 10.9 Future Advance, Mortgage, Assignment and Financing Statement Extension, Modification and Spreader Agreement dated January 12, 1996. 10.10 Mortgage and Loan Modification and Extension Agreement dated July 1, 1997. 10.11 Mortgage and Loan Modification and Extension Agreement dated October 15, 1998. 10.12 Second Amendment to Revolving Loan Agreement dated July 1, 1997. 45 48 10.13 Construction Loan Agreement dated December 22, 1998 between First Union National Bank and the Registrant. 10.14 Mortgage and Security Agreement dated December 22, 1998 between First Union National Bank and the Registrant. 10.15 Stock Option Agreement with Richard D. Levy dated February 22, 1995. 10.16 Stock Option Agreement with Richard D. Levy dated May 14, 1996. 10.17 Stock Option Agreement with Harry A. Levy dated February 22, 1995. 10.18 Stock Option Agreement with Harry A. Levy dated May 14, 1996. 10.19 Stock Option Agreement with Mark A. Levy dated February 22, 1995. 10.20 Stock Option Agreement with Mark A. Levy dated May 14, 1996. 10.21 Stock Option Agreement with George Richards dated May 22, 1997. 10.22 Stock Option Agreement with George Richards dated May 20, 1998. 10.23 Stock Option Agreement with Paul Lehrer dated May 4, 1994. 10.24 Stock Option Agreement with Paul Lehrer dated May 15, 1995. 10.25 Stock Option Agreement with Paul Lehrer dated May 16, 1996. 10.26 Stock Option Agreement with Paul Lehrer dated May 22, 1997. 10.27 Stock Option Agreement with Paul Lehrer dated May 20, 1998. 10.28 Stock Option Agreement with Joseph Pivinski dated December 14, 1998. 10.29 Joint Venture Agreement between the Company and Regency Homes, Inc. dated December 31, 1993. 10.30 Registrant's 401(k) Defined Contribution Benefit Plan. 10.31 Registrant's 1994 Stock Option Plan for Employees (filed as Exhibit A to the proxy statement dated April 5, 1994 for the Company's Annual Meeting of Shareholders held on May 9, 1994). 10.32 Registrant's 1994 Stock Option Plan for Non-Employee Directors (filed as Exhibit B to the proxy statement dated April 5, 1994 for the Company's Annual Meeting of Shareholders held on May 9, 1994). 10.33 Stock Option Agreement with Paul Lehrer dated May 12, 1999. 10.34 Stock Option Agreement with George Richards dated May 12, 1999. 10.35 Stock Option Agreement with Michael Rich dated October 4, 1999. 10.36 Purchase and Sale Agreement between OH Investments, Inc. and Upjohn-Delray Limited Partnership dated August 8, 2000. 10.37 Builder's Agreement between OH Investments, Inc and Centerline Homes at Delray, Inc. dated August 8, 2000. 46 49 10.38 Master Loan Agreement between OH Investments, Inc. and Guaranty Federal Savings Bank, F.S.B. dated August 8, 2000. 10.39 Acquisition Loan Agreement between Guaranty Federal Savings Bank, F.S.B. and OH Investments, Inc. dated August 8, 2000. 10.40 Sale and Lease Back Agreement between OH Investments, Inc. and C.V.M.H. Inc. 10.41 Lease (Specimen) between OH Investments, Inc. and C.V.M.H. Inc. dated December 1, 2000. 10.42 Stock Option Agreement with Paul Lehrer dated May 10, 2000. 10.43 Stock Option Agreement with George Richards dated May 10, 2000. 22.1 List of Registrant's Subsidiaries. 23.1 Consent of Grant Thornton LLP. 47 50 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. ORIOLE HOMES CORP. DATE March 30, 2001 /s/ R.D. LEVY --------------------- ----------------------------------- R.D. Levy, Chairman of the Board, Chief Executive Officer, Director DATE March 30, 2001 /s/ J. PIVINSKI --------------------- ----------------------------------- J. Pivinski, Vice President - Finance, Treasurer, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934 this Annual Report has also been signed by the following persons on behalf of the Registrant in the capacities indicated. MEMBERS OF THE BOARD OF DIRECTORS DATE March 30, 2001 /s/ R.D. LEVY --------------------- ----------------------------------- R.D. Levy, Chairman of the Board, Chief Executive Officer, Director DATE March 30, 2001 /s/ HARRY A. LEVY --------------------- ----------------------------------- Harry A. Levy, Director DATE March 30, 2001 /s/ MARK LEVY --------------------- ----------------------------------- Mark Levy, Chief Operating Officer, Director DATE March 30, 2001 /s/ PAUL R. LEHRER --------------------- ----------------------------------- Paul R. Lehrer, Director DATE March 30, 2001 /s/ GEORGE R. RICHARDS --------------------- ----------------------------------- George R. Richards, Director 48 51 EXHIBIT INDEX Exhibit Number ------ 3.1 Articles of Incorporation, as amended, of Registrant. (6) 3.2 Composite By-Laws of Registrant. (7) 4.1 Form of 12-1/2% Senior Note. (1) 4.2 Form of Indenture between the Registrant and Sun Bank National Association, Trustee. (2) 10.1 Lease Agreement, dated May 7, 1991 between the Registrant and Arbors Associates, Ltd. (3) 10.2 First Amendment to Lease Agreement dated as of April 30, 1998, between Registrant and Arbors Associates, Ltd. (8) 10.3 Revolving Loan Agreement dated July 13, 1993, between Ohio Savings Bank, F.S.B. and the Registrant. (9) 10.4 First Amendment to Revolving Loan Agreement. (10) 10.5 Second Amendment to Revolving Loan Agreement. (11) 10.6 Mortgage and Security Agreement dated as of July 13, 1993. (12) 10.7 Mortgage, Assignment and Financing Statement Spreader Agreement dated May 31, 1995. (13) 10.8 Future Advance, Mortgage, Assignment and Financing Statement Extension, Modification and Spreader Agreement dated August 23, 1995. (14) 10.9 Future Advance, Mortgage, Assignment and Financing Statement Extension, Modification and Spreader Agreement dated January 12, 1996. (15) 10.10 Mortgage and Loan Modification and Extension Agreement dated July 1, 1997. (16) 10.11 Mortgage and Loan Modification and Extension Agreement dated October 15, 1998. (17) 10.12 Second Amendment to Revolving Loan Agreement dated July 1, 1997. (18) 10.13 Construction Loan Agreement dated December 22, 1998 between First Union National Bank and the Registrant. (19) 10.14 Mortgage and Security Agreement dated December 22, 1998 between First Union National Bank and the Registrant. (20) 10.15 Stock Option Agreement with Richard D. Levy dated February 22, 1995.(21) 10.16 Stock Option Agreement with Richard D. Levy dated May 14, 1996. (22) 10.17 Stock Option Agreement with Harry A. Levy dated February 22, 1995. (23) 10.18 Stock Option Agreement with Harry A. Levy dated May 14, 1996. (24) 49 52 10.19 Stock Option Agreement with Mark A. Levy dated February 22, 1995. (25) 10.20 Stock Option Agreement with Mark A. Levy dated May 14, 1996. (26) 10.21 Stock Option Agreement with George Richards dated May 22, 1997. (27) 10.22 Stock Option Agreement with George Richards dated May 20, 1998. (28) 10.23 Stock Option Agreement with Paul Lehrer dated May 4, 1994. (29) 10.24 Stock Option Agreement with Paul Lehrer dated May 15, 1995. (30) 10.25 Stock Option Agreement with Paul Lehrer dated May 16, 1996. (31) 10.26 Stock Option Agreement with Paul Lehrer dated May 22, 1997. (32) 10.27 Stock Option Agreement with Paul Lehrer dated May 20, 1998. (33) 10.28 Stock Option Agreement with Joseph Pivinski dated December 14, 1998. (34) 10.29 Joint Venture Agreement between the Company and Regency Homes, Inc. dated December 31, 1993. (4) 10.30 Registrant's 401(k) Defined Contribution Benefit Plan. (5) 10.31 Registrant's 1994 Stock Option Plan for Employees (filed as Exhibit A to the proxy statement dated April 5, 1994 for the Company's Annual Meeting of Shareholders held on May 9, 1994). (35) 10.32 Registrant's 1994 Stock Option Plan for Non-Employee Directors (filed as Exhibit B to the proxy statement dated April 5, 1994 for the Company's Annual Meeting of Shareholders held on May 9, 1994). (36) 10.33 Stock Option Agreement with Paul Lehrer dated May 12, 1999. (37) 10.34 Stock Option Agreement with George Richards dated May 12, 1999. (38) 10.35 Stock Option Agreement with Michael Rich dated October 4, 1999. (39) 10.36 Purchase and Sale Agreement between OH Investments, Inc. and Upjohn-Delray Limited Partnership dated August 8, 2000. 10.37 Builder's Agreement between OH Investments, Inc. and Centerline Homes at Delray, Inc. dated August 8, 2000. 10.38 Master Loan Agreement between OH Investments, Inc. and Guaranty Federal Savings Bank, F.S.B. dated August 8, 2000. 10.39 Acquisition Loan Agreement between Guaranty Federal Savings Bank, F.S.B. and OH Investments, Inc. dated August 8, 2000. 10.40 Sale and Lease Back Agreement between OH Investments, Inc. and C.V.M.H. Inc. dated December 1, 2000. 10.41 Lease (Specimen) between OH Investments, Inc. and C.V.M.H. Inc. dated December 1, 2000. 10.42 Stock Option Agreement with Paul Lehrer dated May 10, 2000. 50 53 10.43 Stock Option Agreement with George Richards dated May 10, 2000. 10.44 Mortgage and Loan Modification and Extension Agreement. 22.1 List of Registrant's Subsidiaries. 23.1 Consent of Grant Thornton LLP. 51 54 EXHIBIT INDEX NOTES (1) Filed as Exhibit 4.1 to the Company's registration statement on Form S-2 (no. 33-51680). (2) Filed as Exhibit 4.2 to the Company's registration statement on Form S-2 (no. 33-51680). (3) Filed as Exhibit 10.1 to the Company's registration statement on Form S-2 (no. 33-51680). (4) Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (5) Filed as Exhibit 10.6 to the Company's registration statement on Form S-2 (no. 33-46123). (6) Filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (7) Filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (8) Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (9) Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (10) Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (11) Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (12) Filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (13) Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (14) Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (15) Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (16) Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (17) Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (18) Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (19) Filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (20) Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (21) Filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (22) Filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (23) Filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 52 55 (24) Filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (25) Filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (26) Filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (27) Filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (28) Filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (29) Filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (30) Filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (31) Filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (32) Filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (33) Filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (34) Filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (35) Filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (36) Filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (37) Filed as Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (38) Filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (39) Filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 53