<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO _________.
Commission File No. l-6830
FPA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-0874323
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
2507 Philmont Avenue
Huntingdon Valley, Pennsylvania 19006
(Address of principal executive offices)
Telephone: (215) 947-8900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (l) 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
--- ---
Number of shares outstanding as of February 10, 1995: 11,695,618
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item l. FINANCIAL STATEMENTS
FPA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, June 30,
Assets 1994 1994
-------- --------
(Unaudited)
Cash $ 2,715 $ 2,506
Receivables
Trade accounts 4,453 6,026
Mortgage and other notes 1,811 2,062
Real estate held for development and sale
Residential properties completed
or under construction
Under contract for sale 21,286 22,645
Unsold 14,730 12,371
Land held for development or sale
and improvements 44,289 46,681
Property and equipment, at cost, less
accumulated depreciation 608 521
Deferred charges and other assets 4,010 4,942
-------- --------
$ 93,902 $ 97,754
======== ========
Liabilities and Shareholders' Equity
Liabilities
Accounts payable $ 18,193 $ 18,188
Accrued expenses 7,838 6,851
Amounts due to related parties 853 3,419
Customer deposits 3,346 4,911
Mortgage and other note obligations
primarily secured by:
Mortgage notes receivable 1,553 1,900
Residential properties 24,078 19,835
Land held for development or sale
and improvements 10,736 15,071
Senior notes 364 664
Subordinated debentures 2,179 2,363
Other notes payable 9,054 10,509
Deferred income taxes 2,583 2,538
Minority interests 649 560
-------- --------
Total liabilities 81,426 86,809
======== ========
Shareholders' equity
Preferred stock, $1 par, 500,000 shares
authorized, 50,000 shares of Series C
issued and outstanding at June 30, 1994
(liquidation preference of $120 per share) 50
Capital in excess of par value - preferred stock 238
Common stock, $.10 par, 20,000,000 shares
authorized, 12,698,131 shares issued at
December 31, 1994, 6,698,131 shares issued
at June 30, 1994 1,270 670
Capital in excess of par value - common stock 17,726 18,038
Retained earnings (deficit) (5,774) (7,305)
Treasury stock, at cost (1,002,513 shares at
December 31, 1994 and June 30, 1994) (746) (746)
-------- --------
Total shareholders' equity 12,476 10,945
-------- --------
Commitments and contingencies
-------- --------
$ 93,902 $ 97,754
======== ========
See notes to consolidated financial statements.
<PAGE> 3
FPA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(in thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1994 1993 1994 1993
------------------ ----------------
Earned revenues
Residential properties $ 29,943 $ 19,844 $ 55,109 $ 30,528
Land sales 3,336 3,712
Other income 402 389 641 680
------ ------- ------- -------
33,681 20,233 59,462 31,208
------ ------- ------- -------
Costs and expenses
Residential properties 25,721 16,924 47,308 26,252
Land sales 2,789 3,087
Other 118 87 214 177
Selling, general
and administrative 3,271 2,767 6,214 4,171
Interest:
Incurred 1,503 1,108 2,884 1,935
Less capitalized (1,213) (854) (2,360) (1,571)
Depreciation and
amortization 22 22 45 24
Minority interests in
income of consolidated
subsidiaries 120 60 89 36
------ ------- ------- -------
32,331 20,114 57,481 31,024
------ ------- ------- -------
Income from operations
before income taxes 1,350 119 1,981 184
Income tax expense 325 88 450 96
------ ------- ------- -------
Income from operations before
extraordinary items and
cumulative effect of change
in accounting principle 1,025 31 1,531 88
Extraordinary gain on early
extinguishment of mortgage
obligation, less applicable
income tax expense (Note A) 502 3,185
Extraordinary gain on early
extinguishment of subordinated
note payable, less applicable
income tax expense (Note A) 73 616
Extraordinary gain on early
extinguishment of senior notes
and subordinated debentures,
less applicable income tax
expense (Note A) 3,718 3,718
Cumulative effect of change in
accounting principle (Note H) 3,970
------ ------- ------- -------
Net income 1,025 4,324 1,531 11,577
Retained earnings (deficit),
at beginning of period (6,799) (11,212) (7,305) (18,465)
------ ------- ------- -------
Retained earnings (deficit),
at end of period $ (5,774) $ (6,888) $ (5,774) $ (6,888)
====== ======= ======= =======
Continued...
<PAGE> 4
FPA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(in thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -----------------
1994 1993 1994 1993
------------------- -----------------
Primary earnings
per share:
Income before
extraordinary items and
cumulative effect of
change in accounting
principle $ .09 $ .01 $ .13 $ .01
Extraordinary gains .40 .87
Cumulative effect of
change in accounting
principle .46
------- --------- -------- -------
Total $ .09 $ .41 $ .13 $ 1.34
======= ========= ======== =======
Fully diluted earnings
per share:
Income before
extraordinary items and
cumulative effect of
change in accounting
principle $ .09 $ .01 $ .13 $ .01
Extraordinary gains .40 .82
Cumulative effect of
change in accounting
principle .43
------- --------- -------- -------
Total $ .09 $ .41 $ .13 $ 1.26
======= ========= ======== =======
See notes to consolidated financial statements
<PAGE> 5
FPA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
------------------
1994 1993
------------------
Cash flows from operating activities:
Net income $ 1,531 $ 11,577
Adjustments to reconcile net income
to net cash provided by
operating activities:
Extraordinary gain on early extinguishment
of mortgage obligation, less applicable
income tax expense (Note A) (3,185)
Extraordinary gain on early extinguishment
of subordinated note payable, less applicable
income tax expense (Note A) (616)
Extraordinary gain on extinguishment of
senior notes and subordinated debentures,
less applicable income tax expense (Note A) (3,718)
Cumulative effect of change in accounting
principle (Note H) (3,970)
Depreciation and amortization 45 24
(Increase) decrease in assets
Receivables 1,824 1,067
Real estate held for development and sale 1,392 (1,293)
Deferred charges and other assets 800 250
Increase (decrease) in liabilities
Accounts payable and accrued expenses 992 119
Other liabilities (3,997) 577
-------- -------
Net cash provided by
operating activities 2,587 832
-------- -------
Cash flows from financing activities:
Proceeds from mortgages and loans payable 42,180 26,638
Repayments of mortgages and loans payable (44,558) (30,682)
Repayments of amounts due to shareholder (790)
Cash acquired in business acquisition (Note B) 265
Proceeds from sale of Series A and
Series B Notes payable 4,000
-------- -------
Net cash used in
financing activities (2,378) (569)
-------- -------
Net increase in cash 209 263
Cash at beginning of year 2,506 956
-------- -------
Cash at end of quarter $ 2,715 $ 1,219
======== =======
Supplemental disclosure of cash flow activities:
Interest paid, net of amounts capitalized $ - $ 44
======== =======
Income taxes paid $ 14 $ 679
======== =======
See notes to consolidated financial statements
<PAGE> 6
FPA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) 1993 Recapitalization Transactions Overview
As part of its continuing efforts to restructure its operations,
eliminate high interest indebtedness, obtain new capital for operations
and improve its market share in its primary operating areas, the Company
consummated several transactions with various of its principal
stockholders, creditors and investors during fiscal 1994 (herein
collectively called the "1993 Recapitalization Transactions"). The 1993
Recapitalization Transactions include: (i) acquisition of Orleans
Construction Corporation ("OCC"); (ii) issuance of new notes by the
Company and sale of Common Stock by Jeffrey P. Orleans ("Mr.
Orleans");(iii) a corporate debt restructuring; (iv) capital
transactions with the Flora Group (defined herein below); and (v) a
mortgage debt restructuring.
Acquisition of Orleans Construction Corporation
On October 22, 1993, the Company completed a transaction among the
Company, OCC, a Pennsylvania corporation, and Mr. Orleans, Chairman of
the Board and Chief Executive Officer of the Company and formerly the
owner of all of the outstanding stock of OCC. Mr. Orleans exchanged his
OCC stock for 50,000 shares of a newly-created Series C Preferred Stock
par value $1.00 per share, of the Company which was converted into
6,000,000 shares of Common Stock, in September, 1994. As a result, OCC
has become a wholly-owned subsidiary of the Company. The assets acquired
consist of real estate primarily in Mount Laurel Township, New
Jersey,(some of which are currently under development as multi-family or
single-family units) and the right to acquire real estate in East
Brunswick Township, New Jersey. This acquisition by the Company was
recorded at the OCC historical cost basis at the date of the transfer,
since it was conducted with an entity deemed to be under common control.
Summarized below are the combined results of operations, on an
unaudited, proforma basis, as if the acquisition of OCC had
occurred as of July 1, 1993. The proforma financial information does not
purport to be indicative of either the results of operations that would
have occurred had the acquisition occurred at the beginning of such
period or of future results of operations of the combined companies.
For the six months ended
December 31,
------------------------
1994 1993
------------------------
Actual Proforma
-------------------------------------
(in thousands except per share amounts)
(unaudited)
Earned revenues $59,462 $40,364
====== ======
Income (loss)from operations
before extraordinary
items and cumulative
effect of change in
accounting principle $ 1,531 $ (239)
====== ======
Net income $ 1,531 $11,250
====== ======
Primary earnings (loss) per share:
Income (loss) before
extraordinary items
and cumulative
effect of change in
accounting principle $ .13 $ (.02)
====== ======
Net income $ .13 $ .91
====== ======
Fully diluted earnings (loss) per share:
Income (loss) before
extraordinary items
and cumulative effect
of change in
accounting principle $ .13 $ (.02)
====== ======
Net income $ .13 $ .87
====== ======
<PAGE> 7
Issuance of Series A Notes by the Company and Sale of
Common Stock by Jeffrey P. Orleans.
During the second quarter of fiscal 1994, the Company issued an
aggregate principal amount of $3,000,000 of newly-created Series A Notes
to investors in a private placement (the "Series A Investors"),
including Mr. Orleans, other executive officers, directors, and key
personnel of the Company for cash consideration. The Series A Notes bear
interest at 2% over the prime rate with a maturity date of September 15,
1998 and require that principal repayments be made as proceeds are
received by the Company from the sale of residential homes at one of its
communities.
Contemporaneously with the sale by the Company of the Series A Notes,
Mr. Orleans sold 1,674,000 shares of Common Stock of the Company owned
by him to the other Series A Investors. The shares sold by Mr. Orleans
were previously issued shares. In addition, Mr. Orleans was issued
$1,000,000 in new Series B Notes for cash consideration. The Notes have
similar terms to the Series A Notes and are secured by a second mortgage
on one of the Company's residential communities.
Corporate Debt Restructuring.
During the second quarter of fiscal 1994, the Company issued $1,800,000
of Series B Notes to Jeffrey P. Orleans in exchange for $6,331,000
aggregate principal and accrued interest of 12 5/8% Senior Notes due
August 15, 1996, and $1,371,000 aggregate principal and accrued interest
of 1991 Subordinated Debentures due September 1, 2000 owned by Mr.
Orleans. The $1,800,000 represents the acquisition cost to Mr. Orleans
for the 1996 Senior Notes and 1991 Subordinated Debentures, together
with the carrying costs. Mr. Orleans acquired these securities from the
former institutional holders thereof during fiscal 1993. These
securities were first offered to the Company which did not, at the time,
have sufficient funds or other available financial resources to acquire
the securities. This transaction resulted in a second quarter fiscal
1994 extraordinary gain of $3,718,000, net of applicable income taxes of
$1,989,000.
Transactions with Flora Group.
On August 27, 1993, the Company consummated a Note and Stock Acquisition
Agreement among the Company, Executive Life Insurance Company in
Rehabilitation ("ELIC"), First Stratford Life Insurance Company
("Stratford") and Flora Real Estate Management Company ("Flora")
(related or formerly related entities which were principal stockholders
of the Company, collectively, the "Flora Group"). As described more
fully below, the transactions consisted of: (i) the exchange of cash and
certain real estate assets of the Company for the retirement of
Subordinated Floating Rate Notes; (ii) the retirement of the Series A
mandatorily redeemable Preferred Stock in exchange for new debt
securities; and (iii) the repurchase of 1,002,513 shares of Common Stock
in exchange for the issuance of new debt securities.
The Company exchanged 46 lots in the Fairway Lakes at Palm Aire Country
Club community in Manatee County, Florida with a carrying value of
approximately $1,500,000 and a cash payment of $250,000 for the
retirement of the Company's Subordinated Floating Rate Notes due April
1, 1997 with an aggregate unpaid principal balance of $2,559,000 plus
accrued interest. The Subordinated Floating Rate Note was originally
issued to Flora in connection with certain transactions which occurred
in April, 1990. At closing, the Company paid to the Flora Group an
additional $100,000 in consideration of efforts made and costs and
expenses incurred by the Flora Group in negotiating, documenting and
closing the transactions. This transaction resulted in an extraordinary
gain of approximately $616,000, which is net of tax expense of $377,000.
The Company issued a Note to Flora in the original principal amount of
$1,100,000 due August 31, 2023, which bears interest at 5.5% per annum
until December 31, 1995 and at 10% thereafter, in exchange for 50,000
shares of Series A Preferred Stock (representing all of the outstanding
Series A Preferred Stock of the Company) held by Flora. The Series A
Preferred Stock (which required mandatory redemption at $40 per share on
September 1, 2001 and was convertible into 1,818,000 shares of Common
Stock) had been issued to Flora in connection with certain 1991
restructuring transactions.
<PAGE> 8
The Company issued a Note due August 31, 2023 in the original principal
amount of $307,099, also bearing interest at 5.5% until December 31,
1995 and at 10% thereafter, in exchange for 307,870 shares of Common
Stock held by Flora. The Company also issued Notes due August 31, 2023
in the amounts of $303,491 and $389,410 to ELIC and Stratford in
exchange for their 304,254 and 390,389 shares of Common Stock,
respectively. These Notes also bear interest at 5.5% until December 31,
1995 and at 10% thereafter. The aggregate 1,002,513 shares of Common
Stock reacquired in these transactions have been retained by the Company
as treasury stock.
Mortgage Debt Restructuring.
On September 14, 1993, the Company consummated an agreement with the
Federal Deposit Insurance Corporation ("FDIC") (which had succeeded to
the mortgage debt ownership as a result of financial difficulties of the
original lender) under which the Company was able to fully satisfy
mortgage obligations aggregating approximately $10,700,000 in exchange
for a payment of approximately $5,700,000. The funds required to
consummate this transaction were obtained primarily from the proceeds of
approximately $5,000,000 from new loans secured by real estate assets of
the Company. In addition, a portion of the proceeds of a $1,300,000 loan
from Mr. Orleans was used to consummate this transaction. This loan was
repaid from the proceeds of the Series A and Series B notes. An
extraordinary gain on early extinguishment of debt of $3,185,000 for the
six month period ended December 31, 1993, net of income tax expense of
$1,821,000 has been reflected in the accompanying financial statements.
(B) Supplemental disclosure of noncash financing activities:
As discussed in Note A, during the first quarter of fiscal 1995, Mr.
Orleans converted his 50,000 shares of Series C Preferred Stock into
6,000,000 shares of Common Stock.
The Flora transactions described in Note A include certain noncash items
which have not been reflected in the condensed consolidated statement of
cash flows for the period. These items include approximately $1,500,000
of real estate assets given in exchange for the retirement of the
Company's Subordinated Note payable with a principal balance of
$2,559,000 plus accrued interest. Further, $2,100,000 of new notes
payable were issued in exchange for 50,000 shares of Series A Preferred
Stock and the reacquisition of 1,002,513 shares of the Company's Common
Stock.
On October 22, 1993, the Company acquired Orleans Construction
Corporation as more fully described in Note A. The assets acquired,
liabilities assumed and other noncash effects of this transaction which
have not been reflected in the Consolidated Statements of Cash Flows
were as follows:
(in thousands)
--------------
Receivables $ 1,814
Real estate held for
development or sale 29,843
Deferred charges and
other assets 3,207
------
Total assets 34,864
------
Accounts payable and
accrued expenses 13,937
Customer deposits 1,660
Mortgage loans payable 19,244
Equity 288
------
Total liabilities and
equity 35,129
------
Cash acquired $ 265
======
As discussed in Note A, in September, 1993 the Company consummated an
agreement with the Federal Deposit Insurance Corporation under which the
Company was able to fully satisfy mortgage obligations at less than the
carrying value of the debt.
As previously discussed, the Company issued $1,800,000 of new Series B
notes on October 22, 1993 as consideration in the corporate debt
restructuring.
<PAGE> 9
During the first six months of fiscal 1994, the Company issued
payment-in-kind obligations to a majority of its Subordinated Debenture
holders in lieu of scheduled cash interest payments aggregating
approximately $160,000.
(C) Primary earnings per common share is computed by dividing net income by
the weighted average number of shares outstanding, net of treasury
shares, during the three and six month periods ended December 31, 1994
and 1993 (11,955,046 and 10,611,502 for the three month periods ended
December 31, 1994 and 1993, respectively, and 11,955,046 and 8,644,903
for the six month periods ended December 31, 1994 and 1993,
respectively).
Fully diluted earnings per common share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding, net of treasury shares, and all potentially dilutive
securities (11,955,046 and 10,611,502 for the three month periods ended
December 31, 1994 and 1993, respectively, and 11,955,046 and 9,217,268
for the six month periods ended December 31, 1994 and 1993,
respectively).
The fiscal 1995 shares for both primary and fully diluted earnings per
share assume the conversion of the Series C Preferred Stock and that the
options (as described in Note F) are outstanding as of July 1, 1994. The
fiscal 1994 shares for both primary and fully diluted earnings per share
assume the conversion of the Series C Preferred Stock effective October
22, 1993 and that the options (as described in Note F) are outstanding
as of July 1, 1993.
(D) Mortgage and other notes receivables are shown net of allowances for
doubtful accounts of $45,000 and $55,000 at December 31, 1994 and June
30, 1994, respectively.
(E) The above statements are unaudited but include all adjustments which the
Company considers necessary for a fair presentation of the financial
statements. The results of operations include FPA Corporation and
Orleans Construction Corporation for the three and six month periods
ended December 31, 1994. The results of operations include FPA
Corporation for the three and six month periods ended December 31, 1993,
and Orleans Construction Corporation from the date of acquisition
(October 22, 1993) through December 31, 1993. All adjustments made for
the periods presented were of a normal recurring nature. The results of
operations for the three and six month periods ended December 31, 1994
and 1993 are not necessarily indicative of the fiscal year.
(F) On December 7, 1992, the Board of Directors adopted (i) the 1992
Incentive Stock Option Plan relating to options for up to 560,000 shares
(increased in August, 1994 to 660,000 shares) of Common Stock of the
Company and (ii) the Non-Employee Directors Stock Option Plan relating
to a maximum of 100,000 shares. As of December 31, 1994, the Stock
Option Committee had granted options aggregating 540,000 shares to
certain employees of the Company under the 1992 Incentive Stock Option
Plan and options aggregating 75,000 to three non-employee Directors
(after expiration of an option for 25,000 shares originally granted to a
Director who subsequently resigned). The option price per share was
established at the fair market value at the dates of the grant which was
$.69 to $2.81 per share.
(G) In October, 1992, a wholly owned subsidiary of the Company, Versailles
at Europa, Inc. was established to act as the General Partner in a newly
formed Versailles Associates, L.P. This partnership was formed to
purchase and develop a tract of land in Cherry Hill, New Jersey. The
terms of the partnership agreement provide that the General Partner will
be allocated 55% of the net profits or losses of this partnership and
have exclusive management and control over the development of the
property.
Orleans Construction Corporation had entered into a joint venture
agreement with Bridlewood Associates, L.P., a limited partnership formed
to develop an 85 acre parcel of land in Mount Laurel, New Jersey. Upon
the OCC acquisition, the Company succeeded OCC as the managing general
partner. The Company and the limited partner share equally in the
profits or losses of the entity.
The financial statements of both of the above partnerships are included
in the consolidated financial statements of the Company. The limited
partners' share of the income and capital from these entities has been
presented as minority interests in the accompanying consolidated
financial statements.
<PAGE> 10
(H) In February, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes". SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in tax law or
rates. The Company has adopted the principles of SFAS 109, as required,
effective July 1, 1993 on a prospective basis. The cumulative effect of
adoption of SFAS 109 was approximately $3,970,000, as adjusted. This
gain is primarily the result of the effects of previously unrecognized
net operating losses and other carryforward tax benefits in excess of
net deferred taxable items and net of a valuation reserve of
approximately $1,000,000. The valuation reserve reflects the excess of
the carryforwards over existing net deferred taxable items and expected
taxable gains on certain of the 1993 Recapitalization Transactions.
(I) During 1993, the Company entered into an option agreement with Orleans
Builders and Developers, a New Jersey Limited Partnership (the
"Partnership"), the partners of which are Mr. Orleans and a trust of
which Mr. Orleans and Selma Orleans (the mother of Mr. Orleans) are the
sole trustees and beneficiaries. This argreement allows for the
acquisition of certain land holdings of the Partnership for $2,800,000.
Under the terms of the current option agreement, upon the exercise of an
option, the Company is obligated to pay 50% of the purchase price in
cash, with the balance to be paid pursuant to a mortgage note payable
within five years of the exercise date. Interest on the notes are
payable monthly at prime plus 1%. The Company agreed to pay all real
estate taxes and insurance costs for the option properties still owned
by the Partnership. During the second quarter of fiscal 1995, the
Company acquired a portion of the land under the aforementioned
agreement and simultaneously sold it to an unaffiliated third party.
<PAGE> 11
Item 2. FPA Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Company requires capital to purchase and develop land, to construct
units, fund related carrying costs and overhead and to fund various advertising
and marketing costs to facilitate sales. The Company's sources of capital
include funds derived from operations and various borrowings, most of which are
secured. At December 31, 1994, the Company had $48,650,000 available to be drawn
under existing secured revolving and construction loans for planned development
expenditures. These expenditures include site preparation, roads, water and
sewer lines, impact fees and earthwork, as well as the construction costs of the
units and amenities. The 1993 Recapitalization Transactions, which are more
fully described in the Notes to Consolidated Financial Statements under Item 1,
will continue to have a significant impact on the Company's capital resources
and future operations.
The Company believes that the closing of the 1993 Recapitalization
Transactions, funds generated from operations and additional borrowings from
commercial lenders will provide the Company with sufficient capital to meet its
operating needs through calendar 1995.
Joint Ventures
The Company is a general partner in two separate joint ventures with
private investors which are developing communities in Cherry Hill and Mount
Laurel, New Jersey. These activities will provide additional operating funds to
the Company without the need for traditional land acquisition funding.
Economic Conditions
The sluggish growth of the general economy in the Northeastern United
States, contradictory economic data and uncertainties regarding employment
within the Company's customer base have lessened the demand for new housing. The
homebuilding industry has begun to feel the effects of the increased interest
rates, resulting in decreased customer traffic at sales offices and reduced
sales. In response to these conditions, the Company has continued to offer
various incentives at certain communities to increase sales velocity. These
actions have reduced gross profits and cash proceeds from residential property
sales from recent historical levels. Any significant further downturn in
economic factors affecting the real estate industry may require additional
incentives or reductions in net sales prices.
<PAGE> 12
The following table sets forth certain detail as to residential sales
activity for the periods indicated, in the case of revenues earned and new
orders, and at the end of the periods indicated, in the case of backlog. The
first two columns present actual activity for the six months ended December 31,
1994 and 1993. The third column presents proforma activity as if the OCC
acquisition had occurred at the beginning of the six month period ended December
31, 1993.
Actual Proforma
--------------- ------------
Six Months Ended December 31,
--------------------------------
1994 1993 1993
--------------------------------
(Dollars in thousands)
FPA CORPORATION
Revenues earned $34,535 $21,245 $21,245
Units 185 112 112
Average price per unit $ 187 $ 190 $ 190
New orders $22,159 $29,508 $29,508
Units 136 138 138
Average price per unit $ 163 $ 214 $ 214
Backlog $28,970 $38,571 $38,571
Units 148 190 190
Average price per unit $ 196 $ 203 $ 203
ORLEANS CONSTRUCTION CORP.
Revenues earned $20,574 $ 9,283 $18,383
Units 141 65 132
Average price per unit $ 146 $ 143 $ 139
New orders $13,459 $ 6,066 $15,896
Units 99 41 109
Average price per unit $ 136 $ 148 $ 146
Backlog $21,500 $25,526 $25,526
Units 148 168 168
Average price per unit $ 145 $ 152 $ 152
GRAND TOTAL
(including FPA Corporation and OCC)
Revenues earned $55,109 $30,528 $39,628
Units 326 177 244
Average price per unit $ 169 $ 172 $ 162
New orders $35,618 $35,574 $45,404
Units 235 179 247
Average price per unit $ 152 $ 199 $ 184
Backlog $50,470 $64,097 $64,097
Units 296 358 358
Average price per unit $ 171 $ 179 $ 179
<PAGE> 13
New orders for the six months ended December 31, 1994 were 235 units
totaling $35,618,000 compared with 179 units totaling $35,574,000 for the six
months ended December 31, 1993. At December 31, 1994, the Company had a backlog
of 296 units with a sales value of $50,470,000 compared to 358 units totaling
$64,097,000 at December 31, 1993. The Company anticipates delivering all of its
backlog units during calendar 1995.
The increase in new orders for the six months ended December 31, 1994
as compared to 1993 is 56 units, while the aggregate dollar value of the
increase amounted to $44,000. The timing of the OCC acquisition, which occurred
on October 22, 1993, accounts for substantially all of the unit increase. Fiscal
1995 data includes new orders for OCC for the full six month period, while
fiscal 1994 data includes new orders for OCC only from the acquisition date. The
significant reduction in the average price per unit of the fiscal 1995 new
orders is a result of a change in the mix of the units sold. New orders for the
current year as compared to the prior year include a significantly higher
proportion of condominium and townhome units as compared to single-family units.
This increase in multi-family units sold is primarily due to the introduction of
townhome and condominium communities at the Company's Warwick Township,
Pennsylvania development. Moreover, there was a decline in the number of
single-family units being offered, as the Company had substantially completed
selling units at certain of its single-family developments prior to December 31,
1994. However, the Company commenced marketing three new single-family
communities at the end of calendar 1994. The decline in both the number of units
and dollar value of the Company's backlog at December 31, 1994 as compared to
December 31, 1993 is due to a decline in unit sales as discussed under Economic
Conditions as well as the transitional status at certain single-family
communities discussed above.
Inflation
Inflation can have a significant impact on the Company's liquidity.
Rising costs of land, materials, labor, interest and administrative costs have
generally been recoverable in prior years through increased selling prices. The
Company has been able to increase prices to cover portions of the much
publicized recent increases for lumber and other building products. However, due
to the current sluggish growth in the general economy in the Northeastern United
States, there is no assurance the Company will be able to continue to increase
prices to cover the effects of inflation in the future.
Operating Revenues
Revenues for the second quarter of fiscal 1995 increased $13,448,000
compared to the second quarter of fiscal 1994. Revenues from the sale of
residential units increased to 173 units totaling $29,943,000 during the quarter
ended December 31, 1994 from 119 units totaling $19,844,000 during the quarter
ended December 31, 1993. This increase in residential property revenues of 54
units totaling $10,099,000 is due to the introduction of sales at the Company's
Warwick Township, PA condominium community and increases in deliveries at a
majority of the Company's other communities. The remaining increase in revenues
is primarily due to the second quarter fiscal 1995 land sale of $3,336,000. This
land sale is a result of the exercise by the Company of its option to purchase a
section of land located in East Brunswick, New Jersey under the option agreement
with Orleans Builders and Developers (as discussed in Note I of the accompanying
Notes to Consolidated Financial Statements under Item 1). The Company
subsequently sold this land to an unaffiliated third party.
Revenues for the six months ended December 31, 1994 increased
$28,254,000 as compared to the six months ended December 31, 1993. Revenues and
units delivered from the sale of residential properties increased by $24,581,000
and 149 units. The timing of the October 22, 1993 OCC acquisition, coupled with
increased deliveries at a majority of the Company's communities, and the
introduction of the Warwick Township, PA community account for this substantial
increase. Land sale revenues for the six months ended December 31, 1994
increased $3,712,000 as compared to the six months ended December 31, 1993. As
previously discussed, $3,336,000 of this increase is due to the East Brunswick
land sale.
<PAGE> 14
Costs and Expenses
Costs and expenses for the second quarter of fiscal 1995 increased
$12,217,000 as compared to the same period in the prior year. Costs of land
sales increased $2,789,000 due to the aforementioned East Brunswick land sale in
November, 1994. The remaining increase is due primarily to an increase in costs
of residential properties sold, and selling, general and administrative expenses
of $8,797,000 and $504,000, respectively. These increases are consistent with
the increase in earned revenues from residential properties previously
discussed.
Cost and expenses for the first six months of fiscal 1995 increased
$26,457,000 as compared to the first six months of fiscal 1994. Approximately
$9,500,000 of this increase is due to the timing of the OCC acquisition. Costs
and expenses include OCC for the full six month period ended December 31, 1994.
However, costs and expenses for the six months ended December 31, 1993 include
OCC only from the date of the acquisition, October 22, 1993. The previously
discussed East Brunswick land sale accounted for the majority of the increase in
costs and expenses from land sales of $3,087,000. The remaining increase in
costs and expenses is due primarily to increases in costs of residential
property sales and selling, general and administrative and other expenses of
approximately $13,300,000 and $600,000, respectively. These increases are
consistent with the increase in earned revenues from residential properties
discussed under Operating Revenues.
Extraordinary Items
As more fully discussed in Note A of the accompanying Notes to
Consolidated Financial Statements under Item 1, the Company had three
extraordinary items during the first two quarters of fiscal 1994, each of which
resulted from the early extinguishment of debt. These transactions are; (i) the
retirement of a mortgage note obligation secured by real estate which resulted
in an extraordinary gain of $3,185,000 net of related income tax expense of
$1,821,000, (ii) the Flora transaction, which resulted in the extraordinary gain
on early extinguishment of a subordinated note payable of $616,000 net of income
tax expense of approximately $377,000 and (iii) the extraordinary gain on the
early extinguishment of a majority of the outstanding Senior Notes and
Subordinated Debentures which resulted in an extraordinary gain of $3,718,000
net of related income taxes of $1,989,000. The combined effect of these
transactions resulted in net extraordinary gains of $7,519,000 net of related
income taxes for the six months ended December 31, 1993.
Cumulative Effect of Change in Accounting Principle
In February, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes". SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS 109
generally considers all expected future events other than enactments of changes
in tax law or rates. The Company adopted the principles of SFAS 109, as
required, effective July 1, 1993 on a prospective basis. The cumulative effect
of adoption of SFAS 109 was approximately $3,970,000, as adjusted. This gain is
primarily the result of the effects of previously unrecognized net operating
losses and other carryforward tax benefits in excess of net deferred taxable
items and net of a valuation reserve of approximately $1,000,000. The valuation
reserve reflects the excess of the carryforwards over existing net deferred
taxable items and expected taxable gains on certain of the 1993 Recapitalization
Transactions.
<PAGE> 15
Income from Operations
Income from operations for the second quarter of fiscal 1995 was
$1,025,000 ($.09 per primary and fully diluted share) compared to income from
operations of $31,000 ($.01 per primary and fully diluted share) for the prior
year quarter. This increase is due primarily to the increase in the units
delivered and the land sales.
Income from operations for the six months ended December 31, 1994 was
$1,531,000 ($.13 per primary and fully diluted share) compared to income from
operations of $88,000 ($.01 per primary and fully diluted share) for the six
months ended December 31, 1993. This increase is due to an increase in profits
from the sale of residential units of approximately $963,000 and the land sales
of approximately $480,000.
Net Income
Net income for the second quarter of fiscal 1995 was $1,025,000 ($.09
per primary and fully diluted share) as compared to $4,324,000 ($.41 per primary
and fully diluted share) for the prior year quarter. This decrease is the result
of the previously discussed fiscal 1994 extraordinary gains of $4,293,000 ($.40
per primary and fully diluted share), offset by the increase in income from
operations of $994,000.
Net income for the first six months of fiscal 1995 was $1,531,000 ($.13
per primary and fully diluted share) as compared to $11,577,000 ($1.34 per
primary share, $1.26 per fully diluted share) for the first six months of fiscal
1994. This decrease is due to the extraordinary gains for the six months ended
December 31, 1993 totaling $7,519,000 ($.87 per primary share, $.82 per fully
diluted share), and the cumulative effect of the change in accounting principle
of $3,970,000 ($.46 per primary share, $.43 per fully diluted share), as
previously discussed, offset by the increase in income from operations of
$1,443,000.
Environmental Regulation
All testing required by Phase 1A of the phased remedial investigation
(RI) to be performed at Colts Neck Estates, a single family residential
development built by the Company in Washington Township, Gloucester County, New
Jersey ("Colts Neck") have been completed. The results of such testing has been
submitted to the New Jersey Department of Environmental Protection ("NJDEP") for
its review and comment. At NJDEP's request, James C. Anderson Associates, Inc.
("JCA"), Washington Township's consultant, submitted a proposal to NJDEP to
delineate three alleged pig manure areas on other portions of Colts Neck. The
cost of the delineation is estimated at approximately $34,000; no agreement has
been reached with NJDEP over the Company's obligation, if any, to fund this
work. The Company continues to fund the cost of the phased RI testing, which is
not expected to exceed materially the original estimate of $136,000.
Approximately 145 homeowners at Colts Neck have commenced three lawsuits against
the Company, which were separately filed in state and Federal courts between
April and November, 1993, and have now been consolidated in the United States
District Court for the District of New Jersey. The plaintiffs in the
consolidated action allege that the Company and other defendants built and sold
them homes which had been constructed on and adjacent to land which had been
used as a municipal waste landfill and a pig farm. The complaints assert claims
under the federal Comprehensive Environmental Response, Compensation and
Liability Act, the federal Solid Waste Disposal Act, the New Jersey Sanitary
Landfill Facility Closure and Contingency Act, the New Jersey Spill Compensation
and Control Act, as well as under theories of private nuisance, public nuisance,
common law fraud, latent defects, negligent misrepresentation, consumer fraud,
negligence, strict liability, vendor liability, and breach of warranty, among
others.
<PAGE> 16
In September, 1993 the Company brought a state court action against more
than 30 of its insurance companies seeking indemnification and reimbursement of
costs of defense in connection with the three Colts Neck actions referred to
above. That action has since been stayed and the Company's claims against its
insurers have also been brought as third-party claims in the consolidated Colts
Neck litigation in Federal court along with third-party claims against the
former owners and operators of the Colts Neck property as well as claims against
the generator of the waste allegedly disposed on the property. The parties in
the Colts Neck litigation have agreed to mediation, which is currently being
actively conducted by a court-appointed mediator.
Although the Company has admitted no liability in these matters and is
vigorously defending the claims brought by the homeowners and vigorously
prosecuting its claims against the insurance companies and former owners,
operators and generators, the Company has accrued estimated costs of
environmental testing as well as all other reasonably estimable future
investigatory, engineering, legal and litigation costs and expenses. Since the
Company has not received NJDEP's comments on the testing results of Phase 1A of
the RI, it is unable to predict whether any further testing or remediation will
be required and, if so, the cost and allocation thereof.
Neither the existence nor the extent of the Company's liability or any
potential recovery from co-defendants or insurance companies or other third
parties can be determined at this time. However, the Company believes that the
resolution of this contingency will not have a material effect on its results of
operations or its financial position, although there can be no assurances as to
the ultimate outcome of the litigation. The Company believes that nothing has
occurred in the mediation process which requires an adjustment to the amount of
its recorded reserves for this environmental contingency. The Company is not
aware of any other environmental liabilities associated with any of its other
properties.
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Registrant incorporates herein by reference the information
contained in Part 1 Item 2 "Management's Discussion and Analysis - Environmental
Regulation".
Item 4. Submission of Matters to a Vote of Security Holders.
On December 12, 1994, the Company held its Annual Meeting of
Stockholders pursuant to a notice dated November 2, 1994. Definitive proxy
materials were filed with the Securities and Exchange Commission prior to the
meeting. A total of 10,918,866 shares were voted at the meeting constituting
93.4% of the 11,695,618 shares entitled to vote.
At the Annual Meeting, the stockholders approved the appointment of
Price Waterhouse as independent accountants to examine the books, accounts and
records of the Company for fiscal 1995. A total of 10,913,232 shares were voted
in favor of this proposal; 522 shares were voted against; and 5,112 shares
abstained from the vote.
The five nominees (Sylvan M. Cohen, Benjamin D. Goldman, Lewis Katz,
Jeffrey P. Orleans and John W. Rollins Sr.) who were nominated for re-election
and were previously elected by the stockholders were all elected. The three
nominees not previously elected by the stockholders (Robert N. Goodman, Andrew
N. Heine and David Kaplan) were also elected. Each of the Directors received not
less than 10,912,529 votes constituting 93.3% of the shares entitled to vote at
the meeting.
FPA CORPORATION AND SUBSIDIARIES
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.
FPA CORPORATION
(Registrant)
February 10, 1995 BENJAMIN D. GOLDMAN
--------------------- -----------------------
(Date) Benjamin D. Goldman,
President and
Chief Operating Officer
February 10, 1995 JOSEPH A. SANTANGELO
--------------------- -----------------------
(Date) Joseph A. Santangelo,
Chief Financial Officer,
Treasurer and Secretary
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