<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 2, 1995
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
PATTEN CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
----------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5295 Town Center Road, Boca Raton, Florida 33486
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 361-2700
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 issuer's
classes of common stock, as of the latest practicable date.
As of July 28, 1995, there were 19,511,045 shares of Common Stock, $.01
par value per share, outstanding.
<PAGE> 2
PATTEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C>
CONSOLIDATED BALANCE SHEETS AT
JULY 2, 1995 AND APRIL 2, 1995 . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS
ENDED JULY 2, 1995 AND JUNE 26, 1994 . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS
ENDED JULY 2, 1995 AND JUNE 26, 1994 . . . . . . . . . . . . . . . . . . . 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . 21
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
2.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1.
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
---------------------------------
(SEE NOTE 6)
HISTORICAL PROFORMA HISTORICAL
JULY 2, JULY 2, APRIL 2,
1995 1995 1995
------------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $6.1 million and $5.2 million at
July 2, 1995 and April 2, 1995, respectively) . . $ 8,264,920 $ 24,082,437 $ 7,588,475
Contracts receivable, net. . . . . . . . . . . . . . 11,644,334 11,644,334 13,051,254
Notes receivable, net . . . . . . . . . . . . . . . . 40,908,672 21,144,869 39,269,269
Investment in securities . . . . . . . . . . . . . . 18,714,065 9,421,467 18,097,917
Inventory, net . . . . . . . . . . . . . . . . . . . 67,762,976 68,590,619 63,386,672
Property and equipment, net . . . . . . . . . . . . . 4,650,014 4,650,014 4,801,824
Debt issuance costs . . . . . . . . . . . . . . . . . 1,528,679 1,225,228 1,739,555
Other assets . . . . . . . . . . . . . . . . . . . . 4,629,663 4,629,663 4,287,393
------------- ------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $ 158,103,323 $ 145,388,631 $ 152,222,359
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . $ 3,050,137 $ 3,050,137 $ 3,134,753
Accrued liabilities and other . . . . . . . . . . . . 8,587,719 7,623,979 11,292,846
Line of credit and notes payable . . . . . . . . . . 23,819,164 23,819,164 20,431,346
Deferred income taxes . . . . . . . . . . . . . . . . 6,128,137 6,575,966 5,069,719
Mortgage-backed notes payable . . . . . . . . . . . . 22,048,615 9,178,091 19,514,718
Commitments and contingencies . . . . . . . . . . . . --- --- ---
8.25% convertible subordinated debentures . . . . . . 34,739,000 34,739,000 34,739,000
------------- ------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . 98,372,772 84,986,337 94,182,382
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued . . . . . . . . . . . . . --- --- ---
Common stock, $.01 par value, 90,000,000 shares
authorized; 19,511,045 and 19,470,734 shares
outstanding at July 2, 1995 and April 2, 1995,
respectively . . . . . . . . . . . . . . . . . . . 195,110 195,110 194,707
Capital-in-excess of par value . . . . . . . . . . . 66,942,143 66,942,143 66,839,599
Retained earnings (deficit) . . . . . . . . . . . . . (7,406,702) (6,734,959) (8,994,329)
------------- ------------- -------------
Total shareholders' equity . . . . . . . . . . . . . 59,730,551 60,402,294 58,039,977
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . $ 158,103,323 $ 145,388,631 $ 152,222,359
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
JULY 2, JUNE 26,
1995 1994
------------ -------------
<S> <C> <C>
REVENUES:
Sales of real estate . . . . . . . . . . . . . . . . $ 24,641,264 $ 22,044,489
Interest income and other . . . . . . . . . . . . . 2,186,935 1,450,924
------------ -------------
26,828,199 23,495,413
COST AND EXPENSES:
Cost of real estate sold . . . . . . . . . . . . . . 12,191,448 10,732,528
Selling, general and administrative expense . . . . 9,873,908 8,684,722
Interest expense . . . . . . . . . . . . . . . . . . 1,990,138 1,785,317
Provision for losses . . . . . . . . . . . . . . . . 155,000 165,000
------------ -------------
24,210,494 21,367,567
------------ -------------
Income from operations . . . . . . . . . . . . . . . . 2,617,705 2,127,846
Other income . . . . . . . . . . . . . . . . . . . . . 28,340 38,667
------------ -------------
Income before income taxes . . . . . . . . . . . . . . 2,646,045 2,166,513
Provision for income taxes . . . . . . . . . . . . . . 1,058,418 888,270
------------ -------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 1,587,627 $ 1,278,243
============ =============
INCOME PER COMMON SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $ .08 $ .06
============ =============
Weighted average number of common and common
equivalent shares . . . . . . . . . . . . . . . . . 20,650,060 20,390,527
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
JULY 2, JUNE 26,
1995 1994
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors . . . . . . . . . . $ 24,021,812 $ 16,016,978
Interest received . . . . . . . . . . . . . . . . 1,521,946 1,294,889
Cash paid for land acquisitions and real estate
development . . . . . . . . . . . . . . . . . . ( 8,830,551) ( 15,585,949)
Cash paid to suppliers, employees and sales
representatives . . . . . . . . . . . . . . . . ( 11,371,313) ( 7,910,780)
Interest paid . . . . . . . . . . . . . . . . . . ( 2,744,466) ( 2,325,828)
Net income taxes paid . . . . . . . . . . . . . . ( 168,674) ( 94,530)
Proceeds from borrowings collateralized by notes
receivable . . . . . . . . . . . . . . . . . . . 5,523,622 5,143,553
Net proceeds from REMIC transaction . . . . . . . --- 22,706,101
Payments on borrowings collateralized by notes
receivable . . . . . . . . . . . . . . . . . . . ( 2,989,725) ( 13,061,930)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . 4,962,651 6,182,504
------------- -------------
INVESTING ACTIVITIES:
Net cash flow from purchases and sales of
property and equipment . . . . . . . . . . . . . ( 112,737) ( 147,023)
Additions to other long-term assets . . . . . . . --- ( 37,693)
------------- -------------
NET CASH FLOW USED BY INVESTING ACTIVITIES. . . . . . ( 112,737) ( 184,716)
------------- -------------
FINANCING ACTIVITIES:
Borrowings under line of credit facilities . . . . 445,781 762,305
Payments under line of credit facilities . . . . . ( 1,068,632) ( 456,308)
Payments on other long-term debt . . . . . . . . . ( 3,653,565) ( 2,683,655)
Proceeds from exercise of employee stock options . 102,947 ---
Payment for dividends in lieu of fractional shares. ( ---) ( 2,812)
------------- -------------
NET CASH FLOW USED BY FINANCING ACTIVITIES . . . . . ( 4,173,469) ( 2,380,470)
------------- -------------
Net increase in cash and cash equivalents . . . . . . 676,445 3,617,318
Cash and cash equivalents at beginning of period . . 7,588,475 9,308,047
------------- -------------
Cash and cash equivalents at end of period . . . . . $ 8,264,920 $ 12,925,365
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5.
<PAGE> 6
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
JULY 2, JUNE 26,
1995 1994
--------------- --------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,587,627 $ 1,278,243
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 471,150 345,993
(Gain)/loss on sale of property and equipment . . . . . . 4,894 ( 5,785)
Provision for losses . . . . . . . . . . . . . . . . . . 155,000 165,000
Interest accreted on investment in securities . . . . . . ( 616,148) ( 595,040)
Proceeds from borrowings collateralized
by notes receivable net of principal repayments . . . . 2,533,897 ( 7,918,377)
(INCREASE)DECREASE IN ASSETS:
Contracts receivable . . . . . . . . . . . . . . . . . . . 1,406,920 ( 761,110)
Investment in securities . . . . . . . . . . . . . . . . . --- 10,594,521
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 3,214,598 ( 5,087,549)
Other assets . . . . . . . . . . . . . . . . . . . . . . . ( 342,891) 589,638
Notes receivable . . . . . . . . . . . . . . . . . . . . . ( 1,721,071) 9,470,074
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities and other . . . . ( 2,789,743) ( 2,781,374)
Deferred income taxes . . . . . . . . . . . . . . . . . . . 1,058,418 888,270
------------- ------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . $ 4,962,651 $ 6,182,504
============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES
Inventory acquired through financing . . . . . . . . . . . $ 7,664,234 $ 8,322,161
============= ============
Inventory acquired through foreclosure,
"insubstance foreclosure" or deedback
in lieu of foreclosure, net of recoveries . . . . . . . . $( 73,332) $ 1,092,178
============= ============
Investment in securities retained in
connection with sale of notes receivable . . . . . . . . . $ --- $ 2,674,370
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. RESULTS OF OPERATIONS
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The financial information furnished herein reflects all adjustments consisting
only of normal recurring accruals and provisions for loan losses which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim period. The results of operations for the three month period ended
July 2, 1995 are not necessarily indicative of the results to be expected for
the entire year. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in the Company's Annual Report to
Shareholders for the fiscal year ended April 2, 1995.
2. REVENUE RECOGNITION
The Company's real estate business is currently operated through three
divisions. The Land Division acquires large acreage tracts of real estate
which are subdivided, improved and sold, typically on a retail basis. The
Resorts Division acquires and develops timeshare property to be sold in weekly
intervals in fully furnished vacation units. The Communities Division is
engaged in the development and sale of primary residential homes at selected
sites together with land parcels. Revenue recognition for each of the
Company's operating divisions is discussed below.
The Company recognizes revenue on retail land sales when a minimum of 10% of
the sales price has been received in cash, collectibility of the receivable
representing the remainder of the sales price is reasonably assured, the
Company has completed substantially all of its obligations with respect to any
development related to the real estate sold and any rescission period has
passed.
Other land sales include large-acreage bulk transactions as well as land sales
to investors and developers. The Company recognizes revenue on such other land
sales when the buyer's initial and continuing investment are adequate to
demonstrate a commitment to pay for the property, which requires a minimum of
20% of the sales price to be received in cash, the collectibility of the
receivable representing the remainder of the sales price is reasonably assured,
the Company has completed substantially all of its obligations with respect to
any development related to the real estate sold and any rescission period has
passed.
With respect to Resorts Division sales, the Company recognizes revenue when a
minimum of 10% of the sales price has been received in cash, any statutory
rescission period has passed and the Company has completed substantially all of
its obligations with respect to any development related to the unit sold.
In cases where all development has not been completed, the Company recognizes
revenue on Land and Resorts Division sales in accordance with the percentage of
completion method of accounting.
The Company recognizes revenue on Communities Division sales when the unit is
complete and title is transferred to the buyer.
3. CONTINGENT LIABILITIES
In the ordinary course of business, the Company has completed various whole
loan sales of its mortgage notes receivables arising from land sales to banks
and financial institutions to supplement its liquidity. At July 2,
7.
<PAGE> 8
1995, the Company was contingently liable for the outstanding principal balance
of notes receivable sold aggregating approximately $1.8 million. Delinquency
on these loans sold was not material. In most cases, the recourse of the buyer
of the loans to the Company terminates when a customer achieves 30% equity in
the property underlying the loan. Equity is defined as the difference between
the purchase price of the property paid by the customer and the current
outstanding balance of the related loan.
4. PROVISION FOR LOSSES
The Company recorded provisions for loan losses totaling $155,000 and $165,000
for the three months ended July 2, 1995 and June 26, 1994, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", included under Part I, Item 2 herein, for a further discussion of
the provisions for loan losses.
5. INVENTORY
The Company's inventory holdings are summarized below by division.
<TABLE>
<CAPTION>
JULY 2, 1995 APRIL 2, 1995
------------- -------------
<S> <C> <C>
Land Division . . . . . . . . . . . . . $ 46,907,302 $ 45,019,943
Communities Division . . . . . . . . . 13,257,569 13,125,818
Resorts Division . . . . . . . . . . . . 7,598,105 5,240,911
------------ -------------
$ 67,762,976 $ 63,386,672
============ =============
</TABLE>
6. SUBSEQUENT EVENT
On July 12, 1995, the Company and certain of its subsidiaries sold, or
otherwise absolutely transferred and assigned, $68.1 million aggregate
principal amount of mortgage notes receivable (the "Mortgage Pool") to Patten
Receivables Finance Corporation X, a wholly-owned subsidiary of the Company
(the "Depositor"), and the Depositor sold the Mortgage Pool to Patten
Corporation REMIC Trust, Series 1995-1 (the "1995 REMIC Trust"). Simultaneous
with the sale, the 1995 REMIC Trust issued four classes of Adjustable Rate
REMIC Mortgage Pass-Through Certificates (the "Certificates"). Each
Certificate evidences a fractional undivided interest in the Mortgage Pool.
The Certificates were issued pursuant to the terms of a Pooling and Servicing
Agreement dated as of June 15, 1995 (the "Pooling Agreement") among the
Company, the Depositor, the 1995 REMIC Trust and First Trust National
Association, as trustee. The initial principal balances of the Class A, Class
B and Class C certificates were approximately $61.3 million, $4.8 million and
$2.0 million, respectively. The Class R Certificates have no initial principal
balance and do not bear interest. The Class A, Class B and Class C
Certificates bear interest at the lesser of (a) the weighted average of the net
mortgage interest rates of certain of the notes in the Mortgage Pool less the
servicing fee rate and trustee fee rate or (b) the London interbank offered
rate for six month United States dollar deposits plus a margin of 1.5%, 3.55%
and 4.0%, respectively.
The 1995 REMIC Trust is comprised primarily of a pool of fixed and adjustable
rate first mortgage loans secured by property sold by the Company. Primarily
all of the loans comprising the Mortgage Pool were previously owned by the
REMIC trust established by the Company in 1992 or pledged by a receivables
subsidiary, or the Company, to an institutional lender. Collections of
principal and interest on the Mortgage Pool, net of certain servicing and
trustee fees, are remitted to Certificateholders on a monthly basis. The
proceeds of collections on the Mortgage Pool are distributed to the
Certificateholders in the order of priority specified in the Pooling Agreement.
The Class C and R Certificates are subordinated to the Class A and B
Certificates, as provided in the Pooling Agreement.
8.
<PAGE> 9
On July 12, 1995, the Depositor sold the Class A and Class B Certificates
issued under the Pooling Agreement to two institutional investors for aggregate
proceeds of approximately $66.1 million in a private placement transaction and
retained the Class C and Class R Certificates. The Certificates were not and
will not be registered under the Securities Act of 1933, as amended, and may
not be sold in the United States absent registration or an applicable exemption
from registration. A portion of the proceeds from the transaction was used to
repay approximately $12.9 million of outstanding debt. An additional $36.3
million was used to retire securities previously sold pursuant to the Company's
1992 REMIC transaction. The balance of the proceeds, after payment of
transaction expenses and fees, resulted in an increase of more than $15.8
million in the Company's unrestricted cash. The pre-tax gain in the
transaction was approximately $1.1 million and the after-tax gain was $672,000.
The Company will act as servicer under the Pooling Agreement and will be paid
an annualized servicing fee of .5% of the scheduled principal balance of those
notes in the Mortgage Pool on which the periodic payment of principal and
interest is collected in full. Under the terms of the Pooling Agreement, the
Company has the obligation to repurchase or replace mortgage loans in the
Mortgage Pool with respect to which there was a breach of the Company's
representations and warranties contained in the Pooling Agreement at the date
of sale, which breach materially and adversely affects the rights of
Certificateholders. In addition, the Company, as servicer, is required to make
advances of delinquent payments to the extent deemed recoverable. However, the
Certificates are not obligations of the Company, the Depositor or any of their
affiliates and the Company has no obligation to repurchase or replace mortgage
loans solely due to delinquency.
9.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Sources of Capital. The Company's capital resources are provided from both
internal and external sources. The Company's primary capital resources from
internal operations include downpayments on real estate sales which are
financed, cash sales of real estate, principal and interest payments on the
purchase money mortgage loans arising from real estate sales together with the
contracts for deed arising from sales of timeshare intervals (collectively
"Receivables") and proceeds from the sale of, or borrowings collateralized by,
Receivables. Historically, external sources of liquidity have included
borrowings under secured and unsecured lines of credit, seller and bank
financing of inventory acquisitions and the issuance of debt and equity
securities. Currently, the primary external sources of liquidity include
seller and bank financing of inventory acquisitions and development, borrowings
under secured lines of credit and the securitization of Receivables. The
Company anticipates that it will continue to require external sources of
liquidity to support its operations and satisfy its debt and other obligations.
Net cash provided by the Company's operations was $5.0 million for the three
months ended July 2, 1995 and $6.2 million for the three months ended June 26,
1994. During the current fiscal period, both sales of real estate and the
percentage of such sales received in cash (in lieu of originating Receivables)
increased. Accordingly, cash received from customers on the Consolidated
Statement of Cash Flow was $8.0 million higher than during the first quarter of
the previous year. In addition, cash paid for land acquisition and development
decreased by $6.8 million. During the prior year quarter, the Company acquired
several large properties including approximately 22,000 acres in south central
Colorado. The increased collections from customers and reduced spending on
real estate were offset by increased cash paid to suppliers and employees
(which include sales representatives) and net income taxes paid. Furthermore,
the proceeds from a REMIC transaction completed in the first quarter of the
prior year, net of payments on borrowings collateralized by notes, generated
$6.7 million more in cash.
During the three months ended July 2, 1995 and June 26, 1994, the Company
received in cash $20.6 million or 79.2% and $16.0 million or 76.5%,
respectively, of its sales of real estate that closed during these periods.
The increase in the percentage of cash received is, primarily attributable to
(i) the Company's program directed at obtaining increased downpayments on
financed sales of land real estate, (ii) an increased willingness on the part
of local banks in certain regions to extend more direct customer lot financing
and (iii) expansion of the Company's product lines to include the construction
and sale of homes in certain markets, the proceeds of which are received
entirely in cash.
Receivables arising from real estate sales generally are transferred to the
Company's wholly-owned, special purpose finance subsidiaries (the "Receivable
Subsidiaries") and then pledged to institutional lenders or sold in connection
with private placement REMIC financings. The Receivable Subsidiaries are
generally advanced 90% of the face amount of the mortgage notes when pledged to
lenders. The Company classifies the indebtedness secured by Receivables as
mortgage-backed debt on the Consolidated Balance Sheet. The Company has also
directly sold Receivables to banks. The Company is subject to certain
obligations and has certain contingent liabilities with respect to certain of
the Receivables sold. See Note 3 to the Consolidated Financial Statements
included under Item 1 above. During the three months ended July 2, 1995 and
June 26, 1994, the Company raised $5.5 million and $5.1 million, respectively,
from the pledge of Receivables. During the three months ended June 26, 1994,
the Company also raised $22.7 million net of transaction costs, from its 1994
REMIC. No REMIC financing closed during the first quarter ended July 2, 1995.
See Note 6 to the Consolidated Financial Statements included under Item 1 above
for a discussion of a REMIC transaction completed on July 12, 1995.
10.
<PAGE> 11
The Company has a revolving credit facility of $20.0 million with a financial
institution. This facility provides for borrowings up to $15.0 million secured
by Receivables and up to $5.0 million secured by land inventory. Under the
terms of this facility, the Company is entitled to advances equal to 90% of the
outstanding principal balance of pledged Receivables. In the event that
pledged Receivables become 90 or more days delinquent, the Company is obligated
to repurchase the Receivable or substitute a performing Receivable. Aggregate
repurchases and substitutions to date have not been material. The interest
rate charged on borrowings secured by Receivables and land inventory is prime
plus 2.0% and prime plus 2.75%, respectively. At July 2, 1995, the outstanding
principal balance under the facility was $10.4 million, comprised of $8.9
million secured by Receivables and $1.5 million secured by land inventory.
Accordingly, as of July 2, 1995, the Company had the ability to borrow up to an
additional $9.6 million secured by, and subject to the availability of,
eligible Receivables and land inventory. All principal and interest payments
received from the pledged Receivables are applied to the principal and interest
due under the Receivables portion of this facility. The Company repays loans
made under the inventory portion of the facility through lot release payments
as the collateral is sold. In addition, the Company is required to meet
certain minimum debt amortization on the outstanding inventory secured debt.
The ability to receive advances under this facility expires in June, 1996. The
indebtedness secured by Receivables matures ten years from the date of the last
advance and the indebtedness secured by land inventory matures in December,
1996.
In addition to the revolving credit facility, this same lender also made a $4.5
million term loan to the Company which is secured by a land project in Texas of
which $1.8 million was outstanding as of July 2, 1995. The indebtedness matures
in February, 1996. Interest is charged at a rate of prime plus 2.0%.
The Company also has an agreement with this same lender which provides for
acquisition, development, construction and receivables financing for the first
and second phases of a multi-phase timeshare project in Gatlinburg, Tennessee.
At July 2, 1995, there was $4.7 million outstanding under the facility
($925,000 was secured by land and $3.7 million was secured by timeshare
receivables). The interest rate charged under the facility is prime plus
2.25%. The ability to borrow under the facility expired in June, 1995 and the
indebtedness is due December, 1997. The Company is currently engaged in
discussions with the lender to increase the borrowings available under the
facility and to renew the revolver. In July, 1995 this lender provided a term
loan on a second timeshare resort located in Pigeon Forge, Tennessee in the
amount of $1.2 million. The interest rate charged under the loan agreement is
prime plus 2.25%. The indebtedness is due in July, 1998. The Company is
required to pay the lender a principal payment of $500 for each timeshare
interval sold until the term indebtedness is paid in full. See "Uses of
Capital" and "Results of Operations" below for a further discussion of the
Company's Resorts Division.
At July 2, 1995, the Company had $4.2 million outstanding and secured by
Receivables with another financial institution. The indebtedness was repaid on
July 12, 1995 pursuant to the 1995 REMIC financing.
The Company has a $10.0 million revolving credit facility with another
financial institution secured by eligible Receivables and land inventory.
Under the terms of this facility, the Company is entitled to advances equal to
90% of the outstanding principal balance of eligible pledged Receivables and
advances of up to $3.0 million secured by land inventory to fund real estate
acquisition and development costs. Interest is charged at a rate of prime plus
2.0%. At July 2, 1995, the outstanding principal balance of borrowings secured
by Receivables was $8.9 million and the outstanding principal balance of
borrowings secured by land inventory totaled $880,000. The indebtedness
secured by Receivables was repaid on July 12, 1995 with a portion of the
proceeds from the 1995 REMIC. See Note 6 to the Consolidated Financial
Statements included under Item 1 above. All principal and interest payments
received on the pledged Receivables are applied to principal and interest due
under the Receivables portion of this facility. The Company is required to pay
the financial institution 55% of the contract price of land sales associated
with pledged inventory when any such inventory is sold until the land
indebtedness is paid in full. At July 2, 1995, the Company had the ability to
borrow up to an additional $245,000 under this facility. At July 28, 1995,
there were no borrowings secured by Receivables outstanding and the outstanding
principal balance of borrowings secured by land inventory totaled $1.6 million.
Accordingly, at July 28, 1995, the Company had the ability to borrow up to an
additional $8.4 million under the facility. The facility expires in October,
1998.
11.
<PAGE> 12
In addition, the Company's Communities Division, which is engaged in the
construction and sale of primary residential homes in certain markets, has an
agreement with a lender which provides for advances to fund the construction of
houses in a development located in North Carolina. Under the terms of the
financing, the lender will advance up to an aggregate of $5.0 million for
development, secured by land and the housing units under construction. Interest
on outstanding advances is payable monthly and the principal associated with
each advance is due one year after the date of such advance. Interest is
charged at a rate of prime plus 0.75%. At July 2, 1995, there was $719,000
outstanding under the loan. The ability to borrow under the facility expired
in June, 1995 and is not intended to be renewed. See "Uses of Capital" and
"Results of Operations" below for a further discussion of the Company's
Communities Division.
The Company regularly seeks outside (seller, bank or similar financial
institution) financing for its property acquisitions and development. During
the three months ended July 2, 1995 and June 26, 1994, the Company financed
$7.7 million or 46.5% and $8.3 million or 34.8%, respectively, of its property
inventory, including acquisition and development costs.
On July 12, 1995, Patten Receivables Finance Corporation X sold Class A and
Class B Certificates issued under a pooling agreement to two institutional
investors for aggregate proceeds of approximately $66.1 million in a private
placement transaction and retained Class C and Class R Certificates. A
portion of the proceeds from the transaction was used to repay approximately
$12.8 million of outstanding debt. An additional $36.3 million was used to
retire securities previously sold pursuant to the Company's 1992 REMIC
transaction. The balance of the proceeds, after payment of transaction
expenses and fees, resulted in an increase of more than $15.8 million in the
Company's unrestricted cash. The pre-tax gain on the transaction was
approximately $1.1 million and the after-tax gain was $672,000. See Note 6 to
the Consolidated Financial Statements included under Item 1 above.
In addition to the sources of capital available under credit facilities
discussed above, the balance of the Company's unrestricted cash and cash
equivalents was $2.2 million at July 2, 1995 and $13.1 million at July 28,
1995. Based upon existing credit relationships, the current financial
condition of the Company and its operating plan, management believes the
Company has, or can obtain, adequate financial resources to satisfy its
anticipated capital requirements.
Uses of Capital. The Company's capital resources are used to support the
Company's operations, including (i) the acquisition and construction of
inventory, (ii) providing financing for customer purchases, (iii) meeting
operating expenses and (iv) satisfying the Company's debt obligations.
The Company's net inventory was $67.8 million at July 2, 1995 and $63.4 million
at April 2, 1995. With respect to its inventory holdings, the Company requires
capital to (i) improve land intended for recreational, vacation, retirement or
primary homesite use by purchasers, (ii) fund its housing operation in certain
locations and (iii) develop timeshare property.
The Company estimates that the total cash required to complete preparation for
the retail sale of the consolidated inventories owned as of July 2, 1995 was
approximately $75.3 million (not including housing unit costs subsequent to
fiscal 1996, which the Company is not able to determine at this time or the
cost of manufactured homes for units currently not under contract for sale).
The Company anticipates spending $26.1 million of such cash requirements over
the remaining three quarters of fiscal 1996. Such anticipated cash
requirements are allocated to the Company's operating divisions as follows:
Land Division The Company expects to expend a total of $35.9 million to
improve land which typically includes expenditures for road and utility
construction, surveys and engineering fees, including $13.4 million to be spent
during the remaining three quarters of fiscal 1996.
12.
<PAGE> 13
Communities Division The Company expects to expend a total of $4.2 million
for the purchase of factory built manufactured homes currently under contract
for sale, building materials and other infrastructure costs, including road and
utility construction, surveys and engineering fees. (As discussed above, this
represents fiscal 1996 spending on housing units and with respect to the
purchase of manufactured homes, includes only those units currently under
contract for sale.) The total cash requirements of $4.2 million includes $2.6
million to be spent during the remaining three quarters of fiscal 1996 and
approximately $1.6 million designated for infrastructure costs subsequent to
the current fiscal year.
Resorts Division The Company expects to expend a total of $35.2 million for
building materials, amenities and other infrastructure costs including road and
utility construction, surveys and engineering fees, including $10.1 million to
be spent over the remaining three quarters of fiscal 1996.
The table below outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of July 2, 1995.
The real estate market is cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence,
available financing and interest rates. No assurances can be given that actual
costs will not exceed those reflected below or that historical gross margins
which the Company has experienced will not decline in the future as a result of
changing economic conditions and consumer demand. Because the Company does not
typically engage in speculative homebuilding, prospective home purchasers are
pre-qualified and a purchase contract exists prior to the Company commencing
unit construction. Accordingly, the table excludes development associated with
future home sales.
<TABLE>
<CAPTION>
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL
----------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . . $ 27,039,471 $ 371,895 $ --- $ 27,411,366
West . . . . . . . . . . 4,125,987 26,283 --- 4,152,270
Midwest . . . . . . . . . 1,981,665 --- 35,193,787 37,175,452
Southeast . . . . . . . . 1,429,004 3,813,582 --- 5,242,586
Northeast . . . . . . . . 683,275 --- --- 683,275
Mid-Atlantic . . . . . . 614,273 --- --- 614,273
Canada . . . . . . . . . 692 --- --- 692
------------- -------------- ------------- --------------
Total estimated spending 35,874,367 4,211,760 35,193,787 75,279,914
Net inventory at
July 2, 1995 . . . . . . 46,907,302 13,257,569 7,598,105 67,762,976
------------- -------------- ------------- --------------
Total estimated cost basis
of fully developed
inventory. . . . . . . . $ 82,781,669 $ 17,469,329 $ 42,791,892 $ 143,042,890
============= ============== ============= ==============
</TABLE>
The Company's net inventory as of July 2, 1995 and April 2, 1995 summarized by
division is set forth in the tables below.
<TABLE>
<CAPTION>
JULY 2, 1995
---------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
----------------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Southwest . . . . $ 16,502,344 $ 1,233,411 $ --- $ 17,735,755
West . . . . . . 12,529,849 317,564 --- 12,847,413
Midwest . . . . . 7,516,885 --- 7,598,105 15,114,990
Southeast . . . . 2,966,534 11,706,594 --- 14,673,128
Northeast . . . . 3,301,707 --- --- 3,301,707
Mid-Atlantic . . 3,902,187 --- --- 3,902,187
Canada . . . . . 187,796 --- --- 187,796
------------- ------------ ----------- -------------
Totals . . . . . $ 46,907,302 $ 13,257,569 $ 7,598,105 $ 67,762,976
============= ============ =========== =============
</TABLE>
13.
<PAGE> 14
<TABLE>
<CAPTION>
APRIL 2, 1995
-------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
----------------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Southwest . . . . . $ 16,658,079 $ 1,115,914 $ --- $ 17,773,993
West . . . . . . . 9,356,508 433,933 --- 9,790,441
Midwest . . . . . . 7,777,934 --- 5,240,911 13,018,845
Southeast . . . . . 2,781,785 11,575,971 --- 14,357,756
Northeast . . . . . 3,747,468 --- --- 3,747,468
Mid-Atlantic . . . 4,424,821 --- --- 4,424,821
Canada . . . . . . 273,348 --- --- 273,348
------------ ------------- ----------- -------------
Totals . . . . . . $ 45,019,943 $ 13,125,818 $ 5,240,911 $ 63,386,672
============ ============= =========== =============
</TABLE>
(1) Communities Division inventory as of July 2, 1995, consisted of land
inventory of $10.3 million and $3.0 million of housing unit
construction-in-progress. As of April 2, 1995, the Communities
Division had $9.9 million of land inventory with $3.2 million of
housing unit construction-in-progress. The increase in land inventory
is attributable to infrastructure development. The Company did not
acquire any additional land inventory intended to be marketed and sold
as part of the Communities Division during the first quarter of fiscal
1996, or for any period during fiscal 1995.
The Company attempts to maintain inventory at a level adequate to support
anticipated sales of real estate in its various operating regions. In addition
to product diversification, the Company has sought broader geographic
distribution of its land projects and increased its land holdings in the
Western and Southeastern regions of the United States to accomodate strong
consumer demand and expanded sales efforts. At the same time, the Company
plans to continue to reduce its current real estate holdings in the
Northeastern and certain parts of the Mid-Atlantic regions due to continued
overall soft economic and real estate market conditions.
The Company currently maintains inventory valuation reserves which totaled $2.0
million at July 2, 1995 for certain land properties acquired prior to fiscal
1990. During the three months ended July 2, 1995, $237,000 and $146,000 of the
Company's inventory reserves were released as credits to cost of real estate
sold and selling, general and administrative (S,G&A) expense, respectively, as
the inventory was sold. During the three months ended June 26, 1994,
approximately $226,000 and $234,000 of the Company's inventory reserves were
released as credits to cost of real estate sold and S,G&A expense,
respectively.
The Company offers financing of up to 90% of the purchase price of land real
estate sold to all purchasers of its properties who qualify for such financing.
During the three months ended July 2, 1995 and June 26, 1994, the Company
received 14.4% and 22.4%, respectively, of its Land Division sales of real
estate which closed during the period in the form of Receivables. The decrease
in the percentage of sales financed by the Company is attributable to (i) the
program commenced by the Company in 1992 directed at obtaining increased
downpayments on financed sales of land real estate, (ii) an increased
willingness on the part of local banks in certain regions to extend more direct
customer lot financing and (iii) expansion of the Company's product lines to
include the construction and sale of homes, the proceeds of which are received
entirely in cash. The Company also offers financing of up to 90% of the
purchase price to timeshare purchasers. During the three months ended July 2,
1995 and June 26, 1994, the Company received 73.1% and 50.1% respectively, of
its Resorts Division sales of intervals during the period in the form of
timeshare receivables.
At July 2, 1995, $34.9 million of Receivables were pledged as collateral to
secure financings of the Company's Receivable Subsidiaries or other Company
indebtedness, while $6.8 million of Receivables were not pledged or encumbered.
(See Note 6 for description of subsequent event.) At April 2, 1995, $28.2
million of Receivables were pledged as collateral to secure financings of the
Company's Receivable Subsidiaries or other Company indebtedness while $11.9
million of Receivables were not pledged or encumbered. The increase in
encumbered Receivables at July 2, 1995 was attributable primarily to the
pledging of timeshare receivables. At July 2,
14.
<PAGE> 15
1995, $4.2 million of timeshare receivables were pledged to secure Company
borrowings, while there were no encumbered timeshare receivables outstanding as
of April 2, 1995.
At July 2, 1995, approximately 1.5% or $641,000 of the aggregate $43.5 million
principal amount of loans which were held by the Company or associated with
programs under which the Company has a recourse liability were more than 30
days past due. Of the $43.5 million principal amount of loans, $41.7 million
were held by the Company, while approximately $1.8 million were associated with
programs under which the Company has a limited recourse liability. In most
cases, the recourse to the Company terminates when the principal balance of the
loan becomes 70% or less of the original selling price of the property
underlying the loan. At April 2, 1995, 1.8% or $738,000 of the aggregate $41.9
million principal amount of loans which were held by the Company or associated
with programs under which the Company has a recourse liability were more than
30 days past due. Management believes that the decrease in the delinquency
rate during the current period was attributable to the Company's ongoing
program of expanded collection efforts and strengthened underwriting criteria
involved in the origination and servicing of Receivables.
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto included in the Company's Annual
Report to Shareholders for the fiscal year ended April 2, 1995.
The real estate market is cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence,
available financing and interest rates. Management believes that general
economic conditions have strengthened in many of its principal markets of
operation. However, based upon a slow economic recovery in the Northeast,
Canada and certain areas of the Mid-Atlantic region, the Company has
experienced reduced levels of sales in these areas. A downturn in the economy
in general or in the market for real estate could have a material adverse
affect on the Company.
The Company's real estate business is currently operated through three
divisions. The Land Division acquires large acreage tracts of real estate
which are subdivided, improved and sold, typically on a retail basis. The
Resorts Division acquires and develops timeshare properties to be sold in
weekly intervals in fully-furnished vacation units. The Communities Division
is engaged in the sale of factory built and on-site constructed primary
residential homes together with land parcels in certain markets.
15.
<PAGE> 16
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the three months
ended July 2, 1995 and June 26, 1994.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JULY 2, 1995
-------------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
----------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate. . . . . $18,091 100.0% $ 3,618 100.0% $2,932 100.0% $ 24,641 100.0%
Cost of real estate
sold . . . . . . . . . . . . 8,111 44.8 3,188 88.1 892 30.4 12,191 49.5
------- ------ ------- ------ ------ ------ -------- ------
Gross profit . . . . . . . . 9,980 55.2 430 11.9 2,040 69.6 12,450 50.5
Field selling,
general and
administrative
expense (1) . . . . . . . . . 5,999 33.2 581 16.1 1,731 59.1 8,311 33.7
------- ------ ------- ------ ------ ------ -------- ------
Field operating
profit (loss) (2) $ 3,981 22.0% $ (151) (4.2)% $ 309 10.5% $ 4,139 16.8%
======= ====== ======= ====== ====== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JUNE 26, 1994
----------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
------------------ ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate. . . . . . $18,693 100.0% $ 2,803 100.0% $ 548 100.0% $22,044 100.0%
Cost of real estate
sold . . . . . . . . . . . . . 8,283 44.3 2,263 80.7 186 33.9 10,732 48.7
------- ------ ------- ------ ----- ------ ------- ------
Gross profit . . . . . . . . . 10,410 55.7 540 19.3 362 66.1 11,312 51.3
Field selling, general
and administrative
expense (1) . . . . . . . . . . 5,267 28.2 606 21.6 682 124.5 6,555 29.7
------- ------ ------- ------ ----- ------ ------- ------
Field operating
profit (loss) (2) . . . . . . . $ 5,143 27.5% $ (66) (2.3) % $(320) (58.4)% $ 4,757 21.6%
======= ====== ======= ====== ===== ====== ======= ======
</TABLE>
_________________
(1) General and administrative expenses attributable to corporate overhead
have been excluded from the tables.
(2) The tables presented above outline selected financial data.
Accordingly, interest income, interest expense, other income and
income taxes have been excluded.
Consolidated sales of real estate increased 11.8% to $24.6 million for the
three months ended July 2, 1995 compared to $22.0 million for the three months
ended June 26, 1994.
The Company's Investment Committee, consisting of executive officers, approves
all property acquisitions. In order to be approved for purchase by the
Committee, all land properties under contract for purchase are expected to
achieve certain minimum economics including a minimum gross margin. The sale
of certain inventory acquired prior to the formation of the Investment
Committee and sales of inventory reacquired through foreclosure or deed in lieu
of foreclosure will continue to adversely affect overall gross margins.
Specifically, the Company anticipates little or no gross margin on the sale of
the remaining $3.3 million of net inventory in the Northeast which the Company
continues to liquidate.
16.
<PAGE> 17
Land Division
The following table sets forth certain information regarding sales of parcels
associated with the Company's Land Division for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
JULY 2, JUNE 26,
1995 1994
-------------- --------------
<S> <C> <C>
Number of parcels sold......................... 495 637
Average sales price per parcel................. $ 36,547 $ 29,619
Gross margin................................... 55% 56%
</TABLE>
The table set forth below outlines the numbers of parcels sold and the average
sales price per parcel for the Company's Land Division by geographic region for
the fiscal periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
JULY 2, 1995 JUNE 26, 1994
------------------------------------ -------------------------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC PARCELS SOLD PER PARCEL (1) PARCELS SOLD PER PARCEL (1)
---------- ------------ -------------- ------------- --------------
REGION
------
<S> <C> <C> <C> <C>
Southwest.......... 222 $ 42,673 297 $ 33,306
West .............. 48 33,387 77 28,453
Midwest............ 62 38,674 64 36,001
Southeast.......... 41 56,486 111 22,684
Northeast.......... 47 8,494 26 25,331
Mid-Atlantic....... 68 27,099 57 21,409
Canada............. 7 8,412 5 16,759
----- ---------- ------ ---------
Totals............. 495 $ 36,547 637 $ 29,619
===== ========== ====== =========
</TABLE>
_________________
(1) Calculated by including sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods.
The average sales price per parcel in the Southwest increased during the
current period and the number of parcels sold decreased, due to a change in the
region's product mix to include more larger average and waterfront parcels
which support higher retail sales prices.
The increase during the current quarter in average sales price per parcel in
the West is attributable to the sale of larger acreage tracts in two recently
acquired projects located in Colorado. The decline in the number of parcels
sold in the West during the current period primarily reflects the sell-out of
the earlier phases of an existing project in Montana that had contributed
heavily to the previous quarter's number of parcels sold. The latter phases of
this project that were marketed during the current quarter represented higher
priced lots and resulted in a lower volume of parcels sold.
The Company also sold fewer parcels in the Southeast due in part, to a new
project in South Carolina that was in the start-up phase during the current
quarter. Such project replaced a former property in the area that has since
sold out, but which was at the height of its marketing efforts during the first
quarter of last year.
17.
<PAGE> 18
Additional lakefront property has been acquired in the Southeast and marketing
and sales efforts on such new waterfront property have resulted in the higher
sales prices for the current quarter in this region.
To facilitate liquidation of its inventory in the Northeast during the current
quarter, the Company sold 36 parcels of a project located in New York to a
single customer for approximately $128,000.
Resorts Division
During the first quarter of fiscal 1996 and 1995, sales of timeshare intervals
contributed $2.9 million or 11.9% and $548,000 or 2.5%, respectively, of the
Company's total consolidated revenues from the sales of real estate.
The following table sets forth certain information regarding sales of intervals
associated with the Company's Resorts Division for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
JULY 2, JUNE 26,
1995 1994
-------------- ---------------
<S> <C> <C>
Number of intervals sold...................... 308 73
Average sales price per interval.............. $ 7,750 $ 7,512
Gross margin.................................. 70% 66%
</TABLE>
The number of timeshare intervals sold increased to 308 for the current quarter
compared to 73 for the comparable quarter of the previous fiscal year. The
intervals sold for both periods were attributable to the Company's first
timeshare project in Gatlinburg, Tennessee, which was in start-up phase during
the first quarter of the previous fiscal year. Such resort was in full
operation during the current quarter resulting in the increased level of sales.
Gross margins on interval sales increased from 66% for the first quarter of
last year to 70% for the current quarterly period due to certain promotional
pricing offered to customers during the start-up phase and diversification in
the product mix to include less expensive, condominium-type units which support
higher sales prices in relation to unit costs. In the second quarter of the
current fiscal year, the Resorts Division also started generating sales at its
second timeshare project also located in Tennessee.
Communities Division
During the first quarter of fiscal 1996, the Company's Communities Division
contributed a total of $3.6 million in sales revenue, or approximately 14.7% of
total consolidated revenues from sales of real estate. During the first quarter
of fiscal 1995, the Communities Division generated a total of $2.8 million in
sales revenue, or approximately 12.7% of total consolidated revenues form the
sales of real estate.
The following table sets forth certain information regarding sales associated
with the Company's Communities Division for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
JULY 2, JUNE 26,
1995 1994
-------------- ---------------
<S> <C> <C>
Number of homes/lots sold . . . . . . . . . 39 26
Average sales price . . . . . . . . . . . . $ 92,783 $ 107,807
Gross margin . . . . . . . . . . . . . . . 12% 19%
</TABLE>
18.
<PAGE> 19
The $3.6 million in sales was comprised of 22 manufactured homes with an
average sales price of $72,433, 7 site-built homes with an average sales price
of $255,416 and 10 sales of lots only at an average sales price of $23,708. In
addition, at July 2, 1995, there was $5.8 million in backlog of home sales for
future delivery representing 61 contracts. The $5.8 million in backlog of home
sales was comprised of $3.4 million for manufactured homes and $2.4 million for
site-built homes, substantially all of which are expected to close throughout
the remaining three quarters of fiscal 1996. During the first quarter of
fiscal 1995, the Communities Division generated 26 sales at an average sales
price of $107,807 generating a total of $2.8 million in sales revenue.
The decrease in gross margins from 19% for the first quarter of the previous
fiscal year to 12% for the current quarterly period reflects a change in
product mix to include a lower margin site-built project in the Southeast,
together with additional infrastructure costs associated with a manufactured
housing project also located in the Southeast.
The tables set forth below outline sales by geographic region and division for
the three months ended on the dates indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 2, 1995
------------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
----------------- -------------- ----------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Southwest . . . . $ 9,473,480 $ 526,617 $ --- $10,000,097 40.6%
West . . . . . . 1,602,591 101,950 --- 1,704,541 6.9
Midwest . . . . . 2,733,271 --- 2,932,185 5,665,456 23.0
Southeast . . . . 1,980,430 2,989,946 --- 4,970,376 20.2
Northeast . . . . 399,200 --- --- 399,200 1.6
Mid-Atlantic . . 1,842,708 --- --- 1,842,708 7.5
Canada . . . . . 58,886 --- --- 58,886 .2
------------- ------------ --- ----------- -----
Totals . . . . . $ 18,090,566 $ 3,618,513 $2,932,185 $24,641,264 100.0%
============= ============ ========== =========== =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 26, 1994
---------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
----------------- ------------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
Southwest . . . . $ 9,397,437 $ 333,700 $ --- $ 9,731,137 44.1%
West . . . . . . 2,190,868 1,186,365 --- 3,377,233 15.3
Midwest . . . . . 2,624,076 --- 548,390 3,172,466 14.4
Southeast . . . . 2,517,919 1,283,031 --- 3,800,950 17.3
Northeast . . . . 658,600 --- --- 658,600 3.0
Mid-Atlantic . . 1,220,310 --- --- 1,220,310 5.5
Canada . . . . . 83,793 --- --- 83,793 .4
------------- ------------ ------------
Totals . . . . . $ 18,693,003 $ 2,803,096 $ 548,390 $ 22,044,489 100.0%
============= ============ =========== ============ ======
</TABLE>
19.
<PAGE> 20
Interest income increased 15.8% to $2.2 million for the first quarter of fiscal
1996 compared to $1.9 million for the same quarter of fiscal 1995. The
Company's interest income is earned from its mortgage note receivables,
securities retained pursuant to REMIC financings and cash and near-cash
investments. Interest income was partially offset by a loss of $411,000 in the
prior year quarter due to a REMIC transaction. The table set forth below
outlines interest income earned from each category of asset for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
JULY 2, JUNE 26,
INTEREST EARNED ON: 1995 1994
------------------- --------------- ---------------
<S> <C> <C>
Receivables held and servicing fees
from whole-loan sales . . . . . . . . . . $ 1,434,062 $ 1,052,197
Securities retained in connection with
REMIC financings . . . . . . . . . . . . 689,536 640,739
Loss on REMIC transaction . . . . . . . . . . --- (411,300)
Cash and near-cash investments . . . . . . . 63,337 169,288
------------ ------------
Totals . . . . . . . . . . . . . . . . . . . $ 2,186,935 $ 1,450,924
============ ============
</TABLE>
Interest earned on Receivables increased 36.3% during the current period
primarily due to an increase in the average outstanding balance of Receivables
held by the Company. Interest earned on cash and near-cash equivalents
decreased primarily due to a reduction in the average balance.
S,G&A expense totaled $9.9 million and $8.7 million for the three months ended
July 2, 1995 and June 26, 1994, respectively. S,G&A expense is expected to
increase as greater levels of sales are achieved. A significant portion of
these expenses are variable relative to sales and profitability levels, and
therefore, increase with corresponding growth in sales of real estate. As a
percentage of sales of real estate, S,G&A expenses increased slightly to 40.1%
for the first quarter of fiscal 1996 from 39.4% for the comparable quarter of
the previous year. The slight increase for the current period is primarily
attributable to increased costs for advertising and commissions associated with
the Company's Resorts Division.
Interest expense totaled $2.0 million and $1.8 million for the first quarter of
fiscal 1996 and 1995, respectively. The increase in the level of interest
expense for the current period is primarily attributable to an increase in the
average outstanding indebtedness of the Company.
The Company recorded provisions for loan losses totaling $155,000 and $165,000
for the three months ended July 2, 1995 and June 26, 1994, respectively.
During the first quarter of fiscal 1996 and 1995, the Company utilized $125,000
and $218,000, respectively, of its reserves for loan losses.
Income from consolidated operations was $2.6 million and $2.1 million for the
three months ended July 2, 1995 and June 26, 1994, respectively. The
improvement for the current quarter is primarily the result of increased sales
of real estate, combined with higher interest income.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
first quarters of fiscal 1996 and 1995 was not material to the Company's
results of operations.
The Company recorded a tax provision of 40% of pre-tax income for the quarter
ended July 2, 1995. The provision was 41% of pre-tax income for the quarter
ended June 26, 1994. The slight decrease in rate for the current period
reflects an expected reduction in the overall effective rate for state taxes.
Net income was $1.6 million and $1.3 million for the three months ended July 2,
1995 and June 26, 1994, respectively.
20.
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain legal proceedings have been previously described in Item 1
under the caption "Business - Regulation" and Item 3 under the caption
"Legal Proceedings" in the Company's Annual Report on Form 10-K for
the fiscal year ended April 2, 1995. There has been no material
change in the status of such proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Special Meeting in Lieu of the Annual Meeting of Shareholders
held on July 20, 1995, the shareholders voted on various proposals,
with the results as follows:
<TABLE>
<CAPTION>
SHARE VOTED
-------------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
Fixed number of directors of the
Company for the ensuing year at six 15,056,583 65,466 35,115
Elected each of the following
persons as directors of the Company:
Joseph C. Abeles 15,072,373 84,791 ---
George F. Donovan 15,085,148 72,016 ---
Ralph A. Foote 15,010,420 146,744 ---
Frederick M. Myers 15,013,181 143,983 ---
Stuart A. Shikiar 15,084,029 73,135 ---
Bradford T. Whitmore 15,087,317 69,847 ---
Approved an amendment to the
Company's Outside Director's Stock
Option Plan which increased the
number of shares issuable under the
plan by 200,000(1) 8,220,985 1,171,800 124,729
Approved the Company's 1995 Employee
Stock Incentive Plan(1) 8,165,630 1,245,451 106,433
</TABLE>
______________________
(1) In addition to shares voted for, against and abstain, there were
5,639,650 non-votes.
ITEM 5. OTHER INFORMATION
None.
21.
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-97 - Pooling and Servicing Agreement dated as of
June 15, 1995 by and among Patten Corporation
REMIC Trust Series 1995-1, Patten
Corporation, Patten Receivables Finance
Corporation and First Trust National
Association, as Trustee
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company did not
file any reports on Form 8-K. The Company filed a report on Form 8-K
dated July 12, 1995 reporting under Item 5, a REMIC transaction
completed on July 12, 1995.
22.
<PAGE> 23
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.
PATTEN CORPORATION
(Registrant)
Date: August 11, 1995 By: /S/ GEORGE F. DONOVAN
----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: August 11, 1995 By: /S/ ALAN L. MURRAY
----------------------------------
Alan L. Murray
Treasurer and Chief Financial Officer
(Principal Financial Officer)
23.
<PAGE> 24
PATTEN CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10-97 Pooling and Servicing Agreement dated as of June 15, 1995 by and among Patten Corporation
REMIC Trust Series 1995-1, Patten Corporation, Patten Receivables Finance Corporation and
First Trust National Association, as Trustee (incorporated by reference to exhibit of same
designation to Current Report on form 8-K dated July 12, 1995)
27 Financial Data Schedule (for SEC use only)
</TABLE>
24.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PATTEN CORPORATION FOR THE THREE MONTHS ENDED JULY 2,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-03-1995
<PERIOD-END> JUL-02-1995
<EXCHANGE-RATE> 1
<CASH> 8,264,920
<SECURITIES> 0
<RECEIVABLES> 53,374,772
<ALLOWANCES> 821,766
<INVENTORY> 67,762,976
<CURRENT-ASSETS> 0
<PP&E> 8,969,462
<DEPRECIATION> 4,319,448
<TOTAL-ASSETS> 158,103,323
<CURRENT-LIABILITIES> 0
<BONDS> 34,739,000
<COMMON> 195,110
0
0
<OTHER-SE> 59,535,441
<TOTAL-LIABILITY-AND-EQUITY> 158,103,323
<SALES> 24,641,264
<TOTAL-REVENUES> 26,828,199
<CGS> 12,191,448
<TOTAL-COSTS> 22,065,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 155,000
<INTEREST-EXPENSE> 1,990,138
<INCOME-PRETAX> 2,646,045
<INCOME-TAX> 1,058,418
<INCOME-CONTINUING> 1,587,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,587,627
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
