UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
[X] QUARTERLY ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No 001-12211
ECHELON INTERNATIONAL CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2554218
------------------------ ----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
ONE PROGRESS PLAZA, SUITE 1500
ST. PETERSBURG, FLORIDA 33701 TELEPHONE (813) 803-8200
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Registrant's telephone number)
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, 6,809,344 shares, as of May 13,
1998
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---- ----
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
<S> <C> <C>
REAL ESTATE, LEASES, LOANS & OTHER INVESTMENTS:
Real estate, net (Note 2) ................................................................ $ 126.7 $ 115.1
Aircraft under operating lease (net of accumulated depreciation of $8.7 and $8.4 million,
respectively) ........................................................................ 3.8 4.1
Leases and loans receivable, net ......................................................... 186.2 196.3
Investments in and advances to unconsolidated partnerships (Note 5) ...................... 44.5 47.2
-------- --------
361.2 362.7
-------- --------
ASSETS HELD FOR SALE ..................................................................... 2.5 2.5
-------- --------
CURRENT ASSETS:
Cash and equivalents (includes restricted deposits of $1.5 million in 1997) .............. 16.5 7.8
Marketable securities .................................................................... 34.5 42.0
Accounts receivable, net ................................................................. 1.2 1.2
Current portion of leases and loans receivable ........................................... 41.6 39.8
lnventories, at cost ..................................................................... .9 1.1
Other .................................................................................... .8 1.7
-------- --------
95.5 93.6
-------- --------
OTHER NON-CURRENT ASSETS ................................................................. 1.8 1.7
-------- --------
Total assets ................................................................... $ 461.0 $ 460.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities ................................................... $ 6.8 $ 6.1
Income taxes payable ..................................................................... 1.5 --
Accounts and interest payable to former parent ........................................... 1.3 1.3
Current portion of funding for limited partnership investments (Note 5) .................. 4.7 9.5
Current portion of deferred income taxes ................................................. 10.3 8.4
Current portion of long-term debt (Note 3) ............................................... 12.5 12.2
-------- --------
Total current liabilities ...................................................... 37.1 37.5
LONG-TERM DEBT (Note 3) .................................................................. 65.8 64.9
DEFERRED INCOME TAXES .................................................................... 141.8 145.8
OTHER LIABILITIES ........................................................................ 3.2 3.2
COMMITMENTS AND CONTINGENCIES (Note 7) ...................................................
-------- --------
Total liabilities .............................................................. 247.9 251.4
-------- --------
STOCKHOLDERS' EQUITY (Note 4)
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued ............... -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 6,876,020 issued and 6,803,082
outstanding in 1998, and 6,785,241 issued and 6,716,722 outstanding in 1997............ .1 .1
Additional paid in capital ............................................................... 281.5 279.5
Retained deficit ......................................................................... (67.1) (70.5)
Unrealized gain on available-for-sale securities, net of tax ............................. 1.1 1.5
Treasury stock, at cost (72,938 shares in 1998 and 68,519 shares in 1997) ................ (1.6) (1.5)
Unearned compensation .................................................................... (.9) --
-------- --------
Total stockholders' equity ..................................................... 213.1 209.1
-------- --------
Total liabilities and stockholders' equity ..................................... $ 461.0 $ 460.5
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1997
---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
SALES AND REVENUES:
Real estate operations:
Rental, other operations and marina revenues .................................. $ 4.6 $ 5.7
Sale of development properties ................................................ 2.7 .3
Equity in losses of limited partnership investments ........................... (.5) (.5)
Leasing and lending operations:
Earned income on finance and operating leases ................................. .9 1.0
Interest income ............................................................... 1.1 2.2
Equity in earnings of unconsolidated partnerships ............................. 2.1 1.6
Gain on sale of loans ......................................................... -- 4.1
Investment income and realized gain on sale of investments ......................... 2.3 .7
-------- --------
13.2 15.1
-------- --------
OPERATING EXPENSES:
Rental, other operations and marina expenses ....................................... 2.5 4.0
Cost of development properties sold ................................................ 1.6 .3
Depreciation ....................................................................... 1.3 1.2
Interest expense, net of amounts capitalized ....................................... 1.4 2.7
Marketing and other administrative ................................................. 2.9 2.8
Other (income) expenses, net ....................................................... -- (1.6)
-------- --------
9.7 9.4
-------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM .................................. 3.5 5.7
INCOME TAX EXPENSE ................................................................. .1 1.0
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM ................................................... 3.4 4.7
EXTRAORDINARY ITEM:
Loss on extinguishment of debt, net of income tax benefit of $.5 million
in 1997 ...................................................................... -- (.8)
-------- --------
NET INCOME ......................................................................... $ 3.4 $ 3.9
======== ========
Earnings per common share - basic and diluted:
Income before extraordinary item .............................................. $ .50 $ .69
Extraordinary item, net of tax ................................................ -- (.12)
-------- --------
Net income per common share ................................................... $ .50 $ .57
======== ========
Weighted average shares of common stock outstanding (basic and diluted) ............ 6.8 6.8
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1997
------- -------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................................. $ 3.4 $ 3.9
Adjustment to reconcile net income to cash provided by (used in) operating
activities:
Depreciation and amortization of financing costs ................................... 1.4 1.5
Extraordinary loss on extinguishment of debt ....................................... -- .8
Deferred income taxes .............................................................. (2.1) (2.1)
Amortization related to finance leases ............................................. (.7) (.2)
Stock-based compensation expense ................................................... .7 .4
Gain on sale of assets ............................................................. (2.6) (4.2)
Equity in income of unconsolidated partnerships, net ............................... (1.6) (1.1)
Changes in working capital:
Accounts payable and other liabilities ........................................ 2.9 (.5)
Other working capital changes ................................................. 1.1 .9
Other .............................................................................. (.2) .1
------- -------
2.3 (.5)
------- -------
INVESTING ACTIVITIES:
Purchases of marketable securities ..................................................... (7.3) (40.0)
Proceeds from sales of marketable securities ........................................... 15.6 --
Proceeds from sales and collections of leases and loans ................................ 9.0 43.5
Real estate property additions ......................................................... (14.0) (1.5)
Net proceeds from sales of real estate properties ...................................... 2.5 .4
Contributions to unconsolidated partnerships ........................................... (4.8) (4.2)
Distributions from unconsolidated partnerships ......................................... 4.3 6.1
------- -------
5.3 4.3
------- -------
FINANCING ACTIVITIES:
Issuance of long-term debt ............................................................. 3.1 --
Repayment of long-term debt ............................................................ (1.9) (43.5)
Purchase of treasury stock ............................................................. (.1) --
------- -------
1.1 (43.5)
------- -------
Net increase (decrease) in cash and equivalents ............................................. 8.7 (39.7)
BEGINNING CASH AND EQUIVALENTS .............................................................. 7.8 63.3
------- -------
ENDING CASH AND EQUIVALENTS ................................................................. $ 16.5 $ 23.6
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized ............................................... $ 1.3 $ 2.0
======= =======
Income taxes (net of refunds) ...................................................... $ .1 $ .3
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING &
FINANCING ACTIVITIES:
Change in funding for limited partnership investments .............................. $ -- $ (5.1)
======= =======
Issuance of common stock related to LTIP ........................................... $ .4 $ --
======= =======
Change in unrealized gain (loss) on available-for-sale securities, net of tax of $.3
million in 1998 and $.2 million in 1997 ....................................... $ (.4) $ (.4)
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying consolidated financial
statements include all adjustments deemed necessary to summarize fairly and
reflect the financial position and results of operations of Echelon
International Corporation ("Echelon" or the "Company") for the interim periods
presented. Results of the first quarter of 1998 are not necessarily indicative
of results for the full year. These consolidated 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, 1997.
Certain amounts previously reported in the Form 10-Q for the first quarter
of 1997 have been reclassified to conform with the 1998 presentation.
(2) REAL ESTATE
The depreciable lives and carrying values of the Company's real estate are
as follows:
<TABLE>
<CAPTION>
DEPRECIABLE MARCH 31, DECEMBER 31,
LIVES (YEARS) 1998 1997
------------- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Real estate held for and under development:
Land and land improvements.................... $ 30.1 $ 31.7
Construction in progress...................... 17.5 3.8
------- -------
47.6 35.5
------- -------
Income producing:
Land and land improvements.................... 15.2 15.2
Buildings and improvements.................... 5-40 78.1 78.0
Equipment and other........................... 3-10 3.1 2.9
------- -------
96.4 96.1
------- -------
144.0 131.6
Less: accumulated depreciation.................... 17.3 16.5
------- -------
$ 126.7 $ 115.1
======= =======
</TABLE>
Capitalized interest during the development of specific projects was $.2
million during both the three months ended March 31, 1998 and the year ended
December 31, 1997.
-5-
<PAGE>
(3) LONG-TERM DEBT
Long-term debt outstanding is as follows:
<TABLE>
<CAPTION>
INTEREST MARCH 31, DECEMBER 31,
RATE 1998 1997
---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Northwestern Mutual Life Insurance Company ....... 7.09% $44.9 $45.0
Salomon Brothers Realty Corp...................... 8.64%(a) 13.0 13.0
SouthTrust Bank................................... 7.29%(a) 3.1 -
Delayed equity obligation on finance lease........ 10.00% 16.7 18.5
Other............................................. 8.50%(a) 0.6 0.6
----- -----
78.3 77.1
Less: current portion of long-term debt........... 12.5 12.2
---- ----
$65.8 $64.9
===== =====
<FN>
- ----------
(a) Interest rate at March 31, 1998.
</FN>
</TABLE>
In July 1997, the Company closed on a $16.5 million construction loan at an
interest rate of LIBOR plus 1.60% per annum which is being used to fund
development of a 369-unit multi-family residential development on land that the
Company owns in St. Petersburg, Florida. During the three months ended March 31,
1998, the Company made construction draws on the loan totaling $3.1 million. The
initial term of the construction loan is two years, with the ability to extend
the loan for an additional five years from the completion of construction.
In April 1998, the Company closed on an $18.6 million construction loan at
an interest rate of LIBOR plus 1.50% per annum which will be used to fund the
development of a 314-unit multi-family residential development on land that the
Company owns in Carillon Park in St. Petersburg, Florida. The initial term of
the construction loan is three years, with the ability to extend the loan for an
additional two years from the completion of construction.
As of May 1, 1998, the Company has executed an amendment on the Salomon
Brothers Realty Corp. loan to increase the amount of the loan to $30.0 million
and to reduce the interest rate on the entire loan amount to LIBOR plus 1.50%
per annum. The increase in the loan is secured by additional properties in
Echelon's real estate portfolio. The entire loan matures by May 2002.
(4) STOCKHOLDERS' EQUITY
During the three months ended March 31, 1998, the Company issued 90,181
shares of restricted Common Stock under the Echelon Long-Term Incentive Plan
("LTIP") in accordance with executive employment contracts. In conjunction with
the issuance of the restricted Common Stock, the Company recorded $1.6 million
of unearned compensation and subsequently recognized $.7 million of compensation
expense. The unearned compensation will be amortized as compensation expense
over the vesting period of the restricted Common Stock.
In February 1998, the Company issued 129,250 stock options under the LTIP
and the 1996 Stock Option Plan. The stock options were granted at market value
on the date of grant. The stock options granted under the LTIP are performance
based options which cliff vest at the end of nine years, with a provision for
early vesting if certain performance goals are achieved. The stock options
granted under the 1996 Stock Option Plan vest over five years.
-6-
<PAGE>
The Company also issued 598 shares of Common Stock under the Director's
Plan during the quarter ended March 31, 1998.
During the first quarter of 1998, the Company repurchased 4,419 shares of
Common Stock, resulting in additional treasury stock, at cost, of $.1 million.
The net income and common shares used to compute basic and diluted earnings
per share is presented in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
BASIC
Weighted average number of shares:
Average common shares outstanding....................... 6.8 6.8
====== ======
Net income used to compute basic earnings per share:
Net income ............................................. $ 3.4 $3.9
====== ======
Basic earnings per common share............................. $ .50 $ .57
====== ======
DILUTED
Weighted average number of shares:
Average common shares outstanding....................... 6.8 6.8
====== ======
Dilutive effect for stock options and contingently
issuable common shares............................... - -
------ ------
Weighted average shares................................. $ 6.8 $ 6.8
====== ======
Net income used to compute diluted earnings per share:
Net income ............................................. $ 3.4 $ 3.9
====== ======
Diluted earnings per common share........................... $ .50 $ .57
====== ======
</TABLE>
(5) CONDENSED STATEMENTS OF INCOME AND DISCLOSURES OF UNCONSOLIDATED
PARTNERSHIPS
The Company has a 50% interest in a joint venture, which is engaged in the
business of leasing aircraft equipment. Additionally, the Company has
investments in affordable housing limited partnerships of which no investment
exceeded 12% as of both March 31, 1998 and December 31, 1997. The Company
accounts for its investments in the joint venture and limited partnerships under
the equity method of accounting.
Presented below is the summarized financial information for the aircraft
equipment and leasing joint venture for the three months ended March 31, 1998
and 1997, respectively. Amounts reflect 100% of the joint venture's results of
its operations for these periods.
-7-
<PAGE>
THREE MONTHS
ENDED MARCH 31,
-------------------
1998 1997
---- ----
(IN MILLIONS)
(UNAUDITED)
Revenues.............................. $4,163 $1,461
Expenses.............................. 15 126
------ ------
Net income............................ $4,148 $1,335
====== ======
The joint venture's revenues for the three months ended March 31, 1998
include a $3.2 million gain on the sale of two aircraft engines.
The Company's investments in affordable housing investments through limited
partnerships range between a total ownership percentage of 7.1% to 11.6% as of
March 31, 1998. Echelon recorded losses of $.5 million for both the three months
ended March 31, 1998 and 1997, respectively.
During 1997, Echelon signed commitments to provide total capital
contributions of $25.8 million to affordable housing limited partnerships.
Echelon has funded $18.2 million and $13.4 million of these commitments as of
March 31, 1998 and December 31, 1997, respectively. The total commitments of
$25.8 million are included as investments in unconsolidated partnerships in the
Company's consolidated financial statements. As of March 31, 1998, the remaining
commitments to be funded within one year are $4.7 million and are included in
the current portion of funding for limited partnership investments and
commitments to be funded thereafter are $2.9 million and are included in
long-term liabilities.
(6) 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 investments in
affordable housing limited partnerships, amortization of investment tax credits
related to the Company's leveraged lease portfolio, and differences in rates
between previous and current deferred income taxes.
(7) 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 may be responsible for environmental cleanup
at certain sites. Based on information currently available to the Company,
Echelon estimates that its share of liability for cleaning up these sites ranges
from $.1 million to $1.0 million, and has reserved $.3 million for potential
costs. 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.
The Company is currently involved in the construction of several commercial
projects and multi-family residential developments and had outstanding
construction commitments with contractors with remaining amounts totaling $26.7
million at March 31, 1998.
-8-
<PAGE>
As of March 31, 1998, Echelon had a total of 10 contingent contracts,
letters of intent or joint venture negotiations, subject to the Company's final
due diligence, to acquire land for the development of an estimated 2,600
multi-family residential units at an aggregate estimated development cost of
$197.0 million.
Through a previous 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 those who
were residents at the time of the sale of the Company's interest discontinue
their residency. 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 $26.5 million as of
December 31, 1997. 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.
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting comprehensive
income. SFAS No. 130 defines comprehensive income as the change in the equity of
an enterprise except those resulting from stockholder 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 adopted this standard as of January 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
---- ----
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Net income ........................................................... $ 3.4 $ 3.9
----- -----
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities during the period .6 (.4)
Less: Reclassification adjustment for realized gains included
in net income............................................. (1.0) -
----- -----
Other comprehensive income................................ (.4) (.4)
----- -----
Comprehensive income.................................................. $ 3.0 $3.5
===== =====
</TABLE>
In March 1998, the Emerging Issues Task Force ("EITF") reached a consensus
on the issues discussed in EITF Issue No. 97-11 "Accounting for Internal Costs
Related to Real Estate Property Acquisitions". EITF Issue No. 97-11 addresses
what internal costs related to the identification and acquisition of operating
and non-operating properties can be capitalized as part of the cost of
acquisition of real estate. The EITF reached a consensus that only the internal
costs of identifying and acquiring nonoperating property that are directly
identifiable with the acquired property and that are incurred subsequent to the
time that the acquisition was considered probable should be capitalized as a
part of the cost of that acquisition. All internal costs associated with
identifying and acquiring operating properties should be expensed as incurred.
The Company is capitalizing real estate acquisition costs in accordance with
EITF No. 97-11.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Echelon International Corporation is a real estate company with operations
in the development, ownership, and management of commercial and multi-family
residential real estate (the "Real Estate Business") and leasing of aircraft and
other assets and collateralized financing of commercial real estate and aircraft
(the "Leasing and Lending Business"). Echelon is continuing to withdraw from the
aircraft and real estate lending business to focus on its core real estate
operations.
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 was operated by Florida Progress
under an orderly plan to withdraw from the real estate and leasing and lending
businesses. In contrast to the orderly liquidation pursued by Florida Progress
prior to the Distribution, the Company is continuing its strategy of growing the
Real Estate Business, maximizing the value of the Leasing Business, and
gradually withdrawing from the Lending Business.
The Company's operations for the three months ended March 31, 1998 include
the following transactions:
/BULLET/ The sale of 6.57 acres of land in Carillon Park for $2.7 million,
resulting in a pre-tax gain of $1.1 million.
/BULLET/ The sale of two aircraft engines by Progress Potomac Capital Ventures,
in which Echelon has a 50% interest, for $5.7 million, resulting in a
pre-tax gain of $1.6 million to Echelon.
/BULLET/ The ongoing construction of ECHELON AT BAY ISLE KEY, a multi-family
residential community, and ongoing construction and tenant improvements
on two new commercial projects, BAYBORO STATION and SOUTHCORE
COMMERCIAL. Total capital expenditures for all development were $14.0
million in the first quarter of 1998.
Because of the Company's on-going execution of targeted strategies,
including dispositions of non-strategic assets and pursuit of additional
strategic initiatives made possible by the earlier than expected repayment of
debt, the results of operations in the first quarter of 1998 are not necessarily
indicative of future results.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
For the quarter ended March 31, 1998, Echelon reported net income of $3.4
million or $.50 basic and diluted earnings per share compared to net income $3.9
million or $.57 basic and diluted earnings per share for the quarter ended March
31, 1997.
-10-
<PAGE>
REVENUES
Sales and revenues for the first quarter of 1998 decreased $1.9 million
over the same period in 1997. Sales and revenues in the first quarter of 1997
included a $4.1 million gain on the sale of a loan receivable. Sale of
development properties in the first quarter of 1998 was $2.7 million compared to
$.3 million in the first quarter of 1997. The increase in the sale of
development properties resulted from the sale of land in Carillon Park in the
first quarter of 1998. The Carillon Park land sale was to a third party owner
for land contiguous to the owner's current land holdings. Echelon intends to
develop much of the unsold Carillon Park land for its real estate portfolio, and
if and when market conditions warrant, to possibly market the remaining land to
third parties. Rental, other operations and marina revenues for first quarter of
1998 decreased $1.1 million over the same period in 1997 due to the Company's
strategic decision to discontinue the sale of boats as a component of marina
operations.
As part of Echelon's strategy to focus on real estate development, Echelon
has invested in, and intends to invest further in, affordable housing
developments entitled to the benefits of housing tax credits. The Company's
overall investment return includes recording losses on this type of investment
as the tax benefits resulting from such losses and the realization of the
housing tax credits are the primary source of value from this type of
investment. Equity in losses of real estate partnerships reduced revenue for
each of the quarters ended March 31, 1998 and 1997 by $.5 million as a result of
the Company recording its share of losses from housing tax credit limited
partnerships. The Company recorded a $.7 million tax credit for the first
quarter of 1998, as reduction of income tax expense.
Interest income from leasing and lending operations for the quarter ended
March 31, 1998 declined by $1.1 million compared to the first quarter of 1997 as
a result of the sales and payoffs of loans receivable as the Company continues
to execute its strategy to liquidate non-strategic assets and redirect the
capital to real estate acquisition and development.
Equity in earnings of unconsolidated partnerships increased $.5 million in
the first quarter of 1998 as compared to the same period in 1997 due primarily
to the $1.6 million pretax gain on the sale of an asset in January 1998 in a
joint venture in which Echelon has a 50% interest. Revenues in the first quarter
of 1997 included $.9 million from a pre-tax gain on the sale of an asset in a
partnership in which Echelon had approximately a 26% interest.
For the three months ended March 31, 1998, there were no sales of loans.
The gain on sale of loans of $4.1 million in the first quarter of 1997 was the
result of the recognition of a deferred gain on loans receivable that were sold.
Investment income and gain on sale of investments increased $1.6 million
for the first quarter of 1998 in comparison with the same period of 1997 as
result of gains on sales of marketable securities in the first quarter of 1998
of $1.5 million.
OPERATING EXPENSES
Operating expenses for the quarter ended March 31, 1998 increased by $.3
million over the same period in 1997.
Rental, other operations and marina expenses decreased $1.5 million in the
first quarter of 1998 as compared to the same period in 1997 primarily due to
the Company's strategic decision to discontinue the sale of boats, as discussed
above. Interest expense decreased $1.3 million in 1998 compared to 1997 due to
the reduction of debt resulting from loan receivable sales and payoffs and asset
sales.
-11-
<PAGE>
Marketing and administrative expenses were $2.9 million in the first
quarter of 1998 compared to marketing and administrative expenses of $2.8
million in the first quarter of 1997. The marketing and administrative expenses
for the first quarter of both 1998 and 1997 include the full year accrual of
management incentive and long-term incentive compensation as a result of the
Company achieving the annual 1998 and 1997 goals in the first quarter of each of
the years, respectively.
Other income of $1.6 million in the quarter ended March 31, 1997 was
primarily as a result of a $1.3 million gain related to the sale of the
Company's interest in a previously written-off oil rig lease.
EXTRAORDINARY ITEM
The Company had no extraordinary items during the three months ended March
31, 1998. During the three months ended March 31, 1997, the Company recorded an
after-tax extraordinary loss of $(.8) million on the write-off of $1.3 million
of financing costs related to the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY
Prior to the Distribution, Echelon's sources of liquidity were derived from
the proceeds of asset sales, maturity and collection of Echelon's loan
portfolio, operating cash flow, and loans and advances from Florida Progress,
the former parent. Subsequent to the Distribution, the sources of funds have
been primarily from the continued maturity and collection of Echelon's loan
portfolio, proceeds from the sale of certain non-strategic assets, operating
cash flow and, with respect to Echelon's real estate development, from
project-based and other financings. Future sources of funds may also come from
the capital markets.
At the Distribution date, Echelon and Florida Progress entered into a
distribution agreement, which requires Echelon to maintain liquidity levels of
at least $25 million and $17 million throughout 1998 and 1999, respectively.
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Cash flow provided by operating activities was $2.3 million for the three
months ended March 31, 1998. The primary source of cash was the result of an
increase in accounts payable and other liabilities of $2.9 million. The primary
use of cash largely related to previously deferred tax liabilities becoming due
and payable as a result of collections of lease payments. Deferred income taxes
from leveraged leasing activities, which are reflected in cash flows from
operating activities, are offset by related collections from lessees, which are
included in cash flows from investing activities. Echelon generally plans to
hold its leveraged lease assets to maturity or until the market value exceeds
the termination value. At that point, the Company may sell or re-lease the
assets, depending upon which alternative provides the greatest risk-adjusted
return. Net cash flow from operations in the future is generally expected to be
reinvested in the Real Estate Business.
CASH FLOW FROM INVESTING ACTIVITIES
Echelon's net cash flow from investing activities for the first quarter of
1998 was $5.3 million. The foregoing cash flows reflected the $9.0 million in
proceeds received from the collection of leases and loans. Upon the maturity and
collection of Echelon's loan portfolio, Echelon expects investing activities to
become a net use of funds as Echelon continues to build the Real Estate
Business. Purchases of marketable securities, including debt securities with
maturities greater than three months, were $7.3 million and proceeds from sales
of marketable securities were $15.6 million during the three months ended March
31, 1998.
-12-
<PAGE>
Capital expenditures, which are reported as real estate property additions,
were $14.0 million for the three months ended March 31, 1998. The capital
expenditures were primarily for the ongoing construction of ECHELON AT BAY ISLE
KEY, a multi-family residential community, and ongoing construction and tenant
improvements on two new commercial projects, BAYBORO STATION and SOUTHCORE
COMMERCIAL. For the remainder of 1998, capital expenditures for tenant
improvements, land development, commercial office development and multi-family
residential development are projected to be approximately $72.0 million to $92.0
million. These expenditures are expected to be funded through project-based and
other financings and from existing cash and marketable securities.
CASH FLOW FROM FINANCING ACTIVITIES
In July 1997, the Company closed on a $16.5 million construction loan which
is being used to fund the construction of ECHELON AT BAY ISLE KEY, a 369-unit
multi-family residential community on land that the Company owns in St.
Petersburg, Florida. Echelon began making construction draws on this loan in
January 1998 after the Company's initial funding of $5.5 million of the
construction costs, including land contribution of $2.0 million. During the
first quarter of 1998, the Company made construction draws on this loan of $3.1
million. The initial term of the construction loan is two years, with the
ability to extend the loan for an additional five years from the completion of
construction.
Echelon has used land that is not encumbered by debt to help procure
financing for new multi-family residential development on such land. In April
1998, the Company closed on an $18.6 million construction loan to fund the
development of ECHELON AT THE RESERVE, a 314-unit multi-family residential
community on land that the Company owns in Carillon Park in St. Petersburg,
Florida. The initial term of the construction loan is three years, with the
ability to extend the loan for an additional two years from the completion of
construction. The Company commenced construction on ECHELON AT THE RESERVE in
May 1998.
The Company is currently involved in the construction of several commercial
projects and multi-family residential developments and had outstanding
construction commitments with contractors with remaining amounts totaling $26.7
million at March 31, 1998.
As of March 31, 1998, Echelon had a total of 10 contingent contracts or
letters of intent, subject to the Company's final due diligence, to acquire land
for the development of an estimated 2,600 multi-family-residential units at an
aggregate estimated development cost of $197.0 million. Although no assurance
can be given that Echelon will acquire this land or develop the multi-family
residential units, management believes these acquisitions are probable.
OFF-BALANCE SHEET RISK
Through a previous partnership, Echelon remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
such partnership. The contingent liability reduces over time as those who were
residents at the time of the sale of Echelon's partnership interest discontinue
their residency. If the current owners were to fail to perform their obligations
and if the partnership assets, consisting primarily of land and buildings, were
worthless, Echelon could be liable for an additional $26.5 million as of
December 31, 1997. Echelon considers the incurrence of this liability to be
remote based on asset values and the indemnification agreement from the current
owners to Echelon.
-13-
<PAGE>
GENERAL OVERVIEW AND UPDATE OF ECHELON'S STRATEGIC PLAN
The overriding objective of the Echelon management team, and of all
Echelon's employees, is to create superior long-term value for stockholders.
To achieve this objective, Echelon will dynamically grow its real estate
assets and operations through the execution of targeted strategies. While these
targeted strategies evidence the Company's best decisions to date, the
strategies are flexible enough to be recast to deal with changing economic
conditions, capital market fluctuations, business cycles and other market
conditions. The section below updates and summarizes Echelon's current
strategies through April 1998.
MULTI-FAMILY
As previously communicated, multi-family residential development has been
identified as the primary driver of Echelon's growth over the next five years.
During the next five years, Echelon expects to develop or acquire 20 to 40
multi-family residential communities, each comprised of approximately 150 to 350
units. Included in these developments are two to five affordable housing
communities of 150 to 250 units each. Within the next 12 months, the Company
plans to be under construction on approximately 2,400 to 3,800 units. In
consideration of market opportunities, the Company intends to integrate its
build-and-hold developments with merchant build developments to maximize
stockholder return.
First, Echelon is capitalizing on the opportunity provided by its existing
inventory of property in the Tampa Bay area. Currently, the following
multi-family communities are, or will be, under development in 1998:
/BULLET/ The clubhouse and the first two buildings, totaling 48 units, for
ECHELON AT BAY ISLE KEY, a 369 unit multi-family residential community
in the Gateway area of Tampa Bay, opened in April 1998. Leasing is in
process and to date, over 60 units have been leased. Construction will
be completed by the fourth quarter 1998, with stabilization projected
six months following construction completion.
/BULLET/ Phase Two of ECHELON AT BAY ISLE KEY, which will add up to 84 units to
the community, will begin construction in the fourth quarter 1998.
/BULLET/ In CARILLON PARK, infrastructure construction has begun on the 314
units of Phase One of ECHELON AT THE RESERVE, with vertical
construction projected to begin in late May of 1998. In total, CARILLON
PARK has remaining capacity for 1,169 units.
Total capacity for ECHELON AT BAY ISLE KEY and CARILLON PARK is
approximately 2,100 multi-family residential units.
/BULLET/ ECHELON AT NORTHLAKE, located in Atlanta, Georgia, will be a 256 unit
multi-family residential community. The land for the development was
purchased in May 1998 and construction is planned to begin in the third
quarter of 1998.
Next, to achieve geographic diversity, the Company has established a
pipeline of development sites in select markets in the southeast and southwest
United States. Initial target markets are identified using a sophisticated
proprietary software system, rather than by random market visits. The market
research software delivers an objective and pragmatic assessment of markets,
while minimizing the time necessary to screen potential markets. Following
initial target market selection, markets are inspected by experienced Echelon
management. This systematic approach may reduce the market selection cycle time
and allow Echelon developers the opportunity to identify and reach a target
market ahead of competition and site price escalation. This software system also
assists in designing the appropriate community for each target market.
-14-
<PAGE>
Echelon's development program has produced the current pipeline of 10 sites
under contract, letter of intent or joint venture negotiations, subject to the
Company's final due diligence. The Company's pipeline currently includes the
following developments:
<TABLE>
<CAPTION>
DEVELOPMENT NAME ESTIMATED NUMBER OF UNITS LOCATION
---------------- ------------------------- --------
<S> <C> <C>
ECHELON AT BRIARGATE 334 Colorado Springs, Colorado
ECHELON AT TWENTY MILE VILLAGE 350 Parker, Colorado
ECHELON AT KEN CARYL RANCH 300 Jefferson County, Colorado
ECHELON AT KELLER TOWN CENTER 276 Keller, Texas
ECHELON AT LAKESIDE 216 Plano, Texas
ECHELON AT MISSION RANCH 294 Mesquite, Texas
DOWNTOWN PROPERTY 300 Orlando, Florida
DOWNTOWN PROPERTY 200 Orlando, Florida
ECHELON AT WOODLAND PARK 232 Tulsa, Oklahoma
ECHELON AT MEMORIAL CREEK 277 Tulsa, Oklahoma
-----
Total 2,779
=====
</TABLE>
The Company expects to maintain an active pipeline of ten to twenty sites
in target markets.
The Company also plans to develop and manage affordable housing communities
that are entitled to the benefits of Housing Tax Credits. An application has
been submitted to the State of Florida for ECHELON AT BAYBRIDGE. Slated for the
Company's 4th Street property, the development of this 228-unit community
requires the Company be awarded housing tax credits by the Florida Housing
Finance Agency. Preliminary results of the pending application are expected
during June of 1998.
The Company continues to evaluate possible acquisitions, which include
other multi-family development companies and/or multi-family assets. Some growth
of the multi-family portfolio is expected to result from strategic acquisition.
COMMERCIAL
During the next five years, the Company expects to hold its core office
buildings and expand its commercial real estate portfolio by developing or
acquiring, 750,000 to 1,500,000 square feet of commercial office space. A
substantial amount of this space will be developed on Echelon's existing land
inventory in the Tampa Bay area of Florida, with the balance developed through
land acquisition in other southeast and southwest target markets in the United
States.
Currently, the following commercial projects, all located in the Tampa Bay
area, are, or will be, under development in 1998:
/BULLET/ The construction and improvements for BAYBORO STATION (80,991 rentable
square feet) were substantially completed in April 1998. Florida Power
Corporation has leased 100% of the building under a 10-year lease and
moved into the building in April 1998.
/BULLET/ The construction and tenant improvements for SOUTHCORE COMMERCIAL
(133,279 rentable square feet) are continuing. Florida Power
Corporation has leased 100% of the building under a 15-year lease and
will be taking occupancy of the building in June 1998.
-15-
<PAGE>
/BULLET/ The construction of MCNULTY PARKING GARAGE is continuing with an
on-schedule completion date in December 1998. MCNULTY PARKING GARAGE
will provide parking for the tenants of SOUTHCORE COMMERCIAL, MCNULTY
STATION and BARNETT TOWER.
/BULLET/ The construction for CASTILLE AT CARILLON, a 103,900 square foot office
building, will begin in late May 1998. Echelon plans to occupy
approximately 25,000 square feet as its corporate headquarters. The
Company also has letters of intent for over 15,000 rentable square feet
from third party tenants.
/BULLET/ The construction of 700 CARILLON, a 147,100 square foot office
building, is planned to commence in the third quarter of 1998, assuming
anchor tenants are secured. 700 CARILLON will provide
state-of-the-art-building technology, along with parking of five cars
per thousand rentable square feet of office space. The design of 700
CARILLON is complete and ready to submit for building permits.
/BULLET/ The conceptual design plans are in process for CARILLON TOWN CENTER, an
entertainment, retail, office, hotel and athletic club project,
designed to add amenities to CARILLON PARK. Construction is planned to
commence in the first quarter of 1999, assuming anchor tenants are
secured.
Although the Company plans to hold its core office buildings during this
planning period, short, medium and long-term exit strategies have been developed
for all currently owned commercial real estate. The Company intends to sell
non-core commercial and industrial properties as opportunities arise.
Echelon continues to evaluate the acquisition of other commercial real
estate development companies, real estate based operating companies and/or
commercial real estate assets, as opportunities become available. Some growth of
the commercial portfolio is expected to come from strategic acquisitions.
REAL ESTATE MANAGEMENT AND BROKERAGE SERVICES
The real estate management and brokerage services business segment is
complementary to the Company's multi-family and commercial real estate
operations. Growth is expected to occur primarily as a result of the growth in
the multi-family and commercial real estate operations, and the growth of
third-party revenue associated with leasing and property and asset management.
In addition, the Company continues to evaluate the acquisition of real estate
management and/or brokerage companies, as opportunities become available. Some
growth in the real estate management and brokerage services is expected to come
from strategic acquisitions.
INVESTMENTS IN FINANCIAL ASSETS
The Company generally plans to hold its leveraged lease portfolio until
maturity or until market values exceed termination values. At that time, the
Company will either sell or re-lease the assets, depending upon which
alternative provides the greatest risk-adjusted return. The Company will
continue to execute a financial strategy that integrates the tax benefits
provided by its investments in affordable housing limited partnerships, with the
deferred tax liability of the leveraged lease portfolio in order to reduce its
federal income tax liability.
Operating leases and direct finance leases in aircraft and related
equipment will continue to be actively managed to maximize their value, which
may include the sale of the assets.
/BULLET/ During the first quarter of 1998, a joint venture in which Echelon has
a 50% interest, sold two aircraft engines which resulted in a pre-tax
gain of $1.6 million to the Company.
As communicated previously, Echelon will continue to withdraw from the
aircraft and real estate lending business to focus on its core real estate
operations. The Company will collect the outstanding loan balances as soon as
practical, maximize the value of each asset, and redeploy the capital from the
loan portfolio to repay debt and/or invest in real estate operations. Echelon
expects to liquidate the loan portfolio by 2002.
Echelon expects to obtain sufficient capital from its operations, asset
sales, loan collections, project based and other financings, and the capital
markets sufficient to execute its strategic plan. However, no assurance can be
given that such capital will be available in sufficient amounts to execute this
plan.
-16-
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Company considers 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." 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.
Echelon wishes to caution readers that in addition to the important factors
described elsewhere in this Form 10-Q, the following important factors, among
others, could affect Echelon's actual results and could cause Echelon's actual
consolidated results during 1998, and beyond, to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of
Echelon.
/BULLET/ Echelon's anticipated increase in its level of real estate development
activities will require a significant amount of capital and the ability
to acquire land identified for future real estate development.
Accordingly, the extent of Echelon's real estate development will
depend upon the amount of funds generated through operating activities,
maturity and collection of loans, planned asset sales, project-based
and other financings and the capital markets and the ability to acquire
land identified for future real estate development. There can be no
assurance that operating activities, maturity and collection of loans,
planned asset sales and project-based and other financings or the
capital markets will generate net proceeds for Echelon in amounts and
at times necessary to enable Echelon to carry out these development
activities. There can also be no assurance that Echelon will be able to
acquire land identified for future real estate development.
/BULLET/ The successful implementation of Echelon's strategic and business plans
will depend in a large part on certain key officers, including Mr.
Darryl A. LeClair, President and Chief Executive Officer and Mr. W.
Michael Doramus, Executive Vice President, who have managed Echelon's
businesses and participated in the development of Echelon's business
plan. Due to the unique experience of these key officers and their
knowledge of Echelon's assets, such individuals could not be easily
replaced, and the loss of such key officers could have a material
adverse effect on the Company. Echelon has obtained a key-man life
insurance policy for Mr. LeClair.
/BULLET/ As a real estate development and management company, Echelon is and
will be subject to certain risks incident generally to the ownership,
development and management of real estate properties. These risks
include the cyclical nature of real estate markets, governmental
regulations and the need for governmental approvals, general risk of
acquisition, development, and construction, tenant defaults, possible
environmental liabilities, and competition from other real estate
owners and developers.
/BULLET/ Currently, all of Echelon's owned real estate properties are located in
the State of Florida, primarily in the Tampa Bay area, including St.
Petersburg and Tampa, and over 85% of Echelon's commercial rental space
(measured by rentable square footage) is located in this area. Due to
this current lack of geographical diversification, Echelon is dependent
upon the continued demand for office, multi-family residential,
industrial and other commercial space in the Tampa Bay area. Echelon
may be adversely affected in the event the demand for office space in
St. Petersburg or Tampa declines or the St. Petersburg or Tampa economy
experiences a downturn. Like other real estate markets, the Florida
commercial real estate market has experienced periodic economic
fluctuations.
/BULLET/ Aircraft leasing involves numerous risks, including risks stemming from
the obsolescence or physical deterioration of aircraft and the
possibility of defaults by lessees. In addition, fluctuations in
general business and economic conditions, the adoption of restrictive
regulations and legislation, changes in consumer demand for air travel,
fluctuations in fuel prices and other factors over which lessors of
aircraft have no control could be expected to affect adversely the
supply and demand for aircraft or aircraft leases and may cause cost
increases relating to the leasing of aircraft that cannot be offset by
increased leasing revenues. No assurance can be given that a decline in
the health of the airline industry would not have an adverse effect on
Echelon's business or results of operations.
-17-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company will be required to include additional disclosures regarding
certain quantitative and qualitative information about market risk exposures for
the year ending December 31, 1998.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION.
Echelon International Corporation issued a news release dated May 12, 1998,
announcing 1998 first 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:
NUMBER EXHIBIT
------ -------
27 Financial Data Schedule of Echelon International Corporation
99 Echelon International Corporation News Release dated May 12,
1998 regarding 1998 first quarter financial results.
(b) Reports on Form 8-K:
Form 8-K dated February 4, 1998, reporting under Item 5, "Other
Events," relates to the Board of Directors expanding to six
members and electing Mr. L. Raymond Eastin to serve as a member
of the Board of Directors. Mr. Eastin is President and CEO of
Blue Circle Industries PLC, in the United States and Canada.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY J. NEWSOME
--------------------
Larry J. Newsome Senior Vice President and Chief May 14, 1998
Principal Financial Officer Financial Officer
/s/ JAMES R. HOBBS, JR.
-----------------------
James R. Hobbs, Jr. Vice President and Controller May 14, 1998
Principal Accounting Officer
-19-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27 Financial Data Schedule of Echelon International Corporation
99 Echelon International Corporation News Release dated May 12, 1998
regarding 1998 first quarter financial results
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,500
<SECURITIES> 34,000
<RECEIVABLES> 42,800
<ALLOWANCES> 0
<INVENTORY> 900
<CURRENT-ASSETS> 95,500
<PP&E> 156,500
<DEPRECIATION> 26,000
<TOTAL-ASSETS> 461,000
<CURRENT-LIABILITIES> 37,100
<BONDS> 65,800
0
0
<COMMON> 100
<OTHER-SE> 213,000
<TOTAL-LIABILITY-AND-EQUITY> 461,000
<SALES> 0
<TOTAL-REVENUES> 13,200
<CGS> 0
<TOTAL-COSTS> 5,400
<OTHER-EXPENSES> 2,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,400
<INCOME-PRETAX> 3,500
<INCOME-TAX> 100
<INCOME-CONTINUING> 3,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,400
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
Susan Glatthorn Johnson
Vice President
Echelon International Corporation
Phone: 813-803-8250
E-mail: [email protected]
Brian James
Vice President
Padilla Speer Beardsley Inc.
Phone: 612-872-3720
E-mail: [email protected]
FOR IMMEDIATE RELEASE
ECHELON INTERNATIONAL RESORTS FIRST-QUARTER RESULTS
DEVELOPMENT OF NEW MULTI-FAMILY RESIDENTIAL COMMUNITIES AND
COMMERCIAL REAL ESTATE ON SCHEDULE
ST. PETERSBURG, Fla., May 12, 1998 - Echelon International Corporation (NYSE:
EIN), a real estate company focused on the development, ownership and management
of multi-family residential and commercial real estate, today announced
financial results for the first quarter ended March 31, 1998.
Net income was $3.4 million, or 50 cents per diluted share, compared to $3.9
million, or 57 cents per diluted share, for the same period in 1997. Revenues
were $13.2 million, compared to $15.1 million in the same period last year which
included a $4.1 million gain on the sale of a loan receivable. Revenues in the
first quarter of 1998 reflect the sale of land in Carillon Park for $2.7
million, the sale of two aircraft engines in a joint venture in which Echelon
has a 50 percent interest resulting in a gain to Echelon of $1.6 million, and a
$1.5 million gain on sales of marketable securities.
Commenting on the quarter, Larry J. Newsome, Echelon senior vice president and
chief financial officer, stated, "Our first quarter financial performance was in
line with our expectations and consistent with our goal of achieving superior,
long-term value for our stockholders. Our strong financial position coupled with
our continued asset repositioning supports our aggressive multi-family
residential and commercial real estate development. We've also made further
progress with our strategy of liquidating non-strategic assets, as evidenced by
the sale of two aircraft engines."
-more-
<PAGE>
Echelon International
First Quarter 1998 Earnings Release
Page 2
Darryl A. LeClair, Echelon chairman, president and chief executive officer,
commented, "This is an exciting year for Echelon as we execute our plans to
develop multi-family residential communities and grow our commercial real estate
portfolio. Tomorrow, we will hold the grand opening of our first multi-family
development, ECHELON AT BAY ISLE KEY, a 369-unit multi-family residential
community. We've begun construction on our second multi-family development,
ECHELON AT THE RESERVE, a 314-unit development in Carillon Park. Over the next
five years, we expect to develop or acquire more than 20 multi-family
residential communities throughout the southeast and southwest United States. In
addition, the development of our two new commercial properties is on schedule.
The construction of BAYBORO STATION (80,991 rentable square feet) is complete
and SOUTHCORE COMMERCIAL (133,279 rentable square feet) will be complete in June
1998. These new commercial properties are 100 percent leased under long-term
leases. Over the next five years, we expect to expand our commercial real estate
portfolio by developing or acquiring 750,000 to 1,500,000 square feet of office
space."
Echelon International Corporation is a real estate company with operations in
the development, ownership and management of multi-family residential and
commercial real estate. The Company also owns and manages a portfolio of
aircraft leases and aircraft and real estate loans. Echelon's core growth
strategy is to build its multi-family residential real estate portfolio and
maximize the value of and grow its existing commercial real estate assets. The
Company will continue to withdraw from the real estate and aircraft lending
business to focus on its core real estate operations.
NOTE: CERTAIN STATEMENTS CONTAINED IN THIS PRESS RELEASE REGARDING OTHER THAN
HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS AND ARE MADE UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS, INCLUDING THOSE
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 ESTATE LENDING BUSINESS AND FOCUS ON ITS CORE REAL ESTATE
OPERATION, INVOLVE RISKS AND UNCERTAINTIES. THE ACTUAL STRATEGIES AND THE TIMING
AND EXPECTED RESULTS OF SUCH MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE IDENTIFIED ON PAGE 13 OF THE
COMPANY'S ANNUAL REPORT.
-more-
<PAGE>
Echelon International
First Quarter 1998 Earnings Release
Page 3
ECHELON INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
(unaudited)
Sales and revenues $ 13.2 $ 15.1
======= ======
Income before extraordinary item $ 3.4 $ 4.7
Extraordinary item, net of tax -- (0.8)
------- ------
Net income $ 3.4 $ 3.9
======= ======
Earnings per common share - basic
and diluted:
Income before extraordinary item $ 0.50 $ 0.69
Extraordinary item, net of tax -- (0.12)
------- -------
Net income $ 0.50 $ 0.57
======= =======
Weighted average common shares
outstanding (basic and diluted) 6.8 6.8
======= =======
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
MARCH 31, DECEMBER 31,
1998 1997
---- ----
(unaudited)
Cash and marketable securities $ 51.0 $ 49.8
Total current assets 96.5 93.6
Real estate, leases, loans and other
investments 361.2 362.7
Total assets 461.0 460.5
Total current liabilities 37.1 37.5
Long-term debt 65.8 64.9
Deferred income taxes 141.8 145.8
Stockholders' equity 213.1 209.1
Total liabilities and stockholders'
equity 461.0 460.5
###
