<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NO 001-12211
ECHELON INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-2554218
(State of incorporation) (I.R.S. Employer
Identification Number)
One Progress Plaza, Suite 1500
St. Petersburg, Florida 33701 Telephone (813) 824-6767
(Address of principal executive offices) (Registrant's telephone number)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common stock, par value $.01 per share, 6,782,527 shares, as of August 1,
1997.
================================================================================
<PAGE> 2
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
-------------- -----------------
1997 1996 1997 1996
---- ------ ------ -------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
SALES AND REVENUES:
Real estate operations
Rental income....................................... $3.3 $ 2.9 $ 6.1 $ 5.9
Sale of development properties...................... -- 6.6 .3 6.6
Marina and other revenues........................... 1.7 2.8 4.6 4.0
Equity in losses of partnerships.................... (.3) -- (.8) --
Lending and leasing operations
Interest income..................................... 1.9 3.7 4.1 7.3
Earned income on finance leases..................... .9 .9 1.6 1.8
Other............................................... 1.0 1.0 2.9 2.0
---- ------ ----- ------
8.5 17.9 18.8 27.6
---- ------ ----- ------
OPERATING EXPENSES:
Real estate operations................................. 2.8 3.6 6.8 5.9
Cost of development properties sold.................... -- 6.9 .3 6.9
Depreciation........................................... 1.3 1.5 2.5 2.9
Provision for lease, loan and real estate losses....... (.7) 31.1 (.7) 31.1
Interest expense:
Former parent advances.............................. -- 4.9 -- 9.6
Long-term debt...................................... 2.5 .6 5.2 1.2
Allocated administrative expenses of former parent..... -- .2 -- .4
Marketing and other administrative..................... 1.8 .5 4.6 1.6
Other (income) expenses, net........................... (.7) .3 (7.1) 1.2
---- ------ ----- ------
7.0 49.6 11.6 60.8
---- ------ ----- ------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM................................................... 1.5 (31.7) 7.2 (33.2)
INCOME TAX EXPENSE (BENEFIT)............................. .1 (12.3) 1.1 (13.0)
---- ------ ----- ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................. 1.4 (19.4) 6.1 (20.2)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt, net of income tax
benefit of $.5 million.............................. -- -- (.8) --
---- ------ ----- ------
NET INCOME (LOSS)........................................ $1.4 $(19.4) $ 5.3 $(20.2)
==== ====== ===== ======
Average shares of common stock outstanding............... 6.8 6.5 6.8 6.5
Per share data:
Income (loss) before extraordinary item................ $.21 $(2.99) $ .90 $(3.11)
Extraordinary item..................................... -- -- (.12) --
---- ------ ----- ------
Net income (loss) per common share............. $.21 $(2.99) $ .78 $(3.11)
==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 3
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
ASSETS
LEASES, LOANS, PROPERTY & OTHER INVESTMENTS:
Leases and loans receivable, net.......................... $200.7 $190.6
Property, net............................................. 112.0 130.1
Investments in and advances to unconsolidated
affiliates............................................. 35.4 32.5
------ ------
348.1 353.2
------ ------
ASSETS HELD FOR SALE........................................ 3.0 29.4
------ ------
CURRENT ASSETS:
Cash and equivalents...................................... 8.0 63.3
Marketable securities..................................... 46.9 --
Accounts receivable, net.................................. .8 1.1
Current portion of leases and loans receivable............ 47.7 75.9
Income taxes receivable................................... 2.0 --
Inventories, at cost...................................... 2.2 3.1
Other..................................................... .5 .7
------ ------
108.1 144.1
------ ------
OTHER NON-CURRENT ASSETS.................................... 2.6 4.3
------ ------
Total assets...................................... $461.8 $531.0
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities.................... $ 10.1 $ 15.7
Income taxes payable...................................... -- .1
Accounts and interest payable to former parent............ -- .8
Current portion of long-term debt and note payable to
former parent.......................................... 34.9 75.6
------ ------
Total current liabilities......................... 45.0 92.2
LONG-TERM DEBT.............................................. 48.9 73.8
DEFERRED INCOME TAXES....................................... 160.0 163.3
OTHER LIABILITIES........................................... .3 .3
------ ------
Total liabilities................................. 254.2 329.6
------ ------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued................................ -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 6,782,527 outstanding...................... .1 .1
Additional paid in capital................................ 279.4 279.4
Retained deficit.......................................... (72.8) (78.1)
Unrealized gain (loss).................................... .9 --
------ ------
Total stockholders' equity........................ 207.6 201.4
------ ------
Total liabilities and stockholders' equity........ $461.8 $531.0
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1997 1996
----- ------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Income (loss) before extraordinary item................... $ 6.1 $(20.2)
Adjustment for noncash items:
Depreciation and amortization.......................... 3.0 2.9
Deferred income taxes.................................. (3.9) (14.5)
Amortization of investment tax credits................. (.3) (.3)
Amortization of lease income........................... (.4) (.4)
Provision for lease, loan and real estate losses....... (.7) 31.1
Gain on sale of assets................................. (4.2) --
Equity in income of unconsolidated affiliates, net..... (1.4) (1.3)
Changes in working capital:
Accounts payable and other liabilities............... (5.3) 1.4
Income taxes receivable/payable...................... (1.6) (13.2)
Other working capital changes........................ 1.4 .8
Other operating activities............................. 4.4 (2.0)
------ ------
(2.9) (15.7)
------ ------
INVESTING ACTIVITIES:
Purchase of marketable securities......................... (45.4) --
Proceeds from sale or collection of leases and loans...... 60.9 8.6
Real estate property additions............................ (3.6) (2.9)
Proceeds from sale of real estate properties.............. .4 6.4
Distributions from unconsolidated affiliates, net of
investments............................................ 1.8 2.5
------ ------
14.1 14.6
------ ------
FINANCING ACTIVITIES:
Repayment of long-term debt............................... (66.5) (10.2)
Increase in due to former parent.......................... -- 11.0
------ ------
(66.5) .8
------ ------
Net decrease in cash and equivalents........................ (55.3) (.3)
Beginning cash and equivalents.............................. 63.3 .4
------ ------
ENDING CASH AND EQUIVALENTS................................. $ 8.0 $ .1
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 4.9 $ 10.7
Income taxes (net of refunds)............................. 6.6 13.4
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
ECHELON INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying financial statements include
all adjustments deemed necessary to summarize fairly and reflect the financial
position and results of operations of Echelon International Corporation (the
"Company") for the interim periods presented. Results for the second quarter are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the financial statements and notes
thereto in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
2. INVESTMENTS IN MARKETABLE SECURITIES
The Company's investments in marketable securities are classified as
available-for-sale, except for debt securities with a maturity of three months
or less, which are classified as cash equivalents. The available-for-sale
marketable securities are available to support current operations or to take
advantage of other investment opportunities. These securities are stated at fair
value based upon market quotes. Dividend and interest income is recognized when
earned. Realized gains and losses are included in earnings and are derived using
the specific identification method for determining the cost of securities sold.
Unrealized gains and losses, net of tax, are included as a separate component of
stockholders' equity.
Following is a summary of available-for-sale securities as of June 30,
1997:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. government obligations...................... $10.8 $0.1 $(0.1) $10.8
Municipal bonds.................................. 5.5 0.1 -- 5.6
Corporate debt securities........................ 13.8 0.1 (0.1) 13.8
----- ---- ----- -----
Total debt securities.................. 30.1 0.3 (0.2) 30.2
Equity securities................................ 15.3 1.8 (0.4) 16.7
----- ---- ----- -----
Total.................................. $45.4 $2.1 $(0.6) $46.9
===== ==== ===== =====
</TABLE>
The amortized cost and estimated fair value of available-for-sale debt
securities as of June 30, 1997, by expected maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
(IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................... $15.9 $15.9
Due after one year through five years....................... 10.0 10.1
Due after five years........................................ 4.2 4.2
----- -----
Total............................................. $30.1 $30.2
===== =====
</TABLE>
3. IMPAIRMENT WRITE-DOWN
During the second quarter of 1997, the Company revised its strategy with
respect to its commercial real estate assets to include short and medium-term
exit strategies, as well as its original plan of long-term exit strategies.
Given the change in strategy, the Company updated its impairment analysis and
determined that certain assets were impaired. In June 1997, the Company
recognized an impairment of $19.0 million on certain income-producing property
in accordance with Financial Accounting Standard ("FAS") No. 121, "Accounting
for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed
of." The impairment loss was measured using independent appraisals and is
reflected in the provision for lease, loan, and real estate losses.
4
<PAGE> 6
ECHELON INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ASSETS HELD FOR SALE
Assets held for sale consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
PREVIOUS BALANCE SHEET CLASSIFICATION 1997 1996
- ------------------------------------- -------- ------------
(IN MILLIONS)
<S> <C> <C>
Leases and loans receivable................................. $0.9 $56.8
Property net of depreciation................................ 2.1 2.3
Investments in unconsolidated affiliates.................... -- 6.4
Valuation allowance......................................... -- (36.1)
---- -----
$3.0 $29.4
==== =====
</TABLE>
In June 1997, the Company received $24.3 million on the disposal of two
aircraft loans receivable and an investment in unconsolidated affiliates that
were classified as assets held for sale with a $9.3 million net book value on
the date of disposition. As a result of this transaction, the Company reversed
$15.0 million of previously recorded provision for lease, loan, and real estate
losses related to these assets and used the proceeds to fully repay the
remaining $22.9 million of debt to the Company's former parent. (See Note 5.)
Additionally, the retirement of debt to its former parent allowed the
Company to retain a lease receivable which it previously expected to sell in
order to retire the debt. Accordingly, the Company reclassified the lease
receivable from assets held for sale to leases and loans receivable and reversed
$4.7 million of previously recorded provision for lease, loan, and real estate
losses which had been established in contemplation of an accelerated sale of the
lease receivable.
5. LONG-TERM DEBT
Long-term debt outstanding is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
INTEREST RATE 1997 1996
------------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Salomon Brothers Realty Corporation................ 8.64%(a) $64.4 $ 95.7
Former parent...................................... -- 32.9
Delayed equity obligation on finance lease......... 10.00% 18.8 20.2
Other.............................................. 8.50%(a) 0.6 0.6
-------- ------
83.8 149.4
Less: current portion of long-term debt............ 34.9 75.6
-------- ------
$48.9 $ 73.8
======== ======
</TABLE>
- ---------------
(a) Interest rate at June 30, 1997
On January 9, 1997, the Company received an accelerated repayment of $35.5
million (including accrued interest) on a collateralized real estate loan
receivable and, as required by the loan agreement with Salomon Brothers Realty
Corporation ("Salomon Brothers"), used the proceeds to repay $31.0 million to
Salomon Brothers. The early payoff resulted in an approximate $1.3 million
pre-tax write-off of debt issuance costs and was classified as a $.8 million
after-tax extraordinary loss in the statement of operations. The excess proceeds
of approximately $4.5 million together with cash from other asset sales were
used to repay $10.0 million on January 13, 1997 to Echelon's former parent. As
discussed in Note 4, the Company received $24.3 million in settlement of two
aircraft loans receivable and an investment in unconsolidated affiliates. The
proceeds were used to fully repay the remaining $22.9 million of debt to the
Company's former parent.
5
<PAGE> 7
ECHELON INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to regulation with respect to the environmental
effects of its operations. The Company's disposal of hazardous waste through
third party vendors may result in costs to clean up facilities found to be
contaminated. Federal and state statutes authorize governmental agencies to
compel responsible parties to clean up certain abandoned or uncontrolled
hazardous waste sites. The Company has been notified by the Environmental
Protection Agency that a former subsidiary is or could be a potentially
responsible party at one site. Liability for cleanup costs of this site is joint
and several. Based upon information currently available, the Company believes
that its liability for cleanup of this site will not be material and does not
believe that it will be required to pay a significantly disproportionate share
of the total cleanup costs. In addition, the Company may also be responsible for
additional environmental cleanup at other sites. Based on information currently
available to the Company, the Company estimates that its proportionate share of
liability for cleaning up all sites ranges from $0.1 million to $1.0 million,
and it has reserved $0.5 million for potential costs that management estimates
to be probable. Management currently believes that the ultimate outcome of these
matters will not have a material adverse effect upon the Company's results of
operations, financial condition or liquidity.
Through a former partnership, the Company remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
the former partnership. The contingent liability reduces over time as the
residency of those who were residents at the time of the sale of the Company's
interest terminates. If the current owners fail to perform their obligations and
if the partnership assets, consisting primarily of land and buildings, were
worthless, the Company could be liable for an additional $30.0 million as of
December 31, 1996. The Company considers the incurrence of this liability to be
remote based on asset values and the indemnification agreement from the current
owners to the Company.
During 1996 and 1997, the Company signed commitments to provide capital
contributions of $19.2 million to affordable housing tax credit limited
partnerships. The Company has funded $8.4 million of this amount as of June 30,
1997 and expects to complete funding during 1999. The Company intends to commit
to invest in an additional $6 million of housing tax credit limited partnership
interests.
7. CONDENSED STATEMENTS OF INCOME OF UNCONSOLIDATED ENTITY
The unaudited statements of income of Progress Potomac Capital Ventures, a
50/50 joint venture between the Company and Potomac Capital Corporation, for the
three and six month periods ended June 30, 1997 and 1996 are presented below.
Amounts reflect 100% of the joint venture's results of operations. The Company
accounts for the joint venture by the equity method.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
(000'S)
<S> <C> <C> <C> <C>
REVENUES:
Finance lease revenue....................... $1,076 $1,225 $2,190 $2,485
Rental income............................... 199 199 398 398
Interest income............................. 134 27 282 62
------ ------ ------ ------
1,409 1,451 2,870 2,945
------ ------ ------ ------
EXPENSES:
Administration fee.......................... 15 15 30 30
Depreciation................................ 111 111 222 222
------ ------ ------ ------
126 126 252 252
------ ------ ------ ------
NET INCOME.......................... $1,283 $1,325 $2,618 $2,693
====== ====== ====== ======
</TABLE>
6
<PAGE> 8
ECHELON INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EFFECTIVE INCOME TAX RATE
The Company's effective income tax rate differs from the statutory income
tax rate primarily due to tax credits related to the Company's investment in
housing tax credit limited partnerships, amortization of investment tax credits
related to the Company's leveraged lease portfolio, and differences in rates
between previous and currently deferred taxes.
9. RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting comprehensive income. The standard
defines comprehensive income as the change in equity of an enterprise except
those resulting from shareholder transactions. All components of comprehensive
income are required to be reported in a new financial statement that is
displayed with equal prominence as existing financial statements. The Company
will be required to adopt this standard January 1, 1998. As the standard
addresses reporting and presentation issues only, there will be no impact on
earnings from the adoption of this standard.
Also, in June 1997, the FASB issued FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which establishes standards
for additional disclosure about operating segments for interim and annual
financial statements. The standard requires financial and descriptive
information be disclosed for segments whose operating results are reviewed by
the chief operating officer for decisions on resource allocation. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will be required to adopt
this standard for financial statements for the fiscal year ended December 31,
1998. As the standard addresses reporting and disclosure issues only, there will
be no impact on earnings from adoption of this standard.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a real estate and financial services company with operations
in the development, ownership, and management of commercial and multi-family
residential real estate (the "Real Estate Business") and collateralized
financing of commercial real estate and aircraft, and leasing of aircraft and
other assets (the "Lending and Leasing Business").
Prior to December 18, 1996 ("Distribution Date"), the Company operated as a
wholly-owned subsidiary of Florida Progress Corporation ("Florida Progress").
Effective on the Distribution Date, Florida Progress distributed the Company's
stock to Florida Progress shareholders (one share of the Company for each
fifteen shares of Florida Progress) as a tax-free dividend (the "Distribution").
The Distribution established the Company as a publicly held corporation,
separate from Florida Progress. Prior to the Distribution, the Company recorded
approximately $31 million of provision for losses including $21.5 million to
allow for an accelerated disposal of certain non-strategic assets that the
Company identified as assets to be disposed of within two years.
The Company is continuing its strategy of growing the Real Estate Business
and accelerating the disposal of certain non-strategic assets. During the second
quarter of 1997, the Company received $24.3 million on the disposal of two
aircraft loans receivable and an investment in unconsolidated affiliates that
were classified as assets held for sale with a $9.3 million net book value on
the date of disposition. As a result of this transaction, the Company reversed
$15.0 million of previously recorded provision for lease, loan, and real estate
losses related to these assets and used the proceeds to fully repay the
remaining $22.9 million of debt to the Company's former parent. Additionally,
the retirement of debt to its former parent allowed the Company to retain an
aircraft lease receivable which it previously expected to sell in order to
retire the debt. Accordingly, the Company reclassified the lease receivable from
assets held for sale to leases and loans receivable and reversed $4.7 million of
previously recorded provision for lease, loan and real estate losses which had
been established in contemplation of an accelerated sale of the lease
receivable.
The company is continuing to update its strategic plan, with a revised plan
expected by the end of September 1997. As part of this process, the Company
concluded that the original long-term hold strategy for certain real estate
assets limited the Company's flexibility to maximize the value of certain
assets. Therefore, the Company adopted short and medium-term exit strategies for
certain assets, as well as long-term exit strategies. As a result of the change
in strategy and an updated impairment analysis, the Company recorded a $19.0
million pre-tax provision for losses to write-down certain real estate assets to
fair value.
The timing and results of the sale, settlement, and repositioning of
non-strategic assets achieved in the second quarter and first half of 1997 are
not necessarily indicative of future results.
RESULTS OF OPERATIONS
Net income for the three and six months ended June 30, 1997 was $1.4
million or $.21 per share, and $5.3 million or $.78 per share, respectively.
This compares to a net loss of $(19.4) million or $(2.99) per share, and $(20.2)
million or $(3.11) per share for the same periods in 1996.
REVENUES
Sales and revenues for the three and six months ended June 30, 1997 were
$9.4 million and $8.8 million lower than the same periods in 1996 primarily due
to a decrease of $6.6 million and $6.3 million in the sale of development
properties and a $1.8 million and $3.2 million decrease in interest income from
lending operations as the result of loan receivable payoffs and sales. The
decrease in the sale of development properties was mainly due to fewer sales of
land in Carillon in 1997 compared to 1996. Marina and other revenue for the
three and six month periods ended June 30, 1997 decreased by $1.1 million and
increased by $.6 million, respectively, over the same periods in 1996, primarily
due to higher boat sales in the first quarter of 1997 but lower boat sales in
the second quarter of 1997 compared to 1996.
8
<PAGE> 10
Equity in losses of real estate partnerships reduced 1997 revenues by $.3
million and $.8 million for the three and six month period compared to 1996 as a
result of the Company recording its share of losses in housing tax credit
limited partnerships which did not exist in 1996. Tax credits of $.4 million and
$.8 million for the three and six months ended June 30, 1997 related to these
partnerships are recorded as a reduction of income tax expense. Other lending
and leasing income increased by $.9 million for the six months of 1997 compared
to 1996, reflecting the gain recorded in the first quarter of 1997, on the sale
of an asset in a partnership in which Echelon had approximately a 26% interest.
OPERATING EXPENSES
Operating expenses for the three and six month period ended June 30, 1997
decreased by $42.6 million and $49.2 million compared to the same periods in
1996, primarily due to the decrease of $31.8 million in the provision for lease,
loan, and real estate losses as discussed in the Overview, the decline in the
sale of development properties mentioned above, and the increase of $1.0 million
and $8.3 million in other income discussed below.
Real estate operations expenses for the three and six months ended June 30,
1997 declined by $.8 million and increased by $.9 million over the same periods
in 1996, primarily due to higher boat sales in the first quarter of 1997 but
lower boat sales in the second quarter of 1997 compared to 1996. Cost of
development properties sold decreased $6.9 million and $6.6 million for the
three and six month periods of 1997 due to the decrease in sales discussed
above. Interest expense decreased by $3.0 million and $5.6 million for the three
and six month periods of 1997 compared to 1996 due to the reduction of debt
resulting from loan receivable payoffs, asset sales, and 1996 equity
contributions from the Company's former parent in connection with the Company's
spin-off from its parent. Marketing and other administrative expenses increased
by $1.3 million and $3.0 million for the three and six month periods of 1997
over 1996 due to increased expenses related to the hiring of additional staff,
increased expenses related to the Company being a publicly-traded company, and
the full year accrual of management incentive and long-term incentive
compensation as a result of the Company achieving in the first quarter of 1997
its annual 1997 goals. The increase in other income of $1.0 million and $8.3
million for the three and six month periods of 1997 compared to 1996 primarily
resulted from the following: investment income of $.8 million in the three month
period and $1.5 million in the six month period, $4.1 million related to a
previously deferred gain on a loan receivable that was sold at par in January
1997, and $1.3 million related to the sale in March 1997 of the Company's
interest in a previously written-off oil rig lease.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are expected to come from the continued
maturity and collection of the Company's loan portfolio, proceeds from the sale
of certain non-strategic assets, operating cash flow, existing cash and
marketable securities, and with respect to real estate development, from
project-based financings.
Cash flow from investing activities was $14.1 million for the first half of
1997. Proceeds from the sale or collection of leases and loans were $60.9
million, including $35.2 million from the sale of a loan receivable at par and
$16.0 million from the payoff of an aircraft loan. An additional $3.8 million
was received on July 1, 1997 on the payoff of an aircraft loan. Purchases of
marketable securities, including debt securities with maturities greater than
three months, were $45.4 million.
Capital expenditures, reported as real estate additions, were $3.6 million
for the first half of 1997 and were primarily for land development and office
tenant construction improvements. Distributions from unconsolidated affiliates,
including $4.2 million from a partnership that sold substantially all of its
assets, were $7.9 million and are reported net of investments in housing tax
credit limited partnerships of $6.1 million.
Repayment of long-term debt was $66.5 million, including approximately
$31.3 million on the Salomon Brothers loan and $32.9 million representing a
payoff of the debt to Echelon's former parent.
9
<PAGE> 11
In July 1997, the Company closed on a $16.5 million construction loan which
will be used to fund development of a 369 unit apartment project on land that
the Company owns in St. Petersburg, Florida.
OUTLOOK
The Company is continuing to divest itself of its non-strategic assets and
using the proceeds either to pay down debt, or to reinvest in its real estate
operations. The Company has obtained a building permit, hired the general
contractor and started physical construction of a 369 unit multi-family
apartment project, the first phase of its multi-family development on
Company-owned land located on 9th Street in St. Petersburg, Florida. Site work
has begun and physical construction is slated to begin late this fall on the
first phase of the Company's planned multi-family project on land it owns in St.
Petersburg, Florida, known as Carillon. In addition, the Company is currently
negotiating with two property owners to acquire sites in Orlando for future
multi-family projects. The Company is continuing to evaluate the feasibility for
an additional Company-owned commercial office building at Carillon. An
architectural firm has been hired and general contractors are being interviewed
to assist in the development of plans for this project.
The Company is continuing to update its strategic plan and expects to
complete this process by the end of September 1997. As discussed in the
Overview, the Company has revised its strategic plan, with respect to its
commercial assets, to include short and medium-term exit strategies, as well as
long-term exit strategies. When the Company's work on its strategic plan has
been completed, a general overview will be provided.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding matters that are not
historical facts are forward-looking statements, including certain statements
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," including but not limited to statements concerning
Echelon's strategies, Echelon's expected sources of funds, and Echelon's
expected uses of funds, including its expected capital expenditures and
anticipated dates by which certain real estate development activities are
accomplished. Because such statements involve risks and uncertainties, actual
strategies and the timing and expected results thereof may differ materially
from those expressed or implied by such forward-looking statements. For a
discussion of certain factors which could affect such actual results, see
"Cautionary Statement Regarding Forward-Looking Statements" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
10
<PAGE> 12
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of Echelon International Corporation was
held on June 3, 1997. There were 6,763,605 shares of common stock entitled to
vote. The following matters were voted upon at the meeting.
1) Election of Directors
Class I -- Terms expiring in 2000
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
Jonathan Blum..................................... 5,910,423 106,204
Joseph H. Richardson.............................. 5,913,407 103,220
</TABLE>
2) Ratification of appointment of KPMG Peat Marwick, LLP as the Company's
independent certified public accountants for fiscal year 1997.
<TABLE>
<S> <C>
Votes for..................................................... 5,941,873
Votes against................................................. 27,838
Abstentions................................................... 46,916
</TABLE>
ITEM 5. OTHER INFORMATION.
Echelon International Corporation issued a news release dated August 14,
1997, announcing 1997 second quarter financial results. A copy of the news
release is being filed as Exhibit 99.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
27 -- Financial Data Schedule of Echelon International Corporation (for SEC use only)
99 -- Echelon International Corporation News Release dated August 14, 1997 regarding 1997
second quarter financial results.
</TABLE>
(b) Reports on Form 8-K:
None
11
<PAGE> 13
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.
<TABLE>
<S> <C>
ECHELON INTERNATIONAL CORPORATION
Date: August 14, 1997 /s/ JAMES R. HOBBS, JR.
-----------------------------------------------
James R. Hobbs, Jr.
Vice President and Controller
Date: August 14, 1997 /s/ LARRY J. NEWSOME
-----------------------------------------------
Larry J. Newsome
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ECHELON INTERNATIONAL FOR THE PERIOD ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,000
<SECURITIES> 46,900
<RECEIVABLES> 48,500
<ALLOWANCES> 0
<INVENTORY> 2,200
<CURRENT-ASSETS> 108,100
<PP&E> 150,900
<DEPRECIATION> 38,900
<TOTAL-ASSETS> 461,800
<CURRENT-LIABILITIES> 45,000
<BONDS> 48,900
0
0
<COMMON> 100
<OTHER-SE> 207,500
<TOTAL-LIABILITY-AND-EQUITY> 461,800
<SALES> 0
<TOTAL-REVENUES> 18,800
<CGS> 0
<TOTAL-COSTS> 9,600
<OTHER-EXPENSES> (2,500)
<LOSS-PROVISION> (700)
<INTEREST-EXPENSE> 5,200
<INCOME-PRETAX> 7,200
<INCOME-TAX> 1,100
<INCOME-CONTINUING> 6,100
<DISCONTINUED> 0
<EXTRAORDINARY> (800)
<CHANGES> 0
<NET-INCOME> 5,300
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
<PAGE> 1
ECHELON INTERNATIONAL CORPORATION
ANNOUNCES SECOND QUARTER AND SIX MONTHS FINANCIAL RESULTS
ST. PETERSBURG, FLORIDA, AUGUST 14, 1997 -- ECHELON INTERNATIONAL
CORPORATION (NYSE: EIN), today announced financial results for its second
quarter and six months ended June 30, 1997
Sales and revenues for the second quarter ended June 30, 1997 were $8.5
million compared to $17.9 million for the same year ago period. Net income for
the second quarter of 1997 was $1.4 million, or $0.21 per share, compared to a
net loss of $19.4 million, or ($2.99) per share, for the quarter ended June 30,
1996.
Sales and revenues for the six months ended June 30, 1997 were $18.8
million compared to $27.6 million for the comparable year ago period. Net income
for the first half of 1997 was $5.3 million, or $0.78 per share, compared to a
net loss of $20.2 million, or ($3.11) per share, for the six months ended June
30, 1996.
Echelon reduced its debt by approximately $23 million during the second
quarter, and $66 million for the first six months of 1997. Debt repayment
included approximately $31.3 million on the Salomon Brothers loan and $32.9
million to payoff the debt from Echelon's former parent. The Company's long-term
debt/equity ratio was 29/71 with a cash position, including marketable
securities, of $55.0 million as of June 30, 1997.
The decrease in sales for the second quarter and six months ended June 30,
1997 compared to the same year ago periods was primarily due to decreases of
$6.6 million and $6.3 million on the sale of development properties and a $1.8
million and $3.2 million decrease, respectively, in interest income resulting
from loan receivable payoffs and disposition.
Operating expenses for the second quarter ended June 30, 1997 decreased by
$42.6 million from the same period in 1996, primarily due to a decrease of $31.8
million in the provision for lease, loan and real estate losses. During the
second quarter of 1996, the Company recorded $29.2 million for losses
anticipated to be incurred on the sale of non-strategic assets and also recorded
an impairment of $1.9 million on an income-producing building and on real estate
under development. During the second quarter of 1997, the Company received $24.3
million from sale of an investment in unconsolidated affiliates and settlement
of two aircraft loans. The disposal of these assets, which were previously held
for sale, resulted in the reversal of $15.0 million of previously recorded
provisions for losses. With these funds, the Company repaid the remaining $22.9
million of debt to its former parent, Florida Progress Corporation. The Company
reclassified an aircraft finance lease from assets held for sale, to assets held
for use, and reversed $4.7 million of previously recorded provisions for losses.
Also during the second quarter of 1997, the Company recognized a $19.0 million
impairment, reflected in the provision for losses, on income-producing property
in which the Company's strategy changed from long-term hold and use to
medium-term hold and sale.
Of the $1.4 million of earnings for the second quarter, the after-tax
effects of reversals of previously accrued provisions ($19.7 million) and
impairment write-downs ($19 million) represent approximately $300,000. Included
in the $5.3 million in net income for the six months ended June 30, 1997 are
several significant adjustments which occurred and were reported in the first
quarter. These adjustments occurred primarily from the sale of loans and
settlement of a leveraged lease.
Larry J. Newsome, Senior Vice President and Chief Financial Officer,
stated, "We are pleased with our financial performance for the second quarter
and six months ended June 30, 1997. We are also pleased to note that we are
ahead of schedule with respect to our debt repayment and asset restructurings,
further strengthening the Company's balance sheet. Reducing Echelon's debt while
maintaining a strong cash balance puts us in excellent position to move forward
with our strategic plan."
Commenting on the provision reversals, Mr. Newsome stated, "The reversals
were required under the accounting rules because the specific assets to which
they related were either disposed of at higher values than originally
contemplated, or were reclassified from held for sale, to held for use, as was
the case with the aircraft finance lease."
With respect to the asset write downs under the impairment rules, Mr.
Newsome stated, "In reassessing our strategic plan, it became clear that our
original long-term strategy with respect to some of our commercial
<PAGE> 2
real estate assets did not provide us with the flexibility required to maximize
the value of these assets. We therefore concluded that it was in the best
interest of the shareholders to recognize these impairments currently and
develop short and medium-term exit strategies that would allow us the
opportunity to maximize their value."
Echelon International Corporation is a real estate and financial services
company involved in development, ownership and management of commercial and
multifamily residential real estate. The company also manages a portfolio of
aircraft and real estate loans and aircraft leases. Echelon plans to gradually
withdraw from the aircraft and real estate lending business and focus on its
core real estate operations.
Cautionary Statement Regarding Forward-Looking Statements: Certain
statements contained herein regarding matters that are not historical facts are
forward-looking statements, including statements concerning Echelon's expected
sources and uses of funds and capital expenditures and its business strategy
including its plans to gradually withdraw from the aircraft and real
uncertainties, actual strategies and the timing and expected results thereof may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause such differences include, but are not
limited to, those set forth in materials filed by Echelon with the Securities
and Exchange Commission.
2
<PAGE> 3
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- ---------------
1997 1996 1997 1996
----- ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
SALES AND REVENUES:
Real estate operations
Rental income............................................. $ 3.3 $ 2.9 $ 6.1 $ 5.9
Sale of development properties............................ -- 6.6 .3 6.6
Marina and other revenues................................. 1.7 2.8 4.6 4.0
Equity in losses of partnerships.......................... (.3) -- (.8) --
Lending and leasing operations
Interest income........................................... 1.9 3.7 4.1 7.3
Earned income on finance leases........................... .9 .9 1.6 1.8
Other..................................................... 1.0 1.0 2.9 2.0
----- ------ ------ ------
8.5 17.9 18.8 27.6
OPERATING EXPENSES:
Real estate operations...................................... 2.8 3.6 6.8 5.9
Cost of development properties sold......................... -- 6.9 .3 6.9
Depreciation................................................ 1.3 1.5 2.5 2.9
Provision for lease, loan and real estate losses............ (.7) 31.1 (.7) 31.1
Interest expense:
Former parent advances.................................... -- 4.9 -- 9.6
Long-term debt............................................ 2.5 .6 5.2 1.2
Allocated administrative expenses of former parent.......... -- .2 -- .4
Marketing and other administrative.......................... 1.8 .5 4.6 1.6
Other (income) expenses, net................................ (.7) .3 (7.1) 1.2
----- ------ ------ ------
7.0.. 49.6 11.6 60.8
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.... 1.5 (31.7) 7.2 (33.2)
INCOME TAX EXPENSE (BENEFIT)................................ .1 (12.3) 1.1 (13.0)
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. 1.4 (19.4) 6.1 (20.2)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt, net of income tax benefit
of $.5 million......................................... -- -- (.8) --
----- ------ ------ ------
NET INCOME (LOSS)........................................... $ 1.4 $(19.4) $ 5.3 $(20.2)
Average shares of common stock outstanding.................. 6.8 6.5 6.8 6.5
Per share data:
Net income (loss) before extraordinary item............... $0.21 $(2.99) $ 0.90 $(3.11)
Extraordinary item........................................ -- -- (0.12) --
----- ------ ------ ------
Net income (loss) per common share........................ $0.21 $(2.99) $ 0.78 $(3.11)
===== ====== ====== ======
</TABLE>
3
<PAGE> 4
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Cash and Marketable Securities.............................. $ 54.9 $ 63.3
Total Current Assets.............................. 108.1 144.1
Leases, Loans & Property.................................... 312.7 320.7
Total Assets...................................... 461.8 531.0
Total Current Liabilities......................... 45.0 92.2
Long-Term Debt.............................................. 48.9 73.8
Deferred Income Taxes....................................... 160.0 163.3
Total Stockholders' Equity........................ 207.6 201.4
Total Liabilities and Stockholders' Equity........ 461.8 531.0
</TABLE>
4
