<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO _________.
Commission File No. l-6830
FPA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-0874323
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
One Greenwood Square, Suite #101
3333 Street Road
Bensalem, Pennsylvania 19020
(Address of principal executive offices)
Telephone: (215) 245-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Number of shares outstanding as of November 13, 1997: 11,356,018
(excluding 1,342,113 shares held in Treasury).
<PAGE>
FPA Corporation and Subsidiaries
Index to Financial Statements
PAGE
------
Interim Financial Statements for the quarter
ended September 30, 1997
- --------------------------------------------
Consolidated Balance Sheets at September 30, 1997
and June 30, 1997 1
Consolidated Statements of Operations and Changes
in Retained Earnings for the three months ended
September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
three months ended September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-5
<PAGE>
FPA Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
---- ----
<S> <C> <C>
Assets (Unaudited)
Cash $ 1,522 $ 1,582
Receivables
Trade accounts 3,309 3,223
Mortgage and other notes 401 404
Real estate held for development and sale:
Residential properties completed or
under construction 34,721 35,355
Land held for development or sale
and improvements 56,561 60,067
Property and equipment, at cost, less
accumulated depreciation 798 507
Deferred charges and other assets 6,914 6,475
------ ------
$104,226 $107,613
======= =======
Liabilities and Shareholders' Equity
Liabilities
Accounts payable $ 12,017 $ 12,759
Accrued expenses 5,583 5,519
Amounts due to related parties 2,604 2,701
Customer deposits 2,177 2,155
Mortgage and other note obligations
primarily secured by real estate
held for development and sale 50,394 53,637
Subordinated debentures 580 601
Other notes payable 11,358 10,917
Deferred income taxes 2,517 2,587
Minority interests 670 686
------ ------
Total liabilities 87,900 91,562
------ ------
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par, 500,000
shares authorized, no shares outstanding
Common stock, $.10 par, 20,000,000
shares authorized, 12,698,131
shares issued at September 30, 1997
and June 30, 1997, respectively 1,270 1,270
Capital in excess of par value - common stock 17,726 17,726
Retained earnings (deficit) (1,692) (1,967)
Treasury stock, at cost (1,342,113
shares held at September 30, 1997
and June 30, 1997, respectively) (978) (978)
-------- --------
Total shareholders' equity 16,326 16,051
-------- -------
$ 104,226 $107,613
======== =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
FPA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(in thousands except per share amounts)
(unaudited)
Three Months Ended
September 30,
------------------
1997 1996
------------------
Earned revenues
Residential properties $ 24,841 $23,817
Land sales 220
Other income 325 314
------ ------
25,386 24,131
------ ------
Costs and expenses
Residential properties 21,163 20,438
Land sales 180
Other 142 112
Selling, general and administrative 3,278 2,978
Interest:
Incurred 1,726 1,481
Less capitalized (1,562) (1,259)
Depreciation and amortization 32 32
Minority interests (16) (13)
------ -------
24,943 23,769
------ -------
Income from operations
before income taxes 443 362
Income tax expense (168) (40)
------- ------
Income from operations before
extraordinary items 275 322
Extraordinary gain or early
extinguishment of debt - 594
------- ------
Net income 275 916
Retained earnings (deficit), at
beginning of period (1,967) (4,176)
------ ------
Retained earnings (deficit), at
end of period $ (1,692) $ (3,260)
====== ======
Primary earnings per share $ .02 $ .08
====== ======
See notes to consolidated financial statements
-2-
<PAGE>
FPA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Three Months Ended
September 30,
------------------
1997 1996
------------------
Cash flows from operating activities:
Net income $ 275 $ 916
Adjustment to reconcile net income
to net cash provided by (used in)
operating activities:
Extraordinary gain on early
extinguishment of debt - (594)
Depreciation and amortization 32 32
(Increase) decrease in assets
Receivables (83) 95
Real estate held for development and sale 4,140 (1,600)
Deferred charges and other assets (762) (10)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (678) 237
Other liabilities (161) (487)
------ -------
Net cash provided by (used in)
operating activities 2,763 (1,411)
----- -----
Cash flows from financing activities:
Proceeds from mortgages and loans payable 15,950 19,553
Repayments of mortgages and loans payable (18,773) (19,042)
Purchase of treasury stock (107)
------- ------
Net cash provided by (used in)
financing activities (2,823) 404
------- ------
Net decrease in cash (60) (1,007)
Cash at beginning of year 1,582 2,617
------ ------
Cash at end of quarter $1,522 $ 1,610
====== ======
Supplemental disclosure of cash flow activities:
Interest paid, net of amounts capitalized $ - $ 118
====== ======
Income taxes paid $ 43 $ -
====== ======
See notes to consolidated financial statements
-3-
<PAGE>
FPA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) In July, 1996, the Company completed a transaction to fully satisfy
notes payable with an outstanding balance of approximately $1,650,000
and reacquired 183,177 shares of Common Stock in exchange for a cash
payment of approximately $1,061,000. These shares have been retained by
the Company as treasury stock. This transaction resulted in an
extraordinary gain of $594,000 net of income tax expense of
approximately $100,000.
(B) Primary earnings per common share is computed by dividing net income or
loss by the weighted average number of common shares outstanding and
common stock equivalents. The weighted average number of shares used to
compute primary earnings per common share were 11,444,597 for the three
months ended September 30, 1997 and 11,506,098 for the three months
ended September 30, 1996.
(C) Supplemental disclosure of non-cash financing activities:
As discussed in Note A, the Company recorded an extraordinary gain of
$594,000 during fiscal 1997 on the early retirement of approximately
$1,650,000 of notes payable for a cash payment of $1,061,000.
(D) Residential properties completed or under construction consists of the
following:
<TABLE>
<CAPTION>
(In Thousands)
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Under contract for sale $ 21,701 $ 21,300
Unsold 13,020 14,055
------------------ -------------
$ 34,721 $ 35,355
================== =============
</TABLE>
(E) The above statements are unaudited but include all adjustments which
the Company considers necessary for a fair presentation of the
financial statements. All adjustments made for the periods presented
were of a normal recurring nature. The results of operations for the
three months ended September 30, 1997 and 1996 are not necessarily
indicative of the full year.
(F) In October, 1992, a wholly-owned subsidiary of the Company, Versailles
at Europa, Inc., was established to act as the General Partner in a
newly-formed Versailles Associates, L.P. (the "Partnership"). The
Partnership was formed to purchase and develop a tract of land in
Cherry Hill, New Jersey. The terms of the Partnership Agreement provide
that the General Partner be allocated 55% of the net profits and losses
of the Partnership and have exclusive management and control over the
development of the property. The financial statements of the
Partnership
-4-
<PAGE>
are included in the consolidated financial statements of the Company.
The limited partner's share of the income and capital from this entity
has been presented as minority interest in the accompanying
consolidated financial statements.
Orleans Construction Corp. (OCC) has entered into a joint venture
agreement with Bridlewood Associates, L.P., a limited partnership
formed to develop an 85 acre parcel of land in Mount Laurel, New
Jersey. OCC is the managing general partner. OCC and the limited
partner share equally in the profits or losses of the entity. The
financial statements of the Partnership are included in the
consolidated financial statements of the Company. The limited partner's
share of the income and capital from this entity has been presented as
minority interest in the accompanying consolidated financial
statements.
-5-
<PAGE>
FPA CORPORATION AND SUBSIDIARIES
Item 2. FPA Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
-----------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company requires capital to purchase and develop land, to construct
units, fund related carrying costs and overhead and to fund various advertising
and marketing costs to facilitate sales. The Company's sources of capital
include funds derived from operations, sales of assets and various borrowings,
most of which are secured. At September 30, 1997, the Company had $54,343,000
available to be drawn under existing secured revolving and construction loans
for planned development expenditures. These expenditures include site
preparation, roads, water and sewer lines, impact fees and earthwork, as well as
the construction costs of the units and amenities. The Company believes that the
funds generated from operations and financing commitments from commercial
lenders will provide the Company with sufficient capital to meet its operating
needs.
Results of Operations
- ---------------------
The following table sets forth certain detail as to residential sales
activity for the three months ended September 30, 1997 and 1996, in the case of
revenues earned and new orders, and at the end of the periods indicated, in the
case of backlog.
Three Months Ended
------------------
September 30, 1997 September 30, 1996
------------------ ------------------
(Dollars in Thousands)
Revenues Earned $24,841 $23,817
Units 130 141
Average Price Per Unit $ 191 $ 169
New Orders $28,809 $22,487
Units 156 134
Average Price Per Unit $ 185 $ 168
Backlog $42,228 $38,876
Units 236 212
Average Price Per Unit $ 179 $ 183
-6-
<PAGE>
New orders for the three months ended September 30, 1997 increased by
28% to $28,809,000 on 156 orders, compared to $22,487,000 on 134 orders during
the three months ended September 30, 1996. The opening of new communities in
Chester and Delaware Counties in Pennsylvania and Mercer County in New Jersey
were the primary reasons for the increase. The average price per unit of
revenues earned and new orders increased due to a change in product mix towards
more townhouse and single family homes. The Company expects this trend to
continue.
Included in the September 30, 1997 backlog are 26 low income units with
an aggregate sales value of approximately $1,400,000 which are to be acquired by
Jeffrey P. Orleans, Chairman and Chief Executive Officer of the Company. These
transactions will satisfy, in part, the Company's low income housing
requirements in Mount Laurel Township, New Jersey. The inclusion of these units
is the primary reason for the decrease in average price per unit of the
September 30, 1997 backlog, as compared to September 30, 1996.
Inflation
- ---------
Inflation can have a significant impact on the Company's liquidity.
Rising costs of land, materials, labor, interest and administrative costs have
generally been recoverable in prior years through increased selling prices. The
Company has been able to increase prices to cover portions of these costs.
However, there is no assurance the Company will be able to continue to increase
prices to cover the effects of inflation in the future.
Operating Revenues
- ------------------
Revenues for the first quarter of fiscal 1998 increased $1,255,000
compared to the first quarter of fiscal 1997. Revenues from the sale of
residential properties included 130 homes totaling $24,841,000 during the
quarter ended September 30, 1997, as compared to 141 homes totaling $23,817,000
during the quarter ended September 30, 1996. The trend towards more townhouse
and single family homes, discussed previously, is the reason for the increase in
average selling price. Land sale revenues increased for the three months ended
September 30, 1997 due to the sale, under an existing option agreement, of seven
single family lots in Gloucester Township, New Jersey.
Costs and Expenses
- ------------------
Costs and expenses for the first quarter of fiscal 1998 increased
$1,174,000, as compared to the first quarter of fiscal 1997. The increase in
cost of residential properties sold of $725,000 is consistent with the increase
in related revenues. Selling, general and administrative expenses increased as a
result of start-up costs associated with opening of the new communities
previously discussed. Cost of land sales increased due to the timing of the lot
sales discussed in the preceding paragraph. Net interest expense decreased
$58,000
-7-
<PAGE>
primarily as a result of the retirement of the notes payable discussed in the
following paragraph under Extraordinary Items.
Extraordinary Items
- -------------------
In July, 1996, the Company completed a transaction to fully satisfy
notes payable with an outstanding balance of approximately $1,650,000 and
reacquired 183,177 shares of Common Stock in exchange for a cash payment of
approximately $1,061,000. These shares have been retained by the Company as
treasury stock. This transaction resulted in an extraordinary gain of $594,000,
net of income tax expense of approximately $100,000.
Net Income
- ----------
Net income for the first quarter of fiscal 1998 was $275,000 ($.02 per
primary share) compared to a net income of $916,000 ($.08 per primary share).
The decrease is primarily due to the July 1996 extraordinary items discussed
previously. The effective tax rate for fiscal 1997 was lower due to the
utilization of various income tax credits and carryforwards. The change in
income tax rate reduced net income by approximately $119,000 for the first
quarter of fiscal 1998, as compared to the comparable period in fiscal 1997.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
- --------------------------------------------------------------------------------
The following important factors could cause FPA's actual consolidated
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, FPA Corporation:
o changes in consumer confidence due to perceived uncertainty of
future employment opportunities and other factors;
o competition from national and local homebuilders in the
Company's market areas;
o building material price fluctuations;
o changes in mortgage interest rates charged to buyers of the
Company's units;
o changes in the availability and cost of financing for the
Company's operations, including land acquisition;
-8-
<PAGE>
o revisions in federal, state and local tax laws which provide
incentives for home ownership;
o delays in obtaining land development permits as a result of
(i) federal, state and local environmental and other land
development regulations, (ii) actions taken or failed to be
taken by governmental agencies having authority to issue such
permits, and (iii) opposition from third parties; and
o increased cost of suitable development land.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibit 27 - Financial Data Schedule (included in electronic
filing format only).
-10-
<PAGE>
FPA CORPORATION AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FPA CORPORATION
---------------
(Registrant)
November 12, 1997 /S/ Benjamin D. Goldman
- ----------------- -------------------------------------
(Date) Benjamin D. Goldman
President and Chief Operating Officer
November 12, 1997 /S/ Joseph A. Santangelo
- ----------------- -------------------------------------
(Date) Joseph A. Santangelo
Treasurer, Secretary and
Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,522
<SECURITIES> 0
<RECEIVABLES> 3,710
<ALLOWANCES> 0
<INVENTORY> 91,282
<CURRENT-ASSETS> 0
<PP&E> 798
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,226
<CURRENT-LIABILITIES> 0
<BONDS> 62,332
0
0
<COMMON> 1,270
<OTHER-SE> 15,056
<TOTAL-LIABILITY-AND-EQUITY> 104,226
<SALES> 25,061
<TOTAL-REVENUES> 25,386
<CGS> 21,343
<TOTAL-COSTS> 24,943
<OTHER-EXPENSES> 158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> 443
<INCOME-TAX> 168
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275
<EPS-PRIMARY> .02
<EPS-DILUTED> .00
</TABLE>
