Table of
Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarterly period ended March 31, 2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE
ACT OF 1934
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For the transition
period to
Commission
File No. 1-6830
ORLEANS HOMEBUILDERS, INC.
(Exact name of registrant as specified in its
charter)
Delaware
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59-0874323
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(State or other jurisdiction of
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(I.R.S. Employer Identification. No.)
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incorporation or organization)
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3333 Street Road, Suite 101
Bensalem, PA 19020
(Address of principal executive offices)
Telephone: (215)
245-7500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of regulation S-T (§ 229.405) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer, and smaller
reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
o
No
x
Number of shares of common stock, par value
$0.10 per share, outstanding as of
May 15, 2009: 19,089,141
(excluding 98,990 shares held in Treasury).
Table of Contents
Orleans Homebuilders, Inc. and
Subsidiaries
Condensed
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands, except per
share amounts)
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March 31,
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June 30,
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2009
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2008
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Assets
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Cash and cash equivalents
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$
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13,260
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$
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72,341
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Restricted cash - due from title company
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4,764
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19,269
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Restricted cash - customer deposits
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6,350
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8,264
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Marketable securities
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497
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Real estate held for development and sale:
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Residential properties completed or under construction
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177,057
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193,257
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Land held for development or sale and improvements
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335,386
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359,555
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Inventory not owned - variable interest entities
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10,666
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13,050
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Inventory not owned - other financial interests
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12,287
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12,171
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Property and equipment, at cost, less accumulated depreciation
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762
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1,491
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Goodwill
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4,180
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Receivables, deferred charges and other assets
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20,183
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22,154
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Land deposits and costs of future development
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10,251
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10,380
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Total Assets
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$
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591,463
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$
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716,112
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Liabilities and Shareholders Equity
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Liabilities:
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Accounts payable
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$
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31,176
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$
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44,916
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Accrued expenses
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37,664
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51,768
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Deferred revenue
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200
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274
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Customer deposits
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8,600
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11,856
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Obligations related to inventory not owned - variable interest
entities
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10,234
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10,875
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Obligations related to inventory not owned - other financial
interests
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12,187
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12,071
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Mortgage and other note obligations
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355,066
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396,133
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Subordinated notes
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105,000
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105,000
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Other notes payable
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718
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Total Liabilities
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560,127
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633,611
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Commitments and contingencies (See note 14)
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Shareholders Equity:
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Common stock, $0.10 par, 23,000,000 shares authorized, 19,188,131 and
18,938,131 shares issued at March 31, 2009 and June 30, 2008,
respectively
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1,919
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1,894
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Capital in excess of par value - common stock
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76,545
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75,204
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Accumulated other comprehensive loss
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(821
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)
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(816
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)
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(Accumulated deficit) retained earnings
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(45,053
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)
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7,473
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Treasury stock, at cost (98,990 shares held at March 31, 2009
and June 30, 2008)
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(1,254
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)
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(1,254
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)
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Total Shareholders Equity
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31,336
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82,501
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Total Liabilities and Shareholders Equity
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$
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591,463
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$
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716,112
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See accompanying notes
which are an integral part of the consolidated financial statements.
1
Table of
Contents
Orleans
Homebuilders, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
(in
thousands, except per share amounts)
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Three months ended
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Nine months ended
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March 31,
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March 31,
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2009
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2008
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2009
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2008
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Earned revenue
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Residential properties
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$
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64,347
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$
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109,018
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$
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240,702
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$
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372,865
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Land sales
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1,912
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58
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11,322
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Other income
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2,347
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2,364
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6,483
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6,926
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66,694
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113,294
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247,243
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391,113
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Costs and expenses
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Residential properties
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62,558
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110,908
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237,513
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361,286
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Land sales
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1,635
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26
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47,677
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Other
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1,551
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1,566
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5,191
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5,001
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Selling, general and administrative
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11,479
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19,309
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44,178
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62,172
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Impairment of goodwill
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4,180
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Interest:
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Incurred
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9,942
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9,724
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31,948
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35,428
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Less capitalized
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(7,987
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)
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(9,724
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)
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(27,110
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)
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(35,428
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)
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77,543
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133,418
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295,926
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476,136
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Loss from continuing operations before income taxes
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(10,849
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)
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(20,124
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)
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(48,683
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)
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(85,023
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)
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Income tax expense
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4,120
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26,987
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3,843
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2,458
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Loss from continuing operations
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(14,969
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)
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(47,111
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)
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(52,526
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)
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(87,481
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)
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Discontinued operations:
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Loss from discontinued operations, net of taxes
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(8,634
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(21,704
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)
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Net loss
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$
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(14,969
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)
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$
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(55,745
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$
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(52,526
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)
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$
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(109,185
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)
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Basic loss per share
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Continuing operations
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$
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(0.81
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)
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$
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(2.54
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)
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$
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(2.84
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)
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$
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(4.73
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)
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Discontinued operations
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$
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$
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(0.47
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)
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$
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$
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(1.17
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)
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Loss per share
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$
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(0.81
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)
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$
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(3.01
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)
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$
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(2.84
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)
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$
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(5.90
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)
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Diluted loss per share
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Continuing operations
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$
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(0.81
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)
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$
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(2.54
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)
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$
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(2.84
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)
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$
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(4.73
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)
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Discontinued operations
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$
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$
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(0.47
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)
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$
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$
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(1.17
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)
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Loss per share
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$
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(0.81
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)
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$
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(3.01
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)
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$
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(2.84
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)
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$
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(5.90
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)
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|
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Dividends declared per share
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$
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$
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0.02
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$
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$
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0.06
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|
|
|
|
|
|
|
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Basic weighted average shares outstanding
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18,555
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18,520
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18,525
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18,508
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Diluted weighted average shares outstanding
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18,555
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18,520
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18,525
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18,508
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See accompanying notes which are an integral part of
the consolidated financial statements.
2
Table
of Contents
Orleans Homebuilders, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in
Shareholders Equity
And Total Comprehensive Loss
(Unaudited)
(dollars in thousands)
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Nine months ended
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March 31, 2009
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Shares
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Amount
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Common Stock
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Beginning balance
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18,938,131
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$
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1,894
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Restricted stock award
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250,000
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25
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Ending balance
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19,188,131
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$
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1,919
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|
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Additional Paid in Capital
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|
|
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Beginning balance
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$
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75,204
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Fair market value of stock options issued
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996
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Shares awarded under Stock award plan
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370
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Restricted stock award
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(25
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)
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Ending balance
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$
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76,545
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(Accumulated Deficit) Retained Earnings
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Beginning balance
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$
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7,473
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Net loss
|
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(52,526
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)
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Ending balance
|
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$
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(45,053
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)
|
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|
|
|
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|
Accumulated Other Comprehensive Loss
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Beginning balance
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$
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(816
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)
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Net unrealized loss on investments
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(5
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)
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Ending balance
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$
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(821
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)
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|
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Treasury Stock
|
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|
|
|
|
Beginning and ending balance
|
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98,990
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$
|
(1,254
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)
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|
|
|
|
|
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Total Comprehensive Loss
|
|
|
|
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Net loss
|
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$
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(52,526
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)
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Unrealized loss on investments
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(5
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)
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Total Comprehensive Loss
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$
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(52,531
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)
|
See accompanying notes, which are an integral
part of the consolidated financial statements
3
Table
of Contents
Orleans Homebuilders, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
|
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Nine months ended
|
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|
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March 31,
|
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2009
|
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2008
|
|
|
|
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Cash flows from operating activities:
|
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|
|
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Net loss
|
|
$
|
(52,526
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)
|
$
|
(109,185
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)
|
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
|
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Depreciation and amortization
|
|
5,022
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3,465
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Gain on sale of fixed assets
|
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(916
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)
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(173
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)
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Gain on sale of marketable securities
|
|
(30
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)
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Write-off of real estate held for development and sale
|
|
21,097
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|
96,158
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|
Write-off of land deposits and costs of future development
|
|
1,880
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|
931
|
|
Write-off of goodwill
|
|
4,180
|
|
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|
Deferred taxes
|
|
|
|
23,480
|
|
Stock based compensation expense
|
|
1,414
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|
1,739
|
|
Changes in operating assets and liabilities:
|
|
|
|
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Restricted cash - due from title company
|
|
14,505
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|
16,227
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|
Restricted cash - customer deposits
|
|
1,914
|
|
1,155
|
|
Real estate held for development and sale
|
|
19,630
|
|
(1,698
|
)
|
Receivables, deferred charges and other assets
|
|
922
|
|
1,869
|
|
Land deposits and costs of future developments
|
|
532
|
|
(11,198
|
)
|
Accounts payable and other liabilities
|
|
(27,962
|
)
|
40,961
|
|
Customer deposits
|
|
(3,256
|
)
|
(51
|
)
|
Net cash (used in) provided by operating activities
|
|
(13,594
|
)
|
63,680
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of marketable securities
|
|
(34,021
|
)
|
|
|
Sales and maturities of marketable securities
|
|
33,549
|
|
|
|
Purchases of property and equipment
|
|
(5
|
)
|
(372
|
)
|
Proceeds from sale of fixed assets
|
|
1,013
|
|
537
|
|
Proceeds from disposition of business
|
|
|
|
11,300
|
|
Net cash provided by investing activities
|
|
536
|
|
11,465
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings from loans collateralized by real estate assets
|
|
123,141
|
|
57,000
|
|
Repayment of loans collateralized by real estate assets
|
|
(165,603
|
)
|
(120,000
|
)
|
Repayment of other note obligations
|
|
(718
|
)
|
(53
|
)
|
Financing costs of long-term debt
|
|
(2,303
|
)
|
(4,524
|
)
|
Liability associated with other financial interests
|
|
|
|
12,565
|
|
Payments on liabilities associated with other financial interests
|
|
(540
|
)
|
|
|
Proceeds from stock options exercised
|
|
|
|
58
|
|
Common stock cash dividends paid
|
|
|
|
(1,115
|
)
|
Net cash used in financing activities
|
|
(46,023
|
)
|
(56,069
|
)
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
(59,081
|
)
|
19,076
|
|
Cash and cash equivalents at beginning of period
|
|
72,341
|
|
19,991
|
|
Cash and cash equivalents at end of period
|
|
$
|
13,260
|
|
$
|
39,067
|
|
See
accompanying notes which are an integral part of the consolidated financial
statements.
4
Table of Contents
ORLEANS HOMEBUILDERS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
1.
BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Orleans Homebuilders, Inc.
and its subsidiaries (collectively, the Company) market, develop and build
high-quality, single-family homes, townhomes and condominiums to serve various
types of homebuyers, including move-up, luxury, empty nester, active adult and
first-time homebuyers. The Company also
generates revenue from the sale of land.
Interim Financial Information
These
condensed financial statements have been prepared in accordance with the rules of
the Securities and Exchange Commission for interim financial statements and do
not include all annual disclosures required by accounting principles generally
accepted in the United States. These
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Companys Form 10-K/A
for the fiscal year ended June 30, 2008.
The June 30, 2008, amounts were derived from the Companys audited
financial statements, but do not include all disclosures required by accounting
principles generally accepted in the United States of America. The condensed financial information as of March 31,
2009, and for the three and nine months ended March 31, 2009 and 2008, is
unaudited, but in the opinion of management includes all adjustments,
consisting of normal recurring accruals, that management considers necessary
for a fair presentation of the Companys consolidated results of operations,
financial position and cash flows. Results
for the three and nine months ended March 31, 2009, are not necessarily
indicative of results to be expected for the full fiscal year 2009 or any other
future periods.
During
the third quarter of fiscal year 2009, the Company recognized additional tax
expense of $3,794 reflecting the impact of cumulative out of period
adjustments. This error was related to
an overstatement of tax refunds due the Company reflected in the income tax
receivable account in the amount of $2,347,
coupled with an overstatement of federal tax
benefits in the amount of $1,447 related to a state tax liability. These
error corrections had the effect of increasing income tax expense and reducing
net income by $3,794. The Company
concluded that this adjustment was not material to the consolidated financial
statements for any prior period or to the third quarter of fiscal year 2009.
On December 31, 2007, the Company specifically committed to
exiting its Arizona market and, in connection with this decision, on that date,
it disposed of its entire land position and its related work-in-process homes
in Arizona, which constituted substantially all of its assets in Arizona. The Company has historically reported this
business as the western region operating segment. The disposed work-in-process inventory and
land assets constituted substantially all of the Companys assets in the
western region. As such, all charges
associated with the western region are included as a discontinued operation.
In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement
of Financial Accounting Standard (
SFAS)
No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in Generally Accepted
Accounting Principles (GAAP), and expands disclosures about fair value
measurements. SFAS No. 157 is
effective for financial assets and financial liabilities in fiscal years
beginning after November 15, 2007 and for certain nonfinancial assets and
certain nonfinancial liabilities in fiscal years beginning after November 15,
2008. Effective July 1, 2008, the
Company has adopted the provisions of SFAS No. 157 that relate to its
financial assets and financial liabilities.
See note 15, Fair Value Disclosures.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115 (SFAS No. 159).
This Statement permits entities to choose to measure many financial
instruments and certain other items at fair value and report unrealized gains
and losses on these instruments in earnings.
SFAS No. 159 was effective July 1, 2008. The Company did not adopt the fair value
option.
Certain
prior year amounts have been reclassified to conform to the fiscal year 2009 presentation,
with no effect on previously reported net loss or shareholders equity.
5
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2.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51 (SFAS No. 160). SFAS No. 160 requires
that a noncontrolling interest in a subsidiary be reported as equity and the
amount of consolidated net income specifically attributable to the
noncontrolling interest be identified in the consolidated financial
statements. It also calls for
consistency in the manner of reporting changes in the parents ownership interest
and requires fair value measurement of any noncontrolling equity investment
retained in a deconsolidation.
SFAS No. 160 is effective for the Companys fiscal year ending
June 30, 2010. The Company is
evaluating the impact the adoption of SFAS 160 will have on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised
2007), Business Combinations (SFAS No. 141(R)). SFAS No. 141(R) broadens
the guidance of SFAS No. 141, extending its applicability to all
transactions and other events in which one entity obtains control over one or
more other businesses. It broadens the
fair value measurement and recognition of assets acquired, liabilities assumed,
and interests transferred as a result of business combinations. SFAS No. 141(R) expands on
required disclosures to improve the statement users abilities to evaluate the
nature and financial effects of business combinations. SFAS No. 141(R) is effective
for the Companys fiscal year ending June 30, 2010. The Company does not expect the adoption of
SFAS No. 141(R) to have a material impact on its consolidated
financial statements.
In June 2008, the FASB issued FASB Staff Position (FSP) Emerging
Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. Under the FSP, unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents are participating securities and, therefore, are included
in computing earnings per share pursuant to the two-class method. The two-class method determines earnings per
share for each class of common stock and participating securities according to
dividends or dividend equivalents and their respective participation rights in
undistributed earnings. The Companys
outstanding restricted stock awards will be considered participating securities
under this FSP. The FSP is effective for the Companys fiscal year beginning July 1,
2009 and requires retrospective application.
The Company does not expect the adoption of the FSP to have a material
impact on its reported earnings per share.
I
n
December 2008, the FASB issued FSP SFAS 132R-1, Employers
Disclosures about Postretirement Benefit Plan Assets. This statement provides additional guidance
regarding disclosures about plan assets of defined benefit pension or other
postretirement plans. This FSP is
effective for financial statements issued for fiscal years ending after December 15,
2009. Accordingly, the Company will
adopt FSP SFAS 132R-1 in fiscal year 2010.
The Company is currently evaluating the disclosure impact of adopting
this FSP on its consolidated financial statements.
In April 2009, the FASB issued FSP SFAS 141R-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, (FSP SFAS 141R-1).
This FSP amends and clarifies SFAS No. 141(R), to require that an
acquirer recognize at fair value, at the acquisition date, an asset acquired or
a liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the
acquisition-date fair value of such an asset acquired or liability assumed
cannot be determined, the acquirer should apply the provisions of SFAS No. 5,
Accounting for Contingencies, to determine whether the contingency should be
recognized at the acquisition date or after it.
FSP SFAS 141R-1 is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is after
the beginning of the first annual reporting period beginning after December 15,
2008. Accordingly, the Company will
adopt FSP SFAS 141R-1 in fiscal year 2010.
The Company does not expect the adoption of FSP SFAS 141R-1 to have a
material impact on its consolidated financial statements.
In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments. The FSP amends
SFAS No. 107, Disclosures about Fair Value of Financial Instruments
to require disclosure about fair value of financial instruments in interim
financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim and
annual periods ending after June 15, 2009 with early adoption permitted
for periods ending after March 15, 2009.
The Company is currently evaluating the
disclosure impact of adopting this pronouncement on its consolidated financial
statements.
In
April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition
and Presentation of Other-Than-Temporary Impairments. This FSP changes existing guidance for
determining whether an impairment of debt securities is other than temporary. The FSP requires other than temporary impairments
to be separated into the amount representing the decrease in cash flows
expected to be collected from a security (referred to as credit losses) which
is recognized in earnings and the amount related to other factors which is
recognized in other comprehensive income.
This noncredit loss component of the impairment may only be classified
in other comprehensive income if the holder of the security concludes that it
does not
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intend
to sell and it will not more likely than not be required to sell the security
before it recovers its value. If these
conditions are not met, the noncredit loss must also be recognized in
earnings. When adopting the FSP, an
entity is required to record a cumulative effect adjustment as of the beginning
of the period of adoption to reclassify the noncredit component of a previously
recognized other than temporary impairment from retained earnings to
accumulated other comprehensive income.
FSP SFAS 115-2 and FAS 124-2 is effective for interim and annual periods
ending after June 15, 2009.
The
Company does not expect the adoption of this FSP to have a material impact on
its consolidated financial statements.
In
April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP provides additional guidance on
estimating fair value when the volume and level of activity for an asset or
liability have significantly decreased in relation to normal market activity
for the asset or liability. The FSP also provides additional guidance on circumstances
that may indicate that a transaction is not orderly. FSP SFAS 157-4 is effective for interim and
annual periods ending after June 15, 2009.
The Company does not expect the adoption of this FSP to have a
material impact on its consolidated financial statements.
The
Company does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
3.
CASH AND CASH EQUIVALENTS
Cash
and cash equivalents consisted of cash on hand, demand deposits and money
market funds at March 31, 2009 and June 30, 2008.
4.
MARKETABLE SECURITIES
In accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, securities are classified into
three categories: held-to-maturity, available-for-sale and trading. The Companys marketable securities consist
of United States Treasury securities classified as available-for-sale
securities. Accordingly, they are
carried at fair value in accordance with SFAS No. 115. Further, according to SFAS No. 115 the
unrealized holding gains and losses for available-for-sales securities are
excluded from earnings and reported, net of deferred income taxes, in
accumulated other comprehensive loss, unless the loss is classified as other
than a temporary decline in market value.
At March 31, 2009, the amortized cost, gross unrealized gains
(losses) and fair value of available-for-sale securities by major security type
and class of security were as follows:
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Treasury securities - with maturities of
less than one year at time of purchase
|
|
$
|
502
|
|
$
|
|
|
$
|
(5
|
)
|
$
|
497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
treasury bills and treasury notes described above have maturities that range
from three months to six months at time of purchase.
5.
RESIDENTIAL PROPERTIES COMPLETED
OR UNDER CONSTRUCTION
Residential
properties completed or under construction consist of the following:
|
|
March 31,
|
|
June 30,
|
|
|
|
2009
|
|
2008
|
|
Under contract for sale
|
|
$
|
94,031
|
|
$
|
109,980
|
|
Unsold
|
|
83,026
|
|
83,277
|
|
Total residential property completed or
under construction
|
|
$
|
177,057
|
|
$
|
193,257
|
|
7
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6
.
MORTGAGE AND OTHER NOTE
OBLIGATIONS AND SUBORDINATED NOTES
The
$355,066 outstanding balance in mortgage and other note obligations at March 31,
2009, consists of $354,879 outstanding under the Revolving Credit Facility,
which is discussed below, and $187 under mortgage obligations collateralized by
land held for development and sale and improvements. The average daily balance of the Revolving
Credit Facility during the nine months ended March 31, 2009, was $372,744.
The
$105,000 outstanding balance in subordinated notes relates to the sale and
issuance of trust preferred securities as discussed below.
Revolving Credit Facility
On
December 22, 2004, Greenwood Financial, Inc., a wholly-owned
subsidiary of the Company, and other wholly-owned subsidiaries of the Company,
as borrowers, and Orleans Homebuilders, Inc., as guarantor, entered into a
Revolving Credit Loan Agreement for a Senior Secured Revolving Credit and
Letter of Credit Facility with various banks as lenders (as amended and
restated and further amended, the Revolving Credit Facility). The Revolving
Credit Loan Agreement was amended on January 24, 2006, via the Amended and
Restated Revolving Credit Loan Agreement (the Amended Credit Agreement). In connection with the Amended Credit
Agreement, Orleans Homebuilders, Inc. executed a Guaranty, which was
amended on September 6, 2007 and amended and restated on September 30,
2008. The Amended and Restated Credit Agreement was amended on November 1,
2006, February 7, 2007, May 8, 2007, September 6, 2007, December 21,
2007, May 9, 2008 by a limited waiver to the Amended Credit Agreement,
which was extended on September 15, 2008, and amended and restated in the
Second Amended and Restated Revolving Credit Loan Agreement, dated September 30,
2008 (the Second Amended Credit Agreement).
The Second Amended Credit Agreement was subsequently amended by a
limited waiver letter dated January 30, 2009 (the waiver letter) and the
First Amendment to Second Amended and Restated Revolving Credit Loan Agreement
and First Amendment to Security Agreement dated February 11, 2009 (the
First Amendment).
Waiver Letter
Absent
the waiver letter described below, the Company would have continued to be in
default of its obligation to, on or before January 23, 2009, make a
principal repayment in an amount necessary to reduce the outstanding principal
balance of the loans to the borrowing base availability (the Repayment
Covenant). While the Company made
certain principal payments, the failure to make the repayment in full within
the proscribed period constituted an event of default under the Second Amended
Credit Agreement, of which the Company provided notice to the Lenders. In addition, Wachovia Bank, N.A. (Wachovia)
asserted that the borrowers breached the liquidity covenant in the Second
Amended Credit Agreement (the Liquidity Covenant) for the quarter ended December 31,
2008. The Company disagrees with
Wachovias assertion that the borrowers breached the Liquidity Covenant and
notified Wachovia of their disagreement.
The
waiver letter temporarily waived compliance with the Repayment Covenant and the
Liquidity Covenant generally from December 31, 2008 through and including February 6,
2009, unless another event of default occurred. With the termination of
waiver period without the First Amendment described below having been entered
into, the failure of the borrowers to have complied with the Repayment Covenant
on or before that date, the borrowers were again in breach of the Repayment
Covenant and, to the extent there had been a breach of the Liquidity Covenant
as asserted by Wachovia (an assertion with which the Company disagrees), the
borrowers were also in breach of that covenant. Any such breaches were,
however, cured by the First Amendment described below.
First Amendment to the Second Amended
Credit Agreement and Security Agreement:
On
February 11, 2009, the Company entered into the First Amendment to the
Second Amended Credit Agreement which provides, among other things, that:
·
The category reductions applicable to
the determination of borrowing base availability were adjusted so that the
maximum borrowing base availability attributable to asset class (ii) (units
not subject to a qualifying agreement of sale) determined on the basis of any
borrowing base certificate that is delivered before July 31, 2009, was
increased to a maximum of 58% of the aggregate borrowing base availability
attributable to asset classes (i) (units subject to a qualifying agreement
of sale) and (ii) (units not subject to a qualifying agreement of sale) as
shown on the borrowing base certificate.
For borrowing base certificates delivered on or after July 31,
2009, the maximum percentage remains unchanged at 45%.
·
The category reductions applicable to
the determination of the borrowing base availability were adjusted so that the
maximum borrowing base availability attributable to asset classes (iii) (lots
part of improved land
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not subject to a qualifying agreement of
sale), (iv) (lots part of land under development) and (v) (lots part
of land approved for development), based on borrowing base certificates
delivered before July 31, 2009, was increased to a maximum of 65% of the
total borrowing base availability as shown on the borrowing base
certificate. For borrowing base
certificates delivered on or after July 31, 2009, the maximum percentage
is 55%. The maximum dollar value of
borrowing base availability attributable to asset classes (iii), (iv) and (v) were
also adjusted to the following (with such limitations to be reduced dollar for
dollar at the time and in the amounts of any impairments with respect to assets
in asset classes (iii), (iv) and (v) and included in the borrowing
base taken by borrowers):
(i)
Beginning with the
Borrowing Base Certificate delivered on or after the effective date of the
First Amendment: $235,000;
(ii)
Beginning with the
Borrowing Base Certificate delivered on or after July 31, 2009: $200,000;
and
(iii)
Beginning with the
Borrowing Base Certificate delivered after September 30, 2009: $190,000.
·
Under the First Amendment, the
aggregate effect of (i) the modification of the borrowing base category
reductions applicable to units not subject to a qualifying agreement of sale
(described above); (ii) the modification of the borrowing base category
reductions for land under development (described above); and (iii) the
inventory impairments during the second fiscal quarter of approximately $8,670,
was an increase in net borrowing base availability of $16,065 as of December 31,
2008, from a negative $14,567 to a positive $1,498.
·
The amount of the Revolving Credit
Facility was reduced from $440,000 to $405,000, except that the amount of the
Revolving Credit Facility will be reduced to $375,000 beginning on July 16,
2009 and through maturity, unless otherwise permanently reduced as a result of
certain prepayments required by the Revolving Credit Facility. The letter of credit sublimit was reduced to
$30,000 from $60,000, and the financial letter of credit sublimit was reduced
to $15,000 from $25,000. The amount actually available under the Revolving
Credit Facility is also subject to the borrowing base availability requirements
in the Revolving Credit Facility.
·
In the event there is one or more
defaulting lenders, so long as there is no event of default that has occurred
and is continuing, pro-rata principal payments shall not be made to such
defaulting lender, but instead shall be paid over to the master borrower.
·
The minimum consolidated tangible net
worth level was adjusted to a minimum of at least $25,000 (1) reduced by
the sum of (a) any impairments or other charges under GAAP on assets in
the borrowing base taken by the Company and recorded in respect of the
financial quarters ended December 31, 2008 and March 31, 2009, plus (b)
any deferred tax assets valuation allowance reserves recorded in respect of the
fiscal quarters ended December 31, 2008 and March 31, 2009, plus (c) any
impairments or write-offs relating to tangible assets or pre-acquisition costs
not contained in the borrowing base recorded in respect of the fiscal quarters
ended December 31, 2008 and March 31, 2009
(provided,
however, that the aggregate covenant level reduction pursuant to this clause (1) shall
not exceed $15,000), and (2) increased by the sum of (x) any
favorable adjustment to the deferred tax asset valuation allowance recorded in
respect of the fiscal quarters ended December 31, 2008 and March 31,
2009, plus (y) 50% of positive quarterly net income after March 31,
2008.
·
The definition of liquidity was
revised to provide that negative borrowing base availability is deducted from
cash and cash equivalents when determining liquidity and the minimum required
liquidity covenant was reduced from $15,000 to $10,000. A five business day cure period in the event
of a breach of the minimum liquidity covenant was also added.
·
The maximum amount of cash or cash
equivalents (excluding cash in transit at title companies) that the Company is
allowed to maintain was set at a maximum of $15,000 for any consecutive
five-day period.
·
The cash flow from operations
covenant ratio was adjusted downward for the quarter ending June 30, 2009 to
0.50:1.00 and for the quarter ending September 30, 2009 and thereafter to
0.65:1.00.
·
The Companys ability to purchase up
to $8,000 of unimproved real estate is no longer available; however, the
Companys ability to acquire lots through option take-downs remains
unchanged. The provision specifically
allowing the Company to make new joint venture investments up to certain
specified amounts was also eliminated.
·
The interest rate was increased by 25
basis points, to the one month LIBOR interest rate plus 5.25%.
·
Generally, the ability to obtain
letters of credit for general working capital or corporate purposes and the
ability to obtain letters of credit in connection with projects outside the
borrowing base were eliminated (provided, however, that existing letters of
credit can be renewed, subject to the other terms of the Loan Agreement).
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Table
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·
Provisions were added providing that
no letter of credit will be issued or renewed and that no tri-party agreement
will be executed or maintained while any lender is a defaulting lender, except
if the borrowers have delivered to the agent cash collateral equal to the
defaulting lenders pro rata share of the letter of credit or tri-party
agreement. The cash collateral is to be
used to reimburse lenders in the event of draws under letters of credit or
tri-party agreements.
·
Letter of credit advances (that is,
payments pursuant to a letter of credit that result in the making of a loan to
borrowers in excess of the then available borrowing base) must be repaid within
five business days, or earlier under certain circumstances.
·
Provisions were added to the Second
Amended Credit Agreement and related Security Agreement providing that, in the
event of receipt of any tax refund by any obligor that constitutes collateral,
the amount received must be used to prepay the loans under the facility. Any such collateral received by the agent
will likewise be applied to the outstanding indebtedness. However, such reduction of the outstanding
indebtedness would have the effect of then increasing the net borrowing base
availability immediately thereafter.
·
Additional provisions were added with
respect to the allocation among the lenders of burdens and risks associated
with defaulting lenders.
·
In consideration of entering into the
First Amendment to the Second Amended Credit Agreement, the Company paid a fee
equal to 0.25% of such approving lenders reduced commitments effective on the
closing of the amendment.
Terms of the Revolving Credit Facility:
The
borrowing limit under the Revolving Credit Facility is $405,000, except that
the amount of the Revolving Credit Facility will be reduced to $375,000
beginning July 16, 2009, unless otherwise permanently reduced to an amount
less than or equal to $375,000, as a result of certain required prepayments.
The total amount of loans and advances outstanding at any time under the
Revolving Credit Facility may not exceed the lesser of the then-current
borrowing base availability or the revolving sublimit as defined in the
Revolving Credit Facility. The borrowing base availability is based on the
lesser of the appraised value or cost of real estate owned by the Company that
has been admitted to the borrowing base and is subject to various limitations
and qualifications set forth in the Revolving Credit Agreement.
From
October 1, 2008 to February 10, 2009, borrowings and advances under
the Revolving Credit Facility bore interest on a per annum basis equal to the
LIBOR Market Index Rate plus 500 basis points.
Beginning on February 11, 2009, the interest rate increased to the
LIBOR Market Index Rate plus 525 basis points.
Prior to October 1, 2008, the applicable spread had been 400 basis
points. During the term of the Revolving Credit Facility, interest is payable
monthly in arrears. At March 31,
2009, the interest rate was 5.76%, which included a 525 basis point spread. LIBOR Market Index Rate is defined by the
Revolving Credit Facility as one-month LIBOR for dollar deposits as it may be
adjusted pursuant to the terms of the Revolving Credit Facility to account for
any applicable Federal Reserve euro currency reserve requirements or similar
governmental requirements.
A
fee will be earned and payable on September 15, 2009 equal to 8.0% per
annum, calculated on a daily basis, of the difference between $250,000 and the
aggregate level of the lenders lending commitments under the Revolving Credit
Facility as they exist from time to time between September 30, 2008 and
the earlier of September 15, 2009 and the date the commitments are
permanently reduced to $250,000; however this fee will be reduced by 80% if the
aggregate level of commitments on or before September 15, 2009 have been
permanently reduced to $250,000 or less. Under this provision, the Company
currently estimates that the minimum it will be required to pay is $0 and the
maximum is $9,150. The Company expects that it will pay no amounts under this
provision as it intends to refinance or otherwise modify the debt before the
payment is due and payable. There can be no assurance that such refinancing
will occur or will occur on terms favorable to the Company. In addition, if all indebtedness under the
Revolving Credit Facility is not fully repaid by December 20, 2009, a
separate fee will be earned and payable on December 20, 2009 equal to 8.0%
per annum of the amount by which the aggregate commitments under the Revolving
Credit Facility that exist from time to time after September 15, 2009
exceed $250,000, calculated on a daily basis.
Under this provision, the Company currently estimates that the minimum
it will be required to pay is $0 and the maximum is $2,630. The Company expects
that it will pay no amounts under this provision as it intends to refinance the
debt before the payment is due and payable. There can be no assurance that such
refinancing or modification will occur or will occur on terms favorable to the
Company.
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Table of Contents
In
addition to any interest that may be payable with respect to amounts advanced
by the lenders pursuant to a letter of credit, the Company will be required to
pay to the lender(s) issuing letters of credit an issuance fee of 0.125%
of the amount of the letters of credit.
Under
and subject to the terms of the Revolving Credit Facility, the borrowers may
borrow and re-borrow for the purpose of financing the acquisition and
development of real estate, the construction of homes and improvements, for
working capital and for such other appropriate corporate purposes as may be
approved by the lenders. Under the Revolving Credit Facility, each lender is
generally obligated to fund only its pro rata portion of each requested loan or
advance. As a result, if any lender
refuses, or is unable, to fund its pro rata portion of a requested loan or
advance, the borrowers may be unable to borrow the entire amount of the
requested loan or advance despite the fact that if there are defaulting
lenders, the borrowers are permitted to submit additional borrowing requests in
an effort to make-up any borrowing shortfall caused by a defaulting lender
failing to fund. In addition, so long as
no event of default has occurred and is continuing, pro-rata principal payments
shall not be made to any defaulting lender, but instead shall be paid over to
the master borrower. The Revolving
Credit Facility also provides for certain burden sharing measures to allocate
among the lenders the burdens and risks associated with defaulting lenders in
the event there are defaulting lenders.
Approximately
35% of the borrowers borrowing base assets have been reappraised pursuant to
the terms of the waiver letter and approximately one third of the total assets
in the borrowing base with a book value in excess of $4,000 that were not
previously reappraised, have just been reappraised, are currently being
reappraised, or are anticipated to be reappraised during the next quarter. The
reappraisals that have been done to date have not had a material impact on the
Companys borrowing base availability, but there can be no assurance that
future reappraisals will not reduce borrowing base availability.
Various
conditions must be satisfied in order for real estate to be admitted to the
borrowing base, including that a mortgage in favor of lenders has been
delivered to the agent for lenders and that all governmental approvals
necessary to begin development of for-sale residential housing, other than
building permits and certain other permits borrower in good faith believes will
be issued within 120 days, have been obtained. Depending on the stage of
development of the real estate, the loan to value or loan to cost advance rate
in the borrowing base ranges from 50% to 95% of the appraised value or cost of
the real estate. Based on these ranges, the Company is restricted as to the
type of land it can have in various stages of development as well as the dollar
value of land under development.
As
security for all obligations of borrowers to lenders under the Revolving Credit
Facility, lenders continue to have a first priority mortgage lien on all real
estate owned by the Company or any borrower and included in the borrowing base
under the Revolving Credit Facility. As further security, pursuant to the
Second Amended Credit Facility, the Company has also agreed to grant to the
lenders (i) a security interest in and assignment of all future tax
refunds and proceeds thereof received or payable to the borrowers or the
Company after the closing of the Second Amended Credit Agreement, (ii) mortgages
in favor of lenders with respect to all real property owned by the borrowers or
the Company that is not already subject to a lien in favor of the lenders under
the Revolving Credit Facility and, (iii) a security interest in
inter-company debt. Pursuant to the
First Amendment, all such tax refunds must be paid over to the lenders within
one business day and will be used to prepay any indebtedness under the
Revolving Credit facility. Orleans
Homebuilders, Inc. has guaranteed the obligations of the borrowers to
lenders pursuant to a Guaranty executed by Orleans Homebuilders, Inc. on January 26,
2006, amended on September 6, 2007 and amended and restated on September 30,
2008. Under the Guaranty, Orleans
Homebuilders, Inc. granted lenders a security interest in any balance or
assets in any deposit or other account that Orleans Homebuilders, Inc. has
with any lender. However, the Company and its subsidiaries maintain a majority
of the cash, cash equivalents and marketable securities available to them in
accounts and as treasury securities outside of the lenders under the Revolving
Credit Facility.
The
Revolving Credit Facility contains customary covenants that, subject to certain
exceptions, limit or eliminate the ability of the Company to (among other
things):
·
Incur or assume other indebtedness, except
certain permitted indebtedness and possible second lien indebtedness if
appropriately approved;
·
Grant or permit to exist any lien, except
certain permitted liens;
·
Enter into any merger, consolidation or acquisition
of all or substantially all the assets of another entity;
·
Sell, assign, lease or otherwise dispose of
all or substantially all of its assets;
·
Enter into any transaction with an affiliate
that is not a borrower or a guarantor under the Revolving Credit Facility, or a
subsidiary of either;
·
Pay any dividends;
·
Redeem any stock or subordinated debt; and
·
Invest in joint ventures or other entities
that are not obligors under the Revolving Credit Facility.
11
Table of Contents
In
addition, under the Revolving Credit Facility, all real property sales must be
accomplished through a title company, with the net proceeds of such a sale
going directly to the agent bank for application to the outstanding balance
under the Revolving Credit Facility. Any purchases of real estate must be done
through a title company through advances under the Revolving Credit Facility
and all such acquisitions must be subject to mortgages in favor of the lenders;
and, at the time of any such advance, the Company will be required to provide
an estimate of the portion of the borrowing that will be used for construction
needs. However, the Company may make additional draws from time-to-time
pursuant to the terms of the Revolving Credit Facility.
The
Revolving Credit Facility also contains various financial covenants. Among
other things, the financial covenants, as amended, require that:
·
Subject to a five day cure period, The
Company must maintain a minimum consolidated tangible net worth of at least
$25,000 (1) reduced by the
sum of (a) any impairments or other charges under GAAP on assets in the
borrowing base taken by the Company and recorded in respect of the financial
quarters ended December 31, 2008 and March 31, 2009, plus (b)
any deferred tax assets valuation allowance reserves recorded in respect of the
fiscal quarters ended December 31, 2008 and March 31, 2009, plus (c) any
impairments or write-offs relating to tangible assets or pre-acquisition costs
not contained in the borrowing base recorded in respect of the fiscal quarters
ended December 31, 2008 and March 31, 2009
(provided,
however, that the aggregate covenant level reduction pursuant to this clause (1) shall
not exceed $15,000), and (2) increased by the sum of (x) any
favorable adjustment to the deferred tax asset valuation allowance recorded in
respect of the fiscal quarters ended December 31, 2008 and March 31,
2009, plus (y) 50% of positive quarterly net income after March 31,
2008.
·
The Company must maintain a required
liquidity level based on cash plus borrowing base availability of at least
$10,000 of cash and cash equivalents (including cash held at a title company)
on a consolidated basis at all times, minus the amount by which the
then-outstanding principal balance of the Companys loans plus any swing line
loans exceeds the then-current borrowing base availability.
·
The Companys minimum cash flow from
operations ratio based on cash flow from operations to interest incurred covenant,
must exceed 1.25-to-1.00 for the quarter ending December 31, 2008;
0.40-to-1.00 for the quarter ending March 31, 2009; 0.50-to-1.00 for the
quarter ending June 30, 2009; and 0.65-to-1.00 for the quarter ending September 30,
2009 and thereafter. Cash flow from operations is calculated based on the last
twelve months cash flow from operations, adjusted for interest paid (excluding
any amortized deferred financing costs related to all amendments to the Amended
Credit Agreement, the Second Amended Credit Agreement and the trust preferred
securities and any future amendments to any of the foregoing), amounts from the
disposition of model homes that are subject to a sale-leaseback transaction to
the extent such amounts are not otherwise included in net cash provided by
operating activities, and interest income.
·
The maximum amount of cash or cash
equivalents (excluding cash at title companies) the Company is allowed to
maintain for any consecutive five-day period is $15,000.
·
The Company may purchase improved land
(i.e., finished lot takedowns and/or controlled rolling lot options)
purchased by the borrowers in the normal course of business, consistent with
the projections provided to the lenders, but otherwise limits the Companys
ability to purchase improved and unimproved land.
At
the fiscal quarters ended September 30, 2006, December 31, 2006, March 31,
2007, June 30, 2007, March 31, 2008, June 30, 2008 and December 31,
2008, the Company would have been in violation of certain financial covenants
in the Amended and Restated Credit Agreement if not for the first, second,
third and fourth amendments to and waiver letter with respect to the Amended
and Restated Credit Agreement, the Second Amended Credit Agreement, the waiver
letter and the First Amendment to the Second Amended Credit Agreement,
respectively.
The
Revolving Credit Facility provides that, subject to any applicable notice and
cure provisions, each of the following (among others) is an event of default:
·
Failure by borrowers to pay when due any
amounts owing under the Revolving Credit Facility;
·
Failure by the Company to observe or perform
any promise, covenant, warranty, obligation, representation or agreement under
the Revolving Credit Facility or any other loan document;
·
Bankruptcy and other insolvency events with
respect to any borrower or the Company;
·
Dissolution or reorganization of any borrower
or the Company;
·
The entry of a judgment or judgments against
borrower(s) or the Company: (i) in an aggregate amount that is at
least $500 in excess of available insurance proceeds, if such judgment or
judgments are not dismissed or bonded within 30 days; or (ii) that
prevents borrowers from conveying lots and units in the ordinary
12
Table of Contents
course of business if such judgment or judgments are not dismissed or
bonded within 30 days; or the issuance of any writs of attachment,
execution or garnishment against any borrower or the Company;
·
Any material adverse change in the financial
condition of a borrower or the Company which causes the lenders, in good faith,
to believe that the performance of any of the obligations under the Revolving
Credit Facility is impaired or doubtful for any reason; and
·
Specified cross defaults.
Upon
the occurrence and continuation of an event of default, after completion of any
applicable grace or cure period, lenders may demand immediate payment in full
of all indebtedness outstanding under the Revolving Credit Facility, terminate
their obligations to make any loans or advances or issue any letter of credit,
set off and apply any and all deposits held by any lender for the credit or
account of any borrower and foreclose upon any collateral. In addition, upon the occurrence of certain
events of bankruptcy or other insolvency events with respect to any borrower or
the Company, all indebtedness outstanding under the Revolving Credit Facility
shall be immediately due and payable without any act or action by lenders. A
default under the Companys Revolving Credit Facility could also prevent the
Company from making required payments under the Companys trust preferred
securities, which would cause a default under those securities.
The
Revolving Credit Facility currently provides for certain adjustments to the
manner in which borrowing base availability is to be calculated to take
effect with respect to borrowing base certificates delivered on or after July 31,
2009 which will have the effect of reducing borrowing base availability.
In addition, a portion of the Companys borrowing base assets
are currently subject to reappraisal by the Companys
lenders. As a result, the Company may need to obtain an amendment to its
Revolving Credit Facility providing additional liquidity on or before August 15,
2009. If the Company is unable to obtain such an amendment, the Companys
future borrowings may exceed the then available borrowing base. Under
such circumstances, absent a wavier or an amendment from its lenders, the
Company could be in default under its Revolving Credit Facility and, as a
result, its debt could become due which would have a material adverse effect on
the Companys financial position and results of operations.
As
of March 31, 2009, the Company was in compliance with all of its financial
covenants under the Second Amended Credit Agreement, as amended.
Trust Preferred Securities:
On
November 23, 2005, the Company issued $75,000 of trust preferred
securities which mature on January 30, 2036 and are callable, in whole or
in part, at par plus accrued interest on or after January 30, 2011. For
the first ten years, the securities have a fixed interest rate of 8.61% per
annum, provided that certain covenant levels are maintained. Thereafter, the
securities have a floating interest rate equal to three-month LIBOR plus 360
basis points per annum, resetting quarterly. The securities are treated as debt
obligations for financial statement purposes. The Company used proceeds from
the sale of these securities to repay outstanding obligations under the
Revolving Credit Facility discussed above.
The
trusts preferred and common securities require quarterly distributions of
interest by the trust to the holders of the trust securities at a fixed
interest rate equal to 8.61% per annum through January 30, 2016 and, after
January 30, 2016, at a variable interest rate (reset quarterly) equal to
the three-month London Interbank Offered Rate (LIBOR) plus 360 basis points (Regular
Interest Rate). Since the Company
failed to meet both the debt service ratio and minimum tangible net worth
requirement set forth in the August 13, 2007 supplemental indenture as of
the end of a fiscal quarter for at least three of the last four consecutive
fiscal quarters ended on June 30, 2008, the applicable rate of interest
was increased by 300 basis points (Adjusted Interest Rate). The Company began
accruing for this increased interest rate on July 31, 2008, which was paid
to holders for the first time with the coupon payable on October 31, 2008.
The interest rate will return to the regularly applicable rate once the Company
is in compliance with the debt service ratio and minimum tangible net worth
requirements as of the end of any fiscal quarter. The terms of the trust securities are
governed by an Amended and Restated Trust Agreement, dated November 23,
2005, among OHI Financing, Inc., (OHI Financing) as depositor, JPMorgan
Chase Bank, National Association, as property trustee, Chase Bank USA, National
Association, as the Delaware trustee, and the administrative trustees named
therein.
The
trust used the proceeds from the sale of the trusts securities to purchase
$77,320 in aggregate principal amount of unsecured junior subordinated notes
due January 30, 2036 issued by OHI Financing, which includes $2,300 of
inter-company issuances. The junior subordinated notes were issued pursuant to
a Junior Subordinated Indenture, dated November 23, 2005, as amended by a
Supplemental Indenture dated August 13, 2007, collectively referred to
herein as the Indenture, among OHI Financing, as issuer, and JPMorgan Chase
Bank, National Association, as trustee. The terms of the junior subordinated
notes are substantially the same as the terms of the trusts preferred
securities. The interest payments on the junior subordinated notes paid by OHI
Financing will be used by the trust to pay the quarterly distributions to the
holders of the trusts preferred and common securities. Pursuant to the parent
guarantee agreement dated November 23, 2005 by and
13
Table of Contents
between
the Company and JPMorgan Chase Bank, National Association, as trustee, the
Company has unconditionally guaranteed OHI Financing payment and other
obligations under the indenture and the junior subordinated notes. The Company
used the proceeds from the issuance and sale of the trust preferred securities
and the subsequent purchase of the junior subordinated notes to partially repay
indebtedness.
The
Indenture permits OHI Financing to redeem the junior subordinated notes at par,
plus accrued interest on or after January 30, 2011. If OHI Financing redeems
any amount of the junior subordinated notes, the Trust Agreement requires the
trust to redeem a like amount of the trust securities. Under certain
circumstances relating to the tax treatment of the trust or the interest
payments made on the junior subordinated notes or the classification of the
trust as an investment company under the Investment Company Act of 1940, as
amended, OHI Financing may also redeem the junior subordinated notes prior to January 30,
2011 at a 7.5% premium.
With
certain exceptions relating to debt to a trust, partnership or other entity
affiliated with the Company that is a financing vehicle for the Company, the
junior subordinated notes and the Companys obligations under the parent
guarantee are expressly subordinate to all of the Companys existing and future
debt unless it is provided in the instrument creating or evidencing such debt,
or pursuant to which such debt is outstanding, that such debt is not superior
in right to payment of the junior subordinated notes or the obligations under
the parent companys guarantee, as the case may be.
Under
the Indenture, OHI Financing will generally have to make eight consecutive
Adjusted Interest Rate coupon payments (other than the eight consecutive
Adjusted Interest Rate coupon payments that could be made on each of the coupon
payment dates from October 30, 2008 to and including July 30, 2010)
to cause an event of default under the Indenture (or in some cases six
consecutive coupon payments). More specifically, the Indenture provides that
the earliest an event of default could occur as a result of the payment of the
Adjusted Interest Rate is (i) upon the payment of the Adjusted Interest
Rate coupon for October 30, 2010, if applicable, provided there have been
eight prior consecutive Adjusted Interest Rate coupons paid by OHI Financing; (ii) on
either the fiscal quarter ended March 31, 2010 or the fiscal year ended June 30,
2010, if at either date both the trailing twelve months interest coverage
ratio is less than 1.25 to 1, and OHI Financing has made the six prior
consecutive Adjusted Interest Rate coupon payments; or (iii) on the fiscal
quarter ended September 30, 2010, if at such time both the trailing twelve
months interest coverage ratio is less than 1.75 to 1, and OHI Financing has
made the eight prior consecutive Adjusted Interest Rate coupon payments. If the interest coverage ratio test and the
minimum consolidated tangible net worth test are both met, OHI Financing would
make the payment of the Regular Interest Rate for the next coupon, and the
Adjusted Interest Rate test resets requiring OHI Financing to make eight (or
in some instances six) new consecutive coupon payments at the Adjusted Interest
Rate before triggering an event of default. The interest coverage ratio and minimum
consolidated tangible net worth measure are not traditional financial
maintenance covenants; they are only utilized in determining if the Adjusted
Interest Rate or the Regular Interest Rate is applicable.
The
junior subordinated notes and the trust securities could become immediately
payable upon an event of default. Under the terms of the Trust Agreement and
the Indenture, subject to any applicable cure period, an event of default
generally occurs upon:
·
non-payment of any interest on the junior
subordinated notes when it becomes due and payable, and continuance of the
default for a period of 30 days;
·
non-payment of the principal of, or any
premium on, the junior subordinated notes at their maturity;
·
default in the performance, or breach, of any
covenant or warranty made by OHI Financing in the indenture and the continuance
of the default or breach for a period of 30 days after written notice to
OHI Financing;
·
non-payment of any distribution on the trusts
securities when it becomes due and payable, and continuance of the default for
a period of 30 days;
·
non-payment of the redemption price of any
trusts security when it becomes due and payable;
·
default in the performance, or breach, in any
material respect of any covenant or warranty of any of the trustees in the
Trust Agreement, which default or breach continues for a period of 30 days
after written notice to the trustees and OHI Financing;
·
default in the performance, or breach (which
default or breach must be material in certain cases), of any covenant or
warranty made by OHI Financing. In the purchase agreement pursuant to which the
trust securities and the junior subordinated notes were sold and purchased and
the continuation of such default or breach for a period of 30 days after
written notice to OHI Financing;
·
bankruptcy, insolvency or liquidation of the
property trustee, if a successor property trustee has not been appointed within
90 days thereafter;
·
the bankruptcy or insolvency of OHI
Financing; or
·
certain dissolutions or liquidations, or
terminations of the business or existence, of the trust.
14
Table of Contents
Pursuant
to the August 13, 2007 Supplemental Indenture, OHI Financing established a
$5,000 reserve fund in September 2007 for the benefit of the holders of
the trust preferred securities by posting a letter of credit with the trustee.
If the Adjusted Interest Rate is in effect for the four consecutive coupon
payments ending July 30, 2009, this reserve fund must be increased by
$2,500. Under certain events of default, this reserve fund may be drawn by the
trustee and used in respect of the trust preferred obligations. The reserve
fund may be released upon the earlier of compliance with the applicable
interest coverage ratio resulting in OHI Financing paying interest at the
regular interest rate rather than the adjusted interest rate, or redemption or
defeasance of the notes in accordance with the terms of the Indenture.
On
September 20, 2005, the Company issued $30,000 of trust preferred
securities which mature on September 30, 2035 and are callable, in whole
or in part, at par plus accrued interest on or after September 30, 2010.
For the first ten years, the securities have a fixed interest rate of 8.52% per
annum. Thereafter, the securities have a floating interest rate equal to
three-month LIBOR plus 380 basis points per annum, resetting quarterly. The
securities are treated as debt obligations for financial statement purposes.
The Company used proceeds from the sale of these securities to fund land
purchases and residential construction. The obligations relating to the trust
preferred securities are subordinated to the Revolving Credit Facility.
On approximately July 30, 2009, pursuant to the terms of the first
amendment to the $75,000 issue of trust preferred securities, the Company is
generally required to provide a $2,500 increase in the reserve fund for the
benefit of holders of the trust preferred securities by posting a letter of
credit with the trustee. The Company
currently anticipates posting such letter of credit as is permitted under the
existing terms of the credit facility, provided the Company has sufficient
liquidity to do so at such time. If
posted, this letter of credit will reduce our liquidity otherwise determined at
that time by $2,500.
7.
ASSET IMPAIRMENTS
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
The
Company accounts for its real estate held for development and sale in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144).
SFAS No. 144 requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. Recoverability of real estate held for
development and sale is measured by comparing the carrying value to the future
undiscounted net cash flows expected to be generated by the asset. The impairment loss is the difference between
the book value of the assets and the discounted future cash flows generated
from expected revenue of the assets, less the associated cost to complete and
direct costs to sell. Estimated cash
flows are discounted at a rate commensurate with the inherent risk of the
assets and cash flows, which approximates fair value. The estimates used in the determination of
the estimated cash flows and fair value of the asset are based on factors known
to the Company at the time such estimates are made and the Companys expectations
of future operations. These estimates of
cash flows are significantly impacted by estimates of the amounts and timing of
revenues and costs and other factors, which, in turn, are impacted by local
market economic conditions and the actions of competitors. Should the estimates or expectations used in
determining estimated cash flows or fair value decrease or differ from current
estimates in the future, we may be required to recognize additional impairments
related to these assets or other assets.
As
of March 31, 2009, there were a number of parcels which were tested for
impairment as a trigger was identified.
Some of these parcels included those that had previously been
impaired. In some cases, the
undiscounted cash flow analysis prepared by management did not indicate an
impairment. However, these cash flows
are subject to significant estimates and assumptions made by management. In some cases, the results of whether an
impairment is indicated from the undiscounted cash flow analysis is highly sensitive
to changes in assumptions. These parcels
could suffer impairment in the future, and such impairment amounts could be
material to the Companys results of operations and financial position.
In conducting the review for indicators of impairment on a community
level, the Company evaluates, among other things, the margins on homes that
have been delivered, margins under sales contracts in backlog, projected
margins with regard to future home sales over the life of the community, and
the fair value of the land itself.
Inventory impairments are recorded in residential properties cost and
expenses.
When
impairment is indicated, the Company estimates the fair value of inventory
under SFAS No. 144 based on current market conditions and current
assumptions made by management, which may differ materially from actual results
if market conditions change. For
example, further market deterioration may lead the Company to incur additional
impairment charges on previously impaired inventory, as well as on inventory
not currently impaired.
In
determining the recoverability of the carrying value of the assets in a
community that the Company has evaluated as requiring a test for impairment,
significant quantitative and qualitative assumptions are made relative to the
future home sales prices, sales incentives, direct and indirect costs
(including interest expected to be capitalized) of home construction and land
development and the pace of new home orders. In addition, these assumptions are
dependent on the specific market conditions and competitive factors for the
community being tested. The Companys
estimates are made using information
15
Table of Contents
available
at the date of the recoverability test.
However, as facts and circumstances may change in future reporting
periods, the estimates of recoverability are subject to change. For example, in certain communities, in
response to current market conditions, we have introduced new smaller-value
oriented product and we have also seen a shift in mix to our multi-family
townhome products as well as lower priced single family communities. When impairment is indicated, the Company
estimates the fair value of its communities using a discounted cash flow
model. The determination of fair value
also requires discounting the estimated cash flows at a rate commensurate with
the inherent risks associated with the assets and related estimated cash flow
streams.
The
following table represents inventory impairments by region for continuing
operations for the three and nine months ended March 31, 2009 and 2008:
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Communities
|
|
Impairment
|
|
Communities
|
|
Impairment
|
|
Northern
|
|
8
|
|
$
|
2,618
|
|
3
|
|
$
|
3,776
|
|
Southern
|
|
|
|
|
|
6
|
|
3,150
|
|
Midwestern
|
|
1
|
|
133
|
|
7
|
|
6,451
|
|
Florida
|
|
2
|
|
258
|
|
3
|
|
1,890
|
|
Total
|
|
11
|
|
$
|
3,009
|
|
19
|
|
$
|
15,267
|
|
|
|
Nine months ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
Impairment
|
|
Communities
|
|
Impairment
|
|
Northern
|
|
19
|
|
$
|
13,522
|
|
9
|
|
$
|
10,142
|
|
Southern
|
|
8
|
|
2,695
|
|
9
|
|
8,350
|
|
Midwestern
|
|
3
|
|
4,040
|
|
8
|
|
16,119
|
|
Florida
|
|
3
|
|
840
|
|
4
|
|
4,285
|
|
Total
|
|
33
|
|
$
|
21,097
|
|
30
|
|
$
|
38,896
|
|
During
the nine months ended March 31, 2008, the Company specifically identified
parcels of land to sell and negotiated contracts with potential buyers. Prior to the closing of the land sale
transactions, the Company recorded asset impairments on the land to be sold of
$36,556 for the nine months ended March 31, 2008. The Companys midwestern region recorded
impairments of $23,163 related to the sale of two parcels. The Companys Florida region recorded
impairments of $8,385 related to the sale of four parcels. The Companys southern region recorded
impairments of $5,008 related to the sale of two parcels.
Additionally,
the Company recorded an impairment charge of $20,706 related to the sale of its
land position in the western region in the nine months ended March 31,
2008. This impairment charge is included
in loss from discontinued operations.
These
impairment charges represent the amounts by which the carrying value of the
assets sold exceeded their fair values less costs to sell. The fair value of the assets was determined
based on the contracted sales price.
These impairment charges were included in the cost of land sales on the
Consolidated Statements of Operations.
8.
STOCK BASED
COMPENSATION
The
Company follows the provision of SFAS No. 123 (revised 2004) Share-Based
Payment (SFAS No. 123(R)), which establishes the financial accounting
and reporting standards for stock-based compensation plans. SFAS No. 123(R) requires the
measurement and recognition of compensation expense for all stock-based awards
made to employees and directors, including stock options and restricted stock. Under the provisions of SFAS No. 123(R),
stock-based compensation cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the
requisite service period of the entire award (generally the vesting period of
the award). The fair value based method
in SFAS No. 123(R) is similar to the fair-value-based method in SFAS No. 123
in most respects, subject to certain differences. The Company previously adopted the fair value
recognition provisions of SFAS No. 123 prospectively for all stock awards
granted and, as such, the impact of the modified prospective adoption of SFAS
123(R) did not have a significant impact on the financial position or
results of operations of the Company.
16
Table of Contents
Stock Option Plans
On
August 26, 2004, the Companys Board of Directors adopted the Orleans
Homebuilders, Inc. 2004 Omnibus Stock Incentive Plan (as subsequently
amended, the 2004 Stock Incentive Plan), which is intended to function as an
amendment, restatement and combination of all stock option and award plans of
the Company other than the Orleans Homebuilders, Inc. Stock Award
Plan.
On December 6, 2007, the stockholders of
the Company approved the second amendment and restatement of the 2004 Stock
Incentive Plan to increase the number of shares of the Companys common stock
authorized for issuance under the plan from 400,000 to 2,000,000 shares.
During
the three months ended March 31, 2009 and 2008, the Company recognized
$313 and $535, respectively, of stock based compensation expense related to
stock options.
During
the nine months ended March 31, 2009 and 2008, the Company recognized $972
and $1,501, respectively, of stock based compensation expense related to stock
options.
The
following summarizes stock option activity for the Companys stock option plans
during the nine months ended March 31, 2009:
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Average
|
|
|
|
of Options
|
|
Exercise Price
|
|
Outstanding, beginning of period
|
|
752,500
|
|
$
|
9.01
|
|
Granted
|
|
250,000
|
|
2.20
|
|
Exercised
|
|
|
|
|
|
Outstanding, end of period
|
|
1,002,500
|
|
$
|
7.32
|
|
Exercisable, end of period
|
|
314,500
|
|
$
|
11.00
|
|
There
were no options exercisable at March 31, 2009 that had a strike price
below the market value of the underlying shares of stock.
During
the nine months ended March 31, 2009, the Company granted options to
acquire 250,000 shares. During the nine
months ended March 31, 2008, the Company granted options to acquire
180,000 shares. In addition, during the
nine months ended March 31, 2008, options
to acquire 240,000 shares at $15.60 were
repriced to $4.65.
There
were no option or other grants made under the 2004 Stock Incentive Plan for the
three months ended March 31, 2009 and 2008.
No
options were exercised during the three and nine months ended March 31,
2009. During the three and nine months
ended March 31, 2008, 47,500 options were exercised.
The
following table summarizes information about the Companys stock options at March 31,
2009:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Outstanding at
|
|
Remaining
|
|
Average
|
|
Exercisable at
|
|
Remaining
|
|
Average
|
|
Range of
|
|
March 31,
|
|
Contractual
|
|
Exercise
|
|
March 31,
|
|
Contractual
|
|
Exercise
|
|
Exercise Prices
|
|
2009
|
|
Life
|
|
Price
|
|
2009
|
|
Life
|
|
Price
|
|
$ 2.20
|
-
|
$ 2.20
|
|
|
250,000
|
|
9.7
|
|
$
|
2.20
|
|
|
|
N/A
|
|
N/A
|
|
4.03
|
-
|
4.85
|
|
|
445,000
|
|
8.7
|
|
4.41
|
|
132,000
|
|
8.7
|
|
4.48
|
|
10.64
|
-
|
10.64
|
|
|
30,000
|
|
4.3
|
|
10.64
|
|
30,000
|
|
4.3
|
|
10.64
|
|
15.63
|
-
|
15.63
|
|
|
250,000
|
|
7.2
|
|
15.63
|
|
125,000
|
|
7.2
|
|
15.63
|
|
21.60
|
-
|
21.60
|
|
|
27,500
|
|
5.4
|
|
21.60
|
|
27,500
|
|
5.4
|
|
21.60
|
|
|
|
1,002,500
|
|
8.4
|
|
$
|
7.32
|
|
314,500
|
|
7.4
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Table of Contents
The
aggregate intrinsic value as of March 31, 2009 for outstanding stock
options and for stock options that were exercisable was $48 and $0,
respectively.
The
Company uses the Black-Scholes option pricing model to determine the aggregate
fair value of the stock options granted.
The aggregate fair value of the Companys stock option grants are
amortized to compensation expense over their respective vesting periods and
included in selling, general and administrative expenses on the Consolidated
Statements of Operations. The Company
typically issues shares of common stock from treasury stock upon the exercise
of stock options, but such shares may also be newly issued.
As
of March 31, 2009, there was a total of $1,449 of unrecognized
compensation expense related to time based non-vested stock options. That cost is expected to be recognized over a
weighted average period of 3.1 years.
Stock Award Plans
In
October 2003, the Board of Directors adopted the Orleans Homebuilders, Inc.
Stock Award Plan (the Stock Award Plan), which provided for the grant of
stock awards of up to an aggregate of 400,000 shares of the Companys common
stock. On October 17, 2008, the
Board of Directors approved an increase in the number of shares authorized for
issuance under the Stock Award Plan from 400,000 shares to 1,000,000 shares,
which was approved by stockholders at the Companys Annual Meeting on December 4,
2008. The Stock Award Plan allows for
the payment of all or a portion of the incentive compensation awarded under the
Companys bonus compensation plans to be paid by means of a transfer of shares
of common stock as well as other grants.
The plan has a ten year life and is open to all employees of the Company
and its subsidiaries. The value of time
based restricted stock awards are determined by their intrinsic value (as if
the underlying shares were vested and issued) on the grant date. There were no shares of stock awarded during
the three months ended March 31, 2009 and 2008. During the nine months ended March 31,
2009 and 2008, the company awarded 250,000 and 240,000 shares of restricted
stock to an executive officer. The
restricted stock awarded during the nine months ended March 31, 2009 was
issued under of the 2004 Stock Incentive Plan.
At March 31, 2009, the Company had awarded 395,904 shares of common
stock under the Stock Award Plan and had 604,096 shares of the common stock
available to issue under the Stock Award Plan.
During
the three months ended March 31, 2009 and 2008, the Company recognized
$121 and $89, respectively, of stock based compensation expense related to
stock awards.
During
the nine months ended March 31, 2009 and 2008, the Company recognized $417
and $282, respectively, of stock based compensation expense related to stock
awards.
As
of March 31, 2009, there was a total of $5,068 of unrecognized compensation
expense related to time based non-vested restricted stock awards. That cost is expected to be recognized over a
weighted average period of 5.1 years.
Cash Bonus Plan
On December 4, 2008, the Companys Compensation Committee adopted
a cash bonus plan for an executive officer (the Plan). The Plan
provides for a cash bonus of $375 to be paid to the executive officer in the
event the Company achieves certain performance targets as determined by the
Compensation Committee, which may generally include targets relating to: (i) capital
structure initiatives; (ii) refinancing the Companys outstanding debt
(such as by the issuance of new debt, equity or equity-linked securities by the
Company or a joint venture in which the Company is a participant); or (iii) the
Company entering into a new or modified credit facility (such as a modified
credit facility extending the maturity date of the Companys revolving credit
facility). The maximum amount payable pursuant to the Plan is $750,
provided the Company achieves at least two of such performance targets.
In the event the executive officer is awarded a cash bonus pursuant to the
Plan, he will be given the option of using up to 50% of that cash bonus at the
time of the award to purchase restricted shares of the Companys stock at a
purchase price of $2.75 per share (or up to 136,363 shares of fully vested
common stock will be issued to the executive officer if all awards are earned
under the Plan and the executive officer elects to have all such awards payable
in Company common stock). The Company is
accounting for the Plan as a combination award in accordance with SFAS No. 123(R). Based on Company estimates, the Company
accrued $375 during the period of December 2008 through March 2009;
is accruing $375 during the period of December 2008 through September 2009;
and is expensing $60 relating to the option to purchase restricted shares
during the period of December 2009 through September 2009. During the three and nine months ended March 31,
2009, the Company recognized $412 and $549 of compensation expense related to
the Plan. To date, no payments have been
made under the Plan.
18
Table of
Contents
9.
EMPLOYEE
RETIREMENT PLAN
On
December 1, 2005, the Company adopted an unfunded, non-qualified target
defined benefit retirement plan, effective as of September 1, 2005, which
covers a group of management employees of the Company. The Company owns life insurance policies on
all participants in the Supplemental
Executive Retirement Plan (SERP). This SERP, which was amended on March 13,
2006 and September 27, 2007, is intended to provide the participants with
an annual supplemental retirement benefit based upon their years of service
with the Company and highest average compensation for five consecutive
years. The annual supplemental benefit
for each participant will be adjusted based on the actual performance of the
SERP compared to the target. The benefit
is payable for life with a minimum of ten years guaranteed. In order to qualify for normal retirement
benefits, a participant must attain age 65 with at least five years of
participation in the SERP. Early
retirement will be permitted beginning at age 55, after five years of
participation in the SERP. Early retirement benefits will be adjusted
actuarially to reflect the early retirement date.
If a participant
terminates employment with the Company prior to attaining his or her normal
retirement date, other than by reason of early retirement, death or disability,
the participant will forfeit all benefits under the SERP, provided that certain
terminations occurring after a change in control will not result in a
forfeiture. The Company can amend or
terminate the SERP at any time. However, no amendment or termination will
affect the participants accrued benefits as determined in accordance with the
SERP or delay any payments to a participant beyond the time that such amount
would otherwise be payable without regard to the amendment.
The
Company used a 4% annual compensation increase and a 6.1% discount rate in its
calculation of the present value of its projected benefit obligation. The discount rate used represented the Moodys
AA bond rate for long-term bonds as of June 2008.
The
Company recognized the following costs related to the SERP for the three and
nine months ended March 31, 2009 and 2008:
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
130
|
|
$
|
153
|
|
$
|
389
|
|
$
|
459
|
|
Interest cost
|
|
85
|
|
84
|
|
255
|
|
254
|
|
Amortization of prior service cost
|
|
105
|
|
104
|
|
314
|
|
311
|
|
Amortization of actuarial gain
|
|
(67
|
)
|
(46
|
)
|
(203
|
)
|
(138
|
)
|
Total net periodic pension cost
|
|
$
|
253
|
|
$
|
295
|
|
$
|
755
|
|
$
|
886
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used for determining net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.10
|
%
|
6.10
|
%
|
6.10
|
%
|
6.10
|
%
|
Salary scale
|
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
19
Table of
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10.
LOSS PER SHARE
The
weighted average number of shares used to compute basic loss per common share
and diluted loss per common share and a reconciliation of the numerator and
denominator used in the computation for the three and nine months ended March 31,
2009 and 2008 are shown in the following table:
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations for basic and diluted EPS
|
|
$
|
(14,969
|
)
|
$
|
(47,111
|
)
|
$
|
(52,526
|
)
|
$
|
(87,481
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (in thousands)
|
|
18,555
|
|
18,520
|
|
18,525
|
|
18,508
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share from continuing operations
|
|
$
|
(0.81
|
)
|
$
|
(2.54
|
)
|
$
|
(2.84
|
)
|
$
|
(4.73
|
)
|
Assumed
shares (in thousands) under the treasury stock method for stock options of 0
and 58 for the three months ended March 31, 2009 and 2008, respectively,
and 0 and 74 for the nine months ended March 31, 2009 and 2008,
respectively, were not included in the computation of diluted earnings per
share because the impact was anti-dilutive for those periods.
11.
INCOME TAXES
The Company had income
tax expense from continuing operations for the nine months ended March 31,
2009 of $3,843 as compared to $2,458 for the nine months ended March 31,
2008. These amounts represent effective
tax rates for the nine months ended March 31, 2009 and 2008 of (7.9)% and
(2.9)%, respectively. The significant
changes in the Companys effective tax rate resulted primarily from the
recording of a correction to the accrued income tax account in the amount of
$2,347, as well as a $20,360 net valuation reserve in the first nine months of
fiscal year 2009 as compared with the initial establishment of a valuation
reserve in the nine months ended March 31, 2008 in the amount of $43,544. The $20,360 net valuation reserve includes a
correction related to the impact of a federal tax benefit in the amount of
$1,447, related to a state liability recorded prior to the Company establishing
a valuation reserve in the third quarter of fiscal year 2008, for which the
Company did not take taking a valuation reserve until the third quarter of
fiscal year 2009. SFAS No. 109 Accounting
for Income Taxes (SFAS No. 109) requires that companies assess whether
a valuation allowance should be established based on the consideration of all
available evidence using a more likely than not standard. In making such judgments, significant weight
is given to evidence that can be objectively verified. SFAS No. 109 provides that a cumulative
loss in recent years is significant negative evidence in considering whether
deferred tax assets are realizable and also restricts the amount of reliance on
projections of future taxable income to support the recovery of deferred tax
assets. The ultimate realization of
these deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Changes in existing tax laws
could also affect actual tax results and the valuation of deferred tax assets
over time.
During
the third quarter of fiscal year 2009, the Company recognized additional tax
expense of $3,794 reflecting the impact of cumulative out of period
adjustments. This error was related to
an overstatement of tax refunds due the Company reflected in the income tax
receivable account in the amount of $2,347,
coupled with an overstatement
of federal tax benefits in the amount of $1,447 related to a state tax
liability.
These error corrections had the
effect of increasing income tax expense and reducing net income by $3,794. The Company concluded that this adjustment
was not material to the consolidated financial statements for any prior period
or to the third quarter of fiscal year 2009.
At March 31, 2009
and June 30, 2008, the Company had net deferred income tax assets of
$74,002 and $53,642, respectively, offset by full valuation allowances of
$74,002 and $53,642, respectively.
The Company is currently
under examination by various taxing jurisdictions and anticipates finalizing
the examinations with certain jurisdictions within the next twelve months. The final outcome of these examinations is
not yet determinable. The statute of
limitations for the Companys major tax jurisdictions remains open for
examination for tax years 2005-2007.
20
Table of
Contents
12.
DISCONTINUED OPERATIONS
On
December 31, 2007, the Company specifically committed to exiting its
Arizona market and, in connection with this decision, on that date, it disposed
of its entire land position and its related work-in-process homes in Arizona,
which constituted substantially all of its assets in Arizona. The Company has historically reported this
business as the western region operating segment. The disposed work-in-process inventory and
land assets constituted substantially all of the Companys assets in the
western region. As such, all charges
associated with the western region are included as a discontinued operation.
As
the western region represented a component of the Companys business, the
consolidated financial statements have been reclassified for all periods
presented to present this business as discontinued operations. Summarized financial information for the
western region is set forth below:
|
|
Three months
|
|
Nine months
|
|
|
|
ended
|
|
ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2008
|
|
2008
|
|
Operating loss
|
|
$
|
(130
|
)
|
$
|
(21,704
|
)
|
Tax expense
|
|
8,504
|
|
|
|
Net loss from discontinued operations
|
|
$
|
(8,634
|
)
|
$
|
(21,704
|
)
|
Discontinued
operations have not been segregated in the condensed consolidated statement of
cash flows. Therefore amounts for certain captions will not agree with
respective data in the condensed consolidated statement of operations.
13.
SEGMENT REPORTING
SFAS No. 131 Disclosures
about Segments of an Enterprise and Related Information (SFAS No. 131)
establishes standards for the manner in which public enterprises report segment
information about operating segments.
The Company has determined that its operations primarily involve four
reportable homebuilding segments operating in 11 markets. Revenues are primarily derived from the sale
of homes which the Company constructs.
The segments reported have been determined to have similar economic
characteristics including similar historical and expected future operating
performance, employment trends, land acquisitions and land constraints,
municipality behavior and met the other aggregation criteria in SFAS No. 131. The reportable homebuilding segments include
operations conducting business in the following markets:
Northern
region:
·
Southeastern Pennsylvania;
·
Central New Jersey;
·
Southern New Jersey; and
·
Orange County, New York
Southern
region:
·
Charlotte, North Carolina (including adjacent counties in South
Carolina);
·
Richmond, Virginia;
·
Raleigh, North Carolina;
·
Greensboro, North Carolina; and
·
Tidewater, Virginia
Midwestern
region:
·
Chicago, Illinois
Florida
region:
·
Orlando, Florida
During the fiscal year
ended June 30, 2008, the Company exited from the Phoenix, Arizona
market. See note 12, Discontinued
Operations.
The Companys evaluation
of segment performance is based on (loss) income from continuing operations before
taxes. During fiscal year 2008, the
allocation of corporate and unallocated (loss) income from continuing
operations before taxes to
21
Table
of Contents
the segments was a fixed
amount, which left a portion of the loss unallocated. During fiscal year 2009, corporate (loss)
income from continuing operations is fully allocated to the segments based on
budgeted revenue. The fiscal year 2009
allocation includes the Companys mortgage brokerage and property management
subsidiaries. Below is a summary of
revenue and (loss) income from continuing operations before taxes for each
reportable segment for the three and nine months ended March 31, 2009 and
2008:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Total Revenue
|
|
|
|
|
|
|
|
|
|
Northern
|
|
$
|
31,451
|
|
$
|
51,923
|
|
$
|
111,553
|
|
$
|
158,200
|
|
Southern
|
|
27,505
|
|
47,940
|
|
99,099
|
|
159,045
|
|
Midwestern
|
|
5,739
|
|
6,623
|
|
26,427
|
|
36,742
|
|
Florida
|
|
769
|
|
5,156
|
|
5,198
|
|
30,111
|
|
Corporate and unallocated(1)
|
|
1,230
|
|
1,652
|
|
4,966
|
|
7,015
|
|
Consolidated Total
|
|
$
|
66,694
|
|
$
|
113,294
|
|
$
|
247,243
|
|
$
|
391,113
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Continuing Operations Before
Taxes
|
|
|
|
|
|
|
|
|
|
Northern
|
|
$
|
(5,358
|
)
|
$
|
(4,576
|
)
|
$
|
(19,246
|
)
|
$
|
(15,668
|
)
|
Southern
|
|
(4,619
|
)
|
(3,796
|
)
|
(19,801
|
)
|
(14,307
|
)
|
Midwestern
|
|
(182
|
)
|
(8,419
|
)
|
(7,350
|
)
|
(45,810
|
)
|
Florida
|
|
(690
|
)
|
(2,783
|
)
|
(2,286
|
)
|
(16,771
|
)
|
Corporate and unallocated
|
|
|
|
(550
|
)
|
|
|
7,533
|
|
Consolidated Total
|
|
$
|
(10,849
|
)
|
$
|
(20,124
|
)
|
$
|
(48,683
|
)
|
$
|
(85,023
|
)
|
(1) Corporate
and unallocated includes the revenue of the Companys mortgage brokerage and
property management.
14.
COMMITMENTS AND CONTINGENCIES
At
March 31, 2009, the Company had outstanding bank letters of credit, surety
bonds and financial security agreements amounting to $91,093 as collateral for
completion of improvements at various developments of the Company.
As
of March 31, 2009, the Company owned or controlled approximately 5,893
building lots. As part of the
aforementioned building lots, the Company has contracted to purchase, or had
under option, undeveloped land and improved lots for an aggregate purchase
price of $85,743, which are expected to yield approximately 1,020 building
lots. Generally, the Company structures
its land acquisitions so that it has the right to cancel its agreements to
purchase undeveloped land and improved lots by forfeiture of its deposit under
the agreement. Furthermore, purchase of
the properties is usually contingent upon obtaining all governmental approvals
and satisfaction of certain requirements by the Company and the sellers.
From
time to time, the Company is named as a defendant in legal actions arising from
its normal business activities.
Although
the amount of any liability that could arise with respect to currently pending
actions cannot be accurately predicted, in the opinion of the Company any such
liability will not have a material adverse effect on the financial position or
operating results of the Company.
The
Company accrues the cost for warranty and customer satisfaction into the cost
of its homes as a liability at closing for each unit based on the Companys
individual budget per unit. These liabilities are reviewed on a quarterly basis
and generally closed to earnings within nine to 12 months for unused
amounts with any excess amounts expensed as identified as a change in
estimate. Any significant material
defects are generally under warranty with the Companys supplier. The Company has not historically incurred any
significant litigation requiring additional specific reserves for its product
offerings (e.g., mold litigation).
Generally,
the Company provides all of its homebuyers with a limited one year warranty as
to workmanship. Under certain circumstances, this warranty may be extended to
two years. In practice, the Company may extend this warranty period with the
ultimate goal of satisfying the customer. In addition, the Company enrolls all
of its homes in a limited warranty program with a third party provider (with
the premium paid for this program included in the individual unit budgets
described above). This limited warranty program generally covers certain
defects for periods of one to two years and major structural defects
22
Table of Contents
for
up to ten years, with actual costs incurred being paid for by the third party
provider.
The Companys warranty
and customer satisfaction costs are charged to cost of sales at the time each
home is closed and title and possession have been transferred to the homebuyer.
The amount charged to additions represents warranty and customer satisfaction
costs factored into the cost of each home. The amount recorded as charges
incurred represents the actual warranty and customer satisfaction cost incurred
for the period presented. Certain costs to complete, not included as warranty
costs, have been excluded from the rollforward below:
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
Balance at beginning of period
|
|
$
|
3,353
|
|
$
|
2,908
|
|
Warranty costs accrued
|
|
1,150
|
|
2,024
|
|
Actual warranty costs incurred
|
|
(1,851
|
)
|
(2,154
|
)
|
Balance at end of period
|
|
$
|
2,652
|
|
$
|
2,778
|
|
On
approximately July 30, 2009, pursuant to the terms of the first amendment
to the $75,000 issue of trust preferred securities, the Company is generally
required to provide a $2,500 increase in the reserve fund for the benefit of
holders of the trust preferred securities by posting a letter of credit with
the trustee. The Company currently
anticipates posting such letter of credit as is permitted under the existing
terms of the credit facility, provided the Company has sufficient liquidity to
do so at such time. If posted, this
letter of credit will reduce our liquidity otherwise determined at that time by
$2,500.
15.
FAIR
VALUE DISCLOSURES
Effective July 1,
2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS No. 157)
as amended by FASB Staff Position SFAS No. 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13 (FSP FAS No. 157-1)
and FASB Staff Position SFAS No. 157-2, Effective Date of FASB Statement
No. 157 (FSP FAS No. 157-2). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP and provides for
expanded disclosure about fair value measurements. SFAS No. 157 is applied prospectively,
including to all other accounting pronouncements that require or permit fair
value measurements. FSP FAS No. 157-1
amends SFAS No. 157 to exclude from the scope of SFAS No. 157 certain
leasing transactions accounted for under SFAS No. 13, Accounting for
Leases for purposes of measurements and classifications. FSP FAS No. 157-2 amends SFAS No. 157
to defer the effective date of SFAS No. 157 for all non-financial assets
and non-financial liabilities except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis to fiscal years
beginning after November 15, 2008.
SFAS No. 157 defines
fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS No. 157 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three
levels of inputs that may be used to measure fair value. Financial assets and liabilities are
categorized based on the inputs to the valuation techniques as follows:
Level 1
|
Fair value
determined based on quoted prices in active markets for identical assets.
|
|
|
Level 2
|
Fair value
determined using significant other observable inputs.
|
|
|
Level 3
|
Fair values
determined using significant unobservable inputs.
|
The Companys financial
instruments measured at fair value on a recurring basis are summarized below:
|
|
|
|
Fair Value at
|
|
Financial Instruments
|
|
Fair Value Hierarchy
|
|
March 31, 2009
|
|
Marketable securities
|
|
Level
1
|
|
$
|
497
|
|
|
|
|
|
|
|
|
The partial adoption of
SFAS No. 157 under FSP FAS No. 157-2 did not have a material impact
on the Companys financial
23
Table
of Contents
assets and
liabilities. Management is evaluating
the impact that SFAS No. 157 will have on its non-financial assets and
non-financial liabilities since the application of SFAS No. 157 for such
items was deferred to July 1, 2009.
The Company believes that the impact of these items will not be material
to its consolidated financial statements.
16.
GOODWILL
During the nine months
ended March 31, 2009, the Company recorded an impairment charge related to
the goodwill that arose from the Companys
Parker & Lancaster
Corporation
acquisition. This assessment was
performed in accordance with SFAS No. 142.
Management evaluated the recoverability of the goodwill by comparing the
carrying value of the Companys southern reporting unit to its fair value. Fair value was determined based on the
discounted future cash flows. These cash
flows are significantly impacted by estimates related to current and future
economic conditions, including absorption rates and margins reflective of
slowing demand, as well as anticipated future demand and timing thereof. The amounts included in the discounted cash
flow analysis are based on managements best estimate of future results. This estimate considered increased risk and
uncertainty associated with current market and economic conditions as reflected
within the discount rate used to present value future cash flows and lower
expected pricing over the projection period due to decreased consumer demand in
the near term over the projection period.
The deteriorating market conditions in the Southern Region in which
Parker & Lancaster operates were the result of continued economic
turmoil, uncertainty in the credit and financial markets, decreased consumer
demand and increased mortgage underwriting standards. Discount rates were based on the Companys
weighted average cost of capital adjusted for the aforementioned business
risks. The amount of the goodwill
impairment was $4,180 and was recorded in the Companys southern reporting
segment. As a result of this impairment
charge, the Company has no goodwill on its Consolidated Balance Sheet at March 31,
2009. No impairment charge related to
goodwill was taken during the three and nine months ended March 31, 2008.
17.
VARIABLE
INTEREST ENTITIES
A
variable interest entity (VIE) is created when (i) the equity investment
at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties or (ii) equity
holders either (a) lack direct or indirect ability to make decisions about
the entity, (b) are protected from absorbing expected losses of the entity
or (c) do not have the right to receive expected residual returns of the
entity if they occur. If an entity is
deemed to be a VIE, pursuant to FIN 46-R, an enterprise that absorbs a
majority of the expected losses of the VIE is considered the primary
beneficiary and must consolidate the VIE.
Based
on the provisions of FIN 46-R, the Company has concluded that whenever it
enters into an option agreement to acquire land or lots from an entity and pays
a significant deposit that is not unconditionally refundable, a VIE is created
under condition (ii) (b) of the previous paragraph. The Company has been deemed to have provided
subordinated financial support, which refers to variable Interests that will
absorb some or all of an entitys expected theoretical losses if they
occur. For each VIE created, the Company
performs an analysis of the expected losses and residual returns based on the
probability of future cash flows based on the expected variability as outlined
in FIN 46-R. If the Company is
deemed to be the primary beneficiary of the VIE it will consolidate the VIE on
its balance sheet. The fair value of the
VIEs inventory, generally believed to be the purchase price of the land under
option, will be reported as Inventory not ownedVariable Interest Entities.
At
March 31, 2009, the Company consolidated three VIEs as a result of its
options to purchase land or lots from the selling entities. The Company paid cash of $412 and issued
letters of credit of $100 to these VIEs and incurred additional pre-acquisition
costs totaling $21. The Companys
deposits and any costs incurred prior to acquisition of the land or lots
represent the Companys maximum exposure to loss. The fair value of the VIEs inventory,
determined as of the date of consolidation, is reported as Inventory not
ownedVariable Interest Entities. The
Company recorded $10,666 in Inventory Not OwnedVariable Interest Entities as
of March 31, 2009. The fair value
of the property to be acquired less cash deposits and pre-acquisition costs,
which totaled $10,234 at March 31, 2009, was reported on the balance sheet
as Obligations related to inventory not ownedVariable Interest Entities.
Creditors, if any, of these VIEs have no recourse against the Company.
The
Company will continue to secure land and lots using options. Excluding the deposits and other costs
capitalized in connection with the VIEs discussed in the prior paragraph, the
Company had total costs incurred to acquire land and lots at March 31,
2009 of approximately $10,251, including $3,631 of cash deposits.
24
Table of
Contents
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except
per share data)
|
Orleans
Homebuilders, Inc., a Delaware corporation, and its subsidiaries
(collectively, the Company, OHB, Orleans, we, us or our) market,
develop and build high-quality, single-family homes, townhomes and condominiums
to serve various types of homebuyers, including move-up, luxury, empty nester,
active adult, and first-time homebuyers. The Company believes this broad range
of home designs gives it flexibility to address economic and demographic trends
within its markets. The Company has been
in operation since 1918 and is currently engaged in residential real estate
development in eight states in the following 11 markets: Southeastern
Pennsylvania; Central New Jersey; Southern New Jersey; Orange County, New York;
Charlotte, Raleigh and Greensboro, North Carolina; Richmond and Tidewater,
Virginia; Chicago, Illinois; and Orlando, Florida. The Companys Charlotte, North Carolina
market also includes operations in adjacent counties in South Carolina. On December 31, 2007, the Company
committed to exiting the Phoenix, Arizona market and, in connection with that
decision, on that date disposed of its entire land position and its related
work-in-process homes in Phoenix, which constituted substantially all of its
assets in the western region. The
Consolidated Financial Statements have been reclassified for all prior periods
presented to reflect this business as a discontinued operation. See Note 12, Discontinued Operations.
References
to a given fiscal year in this Quarterly Report on Form 10-Q is to the
fiscal year ended June 30th of that year.
For example, the phrases fiscal 2009, 2009 fiscal year or year
ended June 30, 2009 refer to the fiscal year ending June 30,
2009. When used in this report, the northern
region segment refers to our markets in Pennsylvania, New Jersey and New York;
the southern region segment refers to our markets in North Carolina and
Virginia, as well as the adjacent counties in South Carolina; the midwestern
region segment refers to our market in Illinois; the Florida region segment
refers to our market in Florida; and the western region segment refers to our
former market in Arizona.
Results of Operations
New Orders, Residential Revenues and Backlog:
Since
the latter part of fiscal 2006, we and the entire housing industry have faced
several significant challenges in the housing and mortgage markets as a
whole. The U.S. economy is currently in
a recession and national housing starts are at a five decade low. Additionally and notwithstanding continued
challenges for housing, the capital markets have improved during and subsequent
to the quarter end and there has been some positive news and outlooks from the
still challenged financial services industry. Although the homebuilding market
remains challenging and order activity remains at relatively low levels, there
have been some early signs of improvement that provide a basis for cautious
optimism. We experienced a 56%
sequential net new order increase in the third quarter of fiscal year 2009
compared to the second quarter of fiscal year 2009, notwithstanding that third
quarter net new orders decreased 47% year-over-year. While this improvement in sequential net
orders is consistent with the typical seasonality in our industry, they were substantially
better than the improvement that we experienced in the same period of the prior
fiscal year (6% sequential net new order increase in third quarter versus
second quarter during fiscal 2008). Despite
these signs, we remain cautious, as we cannot be certain that the worst of the
housing downturn is behind us, or that a real and sustained recovery in the
economic and housing environment will not still be delayed for some time. Elevated unemployment rates, home
foreclosures and the impact on consumer confidence remains a concern, as do the
tighter credit markets, notwithstanding the improvement in homeowner
affordability from home price declines, and lower current mortgage rates and
government homebuyer incentives. We
continue to respond to the current market conditions by attempting to drive
absorption through the use of sales incentives, reevaluating our individual
land holdings, reducing our land expenditures, attempting to monitor and
control community spec unit levels and emphasizing operational cost reductions
to adjust for lower levels of production.
Further decreases in demand for our homes or additional focus on cash
flow may require us to further increase the use of sales incentives and to take
other steps to reduce cash expenditures and operating expenses.
25
Table of
Contents
For
the tables below setting forth certain details as to residential sales
activities, the information is provided for the three and nine months ended March 31,
2009 and 2008 in the case of residential revenue earned and new orders, and as
of March 31, 2009 and 2008 in the case of backlog. We consider a sales contract or a potential
sale to be classified as a new order
and, therefore, become a part of backlog, at the time
a homebuyer executes a contract to purchase a home from the Company
. Sales contracts are usually accompanied by a
sales deposit. In some instances,
purchasers are permitted to cancel sales contracts if they are unable to close
on the sale of their existing home, fail to qualify for financing or under
certain other circumstances.
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
64,202
|
|
$
|
121,170
|
|
$
|
(56,968
|
)
|
(47.0
|
)%
|
Units
|
|
168
|
|
266
|
|
(98
|
)
|
(36.8
|
)%
|
Average sales price
|
|
$
|
382
|
|
$
|
456
|
|
$
|
(74
|
)
|
(16.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
64,347
|
|
$
|
109,018
|
|
$
|
(44,671
|
)
|
(41.0
|
)%
|
Units
|
|
163
|
|
243
|
|
(80
|
)
|
(32.9
|
)%
|
Average sales price
|
|
$
|
395
|
|
$
|
449
|
|
$
|
(54
|
)
|
(12.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
159,066
|
|
$
|
368,433
|
|
$
|
(209,367
|
)
|
(56.8
|
)%
|
Units
|
|
416
|
|
853
|
|
(437
|
)
|
(51.2
|
)%
|
Average sales price
|
|
$
|
382
|
|
$
|
432
|
|
$
|
(50
|
)
|
(11.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
240,702
|
|
$
|
372,865
|
|
$
|
(132,163
|
)
|
(35.4
|
)%
|
Units
|
|
562
|
|
829
|
|
(267
|
)
|
(32.2
|
)%
|
Average sales price
|
|
$
|
428
|
|
$
|
450
|
|
$
|
(22
|
)
|
(4.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
156,673
|
|
$
|
313,481
|
|
$
|
(156,808
|
)
|
(50.0
|
)%
|
Units
|
|
340
|
|
633
|
|
(293
|
)
|
(46.3
|
)%
|
Average sales price
|
|
$
|
461
|
|
$
|
495
|
|
$
|
(34
|
)
|
(6.9
|
)%
|
26
Table of
Contents
New
orders for the three months ended March 31, 2009 decreased $56,968, or
47.0%, to $64,202 on 168 homes, compared to $121,170 on 266 homes for the three
months ended March 31, 2008. The
average price per home decreased by approximately 16.2% to $382 for the three
months ended March 31, 2009 compared to $456 for the three months ended March 31,
2008.
New
orders for the nine months ended March 31, 2009 decreased $209,367, or
56.8%, to $159,066 on 416 homes, compared to $368,433 on 853 homes for the nine
months ended March 31, 2008. The
average price per home decreased by approximately 11.6% to $382 for the nine
months ended March 31, 2009 compared to $432 for the nine months ended March 31,
2008.
The
decrease in new orders for the three and nine months ended March 31, 2009
was attributable to the continued deterioration in the overall housing and
mortgage markets during the period, significant turmoil in the capital markets,
weaker employment statistics and decreased consumer confidence. The decrease in the average sales price on
new orders generally represents a response to the deterioration in market
conditions by us in an effort to increase absorption through the use of
marketing incentives, price reductions and changes to our product mix toward
smaller-value oriented product..
Residential
revenues earned for the three months ended March 31, 2009 decreased
$44,671, or 41.0%, to $64,347 on 163 homes, compared to $109,018 on 243 homes
for the three months ended March 31, 2008.
The average price per home decreased by approximately 12.0% to $395 for
the three months ended March 31, 2009 compared to $449 for the three
months ended March 31, 2008.
Residential
revenues earned for the nine months ended March 31, 2009 decreased
$132,163, or 35.4%, to $240,702 on 562 homes, compared to $372,865 on 829 homes
for the nine months ended March 31, 2008.
The average price per home decreased by approximately 4.9% to $428 for
the nine months ended March 31, 2009 compared to $450 for the nine months
ended March 31, 2008.
The
decrease in residential revenues earned for the three and nine months ended March 31,
2009 was al
so primarily attributable to the continued deterioration in the overall
housing and mortgage markets during the period, significant turmoil in the
capital markets, weaker employment statistics and decreased consumer
confidence.
Changes
in backlog are the net result of changes in net new orders and residential
revenues earned.
Cancellation
rates for the three and nine months ended March 31, 2009 were 26.6% and
31.0%, respectively of new orders compared to 31.3% and 26.2% for the three and
nine months ended March 31, 2008, respectively. Cancellations declined from 303 in the nine
months ended March 31, 2008 to 187 in the nine months ended March 31,
2009.
27
Table of
Contents
Northern Region:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
35,542
|
|
$
|
48,478
|
|
$
|
(12,936
|
)
|
(26.7
|
)%
|
Units
|
|
90
|
|
100
|
|
(10
|
)
|
(10.0
|
)%
|
Average sales price
|
|
$
|
395
|
|
$
|
485
|
|
$
|
(90
|
)
|
(18.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
30,383
|
|
$
|
49,761
|
|
$
|
(19,378
|
)
|
(38.9
|
)%
|
Units
|
|
74
|
|
102
|
|
(28
|
)
|
(27.5
|
)%
|
Average sales price
|
|
$
|
411
|
|
$
|
488
|
|
$
|
(77
|
)
|
(15.8
|
)%
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
77,501
|
|
$
|
147,950
|
|
$
|
(70,449
|
)
|
(47.6
|
)%
|
Units
|
|
186
|
|
322
|
|
(136
|
)
|
(42.2
|
)%
|
Average sales price
|
|
$
|
417
|
|
$
|
459
|
|
$
|
(42
|
)
|
(9.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
110,210
|
|
$
|
157,811
|
|
$
|
(47,601
|
)
|
(30.2
|
)%
|
Units
|
|
244
|
|
325
|
|
(81
|
)
|
(24.9
|
)%
|
Average sales price
|
|
$
|
452
|
|
$
|
486
|
|
$
|
(34
|
)
|
(7.0
|
)%
|
|
|
As of
March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
77,109
|
|
$
|
134,774
|
|
$
|
(57,665
|
)
|
(42.8
|
)%
|
Units
|
|
152
|
|
252
|
|
(100
|
)
|
(39.7
|
)%
|
Average sales price
|
|
$
|
507
|
|
$
|
535
|
|
$
|
(28
|
)
|
(5.2
|
)%
|
Our
northern region is comprised of our Southeastern Pennsylvania; Central New
Jersey; Southern New Jersey and Orange County, New York markets. We believe that our geographic mix in this
market allows us to compete better than if we were situated in one or two
concentrated markets. In the northern
region, we currently build homes primarily targeted toward move-up, luxury,
empty nester and active adult homebuyers.
The
decrease in new orders for the northern region noted above for the three and
nine months ended March 31, 2009, was the result of a large decrease in
the number of units sold, coupled with a slight decline in the average sales
price. The decrease in the number of
units was primarily the result of deteriorating market conditions. The decrease in residential revenue earned
for the three and nine months ended March 31, 2009, was also the result of
both decreases in the units sold and the average sale price. In response to these market conditions, we
have introduced new smaller-value oriented product in the region and we have
also seen a shift in mix to our multi-family townhome products as well as lower
priced single family communities.
28
Table of
Contents
Southern Region:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
22,804
|
|
$
|
59,124
|
|
$
|
(36,320
|
)
|
(61.4
|
)%
|
Units
|
|
62
|
|
127
|
|
(65
|
)
|
(51.2
|
)%
|
Average sales price
|
|
$
|
368
|
|
$
|
466
|
|
$
|
(98
|
)
|
(21.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
27,471
|
|
$
|
47,715
|
|
$
|
(20,244
|
)
|
(42.4
|
)%
|
Units
|
|
72
|
|
104
|
|
(32
|
)
|
(30.8
|
)%
|
Average sales price
|
|
$
|
382
|
|
$
|
459
|
|
$
|
(77
|
)
|
(16.8
|
)%
|
|
|
Nine
months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
58,501
|
|
$
|
167,889
|
|
$
|
(109,388
|
)
|
(65.2
|
)%
|
Units
|
|
165
|
|
367
|
|
(202
|
)
|
(55.0
|
)%
|
Average sales price
|
|
$
|
355
|
|
$
|
457
|
|
$
|
(102
|
)
|
(22.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
98,976
|
|
$
|
157,915
|
|
$
|
(58,939
|
)
|
(37.3
|
)%
|
Units
|
|
236
|
|
331
|
|
(95
|
)
|
(28.7
|
)%
|
Average sales price
|
|
$
|
419
|
|
$
|
477
|
|
$
|
(58
|
)
|
(12.2
|
)%
|
|
|
As of
March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
63,284
|
|
$
|
140,502
|
|
$
|
(77,218
|
)
|
(55.0
|
)%
|
Units
|
|
145
|
|
279
|
|
(134
|
)
|
(48.0
|
)%
|
Average sales price
|
|
$
|
436
|
|
$
|
504
|
|
$
|
(68
|
)
|
(13.5
|
)%
|
Our
southern region is comprised of our Charlotte, Raleigh and Greensboro, North
Carolina and the Richmond and Tidewater, Virginia markets. The Charlotte, North Carolina market also
includes operations in adjacent counties in South Carolina. The Company in its southern region currently
builds homes targeted toward move-up and luxury homebuyers.
The
decrease in new orders for the three and nine months ended March 31, 2009,
compared to the three and nine months ended March 31, 2008, was the result
of significant decreases in both the number of units sold and the average price
per unit. The decrease in residential
revenues earned for the three and nine months ended March 31, 2009,
compared to the three and nine months ended March 31, 2008, was also due
to significant decreases in the number of units sold and the average sale price
per unit. The decrease in average sales
price has been particularly significant in our Richmond market, where in prior
years we were primarily selling luxury product.
The decrease in the number of units sold has also been significant in
Richmond, as well as our Charlotte market.
29
Table of
Contents
Midwestern Region:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
5,435
|
|
$
|
12,704
|
|
$
|
(7,269
|
)
|
(57.2
|
)%
|
Units
|
|
14
|
|
34
|
|
(20
|
)
|
(58.8
|
)%
|
Average sales price
|
|
$
|
388
|
|
$
|
374
|
|
$
|
14
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
5,738
|
|
$
|
6,501
|
|
$
|
(763
|
)
|
(11.7
|
)%
|
Units
|
|
13
|
|
17
|
|
(4
|
)
|
(23.5
|
)%
|
Average sales price
|
|
$
|
441
|
|
$
|
382
|
|
$
|
59
|
|
15.4
|
%
|
|
|
Nine
months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
20,362
|
|
$
|
39,672
|
|
$
|
(19,310
|
)
|
(48.7
|
)%
|
Units
|
|
52
|
|
107
|
|
(55
|
)
|
(51.4
|
)%
|
Average sales price
|
|
$
|
392
|
|
$
|
371
|
|
$
|
21
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
26,414
|
|
$
|
35,062
|
|
$
|
(8,648
|
)
|
(24.7
|
)%
|
Units
|
|
61
|
|
79
|
|
(18
|
)
|
(22.8
|
)%
|
Average sales price
|
|
$
|
433
|
|
$
|
444
|
|
$
|
(11
|
)
|
(2.5
|
)%
|
|
|
As of
March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
15,032
|
|
$
|
32,542
|
|
$
|
(17,510
|
)
|
(53.8
|
)%
|
Units
|
|
39
|
|
83
|
|
(44
|
)
|
(53.0
|
)%
|
Average sales price
|
|
$
|
385
|
|
$
|
392
|
|
$
|
(7
|
)
|
(1.8
|
)%
|
In
our midwestern region, we have operations in the Chicago area. In our midwestern region we currently build
homes primarily targeted toward the move-up homebuyer.
During
the three and nine months ended March 31, 2009, both new order dollars and
the number of units sold decreased as compared to the same periods in the prior
year. This decrease was primarily the
result of the deteriorating economic and market conditions noted above. Average sales price for both new orders and
residential revenue was up during the three months ended March 31,
2009. For the nine months ended March 31,
2009, average sale price was up slightly for new orders and down slightly for
residential revenue.
30
Table
of Contents
Florida Region:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
421
|
|
$
|
864
|
|
$
|
(443
|
)
|
(51.3
|
)%
|
Units
|
|
2
|
|
5
|
|
(3
|
)
|
(60.0
|
)%
|
Average sales price
|
|
$
|
211
|
|
$
|
173
|
|
$
|
38
|
|
22.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
755
|
|
$
|
5,041
|
|
$
|
(4,286
|
)
|
(85.0
|
)%
|
Units
|
|
4
|
|
20
|
|
(16
|
)
|
(80.0
|
)%
|
Average sales price
|
|
$
|
189
|
|
$
|
252
|
|
$
|
(63
|
)
|
(25.0
|
)%
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
New orders
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
2,702
|
|
$
|
12,922
|
|
$
|
(10,220
|
)
|
(79.1
|
)%
|
Units
|
|
13
|
|
57
|
|
(44
|
)
|
(77.2
|
)%
|
Average sales price
|
|
$
|
208
|
|
$
|
227
|
|
$
|
(19
|
)
|
(8.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
Residential revenue earned
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
5,102
|
|
$
|
22,077
|
|
$
|
(16,975
|
)
|
(76.9
|
)%
|
Units
|
|
21
|
|
94
|
|
(73
|
)
|
(77.7
|
)%
|
Average sales price
|
|
$
|
243
|
|
$
|
235
|
|
$
|
8
|
|
3.4
|
%
|
|
|
As of March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
1,248
|
|
$
|
5,663
|
|
$
|
(4,415
|
)
|
(78.0
|
)%
|
Units
|
|
4
|
|
19
|
|
(15
|
)
|
(78.9
|
)%
|
Average sales price
|
|
$
|
312
|
|
$
|
298
|
|
$
|
14
|
|
4.7
|
%
|
The
above table reflects results from our Florida region for the three and nine
months ended March 31, 2009 and 2008.
In the Florida region, we have operations in the Orlando market. The nine months ended March 31, 2008,
also reflects results from the Palm Bay market from which we substantially
exited during the first quarter of fiscal 2008 and the Palm Coast market from
which we substantially exited during the second quarter of fiscal 2008. The Company in the Florida region currently
builds homes primarily targeted toward first-time, move-up and entry level
homebuyers.
The
decrease in new orders for the three and nine months ended March 31, 2009,
as compared to the three and nine months ended March 31, 2008, was
primarily the result of the continued deterioration of market conditions in
this region. New orders were also
negatively impacted by our exit from the Palm Bay and Palm Coast markets, as
noted above. The decline in residential
revenue earned was also the result of the overall decline in market conditions,
as well as our exit from the Palm Bay and Palm Coast markets, as noted above.
31
Table of
Contents
Costs and Expenses:
Residential Properties:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Residential Properties
|
|
|
|
|
|
|
|
|
|
Earned revenue
|
|
$
|
64,347
|
|
$
|
109,018
|
|
$
|
(44,671
|
)
|
(41.0
|
)%
|
Cost of residential properties
|
|
62,558
|
|
110,908
|
|
(48,350
|
)
|
(43.6
|
)%
|
Gross profit margin
|
|
$
|
1,789
|
|
$
|
(1,890
|
)
|
$
|
3,679
|
|
(194.7
|
)%
|
Gross profit margin %
|
|
2.8
|
%
|
(1.7
|
)%
|
|
|
|
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Residential Properties
|
|
|
|
|
|
|
|
|
|
Earned revenue
|
|
$
|
240,702
|
|
$
|
372,865
|
|
$
|
(132,163
|
)
|
(35.4
|
)%
|
Cost of residential properties
|
|
237,513
|
|
361,286
|
|
(123,773
|
)
|
(34.3
|
)%
|
Gross profit margin
|
|
$
|
3,189
|
|
$
|
11,579
|
|
$
|
(8,390
|
)
|
(72.5
|
)%
|
Gross profit margin %
|
|
1.3
|
%
|
3.1
|
%
|
|
|
|
|
The
costs of residential properties for the three and nine months ended March 31,
2009, compared to the three and nine months ended March 31, 2008 decreased
primarily as a result of decreased residential revenue earned. Impairments of residential property in the
amount of $3,009 and $15,267 were recorded in the three months ended March 31,
2009 and 2008, respectively. Impairments
of residential property in the amount of $21,097 and $38,896 were recorded in
the nine months ended March 31, 2009 and 2008, respectively. Gross profit percentage for the three and
nine months ended March 31, 2009 was 2.8% and 1.3%, as compared to (1.7)%
and 3.1% for the three and nine months ended March 31, 2008. Without recording the impairments, the gross
profit percentage would have been 7.5% and 10.1% for the three and nine months
ended March 31, 2009, as compared to 12.3% and 13.5% for the three and
nine months ended March 31, 2008.
We
sell a variety of home types in various communities and regions, each yielding
a different gross profit margin. As a result, depending on the mix of both
communities and home types delivered, the consolidated gross profit margin may
fluctuate up and down on a periodic basis and periodic profit margins may not
be representative of the consolidated gross profit margin for the entire year
or future years.
We
capitalize interest costs to inventory during development and
construction. Capitalized interest is
charged to cost of sales as the related inventory is delivered to the
buyer. Historically, our inventory
eligible for interest capitalization exceeded our debt levels. As a result of our reduction of inventories
in recent quarters the Companys active inventory has been lower than its debt
level; therefore, a portion of the interest incurred during those periods was
expensed directly to interest expense.
As all interest incurred is ultimately expensed, this occurrence only
accelerated the expense recognition of the interest incurred during the
period. Interest included in the costs
and expenses of residential properties and land sold for the three months ended
March 31, 2009 and March 31, 2008 was $3,831 and $7,817,
respectively. Interest included in the costs and expenses of residential
properties and land sold for the nine months ended March 31, 2009 and March 31,
2008 was $12,510 and $16,740, respectively.
Interest charged directly to interest expense during the three and nine
months ended March 31, 2009 was $1,955 and $4,838, respectively. Included in interest expense during the three
and nine months ended March 31, 2009, was the write-off of debt
acquisition costs in the amount of $274 and $1,058. These charges were recognized due to the
decreases in borrowing capacity as a result of both the September 30, 2008
and February 11, 2009 amendments to the Revolving Credit Facility. There was no interest charged directly to
interest expense during the three and nine months ended March 31, 2008.
32
Table of
Contents
Selling, General and Administrative:
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
|
|
|
|
|
|
|
|
|
|
Selling and advertising
|
|
$
|
4,065
|
|
$
|
6,629
|
|
$
|
(2,564
|
)
|
(38.7
|
)%
|
Commissions
|
|
2,549
|
|
4,181
|
|
(1,632
|
)
|
(39.0
|
)%
|
General and administrative
|
|
4,865
|
|
8,499
|
|
(3,634
|
)
|
(42.8
|
)%
|
Total
|
|
$
|
11,479
|
|
$
|
19,309
|
|
$
|
(7,830
|
)
|
(40.6
|
)%
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
|
|
|
|
|
|
|
|
|
|
Selling and advertising
|
|
$
|
13,863
|
|
$
|
21,303
|
|
$
|
(7,440
|
)
|
(34.9
|
)%
|
Commissions
|
|
9,643
|
|
14,102
|
|
(4,459
|
)
|
(31.6
|
)%
|
General and administrative
|
|
20,672
|
|
26,767
|
|
(6,095
|
)
|
(22.8
|
)%
|
Total
|
|
$
|
44,178
|
|
$
|
62,172
|
|
$
|
(17,994
|
)
|
(28.9
|
)%
|
Selling
and advertising costs include amortization of deferred marketing costs and
other selling costs. These costs
decreased primarily as a result of reduced headcount reductions that took place
during the first nine months of fiscal year 2009. During this time, the Company has had three
headcount reductions, which have reduced the total number of employees at the
Company from 544 at June 30, 2008 to 368 at March 31, 2009, a
reduction of 32%. From June 30,
2006 to March 31, 2009, headcount has been reduced from 988 to 368, a
reduction of 63%. Since the end of the
third quarter of fiscal year 2009, the Company has had an additional headcount
reduction. As of April 30, 2009,
the Company had 338 employees, which is a 38% reduction since June 30,
2008.
The
decrease in commission expense is primarily attributable to the decrease in
residential revenues as noted above.
Commission expense as a percentage of residential revenue increased to
4.0% and 4.0% for the three and nine months ended March 31, 2009 from 3.8%
and 3.8% for the three and nine months ended March 31, 2008. The increased rate was due to increased
incentives to the Companys sales force.
The
decrease in general and administrative costs was due to the aforementioned
headcount reductions. Write-offs of
abandoned projects and other pre-acquisition costs were $82 and $1,880 for the
three and nine months ended March 31, 2009 as compared to $69 and $931 for
the three and nine months ended March 31, 2008.
33
Table of
Contents
Land Sales and Other Income:
|
|
Three months ended March 31,
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
Land sales
|
|
|
|
|
|
|
|
Earned revenue
|
|
$
|
|
|
$
|
1,912
|
|
$
|
(1,912
|
)
|
Costs and expenses
|
|
|
|
1,635
|
|
(1,635
|
)
|
Gross profit (loss)
|
|
$
|
|
|
$
|
277
|
|
$
|
(277
|
)
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
Other income
|
|
$
|
2,347
|
|
$
|
2,364
|
|
$
|
(17
|
)
|
Other expense
|
|
$
|
1,551
|
|
$
|
1,566
|
|
$
|
(15
|
)
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
Land sales
|
|
|
|
|
|
|
|
Earned revenue
|
|
$
|
58
|
|
$
|
11,322
|
|
$
|
(11,264
|
)
|
Costs and expenses
|
|
26
|
|
47,677
|
|
(47,651
|
)
|
Gross profit (loss)
|
|
$
|
32
|
|
$
|
(36,355
|
)
|
$
|
36,387
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
Other income
|
|
$
|
6,483
|
|
$
|
6,926
|
|
$
|
(443
|
)
|
Other expense
|
|
$
|
5,191
|
|
$
|
5,001
|
|
$
|
190
|
|
The
Company had land sales revenue of $0 and $58 during the three and nine months
ended March 31, 2009, respectively as compared to $1,912 and $11,322
during the three and nine month ended March 31, 2008, respectively. During the nine months ended March 31,
2008, the Company received proceeds on the sale of land of $36,047. Of the $36,047 received during this period,
$11,322 was recognized as land sales revenue; $11,300 related to proceeds in
the Companys western region and was included in discontinued operations; and
$13,425 related to two parcels of land that were sold and subsequently subject
to an option agreement. Due to the
federal income tax losses recorded by the Company related to these
transactions, the Company received approximately $34,000 of federal income tax
refunds as a result of these transactions and other operations for its taxation
year ended December 31, 2007.
Prior to the completion
of the land sales discussed above, we recorded asset impairments on the land to
be sold. The total impairment charge related to these land sales were
$36,556 for the nine months ended March 31, 2008. These asset
impairment losses are included in the costs of land sales.
Other
income consists primarily of property management fees and mortgage processing
income, while other expense consists primarily of the costs of property
management and mortgage processing, along with depreciation expense for the
Company.
Our
mortgage processing business assists homebuyers in obtaining financing directly
from unaffiliated lenders. We do not
fund or service the mortgage loans, nor do we assume any credit or interest
rate risk in connection with originating the mortgages.
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Income Taxes and Loss from Continuing Operations:
|
|
Three months ended March 31,
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
Pre-tax loss from continuing operations
|
|
$
|
(10,849
|
)
|
$
|
(20,124
|
)
|
$
|
9,275
|
|
Income tax benefit
|
|
4,120
|
|
26,987
|
|
(22,867
|
)
|
Loss from continuing operations, net of tax
|
|
$
|
(14,969
|
)
|
$
|
(47,111
|
)
|
$
|
32,142
|
|
|
|
Nine months ended March 31,
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
Pre-tax loss from continuing operations
|
|
$
|
(48,683
|
)
|
$
|
(85,023
|
)
|
$
|
36,340
|
|
Income tax benefit
|
|
3,843
|
|
2,458
|
|
1,385
|
|
Loss from continuing operations, net of tax
|
|
$
|
(52,526
|
)
|
$
|
(87,481
|
)
|
$
|
34,955
|
|
The Company had income
tax expense from continuing operations for the nine months ended March 31,
2009 of $3,843 as compared to $2,458 for the nine months ended March 31,
2008. These amounts represent effective
tax rates for the nine months ended March 31, 2009 and 2008 of (7.9)% and
(2.9)%, respectively. The significant
changes in the Companys effective tax rate resulted primarily from the
recording of a correction to the accrued income tax account in the amount of
$2,347, as well as a $20,360 net valuation reserve in the first nine months of
fiscal year 2009 as compared with the initial establishment of a valuation
reserve in the nine months ended March 31, 2008 in the amount of
$43,544. The $20,360 net valuation
reserve includes a correction related to the impact of a federal tax benefit in
the amount of $1,447, related to a state liability recorded prior to the
Company establishing a valuation reserve in the third quarter of fiscal year
2008, for which the Company did not take taking a valuation reserve until the
third quarter of fiscal year 2009. SFAS No. 109
Accounting for Income Taxes (SFAS No. 109) requires that companies
assess whether a valuation allowance should be established based on the
consideration of all available evidence using a more likely than not
standard. In making such judgments,
significant weight is given to evidence that can be objectively verified. SFAS No. 109 provides that a cumulative
loss in recent years is significant negative evidence in considering whether
deferred tax assets are realizable and also restricts the amount of reliance on
projections of future taxable income to support the recovery of deferred tax
assets. The ultimate realization of
these deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Changes in existing tax laws
could also affect actual tax results and the valuation of deferred tax assets
over time.
During
the third quarter of fiscal year 2009, the Company recognized additional tax
expense of $3,794 reflecting the impact of cumulative out of period
adjustments. This error was related to
an overstatement of tax refunds due the Company reflected in the income tax receivable
account in the amount of $2,347,
coupled with an overstatement
of federal tax benefits in the amount of $1,447 related to a state tax
liability.
These error corrections had the
effect of increasing income tax expense and reducing net income by $3,794. The Company concluded that this adjustment
was not material to the consolidated financial statements for any prior period
or to the third quarter of fiscal year 2009.
Loss from Discontinued Operations:
On
December 31, 2007, the Company specifically committed to exiting its
Arizona market and, in connection with this decision, on that date, it disposed
of its entire land position and its related work-in-process homes in
Arizona. We have historically reported
this business as the western region operating segment. The disposed work-in-process inventory and
land assets constituted substantially all of our assets in the western
region. As such, all charges associated
with the western region are included as a discontinued operation.
Loss
from discontinued operations was $8,634 and $21,704, or a loss of $0.47 per
share and $1.17 per share for the three and nine months ended March 31,
2008, respectively. See Note 12 to our
consolidated financial statements in Item 1 of this Part 1.
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Liquidity and Capital Resources
On
an ongoing basis, we require capital for expenditures to develop land, to
construct homes, to fund related carrying costs and overhead and to fund
various advertising and marketing programs to facilitate sales. These
expenditures include site preparation, roads, water and sewer lines, impact
fees and earthwork, as well as the construction costs of the homes and
amenities.
As
of March 31, 2009, we had $27,331 of borrowing capacity under our secured
Revolving Credit Facility discussed below, subject to borrowing base
availability. At March 31, 2009, we had borrowings in excess of net
borrowing base availability of $2,754. The negative borrowing base
availability at that time was repaid in full on a timely basis after March 31,
2009 and did not have any adverse impact on the Company. As of March 31,
2009, the Companys liquidity (as described in the table below) was
approximately $15,767. As of April 30,
2009, the Company estimates that its liquidity was approximately $18,100, an
increase of approximately $2,333 since March 31, 2009. The Company holds, and it currently
anticipates continuing to hold, the majority of the aggregate of cash and cash
equivalents and marketable securities in short-term U.S. Treasury bills for
capital preservation. At March 31,
2009, the 30-day LIBOR rate of interest was 0.51%.
During
the nine months ended March 31, 2009, our liquidity decreased by $55,432 as
shown in the table below:
|
|
March 31,
|
|
June 30,
|
|
|
|
2009
|
|
2008
|
|
Cash and cash equivalents
|
|
$
|
13,260
|
|
$
|
72,341
|
|
Restricted cash - due from title companies
|
|
4,764
|
|
19,269
|
|
Marketable securities
|
|
497
|
|
|
|
Net borrowing base availability
|
|
(2,754
|
)
|
(20,411
|
)
|
Liquidity
|
|
$
|
15,767
|
|
$
|
71,199
|
|
The
decrease in liquidity was primarily due to cash used for operations, lower
year-over-year backlog and decreased year-over-year net new orders, which have
the impact of reducing our gross borrowing base, and inventory impairments
during the nine months ended March 31, 2009, which decreased our borrowing
base availability. These items decreasing our liquidity were partially
offset by adjustments for certain category reductions made in the calculation
of the borrowing base pursuant to the First Amendment to the Second Amended
Credit Agreement, discussed below, a planned increase in our accounts payable
aging, and decreases in acquisitions of land.
Our
sources of capital include, but are not limited to, funds derived from
operations, sales of various land assets, reductions in speculative inventory
levels through completed home deliveries and reductions in new speculative unit
starts, borrowings under our Revolving Credit Facility, the issuance of debt or
equity securities or other possible recapitalization transactions. Our
short-term and long-term liquidity depend primarily upon the net cash recovery
of our land investment upon completed home deliveries, working capital
management (cash, accounts receivable, inventory of units under construction,
accounts payable and other liabilities), bank borrowings, land related
expenditures, net new orders and deliveries. In an effort to increase
liquidity, we may pursue sales of parcels of land, model homes and other assets,
amendments to our Revolving Credit Facility, or we may pursue sales of debt or
equity securities or other recapitalization transactions, or seek other
external sources of funds. However, we can offer no assurances as to
whether or when such transactions will occur or whether the transactions will
be on terms advantageous to us.
As
the downturn in the housing industry has continued, we have reduced the size of
our business operations through lot count reductions for both owned and
controlled lots, the abandonment or renegotiation of land option contracts, the
reduction in the total number of existing speculative units, the sale of
certain model homes, limited construction of new speculative units in order to
maintain reasonable speculative unit levels relative to lower new orders, and
actively shifted our speculative unit mix wherever possible to price and
products that are in better relative demand today. We have also
significantly reduced our land expenditures and land expenditure budgets,
including, given the more recent market conditions experienced since the fall
of 2008, significantly reducing these expenditures for the balance of the
fiscal year in order to minimize the impacts of lower net new orders on cash
flow generated. Pursuant to the First Amendment to the Second Amended
Credit Agreement, the Companys ability to purchase unimproved real estate is
no longer available; however, the Company continues to be able to acquire lots
though option take-downs. Further, we have significantly reduced our workforce,
with headcount reductions in the current fiscal year from June 30, 2008
through April 30, 2009 of approximately 38%, or 206 people, and headcount
reductions of approximately 65% between June 30, 2006 and April 30,
2009.
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From
January 1, 2007 to March 31, 2009, we reduced our net debt levels by
$142,344, or 24% (where net debt is defined for each period as total mortgage
and other note obligations plus subordinated notes less the aggregate of cash
and cash equivalents, marketable securities, restricted cash due from title
company, but excluding restricted cash customer deposits). During this
same period, the aggregate amount of our work-in-process and owned land
inventories have decreased by $344,799 (from $857,242 to $512,443), which
impacts our gross borrowing base availability. A significant portion of
this net inventory decrease is due to impairments of $203,948 (including discontinued
operations) recorded during this period, although a portion of previously
impaired inventory has since been sold, either through land sales or normal
operations. During this same period, our total liquidity (as defined
above) decreased by $21,824, from $37,615 to $15,791. The net debt
reduction from January 1, 2007 to March 31, 2009 described above has
been generated through various means, including operations, the reduction in
the total number of speculative units, offering incentives to buyers in order
to help keep orders and deliveries at higher relative levels notwithstanding
challenging industry conditions, selective lands sales, decreases in land
acquisitions and other land expenditures, the abandonment or renegotiation of
land option contracts, income tax refunds and a planned increase in our
accounts payable aging.
We
continue to focus on cash generation and preservation to allow sufficient
liquidity to be available to fund our continuing operations. There are,
however, several factors that may affect our liquidity in the coming
months. First, as described below under First
Amendment to the Second Amended Credit Agreement and Security Agreement
executed on February 11, 2009, the
maximum percentages of borrowing base availability that may be attributable to
speculative inventory and land under development, as well as the maximum dollar
amount of borrowing that may be attributable to land under development, were
temporarily increased (resulting in an increase in borrowing base availability)
for all borrowing base certificates delivered before July 31, 2009.
For borrowing base certificates delivered on or after July 31, 2009 (where
the borrowing base certificate as of July 31, 2009 is anticipated to be
delivered and is due on August 15, 2009), the maximum relative percentages
and maximum dollar amounts for certain borrowing base categories return to
their lower pre-amendment levels, the effect of which could be to potentially
reduce our borrowing base availability, depending on several different factors,
including the relative levels of backlog, speculative inventory and land under
development at such time, as well as cash generated from operations and
reduction in bank debt outstanding prior to such time. We anticipate
that, absent an amendment to our Revolving Credit Facility or significant
improvement in net new orders, backlog or land sales, or a refinancing or
recapitalization transaction, the borrowing base availability determined on the
basis of the borrowing base certificate dated before or as of July 31,
2009 (which is required to be delivered to the lenders on or before August 15,
2009) may be significantly less than the outstanding borrowings at such
time. Under those circumstances, we may not be able to reduce the
outstanding borrowings at such time by an amount sufficient to repay in full
such future potential negative borrowing base availability within the time
period required by the Revolving Credit Facility without a further amendment to
the Revolving Credit Facility to otherwise increase the net borrowing base
availability before August 15, 2009. Additionally, such reductions
to borrowing base availability, absent an amendment, could result in our net
liquidity at that time being less than the $10,000 of minimum net liquidity now
required by the Revolving Credit Facility. We have in the past obtained
amendments to the Revolving Credit Facility to address similar borrowing base
and liquidity issues, including under the First Amendment to the Second
Amended Credit Agreement and Security Agreement, and we currently believe that
we should be able to obtain an amendment to temporarily increase the borrowing
base availability to provide sufficient liquidity to allow us to fund our
operations and meet the net liquidity covenant for a period of time, if such an
amendment is needed. However, we can offer no assurance that we will be
able to obtain such an amendment or obtain such an amendment on terms
advantageous to us.
On-going
bank reappraisals of our borrowing base assets may also affect our
liquidity. As part of the terms of the
Revolving Credit Facility, appraisals are performed by appraisers engaged
directly by the banks on the collateral assets included in the borrowing
base. Such appraisals are also required upon admission of assets into the
borrowing base. Approximately 35% of the borrowing base collateral assets
were reappraised during the summer of 2008. These reappraisals were
collectively reflected in the borrowing base certificate dated as of September 30,
2008, and had the net impact of improving borrowing base availability by
approximately $2,700. Approximately one third of the total assets in the
borrowing base with a book value in excess of $4,000 and not reappraised in the
summer of 2008 have just been reappraised, are currently being reappraised or
are anticipated to be reappraised during the next quarter. Of these
new reappraisals, those that have been completed (approximately 1/3 of the
total assets to be reappraised after the summer of 2008) were collectively
reflected in the March 31, 2009 borrowing base certificate, which resulted
in a net reduction in our borrowing base availability of approximately
$1,000. Of the remaining 2/3 of the assets to be reappraised after the
summer of 2008, approximately 1/3 of the reappraisals to be conducted after the
summer of 2008 are currently in process and we anticipate the balance of the
remaining 1/3 of the borrowing base assets subject to reappraisal will be
reappraised in our fourth quarter or shortly thereafter. We anticipate
that the remaining reappraisals that are currently underway or anticipated to
be completed in our fourth quarter may cause further net reductions in our net
borrowing base and borrowing base availability, which net reductions may be material.
If the net reductions in borrowing base availability are material, we currently
anticipate that we would seek and should receive a temporary amendment to our
Revolving Credit Facility that would allow us to have
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sufficient
liquidity available to fund our operations for a period of time. However,
we can offer no assurance that we would be able to obtain such an amendment or
that such an amendment would be on terms favorable to us.
In
addition to changes related to the borrowing base described above, if one or
more additional lenders default under our Revolving Credit Facility, our
liquidity could be adversely affected.
Under the Revolving Credit Facility, each lender has an individual
aggregate facility commitment level and no lender is required to fund beyond
its individual pro rata overall facility commitment level, even if one or more
other lenders fail to fund a draw request. If one or more of our lenders
under the Revolving Credit Facility defaults on their commitment, our ability
to access the credit facility may be limited. One lender (less than 3% of
the total commitments) was closed by state regulators, is subject to Federal
Deposit Insurance Corporation (FDIC)
receivership, has defaulted on its remaining unfunded commitments under
the facility, and is not currently funding its pro rata portion of new
borrowings and advances under the Revolving Credit
Facility. Principal repayments otherwise payable to this defaulting
lender presently are generally payable directly to the Company, but subject to
the maximum cash and cash equivalents covenant. Currently, the Companys
liquidity and borrowing base availability provide sufficient liquidity, despite
this one defaulting lender that is holding less than 3% of the aggregate
facility commitments. If, however, additional lenders default on their
commitments, or other conditions relating to our liquidity or borrowing base
availability change, our liquidity and borrowing base availability may no
longer be sufficient to provide sufficient liquidity and our ability to borrow
and our liquidity could be significantly restricted.
On
July 16, 2009, the aggregate Revolving Credit Facility size will be
reduced from $405,000 to $375,000, unless otherwise permanently reduced to an
amount less than or equal to $375,000 before that date. Based on our
current internal projections, we anticipate that this reduction of credit
facility size will not adversely affect the Companys operations, but cannot
offer any assurance that the reduction will not adversely affect our
operations.
On
approximately July 30, 2009, pursuant to the terms of the first amendment
to the $75,000 issue of trust preferred securities, the Company is generally
required to provide a $2,500 increase in the reserve fund for the benefit of
holders of the trust preferred securities by posting a letter of credit with
the trustee. The Company currently anticipates
posting such letter of credit as is permitted under the existing terms of the
credit facility, provided the Company has sufficient liquidity to do so at such
time. If posted, this letter of credit
will reduce our liquidity otherwise determined at that time by $2,500.
In
addition, on September 15, 2009, the Company will be required to pay an
additional loan fee to its lender group, in an amount up to $12,500, unless the
balance outstanding under the Revolving Credit has been repaid in full or the
Revolving Credit Facility is otherwise amended. The amount of the payment
will be reduced by 80% if the aggregate commitment level of the lenders is
reduced to $250,000 or below prior to September 15, 2009. The
Company can offer no assurances that it will be able to amend the Revolving
Credit Facility to avoid such loan fee or be able to reduce the aggregate
commitment level to $250,000 or less before September 15, 2009, or be able
to do so on commercially reasonable terms.
Finally,
the Revolving Credit Facility also matures on December 20, 2009. While we currently anticipate that we will be
able to refinance or extend our Revolving Credit Facility before that time, we
can offer no assurance that we will be able to do so, or be able to do so on
commercially reasonable terms. In the event that we are not successful in
executing our plans discussed above, including potentially obtaining an
amendment to our Revolving Credit Facility increasing certain category
reduction percentages or otherwise increasing borrowing base availability on or
prior to August 15, 2009 (the date we anticipate delivering our borrowing
base certificate dated as of July 31, 2009), we may need to consider
alternative sources of capital to finance our operations. In any
event, we can make no assurances that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us in
an amount sufficient to enable us to pay our indebtedness, or to fund our other
liquidity needs.
In
addition to the factors and circumstances discussed above, any material
variance from our internally projected operating results (including net new
orders, cancellations, backlog, deliveries and expenditures), material declines
in the book or appraised value of our real estate held for development and sale
(which may lead to additional inventory impairments), or significant declines
in the pending or future bank appraised values relative to existing individual
appraisals for certain of our assets to be appraised on behalf of the banks in
the coming quarters, could result in a reduction in available borrowing
capacity under our Revolving Credit Facility (either before or after August 15,
2009). Such a reduction in available borrowing capacity could constrain
liquidity and require us to seek additional amendments and/or waivers under our
Revolving Credit Facility which we may or may not be able to obtain.
In
addition to exploring a refinancing of our Revolving Credit Facility, we are
also exploring a variety of alternative financing options, including an
extension of our existing Revolving Credit Facility, as well as other possible
debt or equity financings or recapitalization transactions, and potential
selected land sales. However, should the Company not otherwise
be able amend, modify, extend, or refinance the Revolving Credit Facility (or
be able to do so on commercially reasonable
38
Table of Contents
terms)
on or prior to August 15, 2009 (the date its July 31, 2009 borrowing
base certificate is due); by September 15, 2009 (the due date of the
additional loan fee under the facility); or by December 20, 2009 (the
existing maturity date of the credit facility), then our liquidity may not be
sufficient to fund our operations and our operations could be adversely
affected.
The
Company currently believes that funds generated from operations, anticipated
availability under our Revolving Credit Facility, cash and cash equivalents and
marketable securities on hand, and potential funds generated from asset sales
will provide sufficient capital for us to meet our operating needs for the next
12 months. This belief is, however,
based upon our belief that the Company will be able to obtain one or more
amendments or modifications to its Revolving Credit Facility (including an
extension of the maturity date) or otherwise obtain outside funding through
debt or equity financings or recapitalization transactions, as needed, prior to
the maturity or our Revolving Credit Facility or any material reduction in our
liquidity resulting from the occurrence of
various events, including any of the events described above. Without one or more amendments or
modifications to our Revolving Credit Facility, a maturity date extension, or
other alternative outside financing, we may not have sufficient capital
resources available to meet all of our operating needs for the next 12
months. We can offer no assurance that
we will be able to obtain any amendments, modifications or maturity date
extensions to our Revolving Credit Facility, or obtain any outside financing,
on commercially reasonable terms, or at all.
Revolving Credit Facility
On December 22,
2004, Greenwood Financial, Inc., a wholly-owned subsidiary of the Company,
and other wholly-owned subsidiaries of the Company, as borrowers, and Orleans
Homebuilders, Inc., as guarantor, entered into a Revolving Credit Loan
Agreement for a Senior Secured Revolving Credit and Letter of Credit Facility
with various banks as lenders (as amended and restated and further amended, the
Revolving Credit Facility). The Revolving Credit Loan Agreement was amended
on January 24, 2006, via the Amended and Restated Revolving Credit Loan
Agreement (the Amended Credit Agreement).
In connection with the Amended Credit Agreement, Orleans Homebuilders, Inc.
executed a Guaranty, which was amended on September 6, 2007 and amended
and restated on September 30, 2008. The Amended and Restated Credit
Agreement was amended on November 1, 2006, February 7, 2007, May 8,
2007, September 6, 2007, December 21, 2007, May 9, 2008 by a
limited waiver to the Amended Credit Agreement, which was extended on September 15,
2008, and amended and restated in the Second Amended and Restated Revolving
Credit Loan Agreement, dated September 30, 2008 (the Second Amended
Credit Agreement). The Second Amended
Credit Agreement was subsequently amended by a limited waiver letter dated January 30,
2009 (the waiver letter) and the First Amendment to Second Amended and
Restated Revolving Credit Loan Agreement and First Amendment to Security
Agreement dated February 11, 2009 (the First Amendment).
Waiver Letter
Absent the waiver letter
described below, the Company would have continued to be in default of its
obligation to, on or before January 23, 2009, make a principal repayment
in an amount necessary to reduce the outstanding principal balance of the loans
to the borrowing base availability (the Repayment Covenant). While the Company made certain principal
payments, the failure to make the repayment in full within the proscribed
period constituted an event of default under the Second Amended Credit
Agreement, of which the Company provided notice to the Lenders. In addition, Wachovia Bank, N.A. (Wachovia)
asserted that the borrowers breached the liquidity covenant in the Second
Amended Credit Agreement (the Liquidity Covenant) for the quarter ended December 31,
2008. The Company disagrees with
Wachovias assertion that the borrowers breached the Liquidity Covenant and
notified Wachovia of their disagreement.
The waiver letter
temporarily waived compliance with the Repayment Covenant and the Liquidity
Covenant generally from December 31, 2008 through and including February 6,
2009, unless another event of default occurred. With the termination of
waiver period without the First Amendment described below having been entered
into, the failure of the borrowers to have complied with the Repayment Covenant
on or before that date, the borrowers were again in breach of the Repayment
Covenant and, to the extent there had been a breach of the Liquidity Covenant
as asserted by Wachovia (an assertion with which the Company disagrees), the
borrowers were also in breach of that covenant. Any such breaches were,
however, cured by the First Amendment described below.
There can be no
assurances that we will be able to comply with the financial covenants
contained in the Revolving Credit Facility for future periods. In the future, we may not be successful in
obtaining a waiver of non-compliance with these financial covenants. If we are unable to comply with the financial
covenants, absent a waiver, we will be in default of the Revolving Credit
Facility and the lenders can take any of the actions described below.
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Table of
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First Amendment to the Second Amended Credit Agreement and
Security Agreement:
On February 11,
2009, the Company entered into the First Amendment to the Second Amended Credit
Agreement which provides, among other things, that:
·
The category
reductions applicable to the determination of borrowing base availability were
adjusted so that the maximum borrowing base availability attributable to asset
class (ii) (units not subject to a qualifying agreement of sale)
determined on the basis of any borrowing base certificate that is delivered
before July 31, 2009, was increased to a maximum of 58% of the aggregate
borrowing base availability attributable to asset classes (i) (units
subject to a qualifying agreement of sale) and (ii) (units not subject to
a qualifying agreement of sale) as shown on the borrowing base
certificate. For borrowing base
certificates delivered on or after July 31, 2009, the maximum percentage
remains unchanged at 45%.
·
The category
reductions applicable to the determination of the borrowing base availability
were adjusted so that the maximum borrowing base availability attributable to
asset classes (iii) (lots part of improved land not subject to a
qualifying agreement of sale), (iv) (lots part of land under development)
and (v) (lots part of land approved for development), based on borrowing
base certificates delivered before July 31, 2009, was increased to a
maximum of 65% of the total borrowing base availability as shown on the
borrowing base certificate. For
borrowing base certificates delivered on or after July 31, 2009, the
maximum percentage is 55%. The maximum
dollar value of borrowing base availability attributable to asset classes
(iii), (iv) and (v) were also adjusted to the following (with such
limitations to be reduced dollar for dollar at the time and in the amounts of
any impairments with respect to assets in asset classes (iii), (iv) and (v) and
included in the borrowing base taken by borrowers):
(i)
Beginning with the Borrowing Base Certificate
delivered on or after the effective date of the First Amendment: $235,000;
(ii)
Beginning with the Borrowing Base Certificate
delivered on or after July 31, 2009: $200,000; and
(iii)
Beginning with the Borrowing Base Certificate
delivered after September 30, 2009: $190,000.
·
Under the First
Amendment, the aggregate effect of (i) the modification of the borrowing
base category reductions applicable to units not subject to a qualifying
agreement of sale (described above); (ii) the modification of the
borrowing base category reductions for land under development (described
above); and (iii) the inventory impairments during the second fiscal
quarter of approximately $8,670, was an increase in net borrowing base
availability of $16,065 as of December 31, 2008, from a negative $14,567
to a positive $1,498.
·
The amount of
the Revolving Credit Facility was reduced from $440,000 to $405,000, except
that the amount of the Revolving Credit Facility will be reduced to $375,000
beginning on July 16, 2009 and through maturity, unless otherwise
permanently reduced as a result of certain prepayments required by the
Revolving Credit Facility. The letter of
credit sublimit was reduced to $30,000 from $60,000, and the financial letter
of credit sublimit was reduced to $15,000 from $25,000. The amount actually
available under the Revolving Credit Facility is also subject to the borrowing
base availability requirements in the Revolving Credit Facility.
·
In the event
there is one or more defaulting lenders, so long as there is no event of
default that has occurred and is continuing, pro-rata principal payments shall
not be made to such defaulting lender, but instead shall be paid over to the
master borrower.
·
The minimum
consolidated tangible net worth level was adjusted to a minimum of at least
$25,000 (1) reduced by the sum of (a) any impairments or other
charges under GAAP on assets in the borrowing base taken by the Company and
recorded in respect of the financial quarters ended December 31, 2008 and March 31,
2009, plus (b) any deferred tax assets valuation allowance reserves
recorded in respect of the fiscal quarters ended December 31, 2008 and March 31,
2009, plus (c) any impairments or write-offs relating to tangible assets
or pre-acquisition costs not contained in the borrowing base recorded in
respect of the fiscal quarters ended December 31, 2008 and March 31,
2009
(provided, however, that the aggregate
covenant level reduction pursuant to this clause (1) shall not exceed
$15,000), and (2) increased by the sum of (x) any favorable
adjustment to the deferred tax asset valuation allowance recorded in respect of
the fiscal quarters ended December 31, 2008 and March 31, 2009, plus (y) 50%
of positive quarterly net income after March 31, 2008.
·
The definition
of liquidity was revised to provide that negative borrowing base availability
is deducted from cash and cash equivalents when determining liquidity and the
minimum required liquidity covenant was reduced from $15,000 to $10,000. A five business day cure period in the event
of a breach of the minimum liquidity covenant was also added.
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·
The maximum
amount of cash or cash equivalents (excluding cash in transit at title
companies) that the Company is allowed to maintain was set at a maximum of
$15,000 for any consecutive five-day period.
·
The cash flow
from operations covenant ratio was adjusted downward for the quarter ending June
30, 2009 to 0.50:1.00 and for the quarter ending September 30, 2009 and
thereafter to 0.65:1.00.
·
The Companys
ability to purchase up to $8,000 of unimproved real estate is no longer
available; however, the Companys ability to acquire lots through option
take-downs remains unchanged. The
provision specifically allowing the Company to make new joint venture
investments up to certain specified amounts was also eliminated.
·
The interest
rate was increased by 25 basis points, to the one month LIBOR interest rate
plus 5.25%.
·
Generally, the
ability to obtain letters of credit for general working capital or corporate
purposes and the ability to obtain letters of credit in connection with
projects outside the borrowing base were eliminated (provided, however, that
existing letters of credit can be renewed, subject to the other terms of the
Loan Agreement).
·
Provisions were
added providing that no letter of credit will be issued or renewed and that no
tri-party agreement will be executed or maintained while any lender is a
defaulting lender, except if the borrowers have delivered to the agent cash
collateral equal to the defaulting lenders pro rata share of the letter of
credit or tri-party agreement. The cash
collateral is to be used to reimburse lenders in the event of draws under
letters of credit or tri-party agreements.
·
Letter of
credit advances (that is, payments pursuant to a letter of credit that result
in the making of a loan to borrowers in excess of the then available borrowing
base) must be repaid within five business days, or earlier under certain
circumstances.
·
Provisions were
added to the Second Amended Credit Agreement and related Security Agreement
providing that, in the event of receipt of any tax refund by any obligor that
constitutes collateral, the amount received must be used to prepay the loans
under the facility. Any such collateral
received by the agent will likewise be applied to the outstanding
indebtedness. However, such reduction of
the outstanding indebtedness would have the effect of then increasing the net
borrowing base availability immediately thereafter.
·
Additional
provisions were added with respect to the allocation among the lenders of
burdens and risks associated with defaulting lenders.
·
In
consideration of entering into the First Amendment to the Second Amended Credit
Agreement, the Company paid a fee equal to 0.25% of such approving lenders
reduced commitments effective on the closing of the amendment.
Terms of the Revolving Credit Facility:
The borrowing limit under
the Revolving Credit Facility is $405,000, except that the amount of the Revolving
Credit Facility will be reduced to $375,000 beginning July 16, 2009,
unless otherwise permanently reduced to an amount less than or equal to
$375,000, as a result of certain required prepayments. The total amount of
loans and advances outstanding at any time under the Revolving Credit Facility
may not exceed the lesser of the then-current borrowing base availability or
the revolving sublimit as defined in the Revolving Credit Facility. The
borrowing base availability is based on the lesser of the appraised value or
cost of real estate owned by the Company that has been admitted to the
borrowing base and is subject to various limitations and qualifications set
forth in the Revolving Credit Agreement.
From October 1, 2008
to February 10, 2009, borrowings and advances under the Revolving Credit
Facility bore interest on a per annum basis equal to the LIBOR Market Index
Rate plus 500 basis points. Beginning on
February 11, 2009, the interest rate increased to the LIBOR Market Index
Rate plus 525 basis points. Prior to October 1,
2008, the applicable spread had been 400 basis points. During the term of the
Revolving Credit Facility, interest is payable monthly in arrears. At March 31, 2009, the interest rate was
5.76%, which included a 525 basis point spread.
LIBOR Market Index Rate is defined by the Revolving Credit Facility as
one-month LIBOR for dollar deposits as it may be adjusted pursuant to the terms
of the Revolving Credit Facility to account for any applicable Federal Reserve
euro currency reserve requirements or similar governmental requirements
A fee will be earned and
payable on September 15, 2009 equal to 8.0% per annum, calculated on a
daily basis, of the difference between $250,000 and the aggregate level of the
lenders lending commitments under the Revolving Credit Facility as they exist
from time to time between September 30, 2008 and the earlier of September 15,
2009 and the date the commitments are permanently reduced to $250,000; however
this fee will be reduced by 80% if the aggregate level of commitments on or
before September 15, 2009 have been permanently reduced to $250,000 or
less. Under this provision, the
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Company currently
estimates that the minimum it will be required to pay is $0 and the maximum is
$9,150. The Company expects that it will pay no amounts under this provision as
it intends to refinance or otherwise modify the debt before the payment is due
and payable. There can be no assurance that such refinancing will occur or will
occur on terms favorable to the Company.
In addition, if all indebtedness under the Revolving Credit Facility is
not fully repaid by December 20, 2009, a separate fee will be earned and
payable on December 20, 2009 equal to 8.0% per annum of the amount by
which the aggregate commitments under the Revolving Credit Facility that exist
from time to time after September 15, 2009 exceed $250,000, calculated on
a daily basis. Under this provision, the
Company currently estimates that the minimum it will be required to pay is $0
and the maximum is $2,630. The Company expects that it will pay no amounts
under this provision as it intends to refinance the debt before the payment is
due and payable. There can be no assurance that such refinancing or
modification will occur or will occur on terms favorable to the Company.
In addition to any
interest that may be payable with respect to amounts advanced by the lenders pursuant
to a letter of credit, the Company will be required to pay to the lender(s) issuing
letters of credit an issuance fee of 0.125% of the amount of the letters of
credit.
Under and subject to the
terms of the Revolving Credit Facility, the borrowers may borrow and re-borrow
for the purpose of financing the acquisition and development of real estate,
the construction of homes and improvements, for working capital and for such
other appropriate corporate purposes as may be approved by the lenders. Under the
Revolving Credit Facility, each lender is generally obligated to fund only its
pro rata portion of each requested loan or advance. As a result, if any lender refuses, or is
unable, to fund its pro rata portion of a requested loan or advance, the borrowers
may be unable to borrow the entire amount of the requested loan or advance
despite the fact that if there are defaulting lenders, the borrowers are
permitted to submit additional borrowing requests in an effort to make-up any
borrowing shortfall caused by a defaulting lender failing to fund. In addition, so long as no event of default
has occurred and is continuing, pro-rata principal payments shall not be made
to any defaulting lender, but instead shall be paid over to the master
borrower. The Revolving Credit Facility
also provides for certain burden sharing measures to allocate among the lenders
the burdens and risks associated with defaulting lenders in the event there are
defaulting lenders.
Approximately 35% of the
borrowers borrowing base assets have been reappraised pursuant to the terms of
the waiver letter and approximately one third of the total assets in the
borrowing base with a book value in excess of $4,000 that were not previously
reappraised, have just been reappraised, are currently being reappraised, or
are anticipated to be reappraised during the next quarter. The reappraisals
that have been done to date have not had a material impact on the Companys
borrowing base availability, but there can be no assurance that future
reappraisals will not reduce borrowing base availability.
Various conditions must
be satisfied in order for real estate to be admitted to the borrowing base,
including that a mortgage in favor of lenders has been delivered to the agent
for lenders and that all governmental approvals necessary to begin development
of for-sale residential housing, other than building permits and certain other
permits borrower in good faith believes will be issued within 120 days,
have been obtained. Depending on the stage of development of the real estate,
the loan to value or loan to cost advance rate in the borrowing base ranges
from 50% to 95% of the appraised value or cost of the real estate. Based on
these ranges, the Company is restricted as to the type of land it can have in various
stages of development as well as the dollar value of land under development.
As security for all
obligations of borrowers to lenders under the Revolving Credit Facility,
lenders continue to have a first priority mortgage lien on all real estate
owned by the Company or any borrower and included in the borrowing base under
the Revolving Credit Facility. As further security, pursuant to the Second
Amended Credit Facility, the Company has also agreed to grant to the lenders (i) a
security interest in and assignment of all future tax refunds and proceeds
thereof received or payable to the borrowers or the Company after the closing
of the Second Amended Credit Agreement, (ii) mortgages in favor of lenders
with respect to all real property owned by the borrowers or the Company that is
not already subject to a lien in favor of the lenders under the Revolving
Credit Facility and, (iii) a security interest in inter-company debt. Pursuant to the First Amendment, all such tax
refunds must be paid over to the lenders within one business day and will be
used to prepay any indebtedness under the Revolving Credit facility. Orleans Homebuilders, Inc. has
guaranteed the obligations of the borrowers to lenders pursuant to a Guaranty
executed by Orleans Homebuilders, Inc. on January 26, 2006, amended
on September 6, 2007 and amended and restated on September 30,
2008. Under the Guaranty, Orleans
Homebuilders, Inc. granted lenders a security interest in any balance or
assets in any deposit or other account that Orleans Homebuilders, Inc. has
with any lender. However, the Company and its subsidiaries maintain a majority
of the cash, cash equivalents and marketable securities available to them in
accounts and as treasury securities outside of the lenders under the Revolving
Credit Facility.
The Revolving Credit
Facility contains customary covenants that, subject to certain exceptions,
limit or eliminate the ability of the Company to (among other things):
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·
Incur or assume other indebtedness,
except certain permitted indebtedness and possible second lien indebtedness if
appropriately approved;
·
Grant or permit to exist any lien, except
certain permitted liens;
·
Enter into any merger, consolidation or
acquisition of all or substantially all the assets of another entity;
·
Sell, assign, lease or otherwise dispose
of all or substantially all of its assets;
·
Enter into any transaction with an
affiliate that is not a borrower or a guarantor under the Revolving Credit
Facility, or a subsidiary of either;
·
Pay any dividends;
·
Redeem any stock or subordinated debt;
and
·
Invest in joint ventures or other
entities that are not obligors under the Revolving Credit Facility.
In addition, under the
Revolving Credit Facility, all real property sales must be accomplished through
a title company, with the net proceeds of such a sale going directly to the
agent bank for application to the outstanding balance under the Revolving
Credit Facility. Any purchases of real estate must be done through a title
company through advances under the Revolving Credit Facility and all such
acquisitions must be subject to mortgages in favor of the lenders; and, at the
time of any such advance, the Company will be required to provide an estimate
of the portion of the borrowing that will be used for construction needs.
However, the Company may make additional draws from time-to-time pursuant to
the terms of the Revolving Credit Facility.
The Revolving Credit
Facility also contains various financial covenants. Among other things, the
financial covenants, as amended, require that:
·
The Company must maintain a minimum
consolidated tangible net worth of at least $25,000
(1) reduced by the sum of (a) any
impairments or other charges under GAAP on assets in the borrowing base taken
by the Company and recorded in respect of the financial quarters ended December 31,
2008 and March 31, 2009, plus (b) any deferred tax assets valuation
allowance reserves recorded in respect of the fiscal quarters ended December 31,
2008 and March 31, 2009, plus (c) any impairments or write-offs
relating to tangible assets or pre-acquisition costs not contained in the
borrowing base recorded in respect of the fiscal quarters ended December 31,
2008 and March 31, 2009
(provided,
however, that the aggregate covenant level reduction pursuant to this clause (1) shall
not exceed $15,000), and (2) increased by the sum of (x) any
favorable adjustment to the deferred tax asset valuation allowance recorded in
respect of the fiscal quarters ended December 31, 2008 and March 31,
2009, plus (y) 50% of positive quarterly net income after March 31,
2008.
·
Subject to a five day cure period, the
Company must maintain a required liquidity level based on cash plus borrowing
base availability of at least $10,000 of cash and cash equivalents (including
cash held at a title company) on a consolidated basis at all times, minus the
amount by which the then-outstanding principal balance of the Companys loans
plus any swing line loans exceeds the then-current borrowing base availability.
·
The Companys minimum cash flow from
operations ratio based on cash flow from operations to interest incurred
covenant, must exceed 1.25-to-1.00 for the quarter ending December 31,
2008; 0.40-to-1.00 for the quarter ending March 31, 2009; 0.50-to-1.00 for
the quarter ending June 30, 2009; and 0.65-to-1.00 for the quarter ending September 30,
2009 and thereafter. Cash flow from operations is calculated based on the last
twelve months cash flow from operations, adjusted for interest paid (excluding
any amortized deferred financing costs related to all amendments to the Amended
Credit Agreement, the Second Amended Credit Agreement and the trust preferred
securities and any future amendments to any of the foregoing), amounts from the
disposition of model homes that are subject to a sale-leaseback transaction to
the extent such amounts are not otherwise included in net cash provided by
operating activities, and interest income.
·
The maximum amount of cash or cash
equivalents (excluding cash at title companies) the Company is allowed to
maintain for any consecutive five-day period is $15,000.
·
The Company may purchase improved
land (i.e., finished lot takedowns and/or controlled rolling lot options)
purchased by the borrowers in the normal course of business, consistent with
the projections provided to the lenders, but otherwise limits the Companys
ability to purchase improved and unimproved land.
At the fiscal quarters
ended September 30, 2006, December 31, 2006, March 31, 2007, June 30,
2007, March 31, 2008, June 30, 2008 and December 31, 2008, the
Company would have been in violation of certain financial covenants in the
Amended and Restated Credit Agreement if not for the first, second, third and
fourth amendments to and waiver letter with respect to the Amended and Restated
Credit Agreement, the Second Amended Credit Agreement, the waiver letter and
the First Amendment to the Second Amended Credit Agreement, respectively.
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The Revolving Credit
Facility provides that, subject to any applicable notice and cure provisions,
each of the following (among others) is an event of default:
·
Failure by borrowers to pay when due any
amounts owing under the Revolving Credit Facility;
·
Failure by the Company to observe or
perform any promise, covenant, warranty, obligation, representation or agreement
under the Revolving Credit Facility or any other loan document;
·
Bankruptcy and other insolvency events
with respect to any borrower or the Company;
·
Dissolution or reorganization of any
borrower or the Company;
·
The entry of a judgment or judgments
against borrower(s) or the Company: (i) in an aggregate amount that
is at least $500 in excess of available insurance proceeds, if such judgment or
judgments are not dismissed or bonded within 30 days; or (ii) that
prevents borrowers from conveying lots and units in the ordinary course of
business if such judgment or judgments are not dismissed or bonded within
30 days; or the issuance of any writs of attachment, execution or
garnishment against any borrower or the Company;
·
Any material adverse change in the
financial condition of a borrower or the Company which causes the lenders, in
good faith, to believe that the performance of any of the obligations under the
Revolving Credit Facility is impaired or doubtful for any reason; and
·
Specified cross defaults.
Upon the occurrence and
continuation of an event of default, after completion of any applicable grace
or cure period, lenders may demand immediate payment in full of all
indebtedness outstanding under the Revolving Credit Facility, terminate their
obligations to make any loans or advances or issue any letter of credit, set
off and apply any and all deposits held by any lender for the credit or account
of any borrower and foreclose upon any collateral. In addition, upon the occurrence of certain
events of bankruptcy or other insolvency events with respect to any borrower or
the Company, all indebtedness outstanding under the Revolving Credit Facility
shall be immediately due and payable without any act or action by lenders. A
default under the Companys Revolving Credit Facility could also prevent the
Company from making required payments under the Companys trust preferred
securities, which would cause a default under those securities.
The Revolving Credit
Facility currently provides for certain adjustments to the manner in which
borrowing base availability is to be calculated to take effect with
respect to borrowing base certificates delivered on or after July 31, 2009
which will have the effect of reducing borrowing base availability. In
addition, a portion of the Companys borrowing base assets
are currently subject to reappraisal by the Companys
lenders. As a result, the Company may need to obtain an amendment to its
Revolving Credit Facility providing additional liquidity on or before August 15,
2009. If the Company is unable to obtain such an amendment, the Companys
future borrowings may exceed the then available borrowing base. Under
such circumstances, absent a wavier or an amendment from its lenders,
the Company could be in default under its
Revolving Credit Facility and, as a result, its debt could become due which
would have a material adverse effect on the Companys financial position and
results of operations.
As of March 31,
2009, the Company was in compliance with all of its financial covenants under
the Second Amended Credit Agreement, as amended.
Trust Preferred Securities:
On November 23,
2005, the Company issued $75,000 of trust preferred securities which mature on January 30,
2036 and are callable, in whole or in part, at par plus accrued interest on or
after January 30, 2011. For the first ten years, the securities have a
fixed interest rate of 8.61% per annum, provided that certain covenant levels
are maintained. Thereafter, the securities have a floating interest rate equal
to three-month LIBOR plus 360 basis points per annum, resetting quarterly. The
securities are treated as debt obligations for financial statement purposes.
The Company used proceeds from the sale of these securities to repay
outstanding obligations under the Revolving Credit Facility discussed above.
The trusts preferred and
common securities require quarterly distributions of interest by the trust to
the holders of the trust securities at a fixed interest rate equal to 8.61% per
annum through January 30, 2016 and, after January 30, 2016, at a
variable interest rate (reset quarterly) equal to the three-month London
Interbank Offered Rate (LIBOR) plus 360 basis points (Regular Interest Rate). Since the Company failed to meet both the
debt service ratio and minimum tangible net worth requirement set forth in the August 13,
2007 supplemental indenture as of the end of a fiscal quarter for at least
three of the last four consecutive fiscal quarters ended on June 30, 2008,
the applicable rate of interest was increased by 300 basis points (Adjusted
Interest Rate). The Company began accruing for this increased interest rate on
July 31, 2008, which was paid to holders for the first time with the
coupon payable on October 31, 2008. The interest rate will return to the
regularly applicable rate once the Company is in compliance with the debt
service ratio and minimum tangible net worth requirements as of the end of any
fiscal quarter. The terms of the trust
securities are governed by an Amended and Restated Trust Agreement, dated November 23,
2005, among OHI Financing, Inc., (OHI Financing) as depositor, JPMorgan
Chase Bank,
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National Association, as
property trustee, Chase Bank USA, National Association, as the Delaware
trustee, and the administrative trustees named therein.
The trust used the
proceeds from the sale of the trusts securities to purchase $77,320 in
aggregate principal amount of unsecured junior subordinated notes due January 30,
2036 issued by OHI Financing, which includes $2,300 of inter-company issuances.
The junior subordinated notes were issued pursuant to a Junior Subordinated
Indenture, dated November 23, 2005, as amended by a Supplemental Indenture
dated August 13, 2007, collectively referred to herein as the Indenture,
among OHI Financing, as issuer, and JPMorgan Chase Bank, National Association,
as trustee. The terms of the junior subordinated notes are substantially the
same as the terms of the trusts preferred securities. The interest payments on
the junior subordinated notes paid by OHI Financing will be used by the trust
to pay the quarterly distributions to the holders of the trusts preferred and
common securities. Pursuant to the parent guarantee agreement dated November 23,
2005 by and between the Company and JPMorgan Chase Bank, National Association, as
trustee, the Company has unconditionally guaranteed OHI Financing payment and
other obligations under the indenture and the junior subordinated notes. The
Company used the proceeds from the issuance and sale of the trust preferred
securities and the subsequent purchase of the junior subordinated notes to
partially repay indebtedness.
The Indenture permits OHI
Financing to redeem the junior subordinated notes at par, plus accrued interest
on or after January 30, 2011. If OHI Financing redeems any amount of the
junior subordinated notes, the Trust Agreement requires the trust to redeem a
like amount of the trust securities. Under certain circumstances relating to
the tax treatment of the trust or the interest payments made on the junior
subordinated notes or the classification of the trust as an investment company
under the Investment Company Act of 1940, as amended, OHI Financing may also
redeem the junior subordinated notes prior to January 30, 2011 at a 7.5%
premium.
With certain exceptions
relating to debt to a trust, partnership or other entity affiliated with the
Company that is a financing vehicle for the Company, the junior subordinated
notes and the Companys obligations under the parent guarantee are expressly
subordinate to all of the Companys existing and future debt unless it is
provided in the instrument creating or evidencing such debt, or pursuant to
which such debt is outstanding, that such debt is not superior in right to
payment of the junior subordinated notes or the obligations under the parent
companys guarantee, as the case may be.
Under the Indenture, OHI
Financing will generally have to make eight consecutive Adjusted Interest Rate
coupon payments (other than the eight consecutive Adjusted Interest Rate coupon
payments that could be made on each of the coupon payment dates from October 30,
2008 to and including July 30, 2010) to cause an event of default under
the Indenture (or in some cases six consecutive coupon payments). More
specifically, the Indenture provides that the earliest an event of default
could occur as a result of the payment of the Adjusted Interest Rate is (i) upon
the payment of the Adjusted Interest Rate coupon for October 30, 2010, if
applicable, provided there have been eight prior consecutive Adjusted Interest
Rate coupons paid by OHI Financing; (ii) on either the fiscal quarter
ended March 31, 2010 or the fiscal year ended June 30, 2010, if at
either date both the trailing twelve months interest coverage ratio is less
than 1.25 to 1, and OHI Financing has made the six prior consecutive Adjusted
Interest Rate coupon payments; or (iii) on the fiscal quarter ended September 30,
2010, if at such time both the trailing twelve months interest coverage ratio
is less than 1.75 to 1, and OHI Financing has made the eight prior consecutive
Adjusted Interest Rate coupon payments.
If the interest coverage ratio test and the minimum consolidated
tangible net worth test are both met, OHI Financing would make the payment of
the Regular Interest Rate for the next coupon, and the Adjusted Interest Rate
test resets requiring OHI Financing to make eight (or in some instances six)
new consecutive coupon payments at the Adjusted Interest Rate before triggering
an event of default. The interest coverage ratio and minimum consolidated
tangible net worth measure are not traditional financial maintenance covenants;
they are only utilized in determining if the Adjusted Interest Rate or the
Regular Interest Rate is applicable.
The junior subordinated
notes and the trust securities could become immediately payable upon an event
of default. Under the terms of the Trust Agreement and the Indenture, subject
to any applicable cure period, an event of default generally occurs upon:
·
non-payment of any interest on the junior
subordinated notes when it becomes due and payable, and continuance of the
default for a period of 30 days;
·
non-payment of the principal of, or any
premium on, the junior subordinated notes at their maturity;
·
default in the performance, or breach, of
any covenant or warranty made by OHI Financing in the indenture and the
continuance of the default or breach for a period of 30 days after written
notice to OHI Financing;
·
non-payment of any distribution on the trusts
securities when it becomes due and payable, and continuance of the default for
a period of 30 days;
·
non-payment of the redemption price of
any trusts security when it becomes due and payable;
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·
default in the performance, or breach, in
any material respect of any covenant or warranty of any of the trustees in the
Trust Agreement, which default or breach continues for a period of 30 days
after written notice to the trustees and OHI Financing;
·
default in the performance, or breach
(which default or breach must be material in certain cases), of any covenant or
warranty made by OHI Financing. In the purchase agreement pursuant to which the
trust securities and the junior subordinated notes were sold and purchased and
the continuation of such default or breach for a period of 30 days after
written notice to OHI Financing;
·
bankruptcy, insolvency or liquidation of
the property trustee, if a successor property trustee has not been appointed
within 90 days thereafter;
·
the bankruptcy or insolvency of OHI
Financing; or
·
certain dissolutions or liquidations, or
terminations of the business or existence, of the trust.
Pursuant to the August 13,
2007 Supplemental Indenture, OHI Financing established a $5,000 reserve fund in
September 2007 for the benefit of the holders of the trust preferred
securities by posting a letter of credit with the trustee. If the Adjusted
Interest Rate is in effect for the four consecutive coupon payments ending July 30,
2009, this reserve fund must be increased by $2,500. Under certain events of
default, this reserve fund may be drawn by the trustee and used in respect of
the trust preferred obligations. The reserve fund may be released upon the
earlier of compliance with the applicable interest coverage ratio resulting in
OHI Financing paying interest at the regular interest rate rather than the
adjusted interest rate, or redemption or defeasance of the notes in accordance
with the terms of the Indenture.
On September 20,
2005, the Company issued $30,000 of trust preferred securities which mature on September 30,
2035 and are callable, in whole or in part, at par plus accrued interest on or
after September 30, 2010. For the first ten years, the securities have a
fixed interest rate of 8.52% per annum. Thereafter, the securities have a
floating interest rate equal to three-month LIBOR plus 380 basis points per
annum, resetting quarterly. The securities are treated as debt obligations for
financial statement purposes. The Company used proceeds from the sale of these
securities to fund land purchases and residential construction. The obligations
relating to the trust preferred securities are subordinated to the Revolving
Credit Facility.
On
approximately July 30, 2009, pursuant to the terms of the first amendment
to the $75,000 issue of trust preferred securities, the Company is generally
required to provide a $2,500 increase in the reserve fund for the benefit of
holders of the trust preferred securities by posting a letter of credit with
the trustee. The Company currently
anticipates posting such letter of credit as is permitted under the existing
terms of the credit facility, provided the Company has sufficient liquidity to
do so at such time. If posted, this
letter of credit will reduce our liquidity otherwise determined at that time by
$2,500.
Cash Flow Statement
Net
cash used by operating activities for the nine months ended March 31, 2009
was $13,594, compared to net cash provided by operating activities of $63,680
for the nine months ended March 31, 2008.
The change was primarily due to a use of cash related to accounts
payable and other liabilities in the current fiscal year of $27,972 as compared
to a source in the comparable period in the prior fiscal year in the amount of
$40,961.
Net
cash provided by investing activities for the nine months ended March 31,
2009 was $536 as compared to $11,465 in the nine months ended March 31,
2008. The Company had proceeds of
$11,300 related to the sale of the Western region in the nine months ended March 31,
2008.
Net
cash used in financing activities for the nine months ended March 31, 2009
was $46,023, compared to $56,069 for the nine months ended March 31,
2008. Cash used in financing activities
primarily relates to net paydowns on our credit facility during the nine months
ended March 31, 2009 and 2008.
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Lot Positions
As
of March 31, 2009, we owned or controlled approximately 5,893 building
lots. Included in the aforementioned
lots, we had contracted to purchase, or have under option, undeveloped land and
improved building lots for an aggregate purchase price of approximately $85,743
that are expected to yield approximately 1,020 building lots. The table below shows our lots by region:
|
|
|
|
|
|
Lots under
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
options of
|
|
Percent
|
|
Total lots
|
|
|
|
|
|
Lots
|
|
of lots
|
|
agreement
|
|
of lots
|
|
owned or
|
|
Percent
|
|
Region
|
|
owned
|
|
owned
|
|
of sale
|
|
controlled
|
|
controlled
|
|
of total
|
|
Northern
|
|
2,571
|
|
52.8
|
%
|
498
|
|
48.8
|
%
|
3,069
|
|
52.1
|
%
|
Southern
|
|
1,747
|
|
35.8
|
%
|
264
|
|
25.9
|
%
|
2,011
|
|
34.1
|
%
|
Midwestern
|
|
317
|
|
6.5
|
%
|
228
|
|
22.4
|
%
|
545
|
|
9.2
|
%
|
Florida
|
|
238
|
|
4.9
|
%
|
30
|
|
2.9
|
%
|
268
|
|
4.6
|
%
|
Total
|
|
4,873
|
|
100.0
|
%
|
1,020
|
|
100.0
|
%
|
5,893
|
|
100.0
|
%
|
As
noted above in our discussion of our Revolving Credit Facility, pursuant to the
terms of the First Amendment to the Second Amended Credit Agreement, we cannot
purchase any of real estate with the exception of improved land (i.e. finished
lost takedowns and/or controlled rolling lot options) purchased in the normal
course of business consistent with the projections provided to our lenders.
Undeveloped Land
Acquisitions
In
recent years, the process of acquiring desirable undeveloped land has been
extremely competitive, particularly in the northern region, mostly due to the
lack of available parcels suitable for development. In addition, expansion of regulation in the
housing industry has increased the time it takes to acquire undeveloped land
with all of the necessary governmental approvals required to begin
construction. Generally, we structure
our land acquisitions so that we have the right to cancel our agreements to
purchase undeveloped land by forfeiture of our deposit under the
agreement. Included in the balance sheet
captions Inventory not owned Variable Interest Entities and Land deposits
and costs of future development, at March 31, 2009 we had $9,534 invested
in 7 parcels of undeveloped land, of which $2,935 is cash deposits, a portion
of which is non-refundable. At March 31,
2009, overall undeveloped parcels of land under contract had an aggregate
purchase price of approximately $35,672 and were expected to yield
approximately 378 building lots.
We
attempt to further mitigate the risks involved in acquiring undeveloped land by
structuring our undeveloped land acquisitions so that the deposits required
under the agreements coincide with certain benchmarks in the governmental
approval process, thereby limiting the amount at risk. This process allows us to periodically review
the approval process and make a decision on the viability of developing the
parcel to be acquired based upon expected profitability. In some circumstances we may be required to
make deposits solely due to the passage of time. This structure still provides us an
opportunity to periodically review the viability of developing the parcel of land. In addition, we primarily structure our
agreements to purchase undeveloped land to be contingent upon obtaining all
governmental approvals necessary for construction. Under most agreements, we secure the
responsibility for obtaining the required governmental approvals as we believe
that we have significant expertise in this area. We intend to complete the acquisition of
undeveloped land only after all governmental approvals are in place. In certain rare circumstances, however, when
all extensions have been exhausted, we must make a decision on whether to
proceed with the purchase even though all governmental approvals have not yet
been received. In these circumstances,
we perform reasonable due diligence to ascertain the likelihood that the necessary
governmental approvals will be granted.
Improved Lot Acquisitions:
The
process of acquiring improved building lots from developers is extremely
competitive. We compete with many
national homebuilders to acquire improved building lots, some of which have
greater financial resources than us. The
acquisition of improved lots is usually less risky than the acquisition of
undeveloped land as the contingencies and risks involved in the land
development process are borne by the developer rather than us. In addition, governmental approvals are
generally in place when the improved building lots are acquired.
At
March 31, 2009, we had contracted to purchase or had under option
approximately 642 improved building lots, which include lots that were sold,
but for accounting purposes are treated as a financing obligation because they
are subject to an
47
Table of
Contents
option
agreement, for an aggregate purchase price of approximately $50,071. At March 31, 2009, we had $717 invested,
of which $696 is cash deposits, invested in these improved building lots.
Subject
to the restrictions in our Revolving Credit Facility, we expect to utilize
primarily the Revolving Credit Facility as described above as well as other
existing capital resources, to finance the acquisitions of undeveloped land and
improved lots described above. The
timing of these acquisitions will depend on market conditions.
We have substantially reduced our land expenditures
both to-date and our planned expenditures for the next several quarters to
reflect current market conditions.
Recent Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statementsan amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 requires that a
noncontrolling interest in a subsidiary be reported as equity and the amount of
consolidated net income specifically attributable to the noncontrolling
interest be identified in the consolidated financial statements. It also calls for consistency in the manner
of reporting changes in the parents ownership interest and requires fair value
measurement of any noncontrolling equity investment retained in a
deconsolidation. SFAS No. 160
is effective for the Companys fiscal year ending June 30, 2010. The Company is evaluating the impact the
adoption of SFAS 160 will have on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) broadens
the guidance of SFAS No. 141, extending its applicability to all
transactions and other events in which one entity obtains control over one or
more other businesses. It broadens the
fair value measurement and recognition of assets acquired, liabilities assumed,
and interests transferred as a result of business combinations. SFAS No. 141(R) expands on
required disclosures to improve the statement users abilities to evaluate the
nature and financial effects of business combinations. SFAS No. 141(R) is effective
for the Companys fiscal year ending June 30, 2010. The Company does not expect the adoption of
SFAS No. 141(R) to have a material impact on its consolidated
financial statements.
In
June 2008, the FASB issued FASB Staff Position (FSP) Emerging Issues
Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. Under the FSP, unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents are participating securities and, therefore, are included
in computing earnings per share pursuant to the two-class method. The two-class method determines earnings per
share for each class of common stock and participating securities according to
dividends or dividend equivalents and their respective participation rights in
undistributed earnings. The Companys
outstanding restricted stock awards will be considered participating securities
under this FSP. The FSP is effective for the Companys fiscal year beginning July 1,
2009 and requires retrospective application.
The Company does not expect the adoption of the FSP to have a material
impact on its reported earnings per share.
I
n December 2008,
the FASB issued FSP SFAS 132R-1, Employers Disclosures about
Postretirement Benefit Plan Assets.
This statement provides additional guidance regarding disclosures about
plan assets of defined benefit pension or other postretirement plans. This FSP is effective for financial
statements issued for fiscal years ending after December 15, 2009. Accordingly, the Company will adopt FSP SFAS
132R-1 in fiscal year 2010. The Company
is currently evaluating the disclosure impact of adopting this FSP on its
consolidated financial statements.
In
April 2009, the FASB issued FSP SFAS 141R-1, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies, (FSP SFAS 141R-1). This
FSP amends and clarifies SFAS No. 141(R), to require that an acquirer
recognize at fair value, at the acquisition date, an asset acquired or a
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the
acquisition-date fair value of such an asset acquired or liability assumed
cannot be determined, the acquirer should apply the provisions of SFAS No. 5,
Accounting for Contingencies, to determine whether the contingency should be
recognized at the acquisition date or after it.
FSP SFAS 141R-1 is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is after
the beginning of the first annual reporting period beginning after December 15,
2008. Accordingly, the Company will
adopt FSP SFAS 141R-1 in fiscal year 2010.
The Company does not expect the adoption of FSP SFAS 141R-1 to have a
material impact on its consolidated financial statements.
In April 2009, the
FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments. The FSP amends SFAS No. 107, Disclosures
about Fair Value of Financial Instruments to require disclosure about fair
value of financial instruments in interim financial statements. FSP FAS 107-1
and APB 28-1 is effective for interim and annual periods ending after June 15,
2009 with early adoption permitted for periods ending after March 15,
2009.
48
Table
of Contents
The
Company is currently evaluating the disclosure impact of adopting this
pronouncement on its consolidated financial statements.
In April 2009, the
FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This
FSP changes existing guidance for determining whether an impairment of debt
securities is other than temporary. The
FSP requires other than temporary impairments to be separated into the amount
representing the decrease in cash flows expected to be collected from a
security (referred to as credit losses) which is recognized in earnings and the
amount related to other factors which is recognized in other comprehensive
income. This noncredit loss component of
the impairment may only be classified in other comprehensive income if the
holder of the security concludes that it does not intend to sell and it will
not more likely than not be required to sell the security before it recovers
its value. If these conditions are not
met, the noncredit loss must also be recognized in earnings. When adopting the FSP, an entity is required
to record a cumulative effect adjustment as of the beginning of the period of
adoption to reclassify the noncredit component of a previously recognized other
than temporary impairment from retained earnings to accumulated other
comprehensive income. FSP SFAS 115-2 and
FAS 124-2 is effective for interim and annual periods ending after June 15,
2009.
The Company does not expect
the adoption of this FSP to have a material impact on its consolidated
financial statements.
In April 2009, the
FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.
This FSP provides additional guidance on estimating fair value when the
volume and level of activity for an asset or liability have significantly
decreased in relation to normal market activity for the asset or liability. The
FSP also provides additional guidance on circumstances that may indicate that a
transaction is not orderly. FSP SFAS
157-4 is effective for interim and annual periods ending after June 15,
2009.
The Company does not expect
the adoption of this FSP to have a material impact on its consolidated
financial statements.
The Company does not
believe that any other recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying
financial statements.
Cautionary Statement for
Purposes of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995
In addition to historical
information, this report and other Company reports and statements contain
statements relating to future events or our future results. These statements
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act), and are subject to the Safe Harbor
provisions created by statute. Generally
words such as may, will, should, could, would, anticipate, expect,
intend, estimate, plan, continue and believe or the negative of or
other variation on these and other similar expressions identify forward-looking
statements. These forward-looking
statements including, without limitation, statements concerning anticipated or
expected conditions in or recovery of the housing market, and economic
conditions; the Companys long-term opportunities; continuing overall economic
conditions and conditions in the housing and mortgage markets and industry
outlook; anticipated or expected operating results, revenues, sales, net new
orders, pace of sales, spec unit levels, and traffic; future or expected
liquidity, financial resources, debt or equity financings, amendments to or
extensions of our existing revolving credit facility, strategic transactions or
other alternative recapitalization transactions; the anticipated impact of bank
reappraisals; future impairment charges, future tax valuation allowance and its
value; anticipated or possible federal and state stimulus plans or other
possible future government support for the housing and financial services
industries; anticipated legislation and its impact; expected tax refunds;
anticipated use of proceeds from transactions; anticipated cash flow from operations;
reductions in land expenditures; the Companys ability to meet its internal
financial objectives or projections, and debt covenants; potential future land
sales; the Companys future liquidity, capital structure and finances; the
Companys response to market conditions; potential effects of changes in
financial and commodity market prices and interest rates; potential liabilities
relating to litigation currently pending against us; anticipated delivery of
homes in backlog; fluctuations in market conditions; appropriateness of
completed home inventory levels; the overall direction of the housing market;
expected warranty costs; future land acquisitions; and the availability of
sufficient capital for us to meet our operating needs, are made only as of the
date of this report.
We do not undertake to
update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.
Forward-looking statements are based on current expectations and involve
risks and uncertainties and our future results could differ significantly from
those expressed or implied by our forward-looking statements. Many factors or potential risks could cause
our actual consolidated results to differ materially from those expressed in
any of our forward-looking statements.
For additional information on some potential risks, see Item 1A of the
Companys Annual Report on Form 10-K/A for the fiscal year ended June 30,
2008, Item 1A of this report and subsequently filed quarterly reports.
49
Table of Contents
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market
risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of the Company, due to adverse changes in
financial and commodity market prices and interest rates. The Companys principal market risk exposure
continues to be interest rate risk. A
majority of the Companys debt is variable based on LIBOR, and, therefore,
affected by changes in market interest rates.
Based on current operations, an increase or decrease in interest rates
of 100 basis points will result in a corresponding increase or decrease
interest charges incurred by the Company of approximately $3,548,789 in a
fiscal year, a portion of which may be capitalized and included in cost of
sales as homes are delivered.
Changes
in the prices of commodities that are a significant component of home
construction costs, particularly lumber, may result in unexpected short term
increases in construction costs. Since
the sale price of the Companys homes is fixed at the time the buyer enters
into a contract to acquire a home and because the Company generally contracts
to sell its homes before construction begins, any increase in costs in excess
of those anticipated may result in gross margins lower than anticipated for the
homes in the Companys backlog. The
Company attempts to mitigate the market risks of price fluctuation of
commodities by entering into fixed-price contracts with its subcontractors and
material suppliers for a specified period of time, generally commensurate with
the building cycle.
There
have been no material adverse changes to the Companys (i) exposure to
market risk and (ii) management of these risks, since June 30, 2008.
ITEM 4T.
CONTROLS
AND PROCEDURES
The
Companys management, with the participation of the Companys Chief Executive
Officer, President and Chief Operating Officer, Executive Vice President and
Chief Financial Officer and Vice President and Corporate Controller evaluated
the effectiveness of the Companys disclosure controls and procedures as of the
end of the period covered by this report.
Based upon that evaluation, the Chief Executive Officer, President and
Chief Operating Officer, Executive Vice President and Chief Financial Officer
and Vice President and Corporate Controller concluded that the Companys
disclosure controls and procedures are functioning effectively to provide
reasonable assurance that information required to be disclosed by the Company
in reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Security and Exchange Commissions rules and forms and also to
ensure information required to be disclosed is accumulated and communicated to
management including the Chief Executive Officer, President and Chief Operating
Officer, Executive Vice President and Chief Financial Officer and Vice
President and Corporate Controller as appropriate to allow timely decisions
regarding required disclosure.
There
has been no change in the Companys internal control over financial reporting
during the Companys most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
50
Table of Contents
PART II. OTHER
INFORMATION
ITEM
1A.
RISK
FACTORS
There
has been no material changes in our risk factors during the nine months ended March 31,
2009, except as noted below. For
additional information regarding risk factors, see our Annual Report on Form 10-K/A
for the year ended June 30, 2008.
Absent an equity
or debt financing, an extension of our existing Revolving Credit Facility or
entering into a new credit facility or another financing or recapitalization
transaction, on or before December 20, 2009, we will be unable to meet our
debt obligations at that time. If we are
unsuccessful in completing a new financing, extending our existing credit
facility or entering into a new credit facility on favorable terms to us, or at
all, our financial condition and operations will be materially adversely
affected.
We
are exploring a variety of alternative financing options, including an
extension of our existing Revolving Credit Facility or a new credit facility to
replace our existing Revolving Credit Facility as well as other possible
debt or equity financing or recapitalization transactions, and potential
selected land sales. There can be no assurances that we will be able to
complete an equity or debt financing or enter into a new credit
facility or an extension to the existing Revolving Credit Facility on
terms that are favorable to us, or at all. If we are unable to
obtain a new credit facility, an extension of the existing Revolving Credit
Facility, or engage in another financing or recapitalization transaction by December 20,
2009, we will be unable to meet our debt obligations by the existing
maturity date under the Revolving Credit Facility. If we cannot
complete a new financing or enter into a new credit facility or an
extension of our existing Revolving Credit Facility on terms
favorable to us or on commercially reasonable terms, our financial condition
and operations will be materially adversely affected.
We may need an
amendment to our Revolving Credit Facility providing additional borrowing base
liquidity on or before August 15, 2009 (the due date for the July 31,
2009 borrowing base certificate). If we are unable to obtain such an
amendment we could potentially be in default under the Revolving Credit
Facility which could have a material adverse affect on our
operations.
U
nder the terms
of our Revolving Credit Facility, the maximum
relative percentages and maximum dollar amounts applicable to certain
categories of borrowing base assets reset to lower amounts for any borrowing
base certificate delivered on or after July 31, 2009. In
addition, certain assets in our borrowing base are currently being reappraised
which could result in reductions in our borrowing base availability. As a
result, we may need to obtain an amendment to our Revolving Credit
Facility on or before August 15, 2009 (the date the Companys July 31,
2009 borrowing base is due) to provide additional liquidity. If we are
unable to obtain such an amendment on a timely basis on or before August 15,
2009, the resetting of these effective borrowing base advance
amounts or possible negative borrowing base adjustments resulting
from updated bank reappraisals, could result in our future borrowings
exceeding the then available net borrowing base. Under such
circumstances, we anticipate that we may not be able to
reduce the outstanding borrowings by an amount sufficient to repay in full such
future potential negative borrowing base availability as required by the
Revolving Credit Facility within the required time period. If we fail to
reduce the outstanding borrowings to an amount less than or equal to any
borrowing base availability within the required period and are unable to obtain
an amendment to the Revolving Credit Facility to increase future net
borrowing base availability and liquidity, an event of default could potentially
occur under the Revolving Credit Facility which may materially and
adversely affect our financial condition and operations.
51
Table of
Contents
ITEM 6.
EXHIBITS
|
|
|
|
Incorporated by Reference
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
10.1
|
|
Waiver Letter, dated
January 28, 2009, by and among Greenwood Financial, Inc. and
certain affiliates, Orleans Homebuilders, Inc., Wachovia Bank, National
Association and various other lenders party thereto.
|
|
8-K
|
|
1/26/09
|
|
10.1
|
|
|
|
10.2
|
|
First Amendment to Second
Amended and Restated Revolving Credit Loan Agreement and First Amendment to
Security Agreement dated as of February 11, 2009, by and among
Greenwood Financial, Inc. and certain affiliates, Orleans
Homebuilders, Inc., Wachovia Bank, National Association and various
other lenders party thereto.
|
|
8-K
|
|
2/7/09
|
|
10.1
|
|
|
|
10.3
|
|
Employment Agreement with
Michael T. Vesey dated March 10, 2009
|
|
8-K
|
|
3/10/09
|
|
10.1
|
|
|
|
10.4
|
|
Non-Competition and
Confidentiality Agreement with Michael T. Vesey dated March 10, 2009
|
|
8-K
|
|
3/10/09
|
|
10.2
|
|
|
|
31.1
|
|
Certification of Jeffrey
P. Orleans pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
31.2
|
|
Certification of
Michael T. Vesey pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
|
|
|
|
X
|
|
31.3
|
|
Certification of Garry P.
Herdler pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
32.1
|
|
Certification of Jeffrey
P. Orleans pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
32.2
|
|
Certification of
Michael T. Vesey pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
|
|
|
|
X
|
|
32.3
|
|
Certification of Garry P.
Herdler pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
52
Table of
Contents
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ORLEANS HOMEBUILDERS, INC.
|
|
(Registrant)
|
|
|
May 15, 2009
|
Jeffrey P. Orleans
|
|
Jeffrey P. Orleans
|
|
Chairman of the Board and Chief
|
|
Executive Officer
|
|
(Principal Executive Officer)
|
|
|
May 15, 2009
|
Michael T. Vesey
|
|
Michael T. Vesey
|
|
President and Chief Operating Officer
|
|
|
May 15, 2009
|
Garry P. Herdler
|
|
Garry P. Herdler
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
|
May 15, 2009
|
Mark D. Weaver
|
|
Mark D. Weaver
|
|
Vice President and
|
|
Corporate Controller
|
|
(Principal Accounting Officer)
|
53
Table of
Contents
EXHIBIT INDEX
31.1
|
|
Certification of Jeffrey P. Orleans pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of Michael T. Vesey pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
31.3
|
|
Certification of Garry P. Herdler pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
|
Certification of Jeffrey P. Orleans pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2
|
|
Certification of Michael T. Vesey pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
32.3
|
|
Certification of Garry P. Herdler pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
54
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