UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 Number: 0-22299
SAXTON INCORPORATED
(Exact name of registrant as specified in its charter)
NEVADA 88-0223654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5440 West Sahara Ave., Third Floor
Las Vegas, Nevada 89146
(702) 221-1111
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock, par value $.001 per share, outstanding as
of May 5, 1999 was 7,732,922.
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
FORM 10-Q/A
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999 (as restated) . . . . . . 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1999 (as restated) . . . 4
Condensed Consolidated Statement of Stockholders'
Equity - Three Months Ended March 31, 1999 (as restated) . . . 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1999(as restated) . . . 6-7
Notes to Condensed Consolidated Financial Statements . . . 8-15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 15-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 21
Item 3. Defaults Upon Senior Securities and Use of Proceeds . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 21
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1998 1999
------------- ----------------
(as restated -
see note 2)
<S> <C> <C>
Real estate properties:
Operating properties, net of accumulated depreciation . . . . . $ 23,117 $ 22,078
Properties under development . . . . . . . . . . . . . . . . . . 79,418 85,741
Land held for future development or sale . . . . . . . . . . . . 1,349 6,812
------------- ----------------
Total real estate properties . . . . . . . . . . . . . . . . . 103,884 114,631
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 1,331 863
Due from Tax Credit Partnerships . . . . . . . . . . . . . . . . 31,997 31,634
Construction contracts receivable, net of allowance for doubtful
accounts of $403 at December 31, 1998 and March 31, 1999 . . . . 8,773 8,657
Costs and estimated earnings in excess of billings on
uncompleted contracts. . . . . . . . . . . . . . . . . . . . . . 2,618 1,990
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,451
Investments in joint ventures . . . . . . . . . . . . . . . . . 3,577 3,622
Due from related parties . . . . . . . . . . . . . . . . . . . . 154 145
Prepaid expenses and other assets . . . . . . . . . . . . . . . . 17,661 16,453
------------- ----------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 170,995 $ 179,446
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses . . . . . . . . . . . . . . $ 24,892 $ 25,085
Tenant deposits and other liabilities . . . . . . . . . . . . . . 6,295 6,085
Billings in excess of costs and estimated earnings
on uncompleted contracts . . . . . . . . . . . . . . . . . . . . 181 888
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 88,306 96,057
Notes payable to related parties . . . . . . . . . . . . . . . . 12,016 11,111
Long-term capital lease obligations . . . . . . . . . . . . . . . 1,118 1,179
------------- ----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 132,808 140,405
Commitments and contingencies (notes 5, 9 and 12)
Stockholders' equity:
Common stock, $.001 par value. Authorized 50,000,000
shares; issued and outstanding 7,732,922 at December 31, 1998
and March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . 8 8
Preferred stock, $.001 par value. Authorized 5,000,000
shares; no shares issued and outstanding . . . . . . . . . . . . - -
Additional paid-in capital 21,482 21,482
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 16,697 17,551
------------- ----------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 38,187 39,041
------------- ----------------
Total liabilities and stockholders' equity . . . . . . . . . $ 170,995 $ 179,446
============= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1998 1999
-------------------- ----------------
(as restated -
see note 2)
REVENUE:
<S> <C> <C>
Construction revenue, including Tax Credit
Partnership construction revenue of $4,230 and $3,913
for the three months ended March 31, 1998 and 1999, respectively $ 5,737 $ 4,750
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . 2,785 21,671
Sales of commercial properties . . . . . . . . . . . . . . . . . 2,834 1,550
Rental revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 924 1,010
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 429 571
-------------------- ----------------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . 12,709 29,552
-------------------- ----------------
COST OF REVENUE:
Cost of construction, including Tax Credit Partnership cost of
construction of $3,012 and $2,686 for the three months ended
March 31, 1998 and 1999, respectively. . . . . . . . . . . . . . 4,503 3,868
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . 2,344 19,230
Cost of commercial properties sold . . . . . . . . . . . . . . . 2,580 1,006
Rental operating cost . . . . . . . . . . . . . . . . . . . . . . 175 287
-------------------- ----------------
Total cost of revenue. . . . . . . . . . . . . . . . . . . . . 9,602 24,391
-------------------- ----------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 3,107 5,161
-------------------- ----------------
General and administrative expenses . . . . . . . . . . . . . . . 752 2,040
Depreciation and amortization . . . . . . . . . . . . . . . . . 391 531
-------------------- ----------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . 1,964 2,590
-------------------- ----------------
OTHER EXPENSE:
Interest expense, net of interest income of $293 and $245 for the
three months ended March 31, 1998 and 1999, respectively . . . . (367) (1,352)
Joint venture loss . . . . . . . . . . . . . . . . . . . . . . . (2) (6)
-------------------- ----------------
Total other expense . . . . . . . . . . . . . . . . . . . . . (369) (1,358)
-------------------- ----------------
Income before provision for income taxes . . . . . . . . . . . . 1,595 1,232
Provision for income taxes . . . . . . . . . . . . . . . . . . 444 378
-------------------- ----------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,151 $ 854
==================== ================
EARNINGS PER COMMON SHARE:
Basic:
- -------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . .. . . . . $ 0.15 $ 0.11
==================== ================
Weighted-average number of common shares outstanding 7,624,310 7,732,922
==================== ================
Diluted:
- -------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.11
==================== ================
Weighted-average number of common shares outstanding assuming
dilution . . . . . . . . . . . . . . . . . . . . . . . . . . 7,679,049 7,734,817
==================== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
----------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998. . . . . . . 7,733 $ 8 $ 21,482 $ 16,697 $38,187
Net income for the three months
ended March 31, 1999 (as restated -
see note 2). . . . . . . . . . . . . . . - - - 854 854
----------- ------- ----------- --------- -------
Balance at March 31, 1999 (as restated -
see note 2). . . . . . . . . . . . . . . 7,733 $ 8 $ 21,482 $ 17,551 $39,041
=========== ======= =========== ========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1998 1999
-------------------- ----------------
(as restated -
see note 2)
<S> <C> <C>
Cash flows from operating activities:
- ---------------------------------------------------------------------
Net income $ 1,151 $ 854
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 391 531
Gain on sales of commercial properties . . . . . . . . . . . . . ( 254) ( 671)
Joint venture loss . . . . . . . . . . . . . . . . . . . . . . . 2 5
Increase in investments in joint ventures. . . . . . . . . . . . - ( 50)
Changes in operating assets and liabilities:
Decrease (increase) in due from Tax Credit Partnerships. . . . ( 4,971) 363
Decrease (increase) in construction contracts receivable . . . ( 846) 116
Decrease in costs and estimated earnings in excess of billings
on uncompleted contracts . . . . . . . . . . . . . . . . . . 2,704 628
Increase in properties under development . . . . . . . . . . . ( 3,590) ( 10,468)
Decrease in prepaid expenses and other assets. . . . . . . . . 587 1,201
Increase (decrease) in accounts payable and accrued expenses . ( 1,382) 193
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts. . . . . . . . . ( 662) 707
Increase (decrease) in tenant deposits and other liabilities . 123 (210)
-------------------- ----------------
Net cash used in operating activities. . . . . . . . . . . . (6,747) (6,801)
-------------------- ----------------
Cash flows from investing activities:
- ---------------------------------------------------------------------
Expenditures for property acquisitions and improvements ( 3,394) ( 1,313)
Proceeds from sales of commercial properties - 1,550
Increase in notes receivable from related parties ( 19) ( 28)
Payments from notes receivable from related parties 2 37
Increase in notes receivable ( 404) ( 949)
Payments from notes receivable 120 248
Cash paid to acquire net assets of Maxim Homes, Inc. ( 785) -
-------------------- ----------------
Net cash used in investing activities. . . . . . . . . . . . ( 4,480) ( 455)
-------------------- ----------------
Cash flows from financing activities:
- ---------------------------------------------------------------------
Proceeds from issuance of notes payable . . . . . . . . . . . . . 17,145 26,176
Payments on notes payable and capital lease obligations . . . . . ( 5,286) ( 18,483)
Proceeds from issuance of notes payable to related parties . . . . 903 300
Payments on notes payable to related parties . . . . . . . . . . . ( 902) ( 1,205)
-------------------- ----------------
Net cash provided by financing activities. . . . . . . . . 11,860 6,788
-------------------- ----------------
Net increase (decrease) in cash and cash equivalents . . . 633 ( 468)
Cash and cash equivalents:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . 1,110 1,331
-------------------- ----------------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,743 $ 863
==================== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1998 1999
------------------- ----------------
(as restated -
see note 2)
<S> <C> <C>
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the period for interest, net of amounts capitalized $ 1,303 $ 2,251
=================== ================
Cash paid during the period for income taxes . . . . . . . . . . . . $ 2,369 $ 9
=================== ================
Non-cash financing and investing activities:
- --------------------------------------------
Common stock issued to acquire net assets of
Maxim Homes, Inc . . . . . . . . . . . . . . . . . . . . . . . . . $ 338 $ -
=================== ================
Capital lease obligation recorded in connection with equipment
acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18 $ 119
=================== ================
Recognition of revenue for the prior sale of a commercial
property which was subject to certain conditions . . . . . . . . . $ 2,834 $ -
=================== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF SAXTON INCORPORATED
Saxton Incorporated ("Saxton" or the "Company") is a leader in the
affordable housing industry and a diversified real estate development company
operating in the fast growing Las Vegas, Phoenix, Salt Lake City, Reno and
Tucson markets. The Company's business is comprised of four components: (i) the
design, development, construction and sale of single-family homes; (ii) the
performance of design-build services for third-party clients, including tax
credit partnerships ("design-build services"); (iii) the design, development and
construction of income producing portfolio properties; and (iv) property
operations and management. The properties consist of office and industrial
buildings, retail centers, apartments, single-family homes and land in various
phases of development. The Company also has non-controlling interests in joint
ventures that are engaged in the acquisition, development, ownership and
operation of real property.
On June 24, 1997, the Company completed its initial public offering (the
"Offering") of 2,275,000 shares of the Company's common stock ("Common Stock")
at $8.25 per share. The net proceeds of approximately $17.3 million were used
as follows: (i) $8.1 million to repay indebtedness, of which $3.4 million
represented indebtedness to the Company's principal stockholders and $1.7
million represented indebtedness to other related parties; (ii) $5.6 million to
acquire land for future development; (iii) $2.8 million to acquire the interests
of various third-party partners in certain properties; and (iv) approximately
$800,000 for development activities and general corporate purposes.
The Company's development experience and expertise enable it to identify
and take advantage of market opportunities and to minimize the risk of real
estate cycles. In 1995, management recognized the need for affordable housing in
the Las Vegas market and began to develop value-priced single-family detached
homes. The Company opened its first single-family home development in April
1996 and its second home development in early 1997.
NOTE 2. RESTATEMENT OF QUARTERLY INFORMATION
Subsequent to the issuance of the Company's March 31, 1999 condensed
consolidated financial statements, the Company's management determined that
certain interest and indirect construction costs capitalized should have been
charged to expense as incurred, and certain capitalized interest costs were not
appropriately charged to cost of revenue when sales of home and commercial
properties were recognized. As a result, the accompanying financial statements
as and for the three months ended March 31, 1999 have been restated from amounts
previously reported to appropriately account for these transactions. The
following is a summary of the effects of the restatement (in thousands, except
per share data):
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------
AS PREVIOUSLY REPORTED AS RESTATED
----------------------- ------------
Balance Sheet Data:
<S> <C> <C>
Property under development . . . . . . . . $ 85,814 $ 85,741
Total real estate properties . . . . . . . 114,704 114,631
Prepaid expenses and other assets. . . . . 17,747 16,453
Total assets . . . . . . . . . . . . . . . 180,813 179,446
Accounts payable and accrued expenses. . . 25,505 25,085
Total liabilities. . . . . . . . . . . . . 140,825 140,405
Retained earnings. . . . . . . . . . . . . 18,498 17,551
Stockholders' equity . . . . . . . . . . . 39,988 39,041
Total liabilities and stockholders' equity 180,813 179,446
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1999
-------------------------------------------
AS PREVIOUSLY REPORTED AS RESTATED
---------------------------- -------------
<S> <C> <C>
Statements of Income Data:
Cost of construction . . . . . . . . . . $ 3,888 $ 3,868
Cost of homes sold . . . . . . . . . . . 19,074 19,230
Total cost of revenue. . . . . . . . . . 24,255 24,391
Gross profit . . . . . . . . . . . . . . 5,297 5,161
General and administrative expenses. . . 1,866 2,040
Operating income . . . . . . . . . . . . 2,900 2,590
Interest expense . . . . . . . . . . . . ( 295) ( 1,352)
Total other expense. . . . . . . . . . . ( 301) ( 1,358)
Income before provision for income taxes 2,599 1,232
Provision for income taxes . . . . . . . 798 378
Net income . . . . . . . . . . . . . . . 1,801 854
Earnings per common share:
Basic. . . . . . . . . . . . . . . . . . $ 0.23 $ 0.11
Diluted. . . . . . . . . . . . . . . . . $ 0.23 $ 0.11
</TABLE>
NOTE 3. ACQUISITIONS
On March 20, 1998, the Company acquired all of the capital stock of Maxim
Homes, Inc. ("Maxim"), a Utah homebuilder. The acquisition was accounted for
using the purchase method of accounting. Maxim operates principally as a
single-family residential homebuilder, specializing in building homes generally
ranging in price from $145,000 to $185,000. The consideration paid at closing
for this acquisition consisted of: (i) $224,000 in cash; (ii) approximately
$338,000 in the Company's Common Stock (42,280 shares valued at $8.00 per
share); and (iii) $569,000 in cash to retire a portion of Maxim's debt.
In addition, the Company may make five annual installments ("earn-out payments")
on March 31 of each year beginning in 1999, subject to certain levels of
required income. These earn-out payments are based on a specified percentage
of estimated after-tax net income of the Salt Lake City real estate operations
of the Company and are to be made 50% in the Company's Common Stock and 50%
in cash. No earn-out payments were required or paid for the first quarter
of 1999.
On November 13, 1998, the Company acquired the outstanding capital stock
and ownership interests of Diamond Key Homes, Inc. ("Diamond Key") and certain
related entities. The purchase was accounted for using the purchase method of
accounting and the price was approximately $10.9 million paid in cash at
closing, approximately $250,000 expected to be paid in 1999, with an additional
amount of $2.0 million to be paid 50% in cash and 50% in the Company's Common
Stock one year from the date of closing.
On December 22, 1998, the Company acquired the outstanding capital stock of
HomeBanc Mortgage Corporation ("HomeBanc"). The purchase was accounted for
using the purchase method of accounting and the price was $474,000 paid in the
form of 71,500 shares of the Company's Common Stock at closing.
Goodwill related to the acquisitions of Maxim, Diamond Key and HomeBanc is
amortized over 15 years. The operations of these three acquisitions were
included in the Company's Consolidated Statements of Income since their
acquisition dates.
All revenue was generated from Nevada for the three months ended March 31,
1998. For the three months ended March 31, 1999, 44.5% of total revenue was
from Nevada, 42.2% from Arizona and 13.3% from Utah.
NOTE 4. BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited interim financial
statements of the Company have been prepared in conformity with generally
accepted accounting principles ("GAAP") and reflect all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations for the three months
ended March 31, 1998 and 1999. These condensed consolidated unaudited interim
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto as of and for the year
ended December 31, 1998, which are included in the Company's Form 10-K/A filed
with the Securities and Exchange Commission for the year ended December 31,
1998. Certain reclassifications have been made to conform prior periods with
the current period presentation.
9
<PAGE>
The Company historically has experienced, and expects to continue to
experience, variability in quarterly sales and revenues. The combined results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risks
and Related Factors."
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and contingent
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
materially from those estimates.
10
<PAGE>
NOTE 5. REAL ESTATE OPERATING PROPERTIES
Real estate operating properties are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------- ----------------
Cost:
<S> <C> <C>
Buildings . . . . . . . . . . . $ 19,530 $ 18,830
Tenant improvements . . . . . . 761 510
Land . . . . . . . . . . . . . 6,122 5,867
------------------- ----------------
Real estate operating properties at cost 26,413 25,207
Less accumulated depreciation and
amortization. . . . . . . . . . ( 3,296) ( 3,129)
------------------- ----------------
Real estate operating properties, net $ 23,117 $ 22,078
=================== ================
</TABLE>
Depreciation expense relating to real estate operating properties for the
three months ended March 31, 1998 and 1999 was $178,000 and $167,000,
respectively.
NOTE 6. CONSTRUCTION CONTRACTS
Construction contracts receivable includes amounts retained pending
contract completion, aggregating approximately $155,000 at December 31, 1998 and
March 31, 1999. Based on anticipated completion dates, these retentions are
expected to be collected within the next twelve months.
Accounts payable and accrued expenses include amounts retained pending
subcontract completion, aggregating approximately $3.1 million at December 31,
1998 and $3.3 million at March 31, 1999.
Costs and estimated earnings in excess of billings, net, on uncompleted
contracts, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------- ----------------
<S> <C> <C>
Costs incurred to date . . . . . . . . . $ 98,470 $ 101,655
Estimated earnings to date . . . . . . . 30,694 32,033
------------------- ----------------
129,164 133,688
Less billings to date. . . . . . . . . . (126,727) (132,586)
------------------- ----------------
Cost and estimated earnings in excess of
billings, net. . . . . . . . . . . . . . $ 2,437 $ 1,102
=================== ================
</TABLE>
Costs and estimated earnings in excess of billings, net, are shown on the
accompanying Condensed Consolidated Balance Sheets as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------- -----------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . . $ 2,618 $ 1,990
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . . ( 181) ( 888)
------------------- -----------------
Costs and estimated earnings in excess of
billings, net . . . . . . . . . . . . . . $ 2,437 $ 1,102
=================== =================
</TABLE>
The asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents construction revenue recognized in excess of
amounts billed in the respective construction contracts. The liability
"Billings in excess of costs estimated earnings on uncompleted contracts"
represents amounts billed in excess of revenue recognized on the respective
construction contracts.
11
<PAGE>
NOTE 7. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------ ---------------
<S> <C> <C>
Rental and other accounts receivable . . . . . . . . . $ 575 $ 650
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 7,877 7,770
Development costs. . . . . . . . . . . . . . . . . . . 2,598 1,237
Deferred tax assets, net . . . . . . . . . . . . . . . 74 95
Furniture and equipment, net . . . . . . . . . . . . . 1,379 1,425
Option and escrow deposits and impounds. . . . . . . . 3,087 3,301
Inventories. . . . . . . . . . . . . . . . . . . . . . 101 112
Other assets, primarily prepaid expenses and loan fees 1,970 1,863
------------------ ---------------
$ 17,661 $ 16,453
================== ===============
</TABLE>
NOTE 8. NOTES PAYABLE
<TABLE>
<CAPTION>
<S> <C> <C>
Notes payable consist of the following (in thousands): DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
Notes payable to various financial institutions, maturing at dates ranging
between April 1999 and November 2027. The notes bear interest
monthly at various rates ranging from 7.9% to 13.0%. (1)(2)(3) $ 72,328 $ 78,682
Notes payable to various individuals, maturing at dates ranging between
June 1999 and March 2000. The notes bear interest at various rates
ranging from 15.0% to 24.0%. . . . . . . . . . . . . . . . . . . 15,875 17,375
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 --
------------ ----------
$ 88,306 $ 96,057
========== ==========
<FN>
(1) On February 9, 1998, the Company signed a definitive loan agreement for a $10.0 million revolving line of credit
with a financial institution. The line of credit provides for borrowings of up to $1.0 million for general working capital
requirements, $4.0 million for acquisition and development, including strategic acquisitions and $5.0 million for land
acquisitions. Borrowing under the line of credit is secured by the pledge of certain Company receivables and any land
acquired with borrowings under the line of credit and bears interest at one percent over the lender's prime rate in effect
from time to time. The agreement is also subject to certain financial covenants and matures May 1, 1999. As of December 31,
1998 and March 31, 1999, the Company had outstanding indebtedness of $5.0 million and $7.9 million, respectively, and
available borrowings of $5.0 million and $2.1 million, respectively, under this agreement.
(2) On July 30, 1997, the Company entered into a $5.0 million revolving line of credit agreement (the "Agreement") with
a financial institution. Loans under the Agreement bear monthly interest at 1.5% above the prime rate as defined in the
Agreement (9.25% at December 31, 1998 and March 31, 1999), and require the Company to pay a loan fee of 0.25% for each
disbursement. Loans under the Agreement are available only for the acquisition of land and are secured by first trust deeds
on certain real property. As of December 31, 1998 and March 31, 1999, the Company had outstanding indebtedness of $1.9
million and $2.2 million, respectively, and available borrowings of $3.1 million and $2.8 million, respectively, under the
Agreement. Under the terms of the Agreement, the Company is required to meet certain financial covenants. The Company was
in compliance with those covenants at March 31, 1999.
(3) Through April 30, 1999, $3.2 million of notes payable maturing in April 1999 have been extended with new maturity
dates ranging from June 1999 to February 2000. For the remaining notes payable with maturity dates in 1999, management is
negotiating refinancing alternatives with the applicable lenders.
</TABLE>
During 1997, 1998 and 1999, the Company entered into various notes payable
representing borrowings from an unaffiliated individual. These notes bear
interest and mature on the following dates: $7.6 million at 20% maturing on
September 23, 1999; $1.0 million at 20% maturing on November 20, 1999; $1.0
million at 20% maturing on March 17, 2000; $500,000 at 24% maturing on July 9,
1999; $1.0 million at 24% maturing on September 3, 1999; $5.3 million at 15%
maturing on August 1, 1999; and $985,347 at 20% maturing on June 26, 1999.
12
<PAGE>
NOTE 9. NOTES PAYABLE TO RELATED PARTIES AND OTHER RELATED PARTY TRANSACTIONS
Notes payable to related parties are unsecured notes payable to certain
stockholders, officers and Directors of the Company for development purposes.
Interest only payments are due monthly at rates ranging from 12% to 18%, with
all amounts due at various dates in 1999.
During the fourth quarter of 1998, the Company's President and principal
stockholder, James C. Saxton, pledged 3,471,590 shares of Common Stock, or
approximately 44.9% of its outstanding shares, as collateral for two loans to
Mr. Saxton. Mr. Saxton reloaned the proceeds from such loans to the Company for
use in connection with the acquisition of Diamond Key. The two notes payable to
Mr. Saxton aggregating $7.6 million bear interest at 12% per annum and mature on
August 1, 1999. The Company intends to refinance the loans from Mr. Saxton
prior to their maturities. The Company understands that Mr. Saxton intends to
repay, in full, the loans from the two lenders upon repayment of the loans he
has made to the Company.
NOTE 10. EARNINGS PER COMMON SHARE
As required by SFAS No. 128, "Earnings per Share," ("EPS"), the following
tables reconcile net income applicable to common stockholders, basic and diluted
shares and EPS for the following periods (in thousands, except share and per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 THREE MONTHS ENDED MARCH 31, 1999
--------------------------------- ---------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income . . . . . . . . . . $ 1,151 $ 854
Basic EPS
- ------------------------------
Income applicable to
common stockholders. . . . . 1,151 7,624,310 $ 0.15 854 7,732,922 $ 0.11
------- --------- ========== ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . - 54,739 - 1,895
------- --------- ------- ---------
Diluted EPS
- ------------------------------
Income applicable to
common stockholders
and assumed conversions. . . $ 1,151 7,679,049 $ 0.15 $ 854 7,734,817 $ 0.11
======= ========= ========== ======= ========= ==========
</TABLE>
The Company had options outstanding to purchase Common Stock that were
excluded from the computation of Diluted EPS since their exercise price was
greater than the average market price. The antidilutive options outstanding for
March 31, 1998 and 1999 were 51,050 and 419,450, respectively.
NOTE 11. MANAGEMENT STOCK OPTION PLAN
On June 30, 1997, the Company adopted a Management Stock Option Incentive
Plan (the "Option Plan") which provides for the grant of options to employees to
purchase Common Stock up to a maximum of 500,000 shares. Stock options which
terminate without having been exercised, shares forfeited or shares surrendered
will again be available for distribution in connection with future awards under
the Option Plan. On December 7, 1998, the Company's Board of Directors approved
an increase from 500,000 to 750,000 in the number of shares subject to stock
options under the Option Plan. The increase is subject to majority ratification
or approval, in accordance with Section 14 of the Securities Exchange Act of
1934, by the stockholders not later than the next annual meeting of
stockholders. Any such additional options granted under the Plan will be
subject to such stockholder approval. As of March 31, 1999, the Company had
outstanding 441,100 stock options to certain officers and employees of the
Company pursuant to the Option Plan. These options will vest in equal annual
installments over five years commencing one year from the award date and will
expire between June 30, 2007 and March 31, 2009. Stock options granted on June
30, 1997 were issued at an exercise price equal to the initial public offering
price of $8.25 per share. Stock options granted after June 30, 1997 were
granted at the closing stock price on the grant date as reported on the Nasdaq
Stock Market. On January 2, 1998, the Company gave employees the opportunity to
reprice their stock options. The repricing involved changing their stock price
from $8.25 per share to $6.875 per share (the closing stock price on January 2,
1998) and changing their grant date from June 30, 1997 to January 2, 1998.
13
<PAGE>
Employees holding 148,300 of stock options elected to reprice on January 2,
1998. As of March 31, 1999, stock options had been granted under the Option
Plan with exercise prices ranging from $5.125 per share to $8.375 per share.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company and its two principal stockholders are guarantors on
construction loans relating to Tax Credit Partnerships. Total construction loans
payable for these Tax Credit Partnerships were approximately $37.1 million and
$43.1 million at December 31, 1998 and March 31, 1999, respectively.
NOTE 13. INFORMATION REGARDING BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise Related Information ("SFAS 131"). SFAS 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments, SFAS 131 also requires disclosures about products
and services, geographic areas and major customers. The adoption of SFAS 131
did not affect the consolidated financial results of the Company.
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which disaggregates its
business by certain lines of business components. The Company's four reportable
operating segments are: Homebuilding, Design-Build Services, Sales of
Commercial Property and Property Operations and Management. Retail operations
and corporate activities are included in the "Other" column. The financial
results of the Company's operating segments are presented on an accrual basis.
There are no significant differences among the accounting policies of the
segments as compared to the Company's consolidated financial statements. The
Company evaluates the performance of its segments and allocates resources to
them based on revenues and gross profit. There are no material intersegment
revenues. The tables below present information about the Company's operating
segments for the three months ended March 31, 1998 and 1999, respectively (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 5,737 $ 2,785 $ 2,834 $ 924 $ 429 $ 12,709
Costs . . . . . . . . 4,503 2,344 2,580 175 - 9,602
--------------- ------------- ----------- ---------------- -------- --------
Gross profit . . . . $ 1,234 $ 441 $ 254 $ 749 $ 429 $ 3,107
=============== ============= =========== ================ ======== ========
Depreciation and
amortization expense $ - $ - $ - $ 168 $ 223 $ 391
Interest expense. . . $ - $ - $ - $ (501 ) $(159 ) $(660 )
Interest income . . . $ - $ - $ - $ 198 $ 95 $ 293
Total assets. . . . . $ 27,851 $ 20,380 $ - $ 39,803 $ 10,852 $ 98,886
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 4,750 $ 21,671 $ 1,550 $ 1,010 $ 571 $ 29,552
Costs . . . . . . . . 3,868 19,230 1,006 287 - 24,391
--------------- -------------- ----------- ---------------- ------ ----------
Gross profit . . . . $ 882 $ 2,441 $ 544 $ 723 $ 571 $ 5,161
=============== ============== =========== ================ ====== ==========
Depreciation and
amortization expense $ - $ 126 $ - $ 158 $ 247 $ 531
Interest expense. . . $ - $ ( 29) $ - $ ( 1,568) $ - $ ( 1,597)
Interest income . . . $ - $ - $ - $ 223 $ 22 $ 245
Total assets. . . . . $ 43,039 $ 80,179 $ - $ 48,045 $8,183 $ 179,446
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto of Saxton
Incorporated (the "Company") appearing elsewhere in this Form 10-Q.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Restatement of Quarterly Information. Subsequent to the issuance of the
company's March 31, 1999 condensed consolidated financial statements, the
company's management determined that certain interest and indirect construction
costs capitalized should have been charged to expense as incurred, and certain
capitalized interest costs were not appropriately charged to cost of revenue
when sales of homes and commercial properties were recognized. As a result,
the accompnaying financial statements as of and for the three months ended
March 31, 1999 have been restated from amounts previously reported to
appropriately account for these transactions.
Revenue. Total revenue was $29.6 million for the three months ended
March 31, 1999, representing a $16.8 million, or 132.5%, increase from $12.7
million for the three months ended March 31, 1998. The increase was primarily
due to an increase of $18.9 million, or 678.1%, in sales of homes to $21.7
million in the first three months of 1999 compared to $2.8 million in the first
three months of 1998. The 190 single-family home closings for the first three
months of 1999 represented an increase of 476.0%, compared to the 33 closings
for the first three months of 1998. Home closings for the three months ended
March 31, 1999 included 60 in Nevada, 18 in Utah and 112 in Arizona. In the
first three months of 1998, all home closings were in Nevada. Construction
revenue for the first three months of 1999 was $4.8 million, a decrease of
$987,000, or 17.2%, from $5.7 million during the first three months of 1998.
The decrease was primarily due to the Company's increased focus on homebuilding
operations. Sale of commercial properties was $1.6 million for the three months
ended March 31, 1999 compared to $2.8 million for the three months ended March
31, 1998. One commercial property was sold during each period. Rental and
other revenue increased to $1.6 million for the three months ended March 31,
1999, a 16.9% increase over the $1.4 million in the comparable period of the
prior year. The increase was primarily due to loan related revenue from
HomeBanc Mortgage Corporation, an affiliate of Diamond Key Homes, Inc. ("Diamond
Key"), which was acquired in December 1998.
Cost of Revenue. Total cost of revenue was $24.4 million for the three
months ended March 31, 1999, representing a $14.8 million, or 154.1%, increase
from $9.6 million for the three months ended March 31, 1998. Cost of revenue for
the three months ended March 31, 1999 as a percentage of revenue was 82.5%,
compared to 75.6% for the three months ended March 31, 1998. The increase was
primarily due to the higher cost basis of the commercial property sold in 1999
and an increase in overhead allocation due to the Company's increased
homebuilding operations during 1999.
Gross Profit. Gross profit as a percent of revenue decreased to 17.5% for
the three months ended March 31, 1999 from 24.4% for the comparable period in
1998. Gross margins on the sales of homes decreased to 11.3% in the first three
months of 1999 compared to 15.8% in the first three months of 1998, due to an
increased overhead allocation to the Company's homebuilding activities on a per
unit basis. Gross profit margin on home closings from Diamond Key in the first
three months of 1999 was 13.9%. Diamond Key was acquired in November 1998.
Gross margin on construction revenue decreased to 18.6% in the three months
ended March 31, 1999, compared to 21.5% in the same period of 1998, primarily
due to the timing of the completion of such projects and increased overhead
allocation. Gross profit margin on commercial properties sold in the three
months ended March 31, 1999 increased to 35.1% from 9.0% in the three months
ended March 31, 1998. In the first three months of 1999, one retail commercial
property was sold, which yielded a higher gross profit margin than the one
rental property that was sold in the same period of 1998.
15
<PAGE>
General and Administrative Expenses. General and administrative expenses
were $2.0 million for the three months ended March 31, 1999, representing a $1.3
million, or 171.3%, increase from $752,000 for the three months ended March 31,
1998. The increase was primarily due to increased activities related to the
growth in the Company's revenue, including the acquisitions of Diamond Key and
Maxim. Of this increase, $261,000 of marketing and advertising costs reflect
the increased number of housing subdivisions in production during the three
months ended March 31, 1999 compared to the same period in 1998. The Company
added 14 projects in Arizona and two in Utah during the first quarter of 1999.
In addition, accounting, legal and other professional fees increased $259,000,
vehicle, equipment and repairs and maintenance expense increased $145,000 and
rent, utility, travel and other general office expenses increased $405,000. As
a result, general and administrative expenses as a percentage of total revenue
was 6.9% for the three months ended March 31, 1999 as compared to 5.9% for the
three months ended March 31, 1998.
[/R]
Depreciation and Amortization. Depreciation and amortization expense was
$531,000 for the three months ended March 31, 1999, representing a $140,000, or
35.8%, increase from $391,000 for the three months ended March 31, 1998. The
increase was primarily due to goodwill amortization expense of $145,000 for the
three months ended March 31, 1999 for Diamond Key, Maxim and HomeBanc Mortgage
Corporation, which were acquired in 1998 utilizing the purchase method of
accounting. This increase was partially offset by a $29,000 decrease in
depreciation expense due to a decrease in the cost basis of properties due to
operating properties and equipment sold in prior periods.
Interest Expense, Net. Interest expense, net, was $1.4 million for the
three months ended March 31, 1999, representing a $985,000 or 268.4%, increase
from $367,000 for the three months ended March 31, 1998. The increase was
primarily the result of higher levels of debt and higher interest rates on the
debt. Interest income decreased $48,000, or 16.4%, for the three months ended
March 31, 1999 compared to the same period in 1998, due to a decrease in notes
receivable to $1.5 million at March 31, 1999 from $3.2 million at March 31,
1998.
Income Before Provision for Income Taxes. As a result of the foregoing
factors, income before provision for income taxes was $1.2 million for the three
months ended March 31, 1999, representing a $363,000, or 22.7%, decrease from
$1.6 million for the three months ended March 31, 1998. Income before provision
for income taxes as a percentage of total revenue was 4.2% for the three months
ended March 31, 1999 as compared to 12.6% for the three months ended March 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied upon land and project financing, as
applicable, partner and joint venture contributions in the form of land or cash,
developer's equity (value in excess of cost), other forms of debt, including
loans from affiliates and cash flow from operations to provide capital for land
acquisitions and portfolio construction. The Company intends to continue to
provide for its capital requirements from some or all of these sources.
Management believes that cash generated from operations, funds available from
external sources of debt and equity financing, together with cash on hand at
March 31, 1999 will be sufficient to provide for its capital requirements for at
least the next 12 months. The Company is exploring the refinancing of these and
other indebtedness through the issuance of up to $50.0 million of longer term
notes during 1999. There can be no assurance that the Company will be able to
do so.
During the fourth quarter of 1998, the Company's President and principal
stockholder, James C. Saxton, pledged 3,471,590 shares of Common Stock, or
approximately 44.9% of the Company's outstanding shares at March 31, 1999, as
collateral for two personal loans to Mr. Saxton. Mr. Saxton reloaned the
proceeds from such loans to the Company for use in connection with the
acquisition of Diamond Key. The two notes payable to Mr. Saxton aggregating
$7.6 million bear interest at 12% per annum and mature on August 1, 1999. The
Company intends to refinance the loans from Mr. Saxton prior to their
maturities. The Company understands that Mr. Saxton intends to repay, in full,
the loans from the two lenders upon repayment of the loans he has made to the
Company.
16
<PAGE>
On February 9, 1998, the Company signed a definitive loan agreement for a
$10.0 million revolving line of credit with a financial institution. The line
of credit provides for borrowings of up to $1.0 million for general working
capital requirements, $4.0 million for acquisition and development, including
strategic acquisitions and $5.0 million for land acquisitions. Borrowing under
the line of credit is secured by the pledge of certain Company receivables and
any land acquired with borrowings under the line of credit and bears interest at
one percent over the lender's prime rate in effect from time to time. The
agreement is also subject to certain financial covenants and matures May 1,
1999. As of December 31, 1998 and March 31, 1999, the Company had outstanding
indebtedness of $5.0 million and $7.9 million, respectively, and available
borrowings of $5.0 million and $2.1 million, respectively, under this agreement.
On July 30, 1997, the Company entered into a $5.0 million revolving line of
credit agreement (the "Agreement") with a financial institution. Loans under
the Agreement bear monthly interest at 1.5% above the prime rate as defined in
the Agreement (9.25% at December 31, 1998 and March 31, 1999), and require the
Company to pay a loan fee of 0.25% for each disbursement. Loans under the
Agreement are available only for the acquisition of land and are secured by
first trust deeds on certain real property. As of December 31, 1998 and March
31, 1999, the Company had outstanding indebtedness of $1.9 million and $2.2
million, respectively, and available borrowings of $3.1 million and $2.8
million, respectively, under the Agreement. Under the terms of the Agreement,
the Company is required to meet certain financial covenants. The Company was in
compliance with the covenants at March 31, 1999.
Operating Activities. Net cash used in operating activities was $6.8 million
for the three months ended March 31, 1999 compared to $6.7 million for the three
months ended March 31, 1998. The increase in net cash used in operating
activities was primarily due to the increase in properties under development
related to single-family homes. The number of home developments increased to 35
for $67.3 million at March 31, 1999 from 10 for $20.0 million at March 31, 1998.
This increase was partially offset by a $363,000 collection of amounts Due from
Tax Credit Partnerships during the three months ended March 31, 1999 compared to
a $5.0 million increase in the receivable during the three months ended March
31, 1998.
Investing Activities. Net cash used in investing activities was $455,000
for the three months ended March 31, 1999 and $4.5 million for the three months
ended March 31, 1998. The decrease was primarily due to a reduction in
expenditures for property and land acquisitions, improvements and proceeds
received from the sale of a commerical property during the three months ended
March 31, 1999, while no commercial properties were sold during the three months
ended March 31, 1998.
Financing Activities. Net cash provided by financing activities was $6.8
million for the three months ended March 31, 1999 compared to $11.9 million for
the three months ended March 31, 1998. The decrease in cash provided by
financing activities was primarily due to reduced net borrowings of $7.7
million during the quarter ended March 31, 1999 compared to $11.9 million during
the quarter ended March 31, 1998.
Interest costs incurred, expensed and capitalized were as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
-------------..-------------
Interest incurred:
<S> <C> <C>
Residential . . . . . . . . . . . . . $ 515 $ 2,169
Commercial. . . . . . . . . . . . . . 622 601
------------- -------------
Total incurred . . . . . . . . . . . $ 1,137 $ 2,770
============= =============
Interest expensed:
Residential . . . . . . . . . . . . $ 133 $ 1,086
Commercial . . . . . . . . . . . . . 527 511
------------- -------------
Total expensed . . . . . . . . . . $ 660 $ 1,597
============= =============
Interest capitalized at end of period:
Residential . . . . . . . . . . . . $ 382 $ 1,083
Commercial . . . . . . . . . . . . . 95 90
------------- -------------
Total interest capitalized . . . . $ 477 $ 1,173
============= =============
</TABLE>
17
<PAGE>
Properties under development and land held for future development or sale
increased $11.8 million from $80.7 million at December 31, 1998 to $92.6 million
at March 31, 1999.
The Company anticipates that during the next twelve months portfolio projects
in development will cost approximately $351,000 in the aggregate, substantially
all of which the Company plans to finance through construction loans. The
Company also anticipates that it will spend approximately $3.9 million for
planned portfolio projects during the next twelve months. The real estate
development business is capital intensive and requires significant up-front
expenditures to acquire and entitle land and commence development. The Company
typically finances, and will continue to finance, its land acquisition and
portfolio development activities utilizing the proceeds of institutional loans
secured by real property. In some cases, the Company plans to utilize private
financing, typically on a short-term or interim basis. In cases where the
Company holds a property after completion of construction, the Company plans to
obtain permanent financing secured by the property.
The Company is exposed to changes in interest rates primarily as a result
of its borrowing activities, which includes borrowings under lines of credit.
These lines, along with cash flow from operations, are used to maintain
liquidity and fund business operations. The Company typically replaces
borrowings under its lines of credit, as necessary, with long-term fixed rate
and shorter termed variable rate financing generally secured by real estate.
The nature and amount of the Company's debt may vary as a result of business
requirements, market conditions and other factors. The extent of the Company's
interest rate risk is not quantifiable or predictable because of the variability
of interest rates and business financing requirements, but the Company does not
believe such risk is material. The Company does not currently use derivative
instruments to adjust the Company's interest rate risk profile.
The Company has made its capital contributions to the six Tax Credit
Partnerships. The Company is obligated, however, to make operating expense
loans, not to exceed an aggregate of $3.0 million, to meet operating deficits,
if any, of such Tax Credit Partnerships.
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments. On
the basis of the fair value of the Company's market sensitive instruments at
March 31, 1999, the Company does not consider the potential near-term losses in
future earnings, fair values and cash flows from reasonably possible near-term
changes in interest rates to be material.
BACKLOG
The Company's homes are generally offered for sale in advance of their
construction. The majority of the Company's homes are sold pursuant to standard
sales contracts entered into prior to commencement of construction. Such sales
contracts are typically subject to certain contingencies such as the buyer's
ability to qualify for financing. Homes covered by such sales contracts are
considered by the Company as backlog. The Company does not recognize revenue on
homes covered by such contracts until the sales are closed and the risk of
ownership has been legally transferred to the buyer. At March 31, 1999, the
Company had 316 homes in backlog, representing an aggregate sales value of
approximately $33.9 million.
The Company is also involved in the design-build development of commercial
projects. Backlog for such commercial projects is defined as the uncompleted
work remaining under a signed fixed-price contract. The Company uses the
percentage-of-completion method to account for revenue from its design-build
contracts. At March 31, 1999, the Company had backlog under its design-build
contracts of approximately $15.4 million.
YEAR 2000
The Company's process for becoming Year 2000 ("Y2K") compliant has been to
perform an ongoing comprehensive study and review of computer hardware, software
and systems, both internal and external, and non-computer related systems which
may be affected by certain computerized functions. The Company does not believe
the non-computer related systems, whether Y2K compliant or not, will have a
material impact on the Company's operations. The Company has contacted or will
contact its significant service providers, vendors, suppliers, subcontractors,
financial institutions, consultants and various government agencies, to obtain
information regarding the assurance of Y2K compliance. However, there can be no
guarantee that the systems of others upon which the Company's systems rely will
be Y2K compliant in a timely manner. Failure to convert by an external source
or provider or the failure to convert properly would have a material adverse
effect on the Company, as would the Company's failure to convert, or convert
properly, an internal system.
18
<PAGE>
The Company has also increased the awareness of the Y2K issue across the
Company, assessed the Company's Y2K issues, determined proposed resolutions,
validated those proposed resolutions and implemented most system solutions. The
Company has substantially completed its assessment of applications within the
Company that are not Y2K compliant and is in varying stages of determining
appropriate resolutions to the issues identified. The Company currently expects
to complete all business critical internal hardware and software modification
and testing by the end of the second quarter of 1999.
Given the information known at this time about the Company's systems and
such issues, coupled with the Company's ongoing, normal course-of-business
efforts to upgrade or replace business critical systems and software
applications as necessary, it is currently expected that Y2K costs, the majority
of which are expected to be incurred in fiscal 1999, will approximate
$100,000-$150,000. Current Y2K expenditures have been negligible thus far due
to much of the work performed by existing internal staff. Any further costs
will be incorporated into the Company's operating plan for fiscal 1999. These
costs include incremental personnel costs, consulting costs and costs for the
modification of or replacement of existing hardware and software. These costs
will be funded through cash flows from operations and are expensed as incurred.
Purchased hardware and software will be capitalized in accordance with the
Company's normal accounting policy. The costs of the project and the timing in
which the Company believes it will complete the necessary Y2K modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
Specific factors that might cause such material differences include, but
are not limited to, the success of the Company in identifying systems and
programs having Y2K issues, the nature and amount of programming required to
upgrade or replace the affected programs, the availability and cost of personnel
trained in this area and the extent to which the Company might be adversely
impacted by third-party (vendors, subcontractors, lenders, bond trustees, etc.)
failure to remediate their own Y2K issues. Failure by the Company and/or its
vendors and subcontractors and in particular, the local governments, on which
the Company is materially dependent to complete Y2K compliance work in a timely
manner could have a material adverse effect on the Company's operations. The
Company believes that its business operations are not heavily dependent on Y2K
compliance of its systems and that, should a reasonably likely worst case Y2K
situation occur, the Company, because of the basic nature of its systems, many
of which can be executed manually, would not likely suffer material loss or
disruption in remedying the situation.
The Company currently has not established a formal contingency plan in the
event the Company is not successful with its attempts to be fully Y2K compliant;
however, the Company believes that it will develop a more formal contingency
plan that may include the stockpiling of construction raw materials, automated
reports and the development of back-up systems as an alternative to computers in
the months prior to December 31, 1999.
RISKS AND RELATED FACTORS
Variability of Results and Seasonality. The Company historically has
experienced, and in the future expects to continue to experience, variability in
revenue on a quarterly basis. Factors expected to contribute to this variability
include, among others: (i) the timing of home and other property sale closings;
(ii) the Company's ability to continue to acquire land and options thereon on
acceptable terms; (iii) the timing of the receipt of regulatory approvals for
the construction of homes and other development projects; (iv) the condition of
the real estate market and the general economic and environmental conditions in
the greater Las Vegas, Phoenix, Salt Lake City, Reno and Tucson, metropolitan
areas; (v) the prevailing interest rates and the availability of financing, both
for the Company and for the purchasers of the Company's homes and other
properties; (vi) the timing of the completion of construction of the Company's
homes and other properties; and (vii) the cost and availability of materials and
labor. The Company's historical financial performance is not necessarily a
meaningful indicator of future results and, in particular, the Company expects
its financial results to vary from project to project and from quarter to
quarter. In addition, although the Company has not previously experienced
significant seasonality in its business, management expects that the Company's
increased focus on homebuilding activities may cause it to experience seasonal
variations in its home sales as a result of the preference of home buyers to
close their new home purchase either prior to the start of a new school year or
prior to the end of year holiday season.
Effects of Changing Prices, Inflation and Interest Rates. Management
believes that inflation has not had a material impact on the Company's
operations. Substantial increases in labor costs, workers' compensation rates
and employee benefits, equipment costs, material or subcontractor costs could
adversely affect the operations of the Company for future periods to the extent
that the Company is unable to pass such increases on to its construction clients
or the purchasers of its properties. The Company had outstanding approximately
$67.3 million of floating rate debt (exclusive of the indebtedness of
unconsolidated partnerships of which the Company is a general partner),
currently bearing a weighted-average interest rate of 8.74% per annum at March
31, 1999. If the interest rates on the floating rate debt increase in accordance
with changes to the indices upon which the rates are based, debt service
obligations of the Company will increase.
19
<PAGE>
Management believes that the Company's future homebuilding activities may
be affected by fluctuations in interest rates and changing prices. Higher
interest rates may decrease the demand for new homes by making it more difficult
for homebuyers to qualify for mortgages or to obtain mortgages at interest rates
that are acceptable to the potential buyers. In addition, the Company, as well
as the homebuilding industry in general, may be adversely affected during
periods of high inflation, primarily as a result of higher land acquisition and
land development costs, as well as higher costs of labor and materials. The
Company attempts to pass on to its customers any increase in costs through
higher sales prices. There can be no assurance that inflation will not have a
material impact on the Company's future results of operations.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations and Business sections contain certain forward-looking
statements and information relating to the Company that are based on the beliefs
of management as well as assumptions made by and information currently available
to management. Such forward-looking statements include, without limitation, the
Company's expectation and estimates as to the Company's business operations,
including the introduction of new products and future financial performance,
including growth in revenues and net income and cash flows. In addition,
included herein the words "anticipates," "believes," "estimates," "expects,"
"plans," "proposes," "intends" and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Company's management, with
respect to future events and are subject to certain risks, uncertainties and
assumptions. In addition, the Company specifically wishes to advise readers
that the factors listed under the captions "Liquidity and Capital Resources,"
"Effects of Changing Prices, Inflation and Interest Rates" and other risk
factors including but not limited to: the primary dependence on the greater Las
Vegas and Phoenix areas; insufficient history in geographic areas other than Las
Vegas; risks of homebuilding and other real estate development and investments;
indebtedness; potential inability to obtain future financing; variability,
erratic weather conditions and seasonality of results; dependence on key
personnel; control by current stockholders; regulatory and environmental risks;
and expansion into new markets could cause actual results to differ materially
from those expressed in any forward-looking statement. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those discussed herein as
anticipated, believed, established or expected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1998. There have been no significant changes
since the filing of the aforementioned report.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27 - Financial Data Schedule for the quarter ended March 31, 1999.
21
<PAGE>
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.
SAXTON INCORPORATED
May 15, 2000 By: /s/ James C. Saxton
--------------------------------------
James C. Saxton
Chairman of the Board of Directors,
President, Chief Executive Officer,
Interim Chief Financial Officer and Director
(Principal Executive Officer)
By: /s/ Melody J. Sullivan
--------------------------------------
Melody J. Sullivan
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
22
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- -----
27 Financial Data Schedule for the quarter ended March 31, 1999 23
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 863
<SECURITIES> 0
<RECEIVABLES> 42290
<ALLOWANCES> 403
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 121076
<DEPRECIATION> 4903
<TOTAL-ASSETS> 179446
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 39033
<TOTAL-LIABILITY-AND-EQUITY> 179446
<SALES> 27971
<TOTAL-REVENUES> 29797
<CGS> 24104
<TOTAL-COSTS> 24391
<OTHER-EXPENSES> 2577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1597
<INCOME-PRETAX> 1232
<INCOME-TAX> 378
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
