<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 January 1, 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
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(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 January 29, 1995, there were 18,515,983 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 (1)
ITEM 1. FINANCIAL STATEMENTS PAGE
----
CONSOLIDATED BALANCE SHEETS AT
JANUARY 1, 1995 AND MARCH 27, 1994 . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS
ENDED JANUARY 1, 1995 AND DECEMBER 26, 1993 . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF INCOME - NINE MONTHS
ENDED JANUARY 1, 1995 AND DECEMBER 26, 1993 . . . . . . . . . 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED JANUARY 1, 1995 AND DECEMBER 26, 1993 . . . . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 25
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 25
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(1) With the exception of the Consolidated Balance Sheet at March 27, 1994,
which is audited, the accompanying interim Consolidated Financial Statements are
unaudited but include all adjustments consisting only of normal recurring
accruals and provisions for losses which management considers necessary to
present fairly the consolidated financial position of the Company as of January
1, 1995, the consolidated results of operations for the three and nine months
ended January 1, 1995 and December 26, 1993 and the consolidated cash flows for
the nine months ended January 1, 1995 and December 26, 1993.
The interim financial information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report to Shareholders for the fiscal year ended March 27, 1994.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1.
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
JANUARY 1, MARCH 27,
1995 1994
------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $2.7 million and $5.0 million at
January 1, 1995 and March 27, 1994, respectively) ..................... $ 4,661,933 $ 9,308,047
Contracts receivable, net ............................................... 8,632,796 9,928,602
Notes receivable, net ................................................... 38,147,284 42,881,842
Investment in securities ................................................ 17,533,781 26,469,714
Inventory, net .......................................................... 62,155,921 40,113,942
Property and equipment, net ............................................. 5,057,961 3,634,478
Debt issuance costs ..................................................... 1,857,261 1,724,387
Other assets ............................................................ 4,568,949 5,556,201
------------- --------------
TOTAL ASSETS .......................................................... $ 142,615,886 $ 139,617,213
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable ........................................................ $ 1,979,391 $ 1,906,170
Accrued liabilities and other ........................................... 6,551,660 10,079,007
Lines of credit and notes payable ....................................... 18,877,895 11,524,150
Deferred income taxes ................................................... 4,790,471 3,742,928
Mortgage-backed notes payable ........................................... 19,539,647 25,772,299
Commitments and contingencies ........................................... --- ---
8.25% convertible subordinated debentures ............................... 34,739,000 34,739,000
------------- --------------
TOTAL LIABILITIES ..................................................... 86,478,064 87,763,554
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none issued ........................................................... --- ---
Common stock, $.01 par value, 90,000,000 shares authorized;
18,512,320 and 17,795,974 shares outstanding at
January 1, 1995 and March 27, 1994, respectively ...................... 185,123 177,960
Capital-in-excess of par value .......................................... 63,679,527 61,099,625
Retained earnings (deficit) ............................................. ( 7,726,828 ) ( 9,423,926 )
------------- --------------
Total shareholders' equity .............................................. 56,137,822 51,853,659
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $ 142,615,886 $ 139,617,213
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------ ------------
<S> <C> <C>
REVENUES:
Sales of real estate .......................................... $ 19,253,999 $ 14,203,746
Interest income .............................................. 1,974,408 2,141,100
------------- -------------
21,228,407 16,344,846
COST AND EXPENSES:
Cost of real estate sold ..................................... 9,783,941 7,201,356
Selling, general and administrative expense .................. 8,207,234 6,109,696
Interest expense ............................................. 1,619,482 1,756,211
Provision for losses ......................................... 187,000 80,000
------------- -------------
19,797,657 15,147,263
------------- -------------
Income from operations .......................................... 1,430,750 1,197,583
Other income .................................................... 63,337 205,245
------------- -------------
Income before income taxes ...................................... 1,494,087 1,402,828
Provision for income taxes ...................................... 612,576 533,075
------------- -------------
NET INCOME ...................................................... $ 881,511 $ 869,753
============= =============
INCOME PER COMMON SHARE - PRIMARY AND
FULLY DILUTED:
Net income ..................................................... $ .05 $ .04
============= =============
Weighted average number of common and common
equivalent shares used to calculate primary and fully
diluted net income per common share ......................... 19,224,276 19,717,128
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------ ------------
<S> <C> <C>
REVENUES:
Sales of real estate ......................................... $ 66,682,358 $ 45,319,730
Interest income ............................................. 5,181,090 5,848,531
------------ -------------
71,863,448 51,168,261
COST AND EXPENSES:
Cost of real estate sold .................................... 32,398,208 21,930,211
Selling, general and administrative expense ................. 26,745,945 18,913,029
Interest expense ............................................ 5,059,272 5,256,257
Provision for losses ........................................ 602,000 495,000
------------ -------------
64,805,425 46,594,497
------------ -------------
Income from operations ......................................... 7,058,023 4,573,764
Other income ................................................... 192,078 1,133,868
------------ -------------
Income before income taxes ..................................... 7,250,101 5,707,632
Provision for income taxes ..................................... 2,972,542 2,168,900
------------ -------------
NET INCOME ..................................................... $ 4,277,559 $ 3,538,732
============ =============
INCOME PER COMMON SHARE - PRIMARY AND
FULLY DILUTED:
Net income ..................................................... $ .22 $ .18
============ =============
Weighted average number of common and common
equivalent shares used to calculate primary and fully
diluted net income per common share ......................... 19,388,345 19,437,166
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
5.
<PAGE> 6
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors ........................... $ 56,736,844 $ 35,795,350
Interest received ....................................... 3,912,864 3,835,963
Cash paid for land acquisitions and real estate
development ........................................... ( 33,896,012 ) ( 20,383,843 )
Cash paid to suppliers, employees and sales
representatives ....................................... ( 27,171,450 ) ( 19,708,234 )
Interest paid ........................................... ( 5,450,966 ) ( 4,994,723 )
Net income taxes paid ................................... ( 2,318,179 ) ( 2,140,603 )
Proceeds from borrowings collateralized by notes
receivable ............................................ 6,304,246 15,473,364
Proceeds from sale of mortgage-backed securities,
net of transaction costs and amount paid to
retire securities ..................................... 22,706,101 8,352,973
Payments on borrowings collateralized by notes
receivable ............................................ ( 12,536,898 ) ( 4,420,559 )
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 8,286,550 11,809,688
------------- -------------
INVESTING ACTIVITIES:
Net cash flow from purchases and sales of
property and equipment ................................ ( 1,330,033 ) ( 484,311 )
Additions to other long-term assets ..................... ( 248,474 ) ( 801,770 )
------------- -------------
NET CASH FLOW USED BY INVESTING ACTIVITIES. ............... ( 1,578,507 ) ( 1,286,081 )
------------- -------------
FINANCING ACTIVITIES:
Borrowings under line of credit facility ................ 5,067,305 1,002,152
Payments under line of credit facility .................. ( 5,588,070 ) ( 583,478 )
Payments under repurchase agreement ..................... --- ( 6,500,000 )
Borrowings under short-term secured debt facility ....... --- 6,500,000
Payments under short-term secured debt facility ......... --- ( 6,500,000 )
Payments on other long-term debt ........................ ( 10,839,994 ) ( 7,072,842 )
Proceeds from exercise of employee stock options ........ 9,414 34,456
Payment for dividends in lieu of fractional shares. ..... ( 2,812 ) ( 976 )
------------- -------------
NET CASH FLOW USED BY FINANCING ACTIVITIES. ............... ( 11,354,157 ) ( 13,120,688 )
------------- -------------
Net decrease in cash and cash equivalents ............... ( 4,646,114 ) ( 2,597,081 )
Cash and cash equivalents at beginning of period ........ 9,308,047 10,113,748
------------- -------------
Cash and cash equivalents at end of period .............. $ 4,661,933 $ 7,516,667
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
-------------- --------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income .......................................................... $ 4,277,559 $ 3,538,732
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation and amortization ................................... 970,670 1,277,856
(Gain)/loss on sale of property and equipment ................... 24,066 ( 173,901 )
Provision for losses ............................................ 602,000 495,000
Proceeds from borrowings collateralized
by notes receivable net of principal repayments ................. ( 6,232,652 ) 11,052,805
(INCREASE) DECREASE IN ASSETS:
Contracts receivable ............................................. 1,295,806 829,153
Investment in securities ......................................... 8,935,933 6,076,672
Inventory ........................................................ ( 2,557,665 ) 1,586,832
Other assets ..................................................... 987,252 ( 1,947,780 )
Notes receivable ................................................. 2,390,164 ( 9,693,032 )
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities and other ............... ( 3,454,126 ) ( 3,401,549 )
Deferred income taxes ............................................ 1,047,543 2,168,900
------------ ------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES ......................... $ 8,286,550 $ 11,809,688
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES
Inventory acquired through financing ............................... $ 18,527,174 $ 12,520,984
============ ============
Inventory acquired through foreclosure,
"insubstance foreclosure" or
deedback in lieu of foreclosure .................................. $ 957,140 $ 820,151
============ ============
Investment in securities retained in
connection with issuance of mortgage-
backed securities .................................................. $ 2,674,370 $ ---
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7.
<PAGE> 8
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. However, a non-recurring gain of approximately $800,000
attributable to the settlement of certain litigation is included in other
income in the consolidated statement of income for the nine months ended
December 26, 1993. The results of operations for the three and nine month
periods ended January 1, 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 March 27, 1994.
The Company's By-Laws provide that the fiscal year ends on the closest Sunday
to the end of March. Accordingly, the current fiscal year, which ends on April
2, 1995, reflects a fifty-three week period. Each quarterly period for fiscal
1995 includes thirteen weeks, with the exception of the period ended January 1,
1995, which includes fourteen weeks.
2. REVENUE RECOGNITION
The Company's real estate business is 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 fixed week
intervals in fully furnished vacation units. The communities division is
engaged in the development and sale of primary residential homes 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 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 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 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.
In cases where all development has not been completed, the Company recognizes
revenue on retail and other land sales in accordance with the percentage of
completion method of accounting.
The Company recognizes revenue on community division sales when the unit is
complete and title is transferred to the buyer. With respect to its resort
division sales, the Company recognizes revenue when a minimum of 10% of the
sales price has been received in cash, collectibility of the receivable is
reasonably assured, 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, revenue from the sale of timeshare intervals is recognized in
accordance with the percentage of completion method of accounting.
8.
<PAGE> 9
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 January 1, 1995,
the Company was contingently liable for the outstanding principal balance of
notes receivable sold aggregating approximately $6.6 million. Delinquency on
these loans 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 $602,000 and $495,000
for the nine months ended January 1, 1995 and December 26, 1993. See
"Management's Discussion and Analysis of Financial Condition - Results of
Operations", included under 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>
JANUARY 1, 1995 MARCH 27, 1994
--------------- --------------
<S> <C> <C>
Land division . . . . . . . . . . . . . . $ 49,990,904 $ 31,104,433
Communities division . . . . . . . . . . 9,596,817 6,633,653
Resorts division . . . . . . . . . . . . 2,568,200 2,375,856
------------- ------------
$ 62,155,921 $ 40,113,942
============= ============
</TABLE>
The Company's consolidated inventories have increased primarily to accommodate
expected increased sales. See further discussion in Management's Discussion
and Analysis - "Uses of Capital" and "Results of Operations".
6. 1994 REMIC TRANSACTION
In recent years, the Company has increasingly engaged in the securitization and
sale of its mortgage notes receivable in the secondary financial markets in
lieu of carrying out traditional whole loan sales. On May 11, 1994, the
Company completed a private placement transaction which the Company elected to
treat as a Real Estate Mortgage Investment Conduit (the "1994 REMIC"),
involving the securitization of $27.7 million aggregate principal amount of its
mortgage notes receivable. The notes were sold to a REMIC trust, which issued
four classes of Certificates, with each Certificate evidencing a fractional
undivided interest in the pool of notes. The initial principal balances of the
Class A, Class B, Class C and Class R Certificates were $23.3 million, $2.8
million, $1.6 million and $0, respectively. On May 11, 1994, the Company sold
the Class A and Class B Certificates to an institutional investor for aggregate
proceeds of $26 million and retained the Class C and Class R Certificates. A
portion of the proceeds from the transaction were used to repay approximately
$13.5 million of outstanding debt, including $6.8 million of borrowings under a
$10 million credit facility secured by notes receivable, $4.3 million of
borrowings under a $20 million credit facility secured by notes receivable and
$2.4 million associated with amounts paid to retire securities previously sold
pursuant to the Company's 1989 REMIC financing. Proceeds to the Company after
payment of issuance expenses and fees, resulted in an approximate $12.4 million
increase in unrestricted cash. The 1994 REMIC resulted in a pre-tax loss of
approximately $411,000 which is included in the Consolidated Statement of
Income as a reduction to interest income for the nine months ended January 1,
1995.
9.
<PAGE> 10
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. STOCK DIVIDENDS
In addition to a 4% Common Stock dividend paid on August 16, 1993, which
consisted of the issuance of 683,005 common shares, the Company paid another 4%
Common Stock dividend on May 31, 1994, which consisted of the issuance of an
additional 711,076 common shares. The Company paid an aggregate $2,812 to
certain shareholders for the May, 1994 dividend in lieu of issuing any
fractional shares of stock. The weighted average number of common and common
equivalent shares used to calculate primary and fully diluted net income per
common share has been adjusted in the consolidated statements of income to give
effect to the August, 1993 and May, 1994 stock dividends, including retroactive
restatement of the net income per common share amounts for the three and nine
months ended December 26, 1993.
8. OTHER DEVELOPMENTS
Coalbed methane gas exploratory and test work is currently being conducted on
certain property owned by the Company in Las Animas County, Colorado. The
22,000 acre property, including mineral rights, was acquired in 1994 from
Atlantic Richfield Company.
The property is intended to be marketed and sold by the Company's land sale
division in parcels of at least 35 acres for general recreational use by the
consumer. Management does not believe that land sales will be adversely
affected by the portion of the property devoted to gas exploration. This
belief is based on the relative large size of parcels being offered and the
setback restrictions imposed on well sites. In addition, coalbed methane gas
recovery and production is less obtrusive than other conventional sources of
natural gas processing.
Certain other companies with properties located in the same area are currently
seeking to develop coalbed methane gas found in the coal seam of the Raton and
Vermejo geologic formations. Last year, the Colorado Interstate Gas Company
built a twenty-five mile pipeline which would enable gas to be moved from the
township where Patten's property is located to Colorado's gas transmission
systems.
Patten has entered into a lease agreement with a company which is involved in
the exploration, development and production of natural resources. Under the
terms of the lease, the third party is conducting testing at the project to
determine, among other things, whether there are sufficient quantities of
coalbed methane gas to commercially produce at the property. The underlying
testing encompasses 4 coal seam wells located in the southcentral portion of
the property. The testing is being conducted to determine the quantity of
coalbed methane reserves derived from each well and whether such reserves can
be recovered in an economic manner.
The lease provides that the exploration company will control the testing and
development process and absorb all costs associated with research, testing,
development and marketing. Patten Corporation will be entitled to royalty
income over the term, if any, of gas production. Because of the preliminary
nature of the tests which have been conducted to date, Patten is not presently
able to determine whether additional wells will be installed, thus creating the
favorable economics for the production and sale of coalbed methane gas on a
commercial basis.
10.
<PAGE> 11
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 down payments on real estate sales which are
financed, cash sales of real estate, principal and interest payments on the
purchase money mortgage loans ("Receivables") arising from real estate sales
and proceeds from the sale of, or borrowings collateralized by, Receivables.
External sources of liquidity have historically 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. 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 $8.3 million for the nine
months ended January 1, 1995 and $11.8 million for the nine months ended
December 26, 1993. During the current fiscal year, the Company increased its
sales of real estate. The percentage of such sales received in cash, in lieu
of originating Receivables, also increased. Accordingly, cash received from
customers on the Consolidated Statement of Cash Flow rose. Along with the
growth in sales of real estate, the payment of certain expenses increased,
including (i) cash paid for land acquisition and real estate development, and
(ii) cash paid to suppliers, employees and sales representatives. Cash from
the net of these three items was $4.3 million for both the nine months of
fiscal 1995 and 1994. While net cash flows from these sources remained level,
there was a $2.9 million reduction in cash from the sale of, or borrowings
collateralized by, Receivables net of principal repayments. At January 1,
1995, the Company had an additional $5.2 million of eligible Receivables
available to pledge under various credit facilities.
During the nine months ended January 1, 1995 and December 26, 1993, the Company
received in cash $51.4 million or 76% and $29.6 million or 64%, respectively,
of its sales of real estate that closed during these periods. The increase in
the percentage of cash received is attributable in part, to the Company's
program directed at obtaining increased down payments on financed sales of real
estate as well as encouraging cash sales through the structure of its
compensation program for certain regional office personnel. The increase in
cash sales was also the result of strengthened relationships with local banks
in certain regions resulting in more direct third party customer lot financing
during the current fiscal period. In addition, community division sales have
been financed entirely by third parties and, accordingly, resulted in cash
sales to the Company.
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 REMIC financings. The Receivable Subsidiaries are generally advanced
between 80% and 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 or pledged Receivables to banks or other institutional investors.
The Company is subject to certain obligations and has certain contingent
liabilities with respect to the Receivables sold. See Note 3 to the
Consolidated Financial Statements included under Part I, Item 1. During the
nine months ended January 1, 1995 and December 26, 1993, the Company raised
$6.3 million and $23.8 million, respectively, from the pledge of Receivables.
During the nine months ended January 1, 1995, the Company also raised $22.7
million net of transaction costs from the 1994 REMIC.
11.
<PAGE> 12
The Company has a revolving credit facility of $20.0 million secured by
eligible Receivables with a financial institution. Under the terms of this
facility, the Company is advanced proceeds equal to 90% of the outstanding
principal balance of the 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 have not been material. The interest rate
charged under the facility is prime plus 2.0%. At January 1, 1995, the
outstanding principal balance under the facility was $9.9 million.
Accordingly, as of January 1, 1995, the Company had the ability to borrow up to
an additional $10.1 million secured by, and subject to the availability of, up
to $11.2 million of eligible Receivables. All principal and interest payments
received from the pledged Receivables are applied to the principal and interest
due under this facility. The ability to receive advances expires June, 1996.
The indebtedness matures ten years from the date of the last advance.
The Company also has an agreement with this same lender which provides for
acquisition, construction and Receivable financing for the first and second
phases of a multi-phase timeshare project in Gatlinburg, Tennessee. Under the
terms of the construction financing, the lender will advance up to an aggregate
of $3.1 million for development, provided that the outstanding balance shall
not at any time exceed $2.1 million. The receivable loan has a maximum
borrowing limit of $5 million less any outstanding balance on the construction
loan. At January 1, 1995, there was $925,000 outstanding and secured by land
while no borrowings had been made against Receivables originated. The interest
rate charged under the facility is prime plus 2.25%. The facility expires in
August, 1995. See "Uses of Capital" below for a further discussion of the
Company's resorts division. This lender has also extended permanent financing
in the amount of $5.5 million secured by two land projects in Texas. Interest
is charged on such indebtedness at a rate of prime plus 2%.
The Company has a credit facility with another financial institution which
allows it to receive aggregate advances up to $25.0 million secured by eligible
Receivables. Under the terms of this facility, the Company is advanced
proceeds equal to 80% of the outstanding principal balance of the pledged
Receivables. The interest rate charged under the facility is 1.75% plus the
greater of the prime rate or commercial paper rate as published in the Wall
Street Journal. At January 1, 1995, the outstanding principal balance under
this facility was $6.2 million and the Company had received $10.6 million in
aggregate advances from the pledge of Receivables. Accordingly, as of that
date, the Company had the ability to borrow up to an additional $14.4 million
secured by, and subject to the availability of, up to $18.0 million of eligible
Receivables. All principal and interest payments received on the pledged
Receivables are applied to the principal and interest due under this facility.
The ability to receive advances expires in June, 1995. The indebtedness
matures in June, 1998.
The Company has a $10 million revolving credit facility with an additional
financial institution secured by Receivables and land inventory. Under the
terms of this facility, the Company is entitled to advances equal to 80% of the
outstanding principal balance of eligible pledged Receivables and advances of
up to $3 million secured by land inventory to fund acquisition and development
costs. Borrowings secured by Receivables under this facility bear interest at
prime plus 2.5% and borrowings secured by land inventory bear interest at prime
plus 3.0%. At January 1, 1995, the outstanding principal balance of borrowings
secured by Receivables was $3.4 million and the outstanding principal balance
of borrowings secured by land inventory totaled $215,000. 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 indebtedness is paid in full. At January 1, 1995, the Company had the
ability to borrow up to an additional $6.4 million secured by Receivables and
land inventory. The facility expires in October, 1998.
The Company continues to seek bank or seller financing for its property
acquisitions. During the nine months ended January 1, 1995 and December 26,
1993, the Company financed $18.5 million or 44% and $12.5 million or 38%,
respectively, of its property inventory, including acquisition and development
costs.
12.
<PAGE> 13
In addition to the sources of capital available under credit facilities
totaling $35.9 million as discussed above, the balance of the Company's
unrestricted cash and cash equivalents was $2.0 million at January 1, 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 capital requirements.
Uses of Capital. The Company's capital resources are used to support the
Company's operations, including (i) acquiring and developing land, community
and resort properties, (ii) purchasing building materials, (iii) financing
customer purchases, (iv) meeting operating expenses, and (v) satisfying the
Company's debt obligations.
The Company's net inventory was $62.2 million at January 1, 1995 and $40.1
million at March 27, 1994. With respect to inventory owned as of January 1,
1995, the Company requires capital to (i) improve land intended for
recreational, vacation, retirement or primary home site 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 January 1, 1995,
was approximately $63.6 million. The Company anticipates spending $24.5
million in fiscal 1996. The $63.6 million does not include housing unit costs
subsequent to fiscal 1995 which the Company is not able to determine at this
time. The nature and amount of development costs is discussed below.
Land Division The Company expends capital to improve land which typically
includes expenditures for road and utility construction, surveys and
engineering fees.
Communities Division The Company expends capital for building materials and
other infrastructure costs, including road and utility construction, surveys
and engineering fees.
Resorts Division The Company expends capital for building materials,
amenities and other infrastructure costs including road and utility
construction, surveys and engineering fees. In November, 1993 the Company
purchased property in Gatlinburg, Tennessee, for the site of its first
timeshare project. Although plans for the final phases of the project have not
been finalized, the preliminary plans provide for the total project to include
approximately 171 units (8,892 intervals). Approximately half of the units
will consist of single-family detached chalets and the balance of the units
will consist of apartment-like dwellings located in several mid-rise buildings.
Development and residential unit construction are being phased. The Company is
currently marketing the first two phases of the project which consist of 44
units.
The table set forth below outlines the estimated funds required to develop
property owned as of January 1, 1995. Because the Company does not primarily
engage in speculative homebuilding, prospective home purchasers are
pre-qualified and a purchase contract exists prior to Patten commencing unit
construction. Accordingly, the table excludes development associated with
future home sales under the Company's communities division. Furthermore, funds
for development of the Company's timeshare project are expected to be required
through 1998.
<TABLE>
<CAPTION>
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL
- - ----------------- ------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Southwest . . . . . $ 31,302,724 $ 370,017 $ --- $ 31,672,741
West . . . . . . . 3,832,156 343,413 --- 4,175,569
Midwest . . . . . . 2,534,108 --- 17,971,761 20,505,869
Southeast . . . . . 2,700,089 3,734,711 --- 6,434,800
Northeast . . . . . 693,586 --- --- 693,586
Mid-Atlantic . . . 85,531 --- --- 85,531
Canada . . . . . . 699 --- --- 699
------------ --------------- ------------- -------------
Totals . . . . . . $ 41,148,893 $ 4,448,141 $ 17,971,761 $ 63,568,795
============ =============== ============= =============
</TABLE>
13.
<PAGE> 14
The Company's inventory as of January 1, 1995 and March 27, 1994 summarized by
product type is set forth below.
<TABLE>
<CAPTION>
JANUARY 1, 1995
-------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
- - ----------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Southwest . . . . . $ 18,149,787(2) $ 1,614,165 $ --- $ 19,763,952
West . . . . . . . 9,004,362 588,044 --- 9,592,406
Midwest . . . . . . 8,006,736 --- 2,568,200 10,574,936
Southeast . . . . . 6,922,934 7,394,608 --- 14,317,542
Northeast . . . . . 3,931,418 --- --- 3,931,418
Mid-Atlantic . . . 3,666,164 --- --- 3,666,164
Canada . . . . . . 309,503 --- --- 309,503
------------ ------------ ------------ -------------
Totals . . . . . . $ 49,990,904 $ 9,596,817 $ 2,568,200 $ 62,155,921
============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
MARCH 27, 1994
------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
- - ----------------- -------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Southwest . . . . . . $ 4,051,153 (2) $ 1,134,688 $ --- $ 5,185,841
West . . . . . . . . 4,983,355 1,104,605 --- 6,087,960
Midwest . . . . . . . 5,106,059 --- 2,375,856 7,481,915
Southeast . . . . . . 6,808,053 4,394,360 --- 11,202,413
Northeast . . . . . . 4,587,051 --- --- 4,587,051
Mid-Atlantic . . . . 5,182,178 --- --- 5,182,178
Canada . . . . . . . 386,584 --- --- 386,584
------------ ------------ ------------ -------------
Totals . . . . . . . $ 31,104,433 $ 6,633,653 $ 2,375,856 $ 40,113,942
============ ============ ============ =============
</TABLE>
- - -----------------
(1) Community division inventory as of January 1, 1995, includes land inventory
of $6.7 million and $2.9 million of housing unit construction-in-progress.
As of March 27, 1994, the Company had $5.4 million of land inventory with
$1.2 million of housing unit construction-in-progress. The increase in
land inventory is attributable to infrastructure development. The Company
has not acquired any additional land inventory to support its communities
division during the nine months ended January 1, 1995.
(2) During the nine months ended January 1, 1995, the Company acquired three
large tracts of land inventory consisting of 1,434 acres in Texas at a
purchase price of approximately $6.1 million, 4,700 acres located in New
Mexico for approximately $3.8 million and 1,515 acres in Missouri for
approximately $2.3 million.
In addition to product diversification, the Company has sought broader
distribution of its land projects and increased its land holdings in the
southwestern, western, midwestern and southeastern regions of the United States
where expanding consumer markets exist. At the same time, management plans to
continue to reduce its presence in the northeastern and certain parts of the
mid-atlantic regions due to soft economic conditions which have resulted in
reduced consumer demand.
The Company maintains inventory valuation reserves which totaled $2.9 million
at January 1, 1995, for certain land properties acquired prior to fiscal 1990
which serve as contra assets against the historical cost of such parcels.
During the nine months ended January 1, 1995, $647,000 and $1.1 million 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 nine months ended December 26, 1993,
$721,000 and $960,000 of the Company's inventory reserves were released as
credits to cost of real estate sold and S,G&A expense, respectively, as the
inventory was sold.
14.
<PAGE> 15
The Company offers financing of up to 90% of the purchase price of timeshare
and land real estate sold to all purchasers of its properties who qualify for
such financing. During the nine months ended January 1, 1995 and December 26,
1993, the Company received 24% and 36%, respectively, of its aggregate sales of
real estate which closed during the period in the form of mortgage note
receivables. The decrease in the percentage of sales financed by the Company
is attributable to the Company's program directed at increasing cash sales of
real estate or down payments in cases where Company financing is extended. At
January 1, 1995, $27.2 million of Receivables were pledged as collateral to
secure financings of the Company's Receivable Subsidiaries or other Company
indebtedness while $11.7 million of Receivables were not pledged or encumbered.
At March 27, 1994, $34.1 million of Receivables were pledged as collateral to
secure financings of the Company's Receivable Subsidiaries or other Company
indebtedness while $9.4 million of Receivables were not pledged or encumbered.
The reduction in encumbered notes at January 1, 1995 was primarily attributable
to the 1994 REMIC. Pursuant to the 1994 REMIC, the Company retired
indebtedness secured by Receivables and included the released Receivables in
the collateral pool supporting this REMIC. The 1994 REMIC transaction was
accorded sale treatment.
At January 1, 1995, 1.6% or $726,500 of the aggregate $45.5 million principal
amount of Company-originated loans which were held by the Company or sold
through programs under which the Company has a recourse liability were more
than 30 days past due. Of the $45.5 million principal amount of loans, $38.9
million were held by the Company, while approximately $6.6 million were sold
with limited recourse. 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 March 27, 1994, 3.3% or
$1.6 million of the aggregate $48.9 million principal amount of
Company-originated loans which were held by the Company or sold through
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.
The Company recorded loan loss provisions of $602,000 and $495,000 for the nine
months ended January 1, 1995 and December 26, 1993, respectively. The adequacy
of the Company's reserve for loan losses is determined by management and
reviewed on a regular basis, considering historical frequency of default, loss
experience and quality of Receivables, as evidenced by loans more than 30 days
past due. See "Results of Operations" for a further discussion of the
provision for loan losses.
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 March 27, 1994.
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
and interest rates. Management believes that general economic conditions have
strengthened in most of its principal markets of operation. However, the real
estate markets in the Northeast and Canada continue to remain depressed and the
Company has experienced reduced levels of sales in the Mid-Atlantic region.
In the latter part of fiscal 1994, the Company began pursuing a program of
diversification by entering the resorts market. Management believes this
operation complements the core retail land business and will provide desired
opportunities for revenue growth. The Company has also identified the
residential housing sector as an add-on business line to increase the
absorbtion of select land inventory. During the current fiscal period, such
operations have emerged as complementary, but distinct business divisions with
different operating characteristics from that of the Company's core retail land
sales business.
15.
<PAGE> 16
Comparison of Three Months Ended January 1, 1995 and December 26, 1993.
The following table sets forth selected financial data for the business units
comprising the consolidated operations of the Company for the three months
ended January 1, 1995. The Company was not involved in communities and resorts
division operation activity was not material during the three months ended
December 26, 1993. Accordingly, separate results of operations for the third
quarter of fiscal 1994 are not presented.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JANUARY 1, 1995
-----------------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate (1) . . . . $ 15,301 100.0 % $ 2,745 100.0 % $ 1,208 100.0 % $ 19,254 100.0%
Cost of real estate sold . . . . 6,622 43.3 2,672 97.3 490 40.6 9,784 50.8
-------- --------- -------- ---------- -------- -------- -------- ---------
Gross profit . . . . . . . . . . 8,679 56.7 73 2.7 718 59.4 9,470 49.2
Field selling, general and
administrative
expense (2) . . . . . . . . . . . 5,222 34.1 299 10.9 546 45.2 6,067 31.5
-------- --------- -------- ---------- -------- -------- -------- ---------
Field operating profit
(loss) (3) . . . . . . . . . . . $ 3,457 22.6 % $ (226) (8.2) % $ 172 14.2 % $ 3,403 17.7%
======== ========= ======== ========== ======== ======== ======== =========
</TABLE>
- - -----------------
(1) The Company's resorts division generated sales of $2.6 million from
the sale of 431 intervals which reflects an average sales price per
interval of $6,100. The figures reported above exclude $1.4 million of
such interval sales which have been deferred under the percentage of
completion method of accounting.
(2) Aggregate general and administrative expenses from corporate overhead
totaling $2.1 million have been excluded from the table.
(3) The table presented above outlines selected financial data. Accordingly,
interest income, interest expense, other income and income taxes have been
excluded.
Consolidated sales of real estate increased 36% to $19.3 million for the three
months ended January 1, 1995 compared to $14.2 million for the three months
ended December 26, 1993.
The following table sets forth certain information regarding sales of parcels
associated with the Company's retail land division for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------- --------------
<S> <C> <C>
Number of parcels sold (1) . . . . . . . . . 499 559
Average sales price per parcel (1) . . . . . $ 30,663 $ 25,675
Gross margins on retail land sales . . . . . 57% 49%
</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, excluding the effects of deferred sales,
was $29,798 and $24,403 for the three months ended January 1, 1995 and
December 26, 1993, respectively.
While the number of parcels sold during the current three month period
decreased by approximately 11%, the average sales price increased by 19%. The
decrease in parcels sold resulted, in part, from reduced sales in the
mid-atlantic region where the Company has reduced its presence in favor of
markets with stronger economic conditions. The increase in the average sales
price was largely attributable to the Company's southwestern
16.
<PAGE> 17
operations. Specifically, increased consumer demand for parcels in Texas has
prompted higher selling prices. Additionally, increased marketing of
waterfront properties has resulted in higher sale prices.
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 three months ended on the dates indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
JANUARY 1, 1995 DECEMBER 26, 1993
--------------- -----------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF PARCELS SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL (1) SOLD PER PARCEL (1)
- - ----------------- ------------ -------------- ---- --------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . 192 $ 40,796 184 $ 26,556
West . . . . . . . . . 87 30,601 64 37,272
Midwest . . . . . . . . 86 21,743 92 26,541
Southeast . . . . . . . 67 23,000 92 24,997
Northeast . . . . . . . 20 24,950 26 17,510
Mid-Atlantic . . . . . 46 19,071 95 19,059
Canada . . . . . . . . 1 18,540 6 11,874
---- -------- ---- --------
Totals . . . . . . . . 499 $ 30,663 559 $ 25,675
==== ====
</TABLE>
(1) Calculated by including sales of real estate deferred under the percentage
of completion method of accounting during the respective periods.
While the Company has experienced an increase in the number of parcels sold in
the southwest and intends to continue expansion in this area subject to
changing market conditions, management also expects further increased sales
activity in the west in future quarters due to recent acquisitions of land
inventory in this region. The reduction in parcels sold in the southeast and
midwest largely resulted from a temporary shortage of ready-to-market
inventory. The Company has recently acquired several lakefront properties in
these regions and expects increased sales in upcoming quarters. The number of
parcels sold in the northeast geographic region reflects the continuing soft
economy. As discussed above, the reduction in parcels sold in the mid-atlantic
geographic region resulted from reduced inventories available for sale in
response to decreased demand for certain properties in this market.
The Company's Investment Committee, consisting of executive officers, approves
all property acquisitions. All land properties under contract for purchase are
intended to achieve certain minimum economics including a gross margin of at
least 55% of sales. Due to improved regional conditions in many of the
Company's principal markets, gross margins have strengthened from the targeted
55%. While management expects to continue to achieve or exceed the targeted
55% gross margin, no assurances can be given that this trend will continue.
However, 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 margins on
the sale of the remaining $3.9 million of net inventory in the Northeast.
During the third quarter of fiscal 1995, the Company's communities division
generated 26 sales at an average sales price of $105,567 contributing a total
of $2.7 million in sales revenue, or approximately 14% of total consolidated
revenues from sales of real estate. The 26 sales consist of 20 manufactured
homes with an average sales price of $78,770 and 6 site-built homes with an
average sales price of $194,887. In addition, at January 1, 1995, there was
$8.0 million in backlog of home sales for future delivery representing 65
contracts.
17.
<PAGE> 18
Prior to the deferral of $1.4 million in revenues under the percentage of
completion method of accounting, the Company's resorts division generated
revenues of $2.6 million from the sale of 431 units which reflects an average
sales price per unit of $6,100 for the third quarter of fiscal 1995. Net of
deferred revenues, resorts division sales of $1.2 million for the period
represent approximately 6% of consolidated revenues from the sale of real
estate.
The Company's communities and resorts divisions reflect characteristics that
differ from the core retail land sales division with respect to the gross
margins that are generated. In general, management anticipates that the sale
of its land and resort inventories will yield gross margins of at least 55%,
while gross margins realized in its communities inventory are expected to be
significantly lower. The communities and resorts division generated gross
margins for the three months ended January 1, 1995 of 3% and 59%, respectively.
These operations, when combined with the 57% gross margin produced from the
core retail land sales division, resulted in an overall consolidated gross
margin of 49% for the current period.
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 JANUARY 1, 1995
--------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
- - ----------------- ------------ ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Southwest . . . . . $ 7,832,866 $ 142,790 $ --- $ 7,975,656 41.4 %
West . . . . . . . 2,662,303 719,876 --- 3,382,179 17.6
Midwest . . . . . . 1,869,865 --- 1,208,448 3,078,313 16.0
Southeast . . . . . 1,541,004 1,882,064 --- 3,423,068 17.8
Northeast . . . . . 499,000 --- --- 499,000 2.6
Mid-Atlantic . . . 877,243 --- --- 877,243 4.5
Canada . . . . . . 18,540 --- --- 18,540 .1
------------ ----------- ----------- ------------ -----
Totals . . . . . . $ 15,300,821 $ 2,744,730 $ 1,208,448 $ 19,253,999 100.0 %
============ =========== =========== ============ =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 26, 1993
------------------------------------
GEOGRAPHIC REGION TOTAL LAND %
- - ----------------- ------------ --------
<S> <C> <C>
Southwest . . . . . $ 4,200,303 29.6 %
West . . . . . . . 2,396,410 16.9
Midwest . . . . . . 2,402,677 16.9
Southeast . . . . . 2,799,543 19.7
Northeast . . . . . 455,250 3.2
Mid-Atlantic . . . 1,878,320 13.2
Canada . . . . . . 71,243 .5
------------ -----
Totals . . . . . . $ 14,203,746 100.0 %
============ =====
</TABLE>
18.
<PAGE> 19
Interest income was $2.0 million for the third quarter of fiscal 1995 compared
to $2.1 million for the same quarter of fiscal 1994. The Company's interest
income is earned from its mortgage note receivables, securities retained
pursuant to REMIC financings and cash and near-cash investments. The table set
forth below outlines interest income earned from each category of asset for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------ --------------
INTEREST EARNED ON:
- - -------------------
<S> <C> <C>
Receivables held and excess servicing from $ 1,241,915 $ 1,173,344
whole-loan sales . . . . . . . . . . . . . . . . .
Securities retained in connection with REMIC 637,529 877,952
financings . . . . . . . . . . . . . . . . . . . .
Cash and near-cash investments . . . . . . . . . . 94,964 89,804
----------- ------------
Totals . . . . . . . . . . . . . . . . . . . . . . $ 1,974,408 $ 2,141,100
=========== ============
</TABLE>
S,G&A expense totaled $8.2 million and $6.1 million for the three months ended
January 1, 1995 and December 26, 1993, respectively. As a percentage of sales
of real estate, S,G&A expenses were 43% for both the three months ended January
1, 1995 and December 26, 1993. Due to revenue recognition criteria,
particularly for the Company's communities and resorts divisions, certain fixed
general and administrative expenses were incurred during the three month period
ended January 1, 1995, although the corresponding revenues were deferred for
recognition until a future period. As a result, S,G&A expense remained flat as
a percent of sales of real estate. At January 1, 1995, approximately $2.2
million of resorts division sales have been deferred and the Company's backlog
of home sales approximated $8.0 million.
Interest expense totaled $1.6 million and $1.8 million for the third quarter of
fiscal 1995 and 1994, respectively. The average outstanding borrowings were
approximately $70 million for both periods. However, during the current year
quarter, interest incurred for certain newly acquired properties with estimated
sell-out periods in excess of one year was capitalized. The projects, which
will require significant and lengthier development, qualify for capitalization
under generally accepted accounting principles.
The Company recorded provisions for loan losses totaling $187,000 and $80,000
for the three months ended January 1, 1995 and December 26, 1993, respectively.
The Company originated approximately the same principal amount of receivables
for each three month period and the reserve for loan losses represents
approximately the same percentage of gross receivables at the end of each three
month period. Furthermore, management believes that the overall performance of
its mortgage portfolio has remained consistent as evidenced by delinquency at
each period end. However, additional write-downs were deemed necessary for
certain property securing troubled loans that have been in the foreclosure
process for an extended period of time. These loans were successfully
foreclosed during the current quarter. Because of the lengthy period from
delinquency of a loan to resolve through foreclosure, additional recovery costs
were incurred. The subject loans were originated by the Company in the late
1980's and, in most cases, were secured by northeast land. Management has made
substantial progress in working through the foreclosure backlog. As of January
1, 1995, approximately $6.5 million of the original $8.0 million principal
amount of loans suffering from non-performance beginning in the early 1990's
have been foreclosed upon or the property securing the loan has been deeded
back in lieu of foreclosure.
Income from consolidated operations was $1.4 million and $1.2 million for the
three months ended January 1, 1995 and December 26, 1993, respectively. The
improvement for the current period is primarily the result of increased sales
of real estate.
19.
<PAGE> 20
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
the third fiscal quarter of fiscal 1994 includes, among other items, gains from
the disposal of fixed assets. Other income for the three months ended January
1, 1995 was not material to the Company's results of operations.
The Company recorded a tax provision of 41% of pre-tax income for the three
months ended January 1, 1995. The provision was 38% of pre-tax income for the
three months ended December 26, 1993. In fiscal 1994, the Company was able to
utilize its operating loss carryforwards associated with state income taxes
which resulted in a higher effective tax rate for the current year three month
period.
Net income was $882,000 and $870,000 for the three months ended January 1, 1995
and December 26, 1993, respectively.
Comparison of Nine Months Ended January 1, 1995 and December 26,1993.
The following table sets forth selected financial data for the business units
comprising the consolidated operations of the Company for the nine months ended
January 1, 1995. The Company was not involved in resort operations and
communities operation activity was not material during the nine months ended
December 26, 1993. Accordingly, separate results of operations for the first
three quarters of fiscal 1994 are not presented.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED JANUARY 1, 1995
-----------------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate (1) . . . . $ 54,597 100.0 % $ 9,014 100.0 % $ 3,071 100.0 % $ 66,682 100.0%
Cost of real estate sold . . . . 23,356 42.8 7,972 88.4 1,070 34.8 32,398 48.6
-------- --------- -------- ---------- -------- -------- -------- ---------
Gross profit . . . . . . . . . . 31,241 57.2 1,042 11.6 2,001 65.2 34,284 51.4
Field selling, general and
administrative
expense (2) . . . . . . . . . . . 16,958 31.1 1,230 13.7 2,208 71.9 20,396 30.6
-------- --------- -------- ---------- -------- -------- -------- ---------
Field operating profit
(loss) (3) . . . . . . . . . . . . $ 14,283 26.1 % $ (188) (2.1) % $ (207) (6.7) % $ 13,888 20.8%
======== ========= ======== ========== ======== ======== ======== =========
</TABLE>
- - -----------------
(1) The Company's resorts division project generated revenues of $5.3 million
from the sale of 829 units which reflects an average sales price per unit
of $6,430 for the nine months ended January 1, 1995. The figures reported
above exclude $2.2 million of interval sales and $839,000 of field
operating profit which have been deferred under the percentage of
completion method of accounting.
(2) Aggregate general and administrative expenses from corporate overhead
totaling $6.3 million have been excluded from the table.
(3) The table presented above outlines selected financial data. Accordingly,
interest income, interest expense, other income and income taxes have been
excluded.
Consolidated sales of real estate increased 47% to $66.7 million for the nine
months ended January 1, 1995 compared to $45.3 million for the nine months
ended December 26, 1993.
20.
<PAGE> 21
The following table sets forth certain information regarding sales of parcels
associated with the Company's retail land operations for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------- --------------
<S> <C> <C>
Number of parcels sold (1) . . . . . . . . . 1,761 1,828
Average sales price per parcel (1) . . . . . $ 31,004 $ 24,468
Gross margins on retail land division sales . 57% 52%
</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, excluding the effects of deferred sales,
was $30,997 and $24,364 for the nine months ended January 1, 1995 and
December 26, 1993, respectively.
While the number of parcels sold during the current nine month period decreased
by approximately 4%, the average sales price increased by 27%. The decrease in
parcels sold resulted, in part, from reduced sales in the mid-atlantic region
where the Company has reduced its presence in favor of markets with more robust
economic conditions. The Company also sold less parcels in the midwest and
southeast due to a shortage of ready-to-market lots. Additional lakefront
property has been acquired in these regions and marketing efforts have
commenced. The decrease in parcels sold in the mid-atlantic and midwest
regions were offset by increased parcels sold in the southwestern and western
regions of the United States. The Company continues to reduce inventories in
the northeast, an action which began in the early 1990's.
The increase in the average sales price was largely attributable to the
Company's southwestern operations. Specifically, increased consumer demand for
parcels in Texas has prompted higher selling prices. Additionally, increased
infrastructure development for these same Texas properties has resulted in
higher sale prices. Higher sales prices in the southwestern region were joined
by increased average sales prices in the midwest and southeast. This occurred,
in part, due to the sale of several lakefront projects which maintained higher
unit sale prices.
21.
<PAGE> 22
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 nine months ended on the dates indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------------------------
JANUARY 1, 1995 DECEMBER 26, 1993
--------------- -----------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF PARCELS SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL (1) SOLD PER PARCEL (1)
- - ----------------- ------------ -------------- ---- --------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . 750 $ 36,046 631 $ 25,811
West . . . . . . . . . 238 33,458 198 34,009
Midwest . . . . . . . . 266 26,635 335 22,700
Southeast . . . . . . . 225 28,438 262 23,056
Northeast . . . . . . . 86 22,921 96 17,176
Mid-Atlantic . . . . . 183 21,917 294 21,281
Canada . . . . . . . . 13 10,313 12 13,037
----- ------ ----- --------
Totals . . . . . . . . 1,761 $ 31,004 1,828 $ 24,468
===== =====
</TABLE>
(1) Calculated by including sales of real estate deferred under the percentage
of completion method of accounting during the respective periods.
The Company's Investment Committee, consisting of executive officers, approve
all property acquisitions. All land properties under contract for purchase are
expected to achieve certain minimum economics including a gross margin of at
least 55% of sales. Due to improved regional conditions in many of the
Company's principal markets, gross margins have strengthened from the targeted
55%. While management expects to continue to achieve or exceed the targeted
55% gross margin, no assurances can be given that this trend will continue.
However, 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 margins on
the sale of the remaining $3.9 million of net inventory in the Northeast.
During the nine months ended January 1, 1995, the Company's communities
division generated 106 sales at an average sales price of $85,037 contributing
a total of $9.0 million in sales revenue, or approximately 14% of total
consolidated revenues from sales of real estate. The 106 sales consist of 96
manufactured homes with an average sales price of $74,608 and 10 site-built
homes with an average sales price of $185,160. In addition, at January 1,
1995, there was $8.0 million in backlog of home sales for future delivery
representing 65 contracts.
Prior to the deferral of $2.2 million in revenues under the percentage of
completion method of accounting, the Company's resorts division generated
revenues of $5.3 million from the sale of 829 units which reflects an average
sales price per unit of $6,430 for the nine months ended January 1, 1995. Net
of deferred revenues, resorts division sales of $3.1 million for the period
represent approximately 5% of consolidated revenues from the sale of real
estate.
The Company's communities and resorts divisions reflect characteristics that
differ from the core retail land sales business with respect to the gross
margins that are generated. The communities and resorts divisions generated
gross margins for the nine months ended January 1, 1995 of 12% and 65%,
respectively. These operations, when combined with the 57% gross margin
produced from the core retail land sales division, resulted in an overall
consolidated gross margin of 51% for the current period.
22.
<PAGE> 23
The tables set forth below outline sales by geographic region and division for
the nine months ended on the dates indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 1, 1995
------------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
- - ----------------- ------------ ----------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Southwest . . . . . $ 27,034,869 $ 825,067 $ --- $ 27,859,936 41.8 %
West . . . . . . . 7,962,946 3,248,664 --- 11,211,610 16.7
Midwest . . . . . . 7,084,844 --- 3,071,240 10,156,084 15.2
Southeast . . . . . 6,398,532 4,940,206 --- 11,338,738 17.1
Northeast . . . . . 1,971,200 --- --- 1,971,200 3.0
Mid-Atlantic . . . 4,010,722 --- --- 4,010,722 6.0
Canada . . . . . . 134,068 --- --- 134,068 .2
------------ ----------- ----------- ------------- -----
Totals . . . . . . $ 54,597,181 $ 9,013,937 $ 3,071,240 $ 66,682,358 100.0 %
============ =========== =========== ============= =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 26, 1993
-----------------------------------
GEOGRAPHIC REGION TOTAL LAND %
- - ----------------- ------------ --------
<S> <C> <C>
Southwest . . . . . $ 14,975,885 33.0 %
West . . . . . . . 6,894,080 15.2
Midwest . . . . . . 8,367,940 18.5
Southeast . . . . . 6,540,393 14.4
Northeast . . . . . 1,648,900 3.6
Mid-Atlantic . . . 6,736,094 14.9
Canada . . . . . . 156,438 .4
------------ -----
Totals . . . . . . $ 45,319,730 100.0 %
============ =====
</TABLE>
Interest income was $5.2 million for the nine months ended January 1, 1995
compared to $5.8 million for the same period of fiscal 1994. The Company's
interest income is earned from its mortgage note receivables, securities
retained pursuant to REMIC financings and cash and near-cash investments. The
table set forth below outlines interest income earned from each category of
asset for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------
JANUARY 1, DECEMBER 26,
1995 1993
------------ --------------
INTEREST EARNED ON:
- - -------------------
<S> <C> <C>
Receivables held and excess servicing from $ 3,286,941 $ 3,215,753
whole-loan sales . . . . . . . . . . . . . . . . .
Securities retained in connection with REMIC 1,480,344 2,435,941
financings . . . . . . . . . . . . . . . . . . . .
Cash and near-cash investments . . . . . . . . . . . 413,805 196,837
----------- -------------
Totals . . . . . . . . . . . . . . . . . . . . . . . $ 5,181,090 $ 5,848,531
=========== =============
</TABLE>
In May, 1994, the Company completed a REMIC transaction. See description of
transaction under Note 6, Part I, Item 1. This securitization of Receivables
yielded the Company approximately $12.4 million of unrestricted cash.
Accordingly, the Company's average cash and near-cash equivalents for the
current year nine month period increased over the comparable period of the
prior year, resulting in increased interest income earned from these low-risk
instruments. The 1994 REMIC transaction was accomplished by combining
Receivables held by the Company with Receivables reacquired by retiring
securities that had been issued in connection with the 1989 REMIC transaction,
under which certain Receivables served as security. This newly formed pool
of Receivables securitized four classes of certificates for the 1994 REMIC.
Because the Company retained less principal amount of subordinated certificates
pursuant to the 1994 REMIC, less interest was accreted from these securities
for the current nine month period versus the same period of the prior year.
23.
<PAGE> 24
S,G&A expense totaled $26.7 million and $18.9 million for the nine months ended
January 1, 1995 and December 26, 1993, respectively. As a percentage of sales
of real estate, S,G&A expenses were 40% and 42% for the nine months ended
January 1, 1995 and December 26, 1993, respectively. S,G&A expense is expected
to increase in dollar amount as greater levels of sales are achieved. This is
because 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. However, economies are typically achieved by holding
fixed administrative expenses constant, which allows for a reduction in
aggregate S,G&A expense as a percent of sales of real estate. While certain
economies were achieved for the current nine month period, this was mitigated
by the effect of deferred revenue and backlog of home sales. Due to revenue
recognition criteria, particularly for the Company's resorts and communities
divisions, certain fixed general and administrative expenses were incurred
during the nine month period ended January 1, 1995, although the corresponding
revenues were deferred for recognition until a future period. At January 1,
1995, approximately $2.2 million of resorts division sales have been deferred
and the Company's backlog of home sales approximated $8.0 million.
Interest expense totaled $5.1 million and $5.3 million for the first three
quarters of fiscal 1995 and 1994, respectively. Approximately $235,000 in
non-refundable financing costs associated with a public debt offering that was
withdrawn by the Company was incurred during the prior year period. The
withdrawal was prompted by alternate attractive sources of financing being
obtained by the Company.
The Company recorded provisions for loan losses totaling $602,000 and $495,000
for the nine months ended January 1, 1995 and December 26, 1993, respectively.
The Company originated approximately the same principal amount of receivables
for each nine month period and the reserve for loan losses represents
approximately the same percentage of gross receivables at the end of each
period. Furthermore, management believes that the overall performance of its
mortgage portfolio has remained consistent as evidenced by delinquency at each
period end. However, additional write-downs were deemed necessary for certain
property securing troubled loans that have been in the foreclosure process for
an extended period of time. These loans were successfully foreclosed during
the current year. Because of the lengthy period from delinquency of a loan to
resolve through foreclosure, additional recovery costs were incurred. The
subject loans were originated by the Company in the late 1980's and, in most
cases, were secured by northeast land. Management has made substantial
progress in working through the foreclosure backlog and does not believe that
the $1.5 million in loans currently in the foreclosure process will require any
material amount of additional reserves.
Income from consolidated operations was $7.1 million and $4.6 million for the
nine months ended January 1, 1995 and December 26, 1993, respectively. The
improvement for the current period is primarily the result of increased sales
of real estate.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
the nine months ended December 26, 1993 includes, among other items,
non-recurring income of approximately $800,000 associated with the settlement
of certain litigation. Other income for the nine months ended January 1, 1995
was not material to the Company's results of operations.
The Company recorded a tax provision of 41% of pre-tax income for the nine
months ended January 1, 1995. The provision was 38% of pre-tax income for the
nine months ended December 26, 1993. In fiscal 1994, the Company fully utilized
its operating loss carryforwards associated with state income taxes which
resulted in a higher effective tax rate for the current year nine month period.
Net income was $4.3 million and $3.5 for the nine months ended January 1, 1995
and December 26, 1993, respectively.
24.
<PAGE> 25
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 March 27, 1994. Certain of the claims,
proceedings or disputes referred to herein have passed the
administrative demand stage and have resulted in civil lawsuits.
However, there has been no significant change in the status of any
material proceedings, except for the settlement of a dispute involving
a former employee.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Harry S. Patten sold approximately 1.5 million shares of the Company's
Common Stock to certain members of management and the Board of
Directors. This transaction is disclosed in the Company's Current
Report on Form 8-K dated November 22, 1994 and settled in January,
1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated November
22, 1994, reporting information under Item 5 of Form 8-K.
25.
<PAGE> 26
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: February 14, 1995 By: /S/ GEORGE F. DONOVAN
----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: February 14, 1995 By: /S/ ALAN L. MURRAY
----------------------------------
Alan L. Murray
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: February 14, 1995 By: /S/ DANIEL C. KOSCHER
----------------------------------
Daniel C. Koscher
Vice President, Assistant Secretary
and Chief Accounting Officer
(Principal Accounting Officer)
26.
<PAGE> 27
PATTEN CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
Exhibit Description of Exhibit
- - ------- ----------------------
27 Financial Data Schedule (for SEC use only)
27.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the Patten Corporation for the nine months ended January
1, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-02-1995
<PERIOD-START> MAR-28-1994
<PERIOD-END> JAN-01-1995
<EXCHANGE-RATE> 1
<CASH> 4,661,933
<SECURITIES> 0
<RECEIVABLES> 47,508,263
<ALLOWANCES> 728,183
<INVENTORY> 62,155,921
<CURRENT-ASSETS> 0
<PP&E> 9,531,485
<DEPRECIATION> 4,473,524
<TOTAL-ASSETS> 142,615,886
<CURRENT-LIABILITIES> 0
<BONDS> 34,739,000
<COMMON> 185,123
0
0
<OTHER-SE> 55,952,699
<TOTAL-LIABILITY-AND-EQUITY> 142,615,886
<SALES> 66,682,358
<TOTAL-REVENUES> 71,863,448
<CGS> 32,398,208
<TOTAL-COSTS> 59,144,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 602,000
<INTEREST-EXPENSE> 5,059,272
<INCOME-PRETAX> 7,250,101
<INCOME-TAX> 2,972,542
<INCOME-CONTINUING> 4,277,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,277,559
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
