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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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)
450 CARILLON PARKWAY, SUITE 200
ST. PETERSBURG, FLORIDA 33716 TELEPHONE (727) 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, 6,719,723 shares, as of November 10,
1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I.
<S> <C> <C>
Item 1. Financial Statements................................................2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........28
PART II.
Item 4. Submission of Matters to a Vote of Security Holders................29
Item 5. Other Information..................................................29
Item 6. Exhibits and Reports on Form 8-K...................................29
Signatures........................................................................30
</TABLE>
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
(IN MILLIONS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
REAL ESTATE, LEASES, LOANS & OTHER INVESTMENTS:
Real estate, net (Note 2) ........................................... $ 276.7 $ 198.8
Aircraft under operating lease (net of accumulated depreciation
of $9.9 and $9.5 million, respectively) .......................... 2.6 3.0
Leases and loans receivable, net (Note 3) ........................... 177.3 190.4
Investments in and advances to unconsolidated partnerships
(Notes 4 and 5) .................................................. 20.9 21.8
-------- --------
477.5 414.0
-------- --------
ASSETS HELD FOR SALE ................................................... 2.2 2.3
-------- --------
CURRENT ASSETS:
Cash and equivalents (includes restricted deposits of $3.1 million
in 1999 and $1.3 in 1998) ........................................ 24.0 21.6
Accounts receivable, net ............................................ 2.8 1.4
Current portion of leases and loans receivable (Note 3) ............. 46.0 50.3
Inventories, at cost ................................................ 1.1 1.0
Other ........................................................... 1.6 .8
-------- --------
Total current assets ............................................ 75.5 75.1
-------- --------
OTHER NON-CURRENT ASSETS ............................................... 4.9 2.8
-------- --------
Total assets .................................................... $ 560.1 $ 494.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities .............................. $ 19.2 $ 11.8
Fundings for limited partnership investments (Note 4) ............... 2.7 2.9
Current portion of deferred income taxes ............................ 10.2 10.1
Current portion of long-term debt (Note 6) .......................... 27.2 15.7
-------- --------
Total current liabilities ....................................... 59.3 40.5
LONG-TERM DEBT (Note 6) ................................................ 152.0 106.0
DEFERRED INCOME TAXES .................................................. 124.9 131.4
OTHER LIABILITIES ...................................................... .2 .5
COMMITMENTS AND CONTINGENCIES (Note 10) ................................ -- --
-------- --------
Total liabilities ............................................... 336.4 278.4
-------- --------
MINORITY INTEREST (Note 5) ............................................. 2.6 --
-------- --------
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none issued ...................................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 6,946,008
issued and 6,719,723 outstanding in 1999 and 6,901,718 issued
and 6,685,780 outstanding in 1998 ................................ .1 .1
Additional paid in capital .......................................... 283.2 282.2
Retained deficit .................................................... (56.7) (61.0)
Treasury stock, at cost (220,464 shares in 1999 and 215,938
shares in 1998) .................................................. (4.6) (4.5)
Unearned compensation ............................................... (.9) (1.0)
-------- --------
Total stockholders' equity ...................................... 221.1 215.8
-------- --------
Total liabilities and stockholders' equity ...................... $ 560.1 $ 494.2
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SALES AND REVENUES:
Real estate operations:
Rental and other operations revenues ................................. $ 8.5 $ 6.5 $ 23.8 $ 16.4
Sales of development properties and development rights ............... 1.6 -- 4.0 3.1
Investments in financial assets:
Earned income on finance and operating leases ........................ 1.8 2.2 5.3 4.4
Interest income ...................................................... .9 1.0 2.7 3.2
Equity in earnings of unconsolidated partnerships .................... -- .2 -- 2.7
Equity in losses of limited partnership investments .................. (1.0) (1.1) (2.1) (1.7)
Investment income and net realized gain on sale of investments .......... .2 .5 .9 3.5
------- ------- ------- -------
12.0 9.3 34.6 31.6
------- ------- ------- -------
OPERATING EXPENSES:
Rental and other operations ............................................. 4.1 4.3 12.2 9.6
Cost of development properties and development rights sold .............. 1.0 -- 1.5 1.6
Depreciation ............................................................ 1.8 1.7 5.1 4.4
Provision for (recovery of) lease, real estate and loan losses .......... -- -- -- (1.6)
Interest expense on long-term debt, net of amounts capitalized .......... 1.9 1.5 5.1 4.1
General and administrative expenses ..................................... 2.9 .8 7.2 5.9
------- ------- ------- -------
11.7 8.3 31.1 24.0
------- ------- ------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ....................... .3 1.0 3.5 7.6
INCOME TAX EXPENSE (BENEFIT) ............................................ (.2) (.3) (.8) --
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM ........................................ .5 1.3 4.3 7.6
EXTRAORDINARY ITEM:
Gain on settlement of debt, net of income tax expense of $.4 million . -- .8 -- .8
------- ------- ------- -------
NET INCOME .............................................................. $ .5 $ 2.1 $ 4.3 $ 8.4
======= ======= ======= =======
Basic earnings per common share:
Income before extraordinary item ..................................... $ .07 $ .19 $ .64 $ 1.12
Extraordinary item, net of tax ....................................... -- .12 -- .12
------- ------- ------- -------
Net income per common share .......................................... $ .07 $ .31 $ .64 $ 1.24
======= ======= ======= =======
Diluted earnings per common share:
Income before extraordinary item ..................................... $ .07 $ .19 $ .64 $ 1.10
Extraordinary item, net of tax ....................................... -- .12 -- .12
------- ------- ------- -------
Net income per common share .......................................... $ .07 $ .31 $ .64 $ 1.22
======= ======= ======= =======
Basic weighted average shares of common stock outstanding ............... 6.7 6.8 6.7 6.8
======= ======= ======= =======
Diluted weighted average shares of common stock outstanding ............. 6.7 6.9 6.7 6.9
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1999 1998
------- -------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................. $ 4.3 $ 8.4
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization of financing costs ........................ 5.4 4.6
Extraordinary gain on extinguishment of debt ............................ -- (1.2)
Deferred income taxes ................................................... (6.4) (7.1)
Amortization related to finance leases .................................. (2.5) (1.8)
Provision for (recovery of) lease, loan and real estate losses .......... -- (1.6)
Stock-based compensation expense ........................................ .7 .7
Gain on sale of assets .................................................. (2.5) (3.5)
Equity in loss (income) of unconsolidated partnerships, net ............. 2.1 (1.0)
Changes in working capital:
Accounts payable and other liabilities ............................... 7.1 5.5
Other working capital changes ........................................ (2.4) 1.2
Other ................................................................... (2.2) (.5)
------- -------
3.6 3.7
------- -------
INVESTING ACTIVITIES:
Purchases of marketable securities ......................................... -- (7.9)
Proceeds from sales of marketable securities ............................... -- 26.7
Proceeds from sales and collections of leases and loans receivable ......... 22.2 18.4
Real estate property additions and other capital expenditures .............. (82.3) (62.0)
Net proceeds from sales of real estate properties and development rights
and assets held for sale ................................................ 4.0 3.1
Contributions to unconsolidated partnerships ............................... (1.4) (7.5)
Distributions from unconsolidated partnerships ............................. -- 6.5
------- -------
(57.5) (22.7)
------- -------
FINANCING ACTIVITIES:
Issuance of long-term debt ................................................. 78.6 25.2
Repayment of long-term debt ................................................ (22.3) (4.4)
Issuance of common stock ................................................... .2 .2
Debt issuance costs ........................................................ (.1) (.3)
Purchase of treasury stock ................................................. (.1) (.1)
------- -------
56.3 20.6
------- -------
Net increase in cash and equivalents .......................................... 2.4 1.6
------- -------
BEGINNING CASH AND EQUIVALENTS ................................................ 21.6 7.8
------- -------
ENDING CASH AND EQUIVALENTS (including restricted cash of $3.1 million
in 1999) ................................................................... $ 24.0 $ 9.4
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest payments, net of amounts capitalized ........................... $ 4.6 $ 4.0
======= =======
Income tax payments, net of refunds ..................................... $ 4.4 $ 6.9
======= =======
</TABLE>
See NOTE 13 for detail of non-cash investing and financing activities.
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------- -------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Net income ............................................................... $ 4.3 $ 8.4
Other comprehensive income, net of tax:
Change in unrealized holding gain on available-for-sale securities
during period ..................................................... -- .1
Less: reclassification adjustment for net gains included in net income -- (1.8)
------- -------
Other comprehensive income .................................. -- (1.7)
------- -------
Total comprehensive income ............................................... $ 4.3 $ 6.7
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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 (the "Company") for the interim periods presented.
Results of the third quarter of 1999 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, 1998.
Certain amounts previously reported in the Form 10-Q for the third quarter
of 1998 have been reclassified to conform to the 1999 presentation.
(2) REAL ESTATE
The depreciable lives and carrying values of real estate, a significant
portion of which is pledged to secure borrowings, are as follows:
<TABLE>
<CAPTION>
DEPRECIABLE SEPTEMBER 30, DECEMBER 31,
LIVES (YEARS) 1999 1998
------------ ------------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Land and land improvements held for development or sale $ 24.4 $ 26.9
Real estate under development:
Commercial Development
Land and land improvements......... 2.4 1.0
Construction in progress........... 8.0 10.5
------ ------
10.4 11.5
Multi-Family Development
Land and land improvements......... 30.5 15.3
Construction in progress........... 45.1 24.8
------ ------
75.6 40.1
Income producing:
Commercial
Land and land improvements......... 15.3 15.3
Buildings and improvements......... 5-40 112.1 102.0
Equipment and other................ 3-10 1.8 1.5
------ ------
129.2 118.8
------ ------
Multi-Family
Land and land improvements......... 5.6 1.9
Buildings and improvements......... 35 51.8 18.0
Equipment and other................ 3-10 2.0 0.7
------ ------
59.4 20.6
Corporate
Equipment and other................ 3-10 2.9 2.3
------ ------
301.9 220.2
Less: accumulated depreciation........... 25.2 21.4
------ ------
$276.7 $198.8
====== ======
</TABLE>
6
<PAGE>
Capitalized interest during the development of specific projects was $3.1
million and $1.1 million during the nine months ended September 30, 1999 and
1998, respectively.
(3) LOANS RECEIVABLE
At September 30, 1999 and December 31, 1998, loans receivable were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Commercial finance loans receivable...................... $33.1 $39.0
==== ====
</TABLE>
The Company's commercial finance loans receivable are secured by first
mortgage liens on the related commercial real estate or by security interests in
commercial aircraft. These loans are further secured, where applicable, by an
assignment to the Company of the borrowers' lease agreements, and, in some
cases, a third party guaranty. During the nine months ended September 30, 1999,
the Company received scheduled principal repayments of $.1 million on these
loans and complete repayment on a $5.8 million real estate loan receivable.
(4) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS
On July 31, 1998, a joint venture in which the Company had a 50% interest
was dissolved and the Company received net assets totaling $19.1 million.
Summarized below is the financial information for this joint venture for the
nine months ended September 30, 1998. Amounts reflect 100% of the joint
venture's results of operations through July 31, 1998.
NINE MONTHS
ENDED SEPTEMBER 30, 1998
------------------------
(UNAUDITED)
(IN MILLIONS)
REVENUES AND EXPENSES
Revenues........................... $5.1
Expenses........................... .1
----
Combined net earnings of joint venture $5.0
====
Company's equity in net earnings of joint venture $2.5
====
The joint venture's revenues for the nine months ended September 30, 1998
include a $3.2 million gain on the sale of two aircraft engines.
The Company also has investments in affordable housing limited
partnerships, which range between a total gross ownership percentage of 7.1% to
11.6% as of both September 30, 1999 and 1998, respectively. The Company accounts
for these investments under the equity method of accounting. Echelon recorded
pre-tax losses of $2.1 million and $1.7 million on these investments for the
nine-month periods ended September 30, 1999 and 1998, respectively.
7
<PAGE>
During 1996 and 1997, Echelon signed commitments to provide total capital
contributions of $25.8 million to these affordable housing limited partnerships.
Echelon has funded $23.1 million of these commitments as of September 30, 1999.
The total initial investment commitments of $25.8 million are included as
investments in unconsolidated partnerships in the Company's consolidated balance
sheets as of both September 30, 1999 and December 31, 1998, respectively. The
remaining commitments to be funded by December 31, 1999 total $1.6 million, with
the remaining $1.1 to be funded in the first quarter of 2000.
In July 1999, Fannie Mae's American Communities Fund agreed to invest with
Echelon in the development of ECHELON AT CHENEY PLACE, a 303-unit multi-family
residential community to be developed in downtown Orlando, Florida. The Company
accounts for its investment in the development of ECHELON AT CHENEY PLACE under
the equity method. Concurrent with the execution of the agreement with Fannie
Mae's American Communities Fund, the Company and Fannie Mae's American
Communities Fund executed an agreement with Wachovia Bank, N.A. for a $21.5
million construction loan to fund the development of ECHELON AT CHENEY PLACE.
Construction began in late July 1999. Through September 30, 1999, the Company
made $1.2 million of capital contributions to the joint venture and total
capital expenditures for the project were $5.6 million.
(5) INVESTMENT IN CONSOLIDATED PARTNERSHIP
In September 1999, Echelon entered into a partnership agreement with Turner
Heritage Investments, Ltd. ("Turner") for the development of ECHELON AT
LAKESIDE, a 181-unit multi-family residential community to be developed in
Plano, Texas, which is near Dallas. Through September 30, 1999, the Company made
capital contributions of $2.6 million and Turner contributed land valued at $2.6
million to the partnership. For financial reporting purposes, the assets and
liabilities of the partnership are included in the Company's consolidated
financial statements and Turner's partnership interest has been recorded as a
minority interest. See further discussion of debt financing for ECHELON AT
LAKESIDE included below in Note 6, "Long-Term Debt".
(6) LONG-TERM DEBT
Long-term debt outstanding at September 30, 1999 and December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
INTEREST SEPTEMBER 30, DECEMBER 31,
RATE 1999 1998
--------- ------------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Salomon Brothers Realty Corp.................. 6.88%(a) $ 22.6 $ 12.8
Northwestern Mutual Life Insurance Company.... 6.98% 54.5 55.4
SouthTrust Bank............................... -- -- 14.9
AmSouth Bank.................................. 6.99%(b) 53.8 8.9
Fleet Capital Corporation..................... 5.99% 12.0 12.9
Teacher's Insurance & Annuity Association
of America................................. 7.15% 19.3 --
Bank of America............................... 6.65%(a) 2.2 --
Delayed equity obligation on finance lease.... 10.00% 14.8 16.8
------ ------
179.2 121.7
Less: current portion of long-term debt ..... 27.2 15.7
------ ------
$152.0 $106.0
====== ======
</TABLE>
(a) Interest rate at September 30, 1999.
(b) Weighted-average interest rate at September 30, 1999.
8
<PAGE>
SALOMON BROTHERS REALTY CORP.
In March 1999, the Company borrowed $10.0 million of the available credit
on the $30.0 million Salomon Brothers Realty Corp. loan. The additional $10.0
million is being repaid over the remaining term of the original loan's 25 year
amortization period. The entire loan matures in May 2000 with the ability to
extend through May 2002.
SOUTHTRUST BANK
In April 1999, the Company closed on a $19.3 million loan with Teacher's
Insurance and Annuity Association of America ("TIAA") for the permanent
financing of ECHELON AT BAY ISLE KEY. The interest rate on the loan is fixed at
7.15%. The loan requires interest only payments for the first 12 months of the
term and monthly principal and interest payments thereafter based on a 30-year
amortization schedule. Final maturity of the loan is no later than April 2009.
This loan is part of the TIAA $55.5 million Credit Facility discussed below. The
Company paid off the $16.5 million construction loan from SouthTrust Bank with
the TIAA funding.
AMSOUTH BANK
In April 1998, the Company closed on an $18.6 million construction loan
with AmSouth Bank. The loan is being used to fund the development of ECHELON AT
THE RESERVE, a 314-unit multi-family residential community in CARILLON PARK,
located in the Gateway area of St. Petersburg, Florida. The interest rate is
LIBOR plus 1.50% per annum. As of September 30, 1999, Echelon has drawn $17.3
million on this loan. The initial term of the loan is three years, with an
option to extend for an additional two years from construction completion. TIAA
has committed to provide the permanent financing for this development, under the
TIAA $55.5 million Credit Facility discussed below.
In May 1998, the Company executed a commitment letter with AmSouth Bank for
a $50.0 million Advised Guidance Line of Credit ("AmSouth Line"). The proceeds
from the AmSouth Line are being used to provide the construction financing for
multi-family residential and commercial projects, as approved by AmSouth Bank.
Each project financed under the AmSouth Line will be a separate loan. The
interest rate for each loan will be the lesser of the prime rate of interest or
the LIBOR rate plus a defined number of basis points per annum. The term for
each multi-family residential loan is 36 months and for each commercial loan is
30 months. The loans are interest only, with the entire principal and any
accrued interest due at maturity.
To date, the Company has closed on five loans under the AmSouth Line. The
construction projects, the loan amounts and the construction draws as of
September 30, 1999 are as follows:
CONSTRUCTION
CONSTRUCTION LOAN DRAWS AS OF
CONSTRUCTION PROJECT AMOUNT SEPTEMBER 30, 1999
-------------------- ----------------- ------------------
(IN MILLIONS)
CASTILLE AT CARILLON.............. $10.9 $ 9.0
ECHELON AT WOODLAND PARK.......... $11.3 $ 8.0
ECHELON AT NORTHLAKE.............. $17.2 $11.2
ECHELON AT MISSION RANCH.......... $14.1 $ 5.9
ECHELON AT MEMORIAL CREEK......... $14.6 $ 2.4
Since the total loans approved under the AmSouth Line exceed $50.0
million, AmSouth Bank has participated portions of several loans to other
financial institutions.
9
<PAGE>
BANK OF AMERICA
In January 1999, the Company executed a commitment letter with Bank of
America (formerly NationsBank) for a $100.0 million Advised Guidance Line of
Credit ("Bank of America Line"). The Bank of America Line will provide
construction financing for multi-family residential and commercial projects, as
approved by Bank of America. Each project financed under the Bank of America
Line will be a separate loan and the interest rate for each loan will be
negotiated based upon market conditions at the time of funding. The term for
each multi-family residential loan is 36 months and for each commercial loan is
30 months. The loans are interest only, with the entire principal and any
accrued interest due at maturity.
In August 1999, the Company closed on a $22.5 million construction loan
under the Bank of America Line. The loan is being used to fund the construction
of a 143,000 square foot office building and parking garage, 200 CARILLON,
located in CARILLON PARK. The interest rate is LIBOR plus 1.25% per annum. As of
September 30, 1999, Echelon has drawn $2.2 million on this loan. As of October
1999, the Company has executed a 10 year operating lease for the entire office
building and parking garage and has also executed an option for the sale of 200
CARILLON, effective at the time of construction completion.
In September 1999, the Company also closed on a $20.0 million construction
loan under the Bank of America Line. The loan will fund the construction of
ECHELON AT LAKESIDE. The interest rate is LIBOR plus 1.85% and the term is 36
months from the date of the loan closing. See further discussion of the
development of ECHELON AT LAKESIDE included in Note 5, "Investment in
Consolidated Partnership".
OTHER FINANCING COMMITMENTS
TEACHER'S INSURANCE & ANNUITY ASSOCIATION OF AMERICA
In May 1998, Echelon executed a commitment letter with TIAA for a $55.5
million Credit Facility ("Credit Facility") at an interest rate of 7.15% per
annum. The Credit Facility is to provide permanent financing of specific
projects and will be secured by the projects. Funding will occur for each
project based on specific conditions. Each disbursement will constitute a
separate loan, which will mature 10 years from the date of the first loan
disbursement. The first loan disbursement requires interest-only payments for
the first 12 months and monthly principal and interest payments thereafter based
on a 30-year amortization schedule. The remaining loans require monthly
principal and interest payments based on a 30-year amortization schedule. The
Credit Facility defines the loan disbursement expiration dates for each loan,
with the ability for the Company to extend any of the expiration dates for 90
days. Under the terms of the commitment, TIAA required the Company to remit a
refundable application fee. The Company negotiated to provide stand-by letters
of credit in lieu of the application fee, which will be reduced on a pro-rata
basis as the loans are funded. As of September 30, 1999, Echelon had
certificates of deposit totaling $.7 million securing the stand-by letters of
credit.
As previously discussed, in April 1999 the Company closed on a $19.3
million loan under the Credit Facility for the permanent financing of ECHELON AT
BAY ISLE KEY.
FIRST UNION NATIONAL BANK OF FLORIDA
In June 1999, the Company executed a commitment letter with First Union
National Bank of Florida for a $26.1 million construction loan for ECHELON AT
THE BALLPARK, a 384-unit multi-family residential community to be developed in
downtown Memphis, Tennessee. The interest rate on the loan is LIBOR plus 1.65%
and the term of the loan is 36 months from the date of the loan closing.
10
<PAGE>
FINANCIAL COVENANTS
The Company's significant financial covenants include minimum net worth and
liquidity requirements. At September 30, 1999, Echelon was in compliance with
all financial convenants contained in its debt agreements.
(7) STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1999, the Company issued 30,976
shares of restricted Common Stock under the Echelon International Corporation
Long-Term Incentive Plan ("LTIP") in accordance with executive employment
agreements. During the nine months ended September 30, 1999, the Company
recorded $.6 million of unearned compensation for the issuance of the 30,976
shares of restricted Common Stock and recognized $.7 million of compensation
expense related to the vesting period for all restricted Common Stock. The
remaining unearned compensation will be amortized as compensation expense over
the vesting period of the restricted Common Stock.
During the nine months ended September 30, 1998, the Company issued 90,181
shares of restricted Common Stock under the LTIP in accordance with executive
employment agreements. During the nine months ended September 30, 1998, the
Company recorded $1.6 million of unearned compensation and also recognized $.7
of compensation expense in conjunction with the issuance of the restricted
Common Stock.
In February 1998, the Company issued 129,250 stock options under the LTIP
and the Echelon International Corporation 1996 Stock Option Plan ("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 Stock Option
Plan vest over five years.
The Company issued 672 shares and 1,838 shares of Common Stock under the
Echelon International Corporation Non-Employee Directors' Plan during the nine
months ended September 30, 1999 and 1998, respectively.
At the Company's Annual Meeting on May 18, 1999, the Company's stockholders
approved the Echelon International Corporation 1999 Non-Employee Directors' Plan
("1999 Non-Employee Directors' Plan"). Under the 1999 Non-Employee Directors'
Plan, non-employee directors receive an annual retainer of $10,000 paid
quarterly in arrears in the form of Echelon Common Stock and an automatic grant
of options to purchase 5,000 shares of Echelon Common Stock upon each annual
meeting of the Company's stockholders for which they are a Director. From the
date of the Company's Annual Meeting through September 30, 1999, the Company
issued 1,133 shares of Common Stock and 20,000 stock options under the 1999
Non-Employee Directors' Plan.
The Company also issued 11,059 shares and 6,921 shares of Common Stock in
conjunction with the Echelon International Corporation Employee Stock Purchase
Plan during the nine-month periods ended September 30, 1999 and 1998,
respectively.
During the nine month periods ended September 30, 1999 and 1998, the
Company repurchased 4,526 shares and 4,419 shares, respectively, of Common
Stock, resulting in additional Treasury Stock, at cost, of $.1 million in each
of the periods. During the nine months ended September 30, 1999, 450 stock
options were exercised for the issuance of Common Stock and 5,821 shares of
restricted Common Stock were forfeited by an employee and cancelled by the
Company.
11
<PAGE>
<TABLE>
<CAPTION>
The net income and common shares used to compute basic and diluted earnings
per share is presented in the following table:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
(Unaudited) (Unaudited)
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
BASIC
Weighted average number of shares:
Average common shares outstanding 6.7 6.8 6.7 6.8
===== ===== ===== =====
Net income used to compute basic earnings per share:
Net income $ .5 $ 2.1 $ 4.3 $ 8.4
===== ===== ===== =====
Basic earnings per common share $ .07 $ .31 $ .64 $ 1.24
===== ===== ===== =====
DILUTED
Weighted average number of shares:
Average common shares outstanding 6.7 6.8 6.7 6.8
Dilutive effect for stock options and
contingently issuable common shares -- .1 -- .1
----- ----- ----- -----
Weighted average shares 6.7 6.9 6.7 6.9
===== ===== ===== =====
Net income used to compute diluted earnings per share:
Net income $ .5 $ 2.1 $ 4.3 $ 8.4
===== ===== ===== =====
Diluted earnings per common share $ .07 $ .31 $ .64 $1.22
===== ===== ===== =====
</TABLE>
(8) RELATED PARTY TRANSACTIONS
In April 1998, the Board of Directors approved an interest-free loan
program to assist the Company's Executive Officers in meeting tax liabilities
associated with the lapse of restrictions on Echelon's restricted Common Stock.
During the nine months ended September 30, 1999, the Company funded $.7 million
to four Executive Officers in conjunction with this loan program. These
transactions resulted in $.1 million of compensation expense to the Company.
In September 1999, the Company sold a commercial property to Florida Power
Corporation ("Florida Power"), a subsidiary of Florida Progress Corporation, for
$1.6 million, resulting in a gain of $.5 million. The commercial property was
previously leased by Florida Power under a long-term lease.
(9) EFFECTIVE INCOME TAX RATE
The Company's effective income tax rate differs from the statutory income
tax rate primarily due to tax credits and tax losses related to the Company's
investment in affordable housing limited partnerships, amortization of
investment tax credits related to the Company's leveraged lease portfolio, and
differences in rates between previously deferred taxes and current taxes.
(10) COMMITMENTS AND CONTINGENCIES
The Company is subject to regulation with respect to the environmental
effects of its operations. 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.
12
<PAGE>
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 constructing several commercial projects and
multi-family residential communities and at September 30, 1999 had remaining
commitments of $29.5 million with construction contractors.
As of September 30, 1999, Echelon had one contract, subject to the
Company's final due diligence, to acquire land for the development of
approximately 240 multi-family residential units. No assurance can be given that
Echelon will acquire this land or develop this multi-family residential
community.
In conjunction with the development of ECHELON AT CHENEY PLACE with Fannie
Mae's American Communities Fund, the Company has guaranteed the $21.5 million
construction loan with Wachovia Bank, N.A.
Through two previous partnerships, the Company remains contingently liable
for first mortgage bonds issued to residents of the life care communities owned
by such partnerships. The contingent liability reduces over time as those who
were residents at the time of the sale of Echelon's partnership interests
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 $24.0
million as of December 31, 1998. The Company considers the incurrence of this
liability to be remote based on asset values and the indemnification agreement
from the current owners to Echelon.
(11) OPERATING SEGMENTS
As of December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which established
standards for additional disclosure about operating segments for interim and
annual financial statements. This 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
established standards for related disclosures about products and services,
geographic areas, and major customers.
Echelon has three principal operating segments. These segments are 1)
Commercial Real Estate, 2) Multi-Family Residential Real Estate and 3)
Investments in Financial Assets. Commercial Real Estate includes the operation
and development of office and industrial properties, land sales, marina
operations and real estate brokerage services. Multi-family Residential Real
Estate includes the development, ownership and operation of multi-family
residential communities. Investments in Financial Assets include investments in:
a) leveraged leases, b) direct finance leases, c) an operating lease, d)
affordable housing limited partnerships and e) commercial finance loans. The
Financial Assets segment is primarily invested in the airline industry.
Segment information for the three and nine months ended September 30, 1999
and 1998 is summarized below. Revenues received from Florida Progress
Corporation and subsidiaries accounted for 13% of the Company's revenues for
both the three and nine months ended September 30, 1999. Revenues received from
Florida Progress and subsidiaries for the three and nine months ended September
30, 1998 accounted for 17% and 9% of the Company's revenues, respectively.
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
Sales and revenues: (1)
Commercial real estate...................... $ 8.5 $ 6.2 $ 24.2 $ 19.1
Multi-family residential real estate........ 1.6 .3 3.6 .4
Investments in financial assets............. 1.7 2.3 5.9 8.6
------ ------ ------ ------
11.8 8.8 33.7 28.1
Non-segment............................... .2 .5 .9 3.5
------ ------ ------ ------
$ 12.0 $ 9.3 $ 34.6 $ 31.6
====== ====== ====== ======
Operating expenses: (2)
Commercial real estate...................... $ 5.7 $ 5.9 $ 16.4 $ 15.8
Multi-family residential real estate........ 2.1 .5 4.6 .5
Investments in financial assets............. .9 .9 2.5 1.4
------ ------ ------ ------
8.7 7.3 23.5 17.7
Non-segment............................... 3.0 1.0 7.6 6.3
----- ------ ------ ------
$ 11.7 $ 8.3 $ 31.1 $ 24.0
====== ====== ===== ======
Interest expense, net: (2)
Commercial real estate...................... $ .7 $ .8 $ 1.9 $ 2.1
Multi-family residential real estate........ .6 .1 1.2 .1
Investments in financial assets............. .6 .6 2.0 1.9
------ ------ ------ ------
1.9 1.5 5.1 4.1
Non-segment............................... -- -- -- --
------ ------ ------ ------
$ 1.9 $ 1.5 $ 5.1 $ 4.1
====== ====== ====== ======
Depreciation expense: (2)
Commercial real estate...................... $ 1.2 $ 1.1 $ 3.5 $ 3.0
Multi-family residential real estate........ .4 .1 .9 .1
Investments in financial assets............. .1 .3 .3 .9
------ ------ ------ ------
1.7 1.5 4.7 4.0
Non-segment............................... .1 .2 .4 .4
------ ------ ------ ------
$ 1.8 $ 1.7 $ 5.1 $ 4.4
====== ====== ====== ======
Income tax expense (benefit)................... $ (.2) $ (.3) $ (.8) $ --
====== ====== ====== ======
Consolidated net income........................ $ .5 $ 2.1 $ 4.3 $ 8.4
====== ====== ====== = ====
</TABLE>
14
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
Capital expenditures:
Commercial real estate...................... $ 3.5 $ 14.1 $ 10.2 $ 26.8
Multi-family residential real estate........ 22.9 6.9 74.7 33.8
------ ------ ------ ------
26.4 21.0 84.9 60.6
Non-segment............................... -- .4 -- 1.4
------ ------ ------ ------
$ 26.4 $ 21.4 $ 84.9 $ 62.0
====== ====== ====== ======
Assets: (3)
Commercial real estate...................... $147.6 $131.4
Multi-family residential real estate........ 140.6 46.1
Investments in financial assets............. 246.2 268.2
------ ------
534.3 445.7
Non-segment............................... 25.8 33.1
------ ------
$560.1 $494.2
====== ======
</TABLE>
- ------------------
(1) Non-segment sales and revenues to reconcile to total revenue are comprised
of investment income and net realized gain on sale of investments.
(2) Non-segment operating expenses to reconcile to total operating expenses are
comprised of corporate general and administrative expenses and corporate
depreciation.
(3) Non-segment assets to reconcile to total assets are comprised of all cash
and cash equivalents and corporate equipment, furniture and fixtures.
(12) EXTRAORDINARY ITEM
In August 1998, the Company successfully negotiated a modification in an
agreement with the University of Florida Foundation, Inc. ("Foundation"). As a
result of the modification, a $.6 million long-term obligation owed by the
Company and $.6 million of related accrued interest were cancelled by the
Foundation, resulting in a $.8 million after-tax extraordinary gain to the
Company. As a condition of the modification, Echelon constructed roads and other
infrastructure on Company-owned land in the ECHELON BUSINESS & TECHNOLOGY PARK.
The infrastructure enhances both the Company's land and provides additional
access to land owned by the Foundation.
15
<PAGE>
(13) ADDITIONAL CASH FLOW STATEMENT INFORMATION
<TABLE>
<CAPTION>
The Company's non-cash investing and financing activities are as follows:
NINE MONTHS
ENDED SEPTEMBER 30,
------------------
1999 1998
------- -------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Non-cash contribution in consolidated partnership by minority interest... $ 2.6 $ --
Distribution of net assets by unconsolidated partnership ................ $ -- $ 19.1
====== ======
Issuance of common stock related to LTIP ................................ $ .6 $ .4
====== ======
Change in funding for unconsolidated partnership investments ............ $ (.2) $ --
====== ======
Change in unrealized gain (loss) on available-for-sale securities,
net of tax of $.6 million in 1998 .................................... $ -- $ (1.7)
====== ======
Delayed equity amortization on leveraged leases ......................... $ 1.2 $ 1.2
====== ======
Tax benefit of stock transactions with employees ........................ $ .2 $ --
====== ======
</TABLE>
(14) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
required to adopt this standard as of January 1, 2001 and based on current
circumstances does not believe the application of the new rules will have a
material impact on the Company's results of operations or its financial
condition.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Echelon is a real estate company which develops, owns, and manages
commercial and multi-family residential real estate (the "Real Estate
Business"). The Real Estate Business includes two segments: 1) Commercial Real
Estate and 2) Multi-Family Residential Real Estate. The Company also owns and
manages a portfolio of financial assets consisting primarily of leased aircraft
and other assets and collateralized financings of commercial real estate and
aircraft (the "Leasing and Lending Business"). The Leasing and Lending Business
comprises the majority of the Company's third segment, Investments in Financial
Assets. 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
Common 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.
The Company's operations for the nine months ended September 30, 1999
include the following ongoing multi-family residential and commercial
development activities:
MULTI-FAMILY RESIDENTIAL DEVELOPMENT
ECHELON AT BAY ISLE KEY, a 369-unit multi-family residential community
located in the Gateway area of St. Petersburg, Florida, was 93% leased as of
September 30, 1999. ECHELON AT BAY ISLE KEY was named the "1998 Apartment
Community of the Year" by the Bay Area Apartment Association, which covers the
Tampa, St. Petersburg and Clearwater area.
Construction of the clubhouse and substantially all of the 22 buildings
for ECHELON AT THE RESERVE, a 314-unit multi-family residential community
located in CARILLON PARK, was completed during the nine months ended September
30, 1999. Construction will be completed by the end of November 1999. Leasing is
continuing and to date, over 260 units have been leased, representing over 80%
of the total units. In July 1999, this community was recognized with four Aurora
Awards at the Florida Homebuilder Association's Southeast Builders Conference -
Aurora Awards Ceremony. ECHELON AT THE RESERVE received the Aurora Award for
"Best Rental Apartment Community", "Best Recreational Facility/Community
Clubhouse", "Best Recreational Facility / Community Clubhouse for Interior
Merchandising" and the Grand Aurora Award for "Best Rental Apartment Community
in the Southeastern United States".
Construction of the clubhouse and 5 of 13 total buildings for ECHELON AT
WOODLAND PARK, a 232-unit multi-family residential community located in Tulsa,
Oklahoma, was completed during the quarter ended September 30, 1999. Leasing is
in process and to date, over 80 units have been leased. Construction is
scheduled for completion at the end of the first quarter of 2000.
Construction of the clubhouse and 1 of 8 total buildings for ECHELON AT
NORTHLAKE, a 256-unit multi-family residential community located in Atlanta,
Georgia, was completed during the quarter ended September 30, 1999. Leasing has
now commenced and construction is scheduled for completion in the second quarter
of 2000.
17
<PAGE>
Construction is continuing for ECHELON AT MISSION RANCH, a 295-unit
multi-family residential community located in Mesquite, Texas (near Dallas) and
ECHELON AT MEMORIAL CREEK, a 292-unit multi-family residential community located
in Tulsa, Oklahoma. The clubhouses are scheduled to open in late November and
December 1999, respectively.
In addition to the multi-family residential communities above, seven
additional communities are currently under development and/or construction:
- ECHELON AT MID-TOWN - a 297-unit multi-family residential community
located in downtown Memphis, Tennessee,
- ECHELON AT THE BALLPARK - a 384-unit multi-family residential
community located in downtown Memphis, Tennessee,
- ECHELON'S RIVER PARK ESTATES - a 256-unit multi-family residential
community located on Mud Island in downtown Memphis, Tennessee,
- ECHELON AT BRIARGATE - a 395-unit multi-family residential community
located in Colorado Springs, Colorado,
- ECHELON AT TWENTY MILE VILLAGE - a 325-unit multi-family residential
community located in Parker, Colorado (near Denver),
- ECHELON AT WATTERS CREEK - a 200-unit multi-family residential
community located in Allen, Texas (near Dallas) and
- ECHELON AT KELLER TOWN CENTER - a 276-unit multi-family residential
community located in Keller, Texas (near Dallas) .
During the third quarter of 1999, the Company also entered into two
partnerships for the development of two additional multi-family residential
communities:
- ECHELON AT CHENEY PLACE - a 303-unit multi-family residential
community located in downtown Orlando, Florida and
- ECHELON AT LAKESIDE - a 181-unit multi-family residential community
located in Plano, Texas (near Dallas).
COMMERCIAL DEVELOPMENT
Construction was completed in late June 1999 on CASTILLE AT CARILLON, two
Class-A buildings totaling 103,900 square feet located in CARILLON PARK. As of
mid-November 1999, CASTILLE AT CARILLON is 97% leased with Echelon occupying
approximately 20,000 square feet as its corporate headquarters and leasing
approximately 81,000 square feet to third parties.
In June 1999, the Company recorded revenues of $2.4 million for the sale of
development rights in CARILLON PARK to an existing landowner. Echelon intends to
develop a portion of the remaining CARILLON PARK land for its own account and
sell portions of the remaining land to third parties.
In September 1999, construction began on 200 CARILLON, a 5-story, 143,000
square foot Class-A office building and parking garage, located in CARILLON
PARK. The construction of 200 CARILLON is estimated to be completed by the end
of the third quarter of 2000. As of October 1999, the Company has executed a 10
year operating lease for the entire office building and parking garage and has
also executed an option for the sale of 200 CARILLON, effective at the time of
construction completion.
18
<PAGE>
In September 1999, the Company sold a commercial property to Florida Power
Corporation ("Florida Power"), a subsidiary of Florida Progress Corporation, for
$1.6 million, resulting in a gain of $.5 million. The commercial property was
previously leased by Florida Power under a long-term lease.
19
<PAGE>
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998
Net income for the three months ended September 30, 1999 was $.5 million or
$.07 both basic and diluted earnings per share compared to net income of $2.1
million or $.31 both basic and diluted earnings per share, respectively, for the
three months ended September 30, 1998. Net income for the nine months ended
September 30, 1999 was $4.3 million or $.64 both basic and diluted earnings per
share. This compares to net income of $8.4 million or $1.24 basic and $1.22
diluted earnings per share, respectively, for the nine months ended September
30, 1998.
SALES AND REVENUES
COMMERCIAL REAL ESTATE
Commercial real estate sales and revenues for the three and nine months
ended September 30, 1999 increased $2.3 million and $5.1 million compared to the
same periods in 1998 primarily due to:
o A $1.6 million and $.9 million increase in revenues from the sales of
development properties and development rights during the three and nine
months ended September 30, 1999. During the quarter ended September 30,
1999, the Company recorded $1.6 million in revenues from the sale of a
commercial property. There were no sales of land or development rights
during the third quarter of 1998. During the nine months ended September,
the Company sold the commercial property previously discussed and recorded
$2.4 million in revenues from the sale of development rights in CARILLON
PARK, compared to $3.1 million in revenues from the sales of land and
development rights in CARILLON PARK in the same period of 1998.
o A $.6 million and $3.5 million increase in rental revenues for the three
and nine month periods ended September 30, 1999, respectively, compared to
the same periods in 1998 resulting from an overall increase in occupancy
and rental rates for the Company's commercial properties, the 100%
occupancy of the commercial properties completed during the second quarter
of 1998, BAYBORO STATION and CENTRAL STATION, the completion of THE NEW
MCNULTY in December 1998 and the construction completion of CASTILLE AT
CARILLON in late June 1999.
o A $.1 million and $.7 million increase in revenues from real estate
brokerage services and other commercial real estate operations for the
three and nine month periods ended September 30, 1999 compared to the same
periods in 1998. The increase is primarily due to brokerage activity with
third parties.
MULTI-FAMILY RESIDENTIAL REAL ESTATE
o Multi-family residential real estate revenues of $1.6 million and $3.6
million for the three and nine months ended September 30, 1999 resulted
from the leasing of ECHELON AT BAY ISLE KEY, which opened in late April
1998, the leasing of ECHELON AT THE RESERVE, which completed the
construction of the clubhouse and substantially all of the 22 total
buildings during the nine months ended September 30, 1999 and the initial
leasing of ECHELON AT WOODLAND PARK, which completed the construction of
the clubhouse and 5 of 13 total buildings during the quarter ended
September 30, 1999. In addition, during September 1999, construction was
completed for the clubhouse and 2 of 8 total buildings of ECHELON AT
NORTHLAKE.
20
<PAGE>
INVESTMENTS IN FINANCIAL ASSETS
Investments in financial assets sales and revenues for the three and nine
month periods ended September 30, 1999 decreased $.6 million and $2.7 million,
respectively, compared to the same periods in 1998 primarily due to:
o A decrease in equity in earnings of unconsolidated partnerships of $.2
million and $2.7 million for the three and nine months ended September 30,
1999, respectively, compared to 1998 due to the July 31, 1998 dissolution
of the joint venture partnership in which Echelon had a 50% interest.
o A decrease of $.1 million and $.5 million in interest income for the three
and nine months ended September 30, 1999 compared to the same periods in
1998 as a result of payoffs of loans receivable as the Company continues to
execute its strategy to liquidate non-strategic assets and redirect the
capital into real estate development and acquisition.
o Earned income on finance and operating leases decreased $.4 million and
increased $.9 million for the three and nine months ended September 30,
1999, respectively, compared to the same periods in 1998. The decrease in
earned income for the quarter ended September 30, 1999 is the result of a
decrease of $.4 million in leveraged lease revenues. The $.9 million
increase in earned income on finance and operating leases for the nine
months ended September 30, 1999 is primarily a result of $.6 million
increase in lease revenues recorded from the direct finance lease of an
aircraft leased to Continental Airlines that the Company received from the
July 31, 1998 dissolution of the joint venture in which Echelon had a 50%
interest, as previously discussed. Through July 31, 1998, the Company
recorded $.2 million in revenues from the joint venture, which are reported
in the "Equity in earnings of unconsolidated partnerships" income statement
line item, as previously discussed. The Company also recorded an additional
$.3 million of revenues in the first nine months of 1999 related to the
restructure in the fourth quarter of 1998 of a direct finance lease for an
aircraft leased to Southwest Airlines.
o Equity in losses of limited partnership investments decreased $.1 million
and increased $.4 million, respectively, for the three and nine month
periods ended September 30, 1999 compared to the same period in 1998.
Equity in losses of limited partnership investments reduced revenues for
the three and nine months ended September 30, 1999 by $1.0 million and $2.1
million, respectively. The equity in losses of limited partnership
investments resulted from the Company recording its share of pre-tax losses
from affordable housing limited partnerships in each of the periods. The
Company also recorded $1.7 million and $1.3 million in related income tax
credits for the nine months ended September 30, 1999 and 1998,
respectively, as a reduction of income tax expense.
As part of Echelon's strategy to focus on real estate development, Echelon
has investments in affordable housing limited partnerships entitled to the
benefits of housing tax credits. The Company's overall return on these
investments includes recording pre-tax losses on this type of investment.
The tax benefits resulting from such losses and the realization of the
housing tax credits are the primary sources of value from this type of
investment.
21
<PAGE>
NON-SEGMENT
o The Company's non-segment sales and revenues, which are comprised of
investment income and net realized gain on sale of investments, decreased
$.3 million and $2.6 million for the three and nine months ended September
30, 1999 compared to the same periods of 1998 as a result of the Company's
conversion of the marketable securities portfolio to cash and short-term
cash investments during the fourth quarter of 1998.
OPERATING EXPENSES
COMMERCIAL REAL ESTATE
Commercial real estate operating expenses increased $.6 million in the nine
months ended September 30, 1999 compared to the same period of 1998 primarily
due to:
o An increase in rental and other operations expenses in the nine months
ended September 30, 1999 of $1.1 million over the same period of 1998
primarily due to an increase in rental operations from the Company's
commercial properties resulting from the completion and 100% occupancy
of BAYBORO STATION and CENTRAL STATION in the second quarter of 1998,
the completion of THE NEW MCNULTY in December 1998, the construction
completion of CASTILLE AT CARILLON in late June 1999 and increased
occupancy in the Company's other commercial properties in 1999 as
compared to 1998, as previously discussed.
o An increase in depreciation expense of $.5 million for the nine months
ended September 30, 1999 as compared to the same period in 1998
primarily as a result of the completion of the construction and tenant
improvements of two commercial properties, BAYBORO STATION and CENTRAL
STATION, in the second quarter of 1998, the completion of THE NEW
MCNULTY in December 1998 and the completion of CASTILLE AT CARILLON in
late June 1999.
o A decrease in the cost of development properties and development
rights sold of $.1 million for the nine months ended September 30,
1999 compared to the same period in 1998 due to the sale of a
commercial property and an increase in sales of CARILLON PARK
development rights, as discussed previously.
These increases were offset by:
o A decrease in interest expense of $.2 million for the nine months
ended September 30, 1999 compared to the same period of 1998 resulting
from the scheduled repayments on the Company's debt secured by
commercial properties.
o A decrease in expenses related to other commercial real estate
operations of $.7 million for the nine months ended September 30, 1999
compared to the same period of 1998, as the Company continues to focus
on its core real estate operations.
22
<PAGE>
MULTI-FAMILY RESIDENTIAL REAL ESTATE
o Multi-family residential real estate operating expenses of $2.1 million and
$4.6 million for the three and nine months ended September 30, 1999,
respectively, resulted from the operations of ECHELON AT BAY ISLE KEY and
ECHELON AT THE RESERVE and the initial leasing of both ECHELON AT WOODLAND
PARK and ECHELON AT NORTHLAKE. The $4.6 million of operating expenses
incurred during the nine months ended September 30, 1999 is comprised of
$.9 million of depreciation expense, $1.2 million of interest expense and
$2.6 million of real estate operating expenses.
INVESTMENTS IN FINANCIAL ASSETS
Expenses related to investments in financial assets for the nine months
ended September 30, 1999 increased $1.1 million compared to the same period in
1998 primarily due to:
o A reversal of a $1.6 million allowance for loan losses in the first
half of 1998 as a result of the complete repayment of a commercial
loan, for which the Company had previously recorded an allowance for
loan losses.
o A $.1 million increase in interest expense, net of amounts
capitalized, for the nine months ended September 30, 1999, compared to
the same period of 1998 as a result of an increase in related debt
from a loan executed in November 1998, which is secured by a direct
finance lease.
o A decrease in depreciation expense of $.6 million during the nine
months ended September 30, 1999 compared to the same period of 1998 as
a result of increasing the estimated depreciable life of a leased
aircraft due to the extension of an operating lease from an original
maturity of December 31, 1998 to October 31, 2000.
NON-SEGMENT
Non-segment operating expenses to reconcile to total operating expenses are
comprised primarily of corporate general and administrative expenses and
corporate depreciation.
The non-segment operating expenses increased $1.3 million for the nine
months ended September 30, 1999 compared to the same period in 1998, primarily
due to:
o An increase of $1.0 million for expenses incurred during the nine
months ended September 30, 1999 related to the Board of Director's
ongoing evaluation of various strategic alternatives for the Company.
o A net increase of $.3 million in corporate general and administrative
expenses during the nine months ended September 30, 1999 resulting
from the growth in the Company's operations in comparison with the
same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have been and will be,
impacted by the Company's current strategic plan referenced herein. The
Company's sources of liquidity and capital resources have been primarily from
the maturity and collection of Echelon's lease and loan portfolio, proceeds from
23
<PAGE>
the sale of certain non-strategic assets, cash flow from operations and, with
respect to the Echelon's real estate development, from project-based and other
financings. The planned development of multi-family residential and commercial
real estate will require additional access to external financing. The timing and
amount of external financing requirements will, in part, be dependent upon the
timing of collections from real estate loans and asset sales.
Echelon expects to obtain sufficient capital from its operations, asset
sales, loan collections, project-based and other financings, and the capital
markets to execute its strategic plan. However, no assurance can be given that
such capital will be available at the time or in amounts necessary to execute
the Company's strategic plan.
At the Distribution Date, Echelon and Florida Progress entered into a
distribution agreement, which requires Echelon to maintain a liquidity level of
at least $17.0 million throughout 1999.
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES
Cash flow provided by operating activities was $3.6 million for the nine
months ended September 30, 1999. The primary source of cash was an increase in
accounts payable and other liabilities of $7.1 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 provided by investing activities. Net cash flow from future
operations is generally expected to be reinvested in the Real Estate Business.
CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES
Echelon's net cash flow used in investing activities for the nine months
ended September 30, 1999 was $57.5 million. The cash flow includes the $22.2
million in proceeds received from the collection of leases and loans, including
the $5.8 million payoff of the real estate loan receivable from Vine Street
Partnership. During the nine months ended September 30, 1999, the Company also
received $2.4 million for the sale of development rights in CARILLON PARK and
$1.6 million from the sale of a commercial property to Florida Power. Upon the
maturity and collection of Echelon's loan portfolio, Echelon expects investing
activities to continue to be a net use of funds as Echelon redirects its capital
into the Real Estate Business.
Real estate property additions and other capital expenditures, including a
non-cash contribution from a minority interest, were $84.9 million for the nine
months ended September 30, 1999. The Company's $74.7 million of multi-family
capital expenditures for the nine months ended September 30, 1999 were for the
ongoing construction of multi-family residential communities and land purchases
for the development of additional multi-family residential communities. The
Company's $10.2 million of commercial capital expenditures for the nine months
ended September 30, 1999 were primarily for the completion of construction and
ongoing tenant improvements of CASTILLE AT CARILLON, ongoing construction of 200
CARILLON and tenant improvements for other commercial properties.
For the remainder of 1999, capital expenditures for tenant improvements,
land development, commercial office development and multi-family residential
development are projected to be approximately $20.0 million to $30.0 million.
These expenditures are expected to be funded through project-based and other
financings and from existing cash.
During the nine months ended September 30, 1999, contributions to
unconsolidated partnerships were $1.4 million. The contributions consisted of
$.2 million to affordable housing limited partnerships and a $1.2 million
contribution to the unconsolidated joint venture formed for the purpose of
developing ECHELON AT CHENEY PLACE.
24
<PAGE>
CASH FLOW FROM FINANCING ACTIVITIES
During the nine months ended September 30, 1999, the Company's primary
source of cash flow from financing activities was $78.6 million in proceeds from
debt financings, including TIAA's $19.3 million permanent financing of the
SouthTrust construction loan for ECHELON AT BAY ISLE KEY. The proceeds were used
to fund the construction of the Company's multi-family residential communities
and commercial projects. The Company also made $22.3 million of scheduled loan
repayments on the Company's outstanding debt during the nine months ended
September 30, 1999, which included the $16.5 million payoff on the construction
loan with SouthTrust Bank.
During the nine months ended September 30, 1999, the Company issued 11,059
shares of Common Stock under the 1996 Echelon International Corporation Employee
Stock Purchase Plan and 450 options were exercised for the issuance of Common
Stock, resulting in additional paid in capital of $.2 million. The Company also
purchased 4,526 shares of Common Stock, resulting in additional Treasury Stock
of $.1 million.
OFF-BALANCE SHEET RISK
The Company is currently constructing several commercial projects and
multi-family residential communities and at September 30, 1999, had remaining
commitments of $29.5 million with construction contractors.
As of September 30, 1999, Echelon had one contract, subject to the
Company's final due diligence, to acquire land for the development of
approximately 240 multi-family-residential units. No assurance can be given that
Echelon will acquire this land or develop this multi-family residential
community.
In conjunction with the development of ECHELON AT CHENEY PLACE with Fannie
Mae's American Communities Fund, the Company has guaranteed the $21.5 million
construction loan with Wachovia Bank, N.A.
Through two previous partnerships, Echelon remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
such partnerships. The contingent liability reduces over time as those who were
residents at the time of the sale of Echelon's partnership interests 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 $24.0 million as of
December 31, 1998. Echelon considers the incurrence of this liability to be
remote based on asset values and the indemnification agreement from the current
owners to Echelon.
IMPACT OF INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income or net income during any of the Company's
three most recent fiscal years. Due to the current economic climate, the Company
does not expect that inflation will have a materially adverse effect on its
business or financial condition. To the extent inflationary trends affect
short-term interest rates, a portion of the Company's debt service costs may be
impacted as well as the lease rates the Company charges on both commercial and
multi-family residential real estate properties.
YEAR 2000 COMPUTER ISSUE
Many computer systems currently in use were designed and developed using
two digits, rather than four, to identify the year. As a result, such computer
systems will recognize the year 2000 as "00". This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken.
25
<PAGE>
Echelon has completed several projects to address the Year 2000 issue.
These include: 1) identifying and mitigating Year 2000 problems in Echelon's
systems, including equipment used in the Company's properties, such as elevators
and phone systems that may have date sensitive information within them, 2)
updates needed to make non-compliant equipment compliant according to
manufacturers' disclosures and f critical systems. Echelon has additional
projects currently in process including: 1) additional equipment of systems that
are changing or have been added and require a Year 2000 assessment, 2) working
with the Company's financial institutions, lenders and vendors to assure that
the appropriate steps are being taken to mitigate the Year 2000 issue in each
entity's software systems, and 3) ensuring that each entity that electronically
receives or sends information to Echelon is aware of the steps that the Company
is taking and is taking appropriate steps of its own to address the Year 2000
issue.
During 1998 and 1997 the Company incurred total costs of $.3 million for
the acquisition and implementation of a property management and general ledger
software that is Year 2000 compliant. These costs were recorded in accordance
with Echelon's accounting policies. The Company has incurred costs of $.3
million during the nine months ended September 30, 1999 and estimates an
additional $.3 million to be incurred for Year 2000-related projects during the
remainder of the year ending December 31, 1999.
Echelon is currently Year 2000 compliant with some systems and expects to
be complaint with all other systems no later than the end of November 1999.
Costs related to the maintenance and/or modifications of Echelon's software
systems have been and will continue to be expensed as incurred. Echelon does not
anticipate the costs related to Year 2000 to have a material impact on its
results of operations. While the Company currently expects that the Year 2000
issues will not pose significant operational problems, delays in the
modification of software systems or failure to fully identify all Year 2000
dependencies in the Company's systems could result in material adverse
consequences, including disruption of operations, loss of information, and
unanticipated increases in costs. The Company's contingency plan for addressing
the Year 2000 issue includes the utilization of manual operation systems.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which established accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company will be required to
adopt this standard as of January 1, 2001 and based on current circumstances,
does not believe the application of the new rules will have a material impact on
the Company's results of operations or its financial condition.
STRATEGIC PLAN
A complete discussion of Echelon's current Strategic Plan is included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
As previously disclosed, the Company's success to date is not a forecast
of 1999 results. Specifically, financial results from 1998 and 1997 are not
indicators of projected 1999 net income. Redirecting capital into the Company's
real estate pipeline will lower net income for 1999, as is typical of the early
stages of real estate development.
As stated in the Company's press releases dated September 9, 1999, November
2, 1999 and November 15, 1999, in connection with the Company's previously
announced exploration of strategic alternatives, various parties recently
initiated preliminary discussions with the Company concerning a complex
transaction which, if consummated, would lead to the sale of the Company. There
can be no assurances that any transaction will result from these preliminary
discussions. Concurrently, the Company continues to pursue other strategic
initiatives designed to maximize shareholder value.
26
<PAGE>
continuing to operate the business in accordance with its strategic plan. There
is no assurance that any transaction will result from the exploration process.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding other than historical facts
are forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1955 and are intended to be covered by the Safe Habor
created thereby. 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 operations, involve risks and
uncertainties.
Echelon wishes to caution readers that in addition to the important factors
described elsewhere in this Form 10-Q, where the Company expresses an
expectation or belief as to future events, such expectation or belief is
expressed in good faith and it is believed to have a reasonable basis. However,
such forward-looking statements are subject to risk, uncertainties and other
factors, which could cause actual results to differ materially from future
results express or implied by such forward-looking statements. Important factors
that could cause actual strategies and the timing and expected results thereof
to differ materially from such forward-looking statements ("cautionary
statements"), include, but are not limited to those factors identified under
"CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.
27
<PAGE>
PART II
OTHER INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result of
its long-term debt used to fund capital expenditures for the expansion of the
Company's real estate portfolio. The Company also has real estate loans
receivable that bear interest at a floating rate based on the prime rate plus a
defined number of basis points. The Company's interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flow. The Company's construction financing is at variable rates of interest and
all permanent and corporate financings are at fixed rates of interest. To date,
the Company has not entered into any derivative or interest rate hedge
transactions.
The Company's interest rate risk is monitored using a variety of
techniques. The table below presents the principal amounts, weighted average
interest rates, fair value and other terms required by year of expected maturity
to evaluate the expected cash flows and sensitivity to interest rate changes.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
--------------------------------------
REMAINDER
OF FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
---------- ------ ------ ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt $ .2 $ 6.9 $ 3.3 $ 4.4 $ 4.9 $ 80.9 $100.6 $100.6
===== ====== ====== ====== ====== ====== ====== ======
Weighted average interest rate
at September 30, 1999 7.34%
====
Variable rate LIBOR debt $ 14.7 $ 5.8 $ 2.1 $ -- $ -- $ 56.0 $ 78.6 $ 78.6
====== ====== ====== ====== ====== ====== ====== ======
Weighted average interest rate
at September 30, 1999 6.95%
====
Variable rate prime loans
receivable $ 28.5 $ -- $ 4.5 $ -- $ -- $ -- $ 33.0 $ 33.0
====== ====== ====== ====== ====== ====== ======= ======
Weighted average interest rate
at September 30, 1999 9.89%
====
</TABLE>
As the table incorporates only those exposures that exist as of September
30, 1999, it does not consider those exposures or positions, which could arise
after that date. In addition, the Company's variable interest construction
financing is included in the "thereafter" column based on the fact that the
Company has secured permanent financing commitment for some of these debt
instruments as of September 30, 1999. Moreover, because firm commitments are not
presented in the table above, the information presented therein has limited
predictive value. As a result, the Company's ultimate realized gain or loss with
respect to interest rate fluctuations will depend on the exposures that arise
during the period, the Company's hedging strategies at that time, and interest
rates.
28
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION.
Echelon International Corporation issued a news release dated November 15,
1999, announcing 1999 third 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:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Employment Agreement Supplement for W. Michael Doramus, dated August
18, 1999
10.2 Employment Agreement Supplement for Darryl A. LeClair, dated August
12, 1999
10.3 Employment Agreement Supplement for Julio A. Maggi, dated August 12,
1999
10.4 Employment Agreement Supplement for Larry J. Newsome, dated August 12,
1999
27 Financial Data Schedule of Echelon International Corporation
99.1 Echelon International Corporation New Release dated September 9, 1999
announcing Board of Directors to explore strategic alternatives to
maximize shareholder value
99.2 Echelon International Corporation News Release dated November 2, 1999
regarding an announcement by the Board of Directors
99.3 Echelon International Corporation New Release dated November 15, 1999
regarding 1999 third quarter financial results and update on
exploration of strategic alternatives
(b) Reports on Form 8-K:
None.
29
<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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
ECHELON INTERNATIONAL CORPORATION
Registrant
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<S> <C> <C>
/s/ LARRY J. NEWSOME
--------------------------
Larry J. Newsome Principal Financial Officer, November 15, 1999
Principal Financial Officer Senior Vice President and
Chief Financial Officer
/s/ JAMES R. HOBBS, JR.
---------------------------
James R. Hobbs, Jr. Principal Accounting Officer, November 15, 1999
Principal Accounting Officer Vice President and Controller
</TABLE>
30
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Employment Agreement Supplement for W. Michael Doramus, dated August
18, 1999
10.2 Employment Agreement Supplement for Darryl A. LeClair, dated August
12, 1999
10.3 Employment Agreement Supplement for Julio A. Maggi, dated August 12,
1999
10.4 Employment Agreement Supplement for Larry J. Newsome, dated August 12,
1999
27 Financial Data Schedule of Echelon International Corporation
99.1 Echelon International Corporation New Release dated September 9, 1999
announcing Board of Directors to explore strategic alternatives to
maximize shareholder value
99.2 Echelon International Corporation News Release dated November 2, 1999
regarding an announcement by the Board of Directors
99.3 Echelon International Corporation New Release dated November 15, 1999
regarding 1999 third quarter financial results and update on
exploration of stragetic alternatives
31
EXHIBIT 10.1
[ECHELON LOGO]
MEMORANDUM
DATE: AUGUST 18, 1999
TO: W. MICHAEL DORAMUS
FROM: SUSAN G. JOHNSON
RE: EMPLOYMENT AGREEMENT - SUPPLEMENT
- --------------------------------------------------------------------------------
To confirm the action of the Echelon International Corporation Board of
Directors and Compensation Committee, please note the following amendment to
your Employment Agreement dated November 20, 1996, amended and restated as of
September 18,1998:
TO EXHIBIT A, LTIP SECTION ADD THE FOLLOWING:
1999, 2000,2001 CYCLE YEARS
The following table sets forth the Cumulative Net Asset Value Per Share
for the Threshold, Target and Maximum awards. Under the Board approved
methodology, the Net Asset Value Per Share as of 01/01/99 was $34.85. The
Threshold level requires a cumulative 5% increase in Net Asset Value Per Share
for the three years ending 12/31/2001, the Target level requires a cumulative 9%
increase in Net Asset Value Per Share for the three years ending 12/31/2001, and
the Maximum level requires a cumulative 13% increase in Net Asset Value Per
Share for the three years ending 12/31/2001.
LTIP AWARDS FOR THE 1999 - 2001 CYCLE
- --------------------------------------------------------------------------------
LTIP THRESHOLD TARGET MAXIMUM
- --------------------------------------------------------------------------------
Assumes 9% 5% 9% 13%
CAP rate
- --------------------------------------------------------------------------------
Net Asset Beginning of $ 34.85 $ 34.85 $ 34.85
Value Per period 01/01/99
Share
- --------------------------------------------------------------------------------
Net Asset As of $ 40.34 $ 45.13 $ 50.29
Value Per 12/31/2001
Share
- --------------------------------------------------------------------------------
The following table sets forth the incremental annual award correlating
to the Threshold, Target and Maximum LTIP Cumulative Net Asset Values and awards
associated with achieving such levels of cumulative net asset value per share:
1
<PAGE>
- --------------------------------------------------------------------------------
OPTIONS TO
PURCHASE NUMBER
DOLLAR VALUE OF OF SHARES OF
RESTRICTED STOCK COMMON STOCK
- --------------------------------------------------------------------------------
THRESHOLD
- --------------------------------------------------------------------------------
Cumulative Net Asset $40.34
Value Per Share
- --------------------------------------------------------------------------------
LTIP Value $50,000.00 5,000
(% of Base Salary) (20%)
- --------------------------------------------------------------------------------
TARGET
- --------------------------------------------------------------------------------
Cumulative Net Asset $45.13
Value Per Share
- --------------------------------------------------------------------------------
LTIP Value $100,000.00 10,000
(% of Base Salary) (40%)
- --------------------------------------------------------------------------------
MAXIMUM
- --------------------------------------------------------------------------------
Cumulative Net Asset $50.29
Value Per Share
- --------------------------------------------------------------------------------
LTIP Value $150,000.00 15,000
(% of Base Salary) (60%)
- --------------------------------------------------------------------------------
Of the total restricted stock values and number of options set forth
above, 60% of the applicable restricted stock values and number of options
(Threshold, Target and Maximum) shall be paid, if any, upon satisfaction of the
applicable Performance Goals (Threshold, Target or Maximum) and 40% of the total
applicable restricted stock values and number of options (Threshold, Target or
Maximum) shall be paid, if any, upon satisfaction of the applicable Net Asset
Value Per Share (Threshold, Target or Maximum) set forth above.
For purposes of administering the LTIP, during the 1999, 2000, 2001
three-year cycle, (i) all LTIP awards shall be paid in the form of restricted
shares and options; (ii) the number of restricted shares above shall be
determined by dividing the dollar value of the Maximum LTIP Value, $150,000, by
the closing price on April 19, 1999, ($19.9375); (iii) the restricted shares,
among other things, shall be subject to a risk of forfeiture if and to the
extent that the performance criteria set forth in this Exhibit A with respect to
the 1999, 2000, 2001 Cycle Years are not met; (iv) if actual cumulative Net
Asset Value Per Share for the three-year period ending December 31, 2001, does
not equal or exceed Threshold LTIP Net Asset Value Per Share for such period,
all restricted shares shall be forfeited, and no LTIP bonus will have been
earned; (v) if actual cumulative Net Asset Value Per Share for the three year
period ending December 31, 2001, exceeds Threshold LTIP Net Asset Value Per
Share, but is less than Target LTIP Net Asset Value Per Share, for such period,
or exceeds Target LTIP Net Asset Value Per Share, but is less than Maximum LTIP
Net Asset Value Per Share, for such period, the percentage of the LTIP
restricted shares as to which the risk of forfeiture shall lapse shall be
proportionately increased above the Threshold bonus amount or the Target Bonus
amount, as the case may be; and (vi) if cumulative Net Asset Value Per Share for
the three-year period ending December 31, 2001 equals or exceeds Maximum LTIP
Net Asset Value Per Share for such period, the risk
2
<PAGE>
of forfeiture shall lapse as to all restricted shares, but no additional shares
will be issuable under the LTIP regardless of the amount by which actual
cumulative net asset value per share for the three years ending December 31,
2001 exceeds such Maximum LTIP Net Asset Value Per Share (vii) the option
exercise price shall be the closing price on April 19, 1999, ($19.9375); and
(viii) the options shall be 100% vested as of the date of the satisfaction of
the applicable performance goal.
Please execute a copy of this memo and return it to me in the enclosed
envelope. Should you have any questions, please contact me.
# # #
Accepted and Acknowledged on _____________________{date}
By:__________________________________________________
3
EXHIBIT 10.2
[ECHELON LOGO]
MEMORANDUM
DATE: AUGUST 12, 1999
TO: DARRYL A. LECLAIR
FROM: SUSAN G. JOHNSON
RE: EMPLOYMENT AGREEMENT - SUPPLEMENT
- --------------------------------------------------------------------------------
To confirm the action of the Echelon International Corporation Board of
Directors and Compensation Committee, please note the following amendment to
your Employment Agreement dated November 20, 1996, amended and restated as of
September 18,1998:
TO EXHIBIT A, LTIP SECTION ADD THE FOLLOWING:
1999, 2000,2001 CYCLE YEARS
The following table sets forth the Cumulative Net Asset Value Per Share for the
Threshold, Target and Maximum awards. Under the Board approved methodology, the
Net Asset Value Per Share as of 01/01/99 was $34.85. The Threshold level
requires a cumulative 5% increase in Net Asset Value Per Share for the three
years ending 12/31/2001, the Target level requires a cumulative 9% increase in
Net Asset Value Per Share for the three years ending 12/31/2001, and the Maximum
level requires a cumulative 13% increase in Net Asset Value Per Share for the
three years ending 12/31/2001.
LTIP AWARDS FOR THE 1999 - 2001 CYCLE
- --------------------------------------------------------------------------------
LTIP THRESHOLD TARGET MAXIMUM
- --------------------------------------------------------------------------------
Assumes 9% 5% 9% 13%
CAP rate
- --------------------------------------------------------------------------------
Net Asset Beginning of $ 34.85 $ 34.85 $ 34.85
Value Per period 01/01/99
Share
- --------------------------------------------------------------------------------
Net Asset As of $ 40.34 $ 45.13 $ 50.29
Value Per 12/31/2001
Share
- --------------------------------------------------------------------------------
The following table sets forth the incremental annual award correlating
to the Threshold, Target and Maximum LTIP Cumulative Net Asset Values and awards
associated with achieving such levels of cumulative net asset value per share:
1
<PAGE>
---------------------------------------------------------
LTIP THREE YEARS ENDING
DECEMBER 31, 2001
---------------------------------------------------------
THRESHOLD
---------------------------------------------------------
Cumulative Net Asset $40.34
Value Per Share
---------------------------------------------------------
LTIP Value $121,875
(% of Base Salary) (37.5%)
---------------------------------------------------------
TARGET
---------------------------------------------------------
Cumulative Net Asset $45.13
Value Per Share
---------------------------------------------------------
LTIP Value $243,750
(% of Base Salary) (75%)
---------------------------------------------------------
MAXIMUM
---------------------------------------------------------
Cumulative Net Asset $50.29
Value Per Share
---------------------------------------------------------
LTIP Value $365,625
(% of Base Salary) (112.5%)
---------------------------------------------------------
For purposes of administering the LTIP, during the 1999, 2000, 2001
three-year cycle, (i) all LTIP awards shall be paid in the form of restricted
shares; (ii) the number of restricted shares shall be determined by dividing the
dollar value of the Maximum LTIP Value, $365,625, by the closing price on April
19, 1999 or the first trading day thereafter, on the New York Stock Exchange (or
such other market on which the Company's stock trades if it is not listed on the
New York Stock Exchange); (iii) the restricted shares, among other things, shall
be subject to a risk of forfeiture if and to the extent that the performance
criteria set forth in this Exhibit A with respect to the 1999, 2000, 2001 Cycle
Years are not met; (iv) if actual cumulative Net Asset Value Per Share for the
three-year period ending December 31, 2001, does not equal or exceed Threshold
LTIP Net Asset Value Per Share for such period, all restricted shares shall be
forfeited, and no LTIP bonus will have been earned; (v) if actual cumulative Net
Asset Value Per Share for the three year period ending December 31, 2001,
exceeds Threshold LTIP Net Asset Value Per Share, but is less than Target LTIP
Net Asset Value Per Share, for such period, or exceeds Target LTIP Net Asset
Value Per Share, but is less than Maximum LTIP Net Asset Value Per Share, for
such period, the percentage of the LTIP restricted shares as to which the risk
of forfeiture shall lapse shall be proportionately increased above the Threshold
bonus amount or the Target Bonus amount, as the case may be; and (vi) if
cumulative Net Asset Value Per Share for the three-year period ending December
31, 2001 equals or exceeds Maximum LTIP Net Asset Value Per Share for such
period, the risk of forfeiture shall lapse as to all restricted shares, but no
additional shares will be issuable under the LTIP regardless of the amount by
which actual cumulative net asset value per share for the three years ending
December 31, 2001 exceeds such Maximum LTIP Net Asset Value Per Share.
2
<PAGE>
Please execute a copy of this memo and return it to me in the enclosed
envelope. Should you have any questions, please contact me.
# # #
Accepted and Acknowledged on _____________________{date}
By:__________________________________________________
3
EXHIBIT 10.3
[ECHELON LOGO]
MEMORANDUM
DATE: AUGUST 12, 1999
TO: JULIO A. MAGGI
FROM: SUSAN G. JOHNSON
RE: EMPLOYMENT AGREEMENT - AMENDMENT
- --------------------------------------------------------------------------------
To confirm the action of the Echelon International Corporation Board of
Directors and Compensation Committee, please note the following amendment to
your Employment Agreement dated November 20, 1996, amended and restated as of
September 18,1998:
TO EXHIBIT A, LTIP SECTION ADD THE FOLLOWING:
1999, 2000,2001 CYCLE YEARS
The following table sets forth the Cumulative Net Asset Value Per Share
for the Threshold, Target and Maximum awards. Under the Board approved
methodology, the Net Asset Value Per Share as of 01/01/99 was $34.85. The
Threshold level requires a cumulative 5% increase in Net Asset Value Per Share
for the three years ending 12/31/2001, the Target level requires a cumulative 9%
increase in Net Asset Value Per Share for the three years ending 12/31/2001, and
the Maximum level requires a cumulative 13% increase in Net Asset Value Per
Share for the three years ending 12/31/2001.
LTIP AWARDS FOR THE 1999 - 2001 CYCLE
- --------------------------------------------------------------------------------
LTIP THRESHOLD TARGET MAXIMUM
- --------------------------------------------------------------------------------
Assumes 9% 5% 9% 13%
CAP rate
- --------------------------------------------------------------------------------
Net Asset Beginning of $ 34.85 $ 34.85 $ 34.85
Value Per period 01/01/99
Share
- --------------------------------------------------------------------------------
Net Asset As of $ 40.34 $ 45.13 $ 50.29
Value Per 12/31/2001
Share
- --------------------------------------------------------------------------------
The following table sets forth the incremental annual award correlating
to the Threshold, Target and Maximum LTIP Cumulative Net Asset Values and awards
associated with achieving such levels of cumulative net asset value per share:
1
<PAGE>
- --------------------------------------------------------------------------------
SUBSEQUENT LTIP CYCLES (IF APPLICABLE)
THREE-YEAR CYCLES ENDING EACH FISCAL YEAR 12/31/2001 AND THEREAFTER
- --------------------------------------------------------------------------------
INDIVIDUAL- COMPANY-
PERFORMANCE BASED LTIP BASED LTIP TOTAL
LEVEL AWARD AWARD LTIP AWARD
(60%) (40%) (100%)
- --------------------------------------------------------------------------------
THRESHOLD 600 shares 400 shares 1,000 shares
- --------------------------------------------------------------------------------
TARGET 1,200 shares 800 shares 2,000 shares
- --------------------------------------------------------------------------------
MAXIMUM 1,800 shares 1,200 shares 3,000 shares
- --------------------------------------------------------------------------------
For purposes of administering the LTIP, during the 1999, 2000, 2001 three
year-cycle, provided the Executive is then employed by the Company under this
Agreement, the number of periodic options awarded to the Executive (I) shall be
based upon the satisfaction of both the Executive's Individual Performance Goals
and the Company Performance Goals; (ii) if the threshold Company or Individual
Performance Goals are not achieved the applicable Company Based LTIP Award or
the Individual Based LTIP Award will not be paid, (iii) if actual
Company/Individual Performance exceeds the threshold but is less than the
target, for such period, or exceeds the target but is less than the maximum, for
such period, the award shall be proportionately increased above the threshold
bonus amount or the target bonus amount, as the case may be; and (iv) if the
actual Company/Individual Performance equals or exceeds the maximum, the maximum
award will be paid, but no additional amount of the LTIP Award will be granted
under the LTIP regardless of the amount by which actual Performance for such
LTIP Cycle exceeds the maximum Performance Goals; (v) the option exercise price
shall be the closing price on April 19, 1999, ($19.9375); and (vi) the options
shall be 100% vested as of the date of the satisfaction of the applicable
performance goal.
Please execute a copy of this memo and return it to me in the enclosed
envelope. Should you have any questions, please contact me.
# # #
Accepted and Acknowledged on _____________________{date}
By:__________________________________________________
2
EXHIBIT 10.4
[ECHELON LOGO]
MEMORANDUM
DATE: AUGUST 12, 1999
TO: LARRY J. NEWSOME
FROM: SUSAN G. JOHNSON
RE: EMPLOYMENT AGREEMENT - SUPPLEMENT
- --------------------------------------------------------------------------------
To confirm the action of the Echelon International Corporation Board of
Directors and Compensation Committee, please note the following amendment to
your Employment Agreement dated November 20, 1996, amended and restated as of
September 18,1998:
TO EXHIBIT A, LTIP SECTION ADD THE FOLLOWING:
1999, 2000,2001 CYCLE YEARS
The following table sets forth the Cumulative Net Asset Value Per Share for the
Threshold, Target and Maximum awards. Under the Board approved methodology, the
Net Asset Value Per Share as of 01/01/99 was $34.85. The Threshold level
requires a cumulative 5% increase in Net Asset Value Per Share for the three
years ending 12/31/2001, the Target level requires a cumulative 9% increase in
Net Asset Value Per Share for the three years ending 12/31/2001, and the Maximum
level requires a cumulative 13% increase in Net Asset Value Per Share for the
three years ending 12/31/2001.
LTIP AWARDS FOR THE 1999 - 2001 CYCLE
- --------------------------------------------------------------------------------
LTIP THRESHOLD TARGET MAXIMUM
- --------------------------------------------------------------------------------
Assumes 9% 5% 9% 13%
CAP rate
- --------------------------------------------------------------------------------
Net Asset Beginning of $ 34.85 $ 34.85 $ 34.85
Value Per period 01/01/99
Share
- --------------------------------------------------------------------------------
Net Asset As of $ 40.34 $ 45.13 $ 50.29
Value Per 12/31/2001
Share
- --------------------------------------------------------------------------------
The following table sets forth the incremental annual award correlating
to the Threshold, Target and Maximum LTIP Cumulative Net Asset Values and awards
associated with achieving such levels of cumulative net asset value per share:
1
<PAGE>
-----------------------------------------------------
LTIP THREE YEARS ENDING
DECEMBER 31, 2001
-----------------------------------------------------
THRESHOLD
-----------------------------------------------------
Cumulative Net Asset $40.34
Value Per Share
-----------------------------------------------------
LTIP Value $34,000
(% of Base Salary) (20%)
-----------------------------------------------------
TARGET
-----------------------------------------------------
Cumulative Net Asset $45.13
Value Per Share
-----------------------------------------------------
LTIP Value $68,000
(% of Base Salary) (40%)
-----------------------------------------------------
MAXIMUM
-----------------------------------------------------
Cumulative Net Asset $50.29
Value Per Share
-----------------------------------------------------
LTIP Value $102,000
(% of Base Salary) (60%)
-----------------------------------------------------
For purposes of administering the LTIP, during the 1999, 2000, 2001
three-year cycle, (i) all LTIP awards shall be paid in the form of restricted
shares; (ii) the number of restricted shares shall be determined by dividing the
dollar value of the Maximum LTIP Value, $102,000, by the closing price on April
19, 1999 or the first trading day thereafter, on the New York Stock Exchange (or
such other market on which the Company's stock trades if it is not listed on the
New York Stock Exchange); (iii) the restricted shares, among other things, shall
be subject to a risk of forfeiture if and to the extent that the performance
criteria set forth in this Exhibit A with respect to the 1999, 2000, 2001 Cycle
Years are not met; (iv) if actual cumulative Net Asset Value Per Share for the
three-year period ending December 31, 2001, does not equal or exceed Threshold
LTIP Net Asset Value Per Share for such period, all restricted shares shall be
forfeited, and no LTIP bonus will have been earned; (v) if actual cumulative Net
Asset Value Per Share for the three year period ending December 31, 2001,
exceeds Threshold LTIP Net Asset Value Per Share, but is less than Target LTIP
Net Asset Value Per Share, for such period, or exceeds Target LTIP Net Asset
Value Per Share, but is less than Maximum LTIP Net Asset Value Per Share, for
such period, the percentage of the LTIP restricted shares as to which the risk
of forfeiture shall lapse shall be proportionately increased above the Threshold
bonus amount or the Target Bonus amount, as the case may be; and (vi) if
cumulative Net Asset Value Per Share for the three-year period ending December
31, 2001 equals or exceeds Maximum LTIP Net Asset Value Per Share for such
period, the risk of forfeiture shall lapse as to all restricted shares, but no
additional shares will be issuable under the LTIP regardless of the amount by
which actual cumulative net asset value per share for the three years ending
December 31, 2001 exceeds such Maximum LTIP Net Asset Value Per Share.
2
<PAGE>
Please execute a copy of this memo and return it to me in the enclosed
envelope. Should you have any questions, please contact me.
# # #
Accepted and Acknowledged on _____________________{date}
By:__________________________________________________
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ECHELON INTERNATIONAL CORPORATION FOR THE PERIOD ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,000
<SECURITIES> 0
<RECEIVABLES> 48,800
<ALLOWANCES> 0
<INVENTORY> 1,100
<CURRENT-ASSETS> 75,500
<PP&E> 301,900
<DEPRECIATION> 25,200
<TOTAL-ASSETS> 560,100
<CURRENT-LIABILITIES> 59,300
<BONDS> 152,000
0
0
<COMMON> 100
<OTHER-SE> 221,000
<TOTAL-LIABILITY-AND-EQUITY> 560,100
<SALES> 0
<TOTAL-REVENUES> 34,600
<CGS> 0
<TOTAL-COSTS> 18,800
<OTHER-EXPENSES> 7,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,100
<INCOME-PRETAX> 3,500
<INCOME-TAX> (800)
<INCOME-CONTINUING> 4,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,300
<EPS-BASIC> .64
<EPS-DILUTED> .64
</TABLE>
EXHIBIT 99.1
Susan Glatthorn Johnson
Senior Vice President
Echelon International Corporation
Phone: 727-803-8250
E-mail: [email protected]
Cynthia L. Sanders
Manager of Financial Reporting
Echelon International Corporation
Phone: 727-803-8231
FOR IMMEDIATE RELEASE E-mail: [email protected]
ECHELON INTERNATIONAL CORPORATION TO EXPLORE
STRATEGIC ALTERNATIVES TO MAXIMIZE SHAREHOLDER VALUE
St. Petersburg, FL, September 9, 1999 -- Echelon International
Corporation (NYSE:EIN) announced today that its Board of Directors has been
involved in a process to explore and review strategic alternatives to maximize
shareholder value for which it has retained Donaldson, Lufkin & Jenrette
Securities Corporation as its financial advisor. The Company has investigated
and continues to investigate a range of options, including the possible sale or
break-up of the Company or continuing to operate the business in accordance with
its strategic plan. There is no assurance that any transaction will result from
this exploration process.
Echelon International Corporation is a real estate company
which develops, owns and manages multi-family residential and commercial real
estate. The Company also owns and manages a portfolio of financial assets
consisting primarily of leased aircraft and other assets and collateralized
financings of commercial real estate and aircraft. The Company is continuing to
withdraw from the aircraft and real estate lending business and focus on its
core real estate operations.
# # #
EXHIBIT 99.2
Susan Glatthorn Johnson
Senior Vice President
Echelon International Corporation
Phone: 727-803-8250
E-mail: [email protected]
Cynthia L. Sanders
Manager of Financial Reporting
Echelon International Corporation
Phone: 727-803-8231
E-mail: [email protected]
FOR IMMEDIATE RELEASE
ECHELON INTERNATIONAL MAKES ANNOUNCEMENT
ST. PETERSBURG, FL, November 2, 1999 - Echelon International Corporation (NYSE:
EIN), a real estate company which develops, owns and manages multi-family
residential and commercial real estate, announced today that, although its Board
of Directors is continuing to evaluate strategic alternatives for the Company,
it does not expect to announce a strategic transaction this year. The Company
has had extensive negotiations with various parties concerning a number of
complex transactions which would have led to the sale of the Company, but those
discussions have not resulted in a transaction and have been terminated.
# # #
Note: Certain statements contained in this press release regarding other than
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and are intended to be covered
by the safe harbor created thereby. 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 operations,
involve risks and uncertainties.
Where the Company expresses an expectation or belief as to future events, such
expectation or belief is expressed in good faith and is believed to have a
reasonable basis. However, such forward-looking statements are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Important factors that could cause actual strategies and the timing
and expected results thereof to differ materially from such forward-looking
statements ("cautionary statements") include, but are not limited to those
factors identified under "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING
STATEMENTS" in the Company's 1998 Annual Report. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements.
All subsequent written and oral forward-looking statements attributable to the
Company or to persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements set forth in this
press release, whether as a result of new information, future events or
otherwise.
EXHIBIT 99.3
Susan Glatthorn Johnson
Senior Vice President
Echelon International Corporation
Phone: 727-803-8250
E-mail: [email protected]
Cynthia L. Sanders
Manager of Financial Reporting
Echelon International Corporation
Phone: 727-803-8231
E-mail: [email protected]
FOR IMMEDIATE RELEASE
ECHELON INTERNATIONAL REPORTS THIRD QUARTER 1999 RESULTS
AND UPDATE ON EXPLORATION OF STRATEGIC ALTERNATIVES
ST. PETERSBURG, FL, November 15, 1999 - Echelon International Corporation (NYSE:
EIN), a real estate company which develops, owns and manages multi-family
residential and commercial real estate, today announced its financial results
for the third quarter and nine months ended September 30, 1999.
Net income was $.5 million, or 7 cents per diluted share for the quarter ended
September 30, 1999 and $4.3 million or 64 cents per diluted share for the first
nine months of 1999. This compares to net income of $2.1 million, or 31 cents
per diluted share and $8.4 million or $1.22 per diluted share for the same
periods of 1998. During the nine months ended September 30, 1999, in excess of
$1.0 million of expenses were incurred related to the ongoing evaluation of
various strategic alternatives for the Company.
Sales and revenues were $12.0 million and $34.6 million for the third quarter
and first nine months of 1999, respectively, compared to $9.3 million and $31.6
million for the same periods last year. The $3.0 million increase in revenues
for the first nine months of 1999 is primarily the result of the Company's core
real estate operations as follows:
- A $3.5 million increase in commercial rental revenues from the
completion of three commercial properties and a parking garage, and an
overall increase in occupancy and rental rates in existing properties
compared to the same period of 1998.
- A $3.2 million increase in multi-family residential rental revenues.
- A $.9 million increase in commercial revenues from the sale of
development properties and development rights.
- A $.7 million increase in revenues from third-party real estate
brokerage services and other commercial real estate operations.
The increased revenue in core real estate operations is offset by:
<PAGE>
Echelon International
Third Quater Earnings Release
Page 2
- A $2.7 million decrease in revenues from the non-core operations of
the Company's aircraft and real estate lending business.
- A $2.6 million decrease in investment income as a result of the
conversion of marketable securities to cash and short-term cash
investments in the fourth quarter of 1998.
As of September 30, 1999, the Company's debt / equity ratio (including current
portion of long-term debt) was 45 / 55, with a cash position of $24.0 million of
which $1.4 million is allocated to a multi-family development partnership in
Plano, Texas.
Darryl A. LeClair, Echelon chairman, president and chief executive officer,
commented,
"Throughout the third quarter we continued development of our existing
multi-family residential pipeline and commercial real estate properties.
In the area of multi-family residential development:
- As previously disclosed, Echelon partnered with Fannie Mae's American
Communities Fund in the development of ECHELON AT CHENEY PLACE, a
303-unit multi-family residential community being developed in
downtown Orlando, Florida. Construction began at the end of July.
- In addition, Echelon entered into a partnership for the development of
ECHELON AT LAKESIDE, a 181-unit multi-family residential community
located in Plano, Texas (near Dallas). Construction began in October
1999.
- In total, construction of one multi-family residential community is
complete, one will be completed within the month, and 13 are under
construction and/or development, representing approximately 4,300
total units. Currently, units are being leased in six of these
communities.
In the area of commercial development:
- Construction was completed in late June 1999 on CASTILLE AT CARILLON,
two Class-A buildings totaling 103,900 square feet located in CARILLON
PARK. As of mid-November 1999, CASTILLE AT CARILLON is 97% leased with
Echelon occupying approximately 20,000 square feet as its corporate
headquarters and leasing approximately 81,000 square feet to third
parties.
- In September 1999, construction began on 200 CARILLON, a 5-story,
143,000 square foot Class-A office building and parking garage,
located in CARILLON PARK. Construction is estimated to be completed by
the end of the third quarter of 2000. The Company has executed a
ten-year operating lease with Catalina Marketing Sales Corporation,
along with an agreement for the option to purchase 200 CARILLON,
effective at the time construction is completed."
<PAGE>
Echelon International
Third Quater Earnings Release
Page 3
Commenting on the quarter and year-to-date results, Larry J. Newsome, Echelon
senior vice president and chief financial officer, stated,
"Our third quarter and 1999 year to date financial performance is in line
with our projections for the year, except for the expenses incurred related
to the evaluation of various strategic alternatives for the Company. We
continue to build our real estate business, while looking for opportunities
to liquidate non-strategic assets. In the past month, we have sold two
industrial warehouse properties previously identified by the Company as
non-strategic assets."
In connection with the Company's previously announced exploration of strategic
alternatives, various parties recently initiated preliminary discussions with
the Company concerning a complex transaction which, if consummated, would lead
to the sale of the Company. There can be no assurances that any transaction will
result from these preliminary discussions. Concurrently, the Company continues
to pursue other strategic initiatives designed to maximize shareholder value.
Echelon International Corporation is a real estate company, which develops, owns
and manages 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 WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE INTENDED TO BE COVERED
BY THE SAFE HARBOR CREATED THEREBY. 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 OPERATIONS,
INVOLVE RISKS AND UNCERTAINTIES.
WHERE THE COMPANY EXPRESSES AN EXPECTATION OR BELIEF AS TO FUTURE EVENTS, SUCH
EXPECTATION OR BELIEF IS EXPRESSED IN GOOD FAITH AND IS BELIEVED TO HAVE A
REASONABLE BASIS. HOWEVER, SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL STRATEGIES AND THE TIMING
AND EXPECTED RESULTS THEREOF TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING
STATEMENTS ("CAUTIONARY STATEMENTS") INCLUDE, BUT ARE NOT LIMITED TO THOSE
FACTORS IDENTIFIED UNDER "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING
STATEMENTS" IN THE COMPANY'S 1998 ANNUAL REPORT. GIVEN THESE UNCERTAINTIES,
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS.
ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR TO PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS SET FORTH IN THIS
PRESS RELEASE, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE.
<PAGE>
Echelon International
Third Quater Earnings Release
Page 4
<TABLE>
<CAPTION>
ECHELON INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(IN MILLIONS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 24.0 $ 21.6
Total current assets 75.5 75.1
Real estate, leases, loans and other investments 477.5 414.0
Total assets 560.1 494.2
Total current liabilities 59.3 40.5
Long-term debt (excluding current portion) 152.0 106.0
Deferred income taxes (excluding current portion) 124.9 131.4
Stockholders' equity 221.1 215.8
Total liabilities and stockholders' equity 560.1 494.2
Total capital expenditures 82.3 90.4
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Sales and revenues $ 12.0 $ 9.3 $ 34.6 $ 31.6
Operating expenses 11.7 8.3 31.1 24.0
------ ------ ------ ------
Income before income taxes
and extraordinary item .3 1.0 3.5 7.6
Income tax expense (benefit) (.2) (.3) (.8) --
------ ------ ------ ------
Income before extraordinary item .5 1.3 4.3 7.6
Extraordinary gain on settlement of
debt, net of income tax expense -- .8 -- .8
------ ------ ------ ------
Net income $ .5 $ 2.1 $ 4.3 $ 8.4
====== ====== ====== ======
Diluted earnings per common share:
Income before extraordinary item $ .07 $ .19 $ .64 $ 1.10
Extraordinary item, net of tax -- .12 -- .12
------ ------ ------ ------
Net income per common share $ .07 $ .31 $ .64 $ 1.22
====== ====== ====== ======
Diluted weighted average common
shares outstanding 6.7 6.9 6.7 6.9
====== ====== ====== ======
</TABLE>
