<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 October 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
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(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 November 1, 1995, there were 19,522,011 shares of Common Stock, $.01
par value per share, outstanding.
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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
OCTOBER 1, 1995 AND APRIL 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS
ENDED OCTOBER 1, 1995 AND SEPTEMBER 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF INCOME - SIX MONTHS
ENDED OCTOBER 1, 1995 AND SEPTEMBER 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS
ENDED OCTOBER 1, 1995 AND SEPTEMBER 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 1, APRIL 2,
ASSETS 1995 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents (including restricted cash of
approximately $8.6 million and $5.2 million at
October 1, 1995 and April 2, 1995, respectively) . . . . . . . . $ 14,155,871 $ 7,588,475
Contracts receivable, net. . . . . . . . . . . . . . . . . . . . . 15,033,243 13,051,254
Notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . 26,155,384 39,269,269
Investment in securities . . . . . . . . . . . . . . . . . . . . . 9,491,573 18,097,917
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . 75,080,408 63,386,672
Property and equipment, net . . . . . . . . . . . . . . . . . . . . 5,111,513 4,801,824
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . 1,188,170 1,739,555
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,023,882 4,287,393
------------ ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $150,240,044 $152,222,359
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,637,128 $ 3,134,753
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . 9,564,781 11,292,846
Lines of credit and notes payable . . . . . . . . . . . . . . . . . 22,949,758 20,431,346
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 7,739,465 5,069,719
Mortgage-backed notes payable . . . . . . . . . . . . . . . . . . . 11,533,918 19,514,718
Commitments and contingencies . . . . . . . . . . . . . . . . . . . --- ---
8.25% convertible subordinated debentures . . . . . . . . . . . . . 34,739,000 34,739,000
------------- ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 88,164,050 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; 19,522,011 and 19,470,734 shares
outstanding at October 1, 1995 and April 2, 1995,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . 195,220 194,707
Capital-in-excess of par value . . . . . . . . . . . . . . . . . . 66,968,737 66,839,599
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . (5,087,963) (8,994,329)
------------- ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 62,075,994 58,039,977
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . $ 150,240,044 $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
------------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- ------------
<S> <C> <C>
REVENUES:
Sales of real estate . . . . . . . . . . . . . . . . $33,257,813 $25,383,870
Interest income and other . . . . . . . . . . . . . 2,177,295 1,755,758
----------- -----------
35,435,108 27,139,628
COST AND EXPENSES:
Cost of real estate sold . . . . . . . . . . . . . . 17,223,289 11,881,739
Selling, general and administrative expense . . . . 12,240,126 9,853,989
Interest expense . . . . . . . . . . . . . . . . . . 1,857,707 1,654,473
Provision for losses . . . . . . . . . . . . . . . . 225,000 250,000
----------- -----------
31,546,122 23,640,201
----------- -----------
Income from operations . . . . . . . . . . . . . . . . 3,888,986 3,499,427
Other income . . . . . . . . . . . . . . . . . . . . . 41,077 90,074
----------- -----------
Income before income taxes . . . . . . . . . . . . . . 3,930,063 3,589,501
Provision for income taxes . . . . . . . . . . . . . . 1,611,326 1,471,695
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 2,318,737 $ 2,117,806
=========== ===========
INCOME PER COMMON SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $ .11 $ .10
=========== ===========
Weighted average number of common and common
equivalent shares (1) . . . . . . . . . . . . . . . 20,764,101 20,547,113
=========== ===========
</TABLE>
(1) Includes 19.5 million common shares outstanding, in addition to 1.3 million
dilutive stock options.
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
----------- ------------
<S> <C> <C>
REVENUES:
Sales of real estate . . . . . . . . . . . . . . . . $57,899,077 $ 47,428,359
Interest income and other . . . . . . . . . . . . . 4,364,230 3,206,682
----------- ------------
62,263,307 50,635,041
COST AND EXPENSES:
Cost of real estate sold . . . . . . . . . . . . . . 29,414,737 22,614,267
Selling, general and administrative expense . . . . 22,114,032 18,538,711
Interest expense . . . . . . . . . . . . . . . . . . 3,847,844 3,439,790
Provision for losses . . . . . . . . . . . . . . . . 379,942 415,000
----------- ------------
55,756,555 45,007,768
----------- ------------
Income from operations . . . . . . . . . . . . . . . . 6,506,752 5,627,273
Other income . . . . . . . . . . . . . . . . . . . . . 69,358 128,741
----------- ------------
Income before income taxes . . . . . . . . . . . . . . 6,576,110 5,756,014
Provision for income taxes . . . . . . . . . . . . . . 2,669,744 2,359,966
----------- ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 3,906,366 $ 3,396,048
=========== ============
INCOME PER COMMON SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $ .19 $ .17
=========== ============
Weighted average number of common and common
equivalent shares (1) . . . . . . . . . . . . . . . 20,707,080 20,468,820
=========== ============
</TABLE>
(1) Includes 19.5 million common shares outstanding, in addition to 1.2 million
dilutive stock options.
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 1, SEPTEMBER 25,
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 . . . . . . . . . . . . $ 49,631,790 $ 38,205,043
Interest received . . . . . . . . . . . . . . . . . 3,708,139 2,507,526
Cash paid for land acquisitions and real estate
development . . . . . . . . . . . . . . . . . . . . (33,974,546) (27,296,430)
Cash paid to suppliers, employees and sales
representatives . . . . . . . . . . . . . . . . . . (23,635,752) (15,929,555)
Interest paid . . . . . . . . . . . . . . . . . . . (3,927,346) (3,267,116)
Net income taxes paid . . . . . . . . . . . . . . . (1,636,662) (1,772,945)
Proceeds from borrowings collateralized by notes
receivable . . . . . . . . . . . . . . . . . . . . 9,550,943 3,057,065
Net proceeds from REMIC transaction . . . . . . . . 28,688,041 22,706,101
Payments on borrowings collateralized by notes
receivable . . . . . . . . . . . . . . . . . . . . (17,556,417) (10,902,289)
Cash received from 1995 Class C REMIC Certificates. . 68,912 ---
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . 10,917,102 7,307,400
------------- ------------
INVESTING ACTIVITIES:
Net cash flow from purchases and sales of
property and equipment . . . . . . . . . . . . . . (416,526) (952,724)
Additions to other long-term assets . . . . . . . . (77,000) (76,408)
------------- ------------
NET CASH FLOW USED BY INVESTING ACTIVITIES. . . . . . . (493,526) (1,029,132)
------------- ------------
FINANCING ACTIVITIES:
Borrowings under line of credit facilities . . . . . 4,210,000 8,941,904
Payments under line of credit facilities . . . . . . (1,111,898) (5,359,782)
Payments on other long-term debt . . . . . . . . . . (7,083,934) (6,657,350)
Proceeds from exercise of employee stock options . . 129,652 2,694
Payment for dividends in lieu of fractional shares. . --- (2,812)
------------- ------------
NET CASH FLOW USED BY FINANCING ACTIVITIES . . . . . . (3,856,180) (3,075,346)
------------- ------------
Net increase in cash and cash equivalents . . . . . . . 6,567,396 3,202,922
Cash and cash equivalents at beginning of period . . . 7,588,475 9,308,047
------------- ------------
Cash and cash equivalents at end of period . . . . . . $ 14,155,871 $ 12,510,969
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
------------ -------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,906,366 $ 3,396,048
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 863,007 670,335
(Gain)/loss on sale of property and equipment . . . . . . 4,694 (20,366)
Provision for losses . . . . . . . . . . . . . . . . . . 379,942 415,000
Interest accretion on investment in securities . . . . . (755,601) (1,180,692)
Proceeds from borrowings collateralized
by notes receivable net of principal repayments . . . . (8,005,474) (7,845,224)
(INCREASE) DECREASE IN ASSETS:
Contracts receivable . . . . . . . . . . . . . . . . . . . (1,981,989) (1,573,346)
Investment in securities . . . . . . . . . . . . . . . . . 9,361,945 10,661,932
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . (4,720,300) (5,326,700)
Other assets . . . . . . . . . . . . . . . . . . . . . . . 559,711 773,085
Notes receivable . . . . . . . . . . . . . . . . . . . . . 11,860,745 6,586,505
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities and other . . . . (3,225,690) (284,144)
Deferred income taxes . . . . . . . . . . . . . . . . . . . 2,669,746 1,034,967
------------ ------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . $ 10,917,102 $ 7,307,400
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES
Inventory acquired through financing . . . . . . . . . . . $ 6,100,238 $ 9,296,477
============ ============
Inventory acquired through foreclosure or deedback
in lieu of foreclosure, net of recoveries . . . . . . . . $ 873,198 $ 1,117,734
============ ============
Investment in securities retained in
connection with sale of notes receivable . . . . . . . . . $ 2,044,029 $ 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. The results of operations for the three and six month
periods ended October 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 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 together with
land parcels at selected sites. 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 with 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 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.
The Company recognizes revenue on timeshare interval sales 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 October 1,
8
<PAGE> 9
1995, the Company was contingently liable for the outstanding principal balance
of notes receivable previously sold aggregating approximately $1.7 million. As
of such date, 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 $380,000 and $415,000
for the six months ended October 1, 1995 and September 25, 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. See
"Management's Discussion and Analysis of Financial Condition and Uses of
Capital", included under Part I, Item 2 herein, for a further discussion of the
Company's inventories.
<TABLE>
<CAPTION>
OCTOBER 1, 1995 APRIL 2, 1995
--------------- -------------
<S> <C> <C>
Land Division . . . . . . . . . . . . . . $50,226,566 $45,019,943
Communities Division . . . . . . . . . . 13,031,285 13,125,818
Resorts Division . . . . . . . . . . . . 11,822,557 5,240,911
----------- -----------
$75,080,408 $63,386,672
=========== ===========
</TABLE>
6. REMIC TRANSACTION
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. The $68.1
million of loans comprising the Mortgage Pool were previously owned by the
REMIC trust established by the Company in 1992 ($46.8 million) or pledged by a
receivables subsidiary, or the Company, to an institutional lender ($21.3
million). 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
9
<PAGE> 10
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.
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.
The Depositor 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.
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 (i) downpayments on real estate sales which are
financed, (ii) cash sales of real estate, (iii) principal and interest payments
on the purchase money mortgage loans arising from land sales, together with the
contracts for deed arising from sales of timeshare intervals, (collectively
"Receivables") and (iv) 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 along with
borrowings under secured lines of credit. 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 $10.9 million for the six
months ended October 1, 1995 and $7.3 million for the six months ended
September 25, 1994. During the current six month 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 $11.4 million higher than during
the first half of the previous year. However, cash paid for land acquisition
and development increased by $6.7 million. In the prior year, the Company
acquired several large land properties including approximately 22,000 acres in
south central Colorado. In the current year, the Company acquired several
medium size land properties as well as an oceanfront property in Myrtle Beach,
South Carolina for $3.5 million which will be introduced under the Resorts
Division. The increased collections from customers, net of increased spending
on real estate, was further offset by increased cash paid to suppliers and
employees (which include sales representatives) and net income taxes paid.
However, the proceeds from a REMIC transaction completed in the current year
together with borrowings, (net of payments) collateralized by notes, generated
$5.8 million more in cash than during the prior year.
During the six months ended October 1, 1995 and September 25, 1994, the Company
received in cash $44.3 million or 79% and $35.5 million or 78%, 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 notes payable 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 six months ended October 1, 1995 and
September 25, 1994, the Company raised $9.6 million and $3.1 million,
respectively, from the pledge of Receivables. During the six months ended
October 1, 1995 and September 25, 1994, the Company raised an additional $28.7
million and $22.7 million, net of transaction costs and prior to the retirement
of debt, from its 1995 and 1994 REMIC transactions. See Note 6 to the
Consolidated Financial Statements included under Item 1.
11
<PAGE> 12
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. To date,
aggregate repurchases and substitutions 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 October 1, 1995, the
outstanding principal balance under the facility was $12.3 million, comprised
of $8.1 million secured by Receivables and $4.2 million secured by land
inventory. Accordingly, as of October 1, 1995, the Company had the ability to
borrow up to an additional $7.7 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 has
maturities that range from December, 1996 to June, 1998.
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 $714,000 was outstanding as of October 1, 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 October 1, 1995, there was $4.3 million outstanding under the facility
($925,000 was secured by land and $3.4 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. No assurances can be given that such
discussions will be successful. The Company has another credit facility with
this same lender which provides for acquisition, development, construction and
receivables financing on a second timeshare resort located in Pigeon Forge,
Tennessee in the amount of $5.0 million. At October 1, 1995, there was $1.2
million outstanding under the facility and secured by land. To date, no
borrowings have been made against timeshare receivables from the Pigeon Forge
resort. The interest rate charged under the loan agreement is prime plus 2.0%
and the land 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 indebtedness is paid in full. See "Uses of Capital" and "Results of
Operations" below for a further discussion of the Company's Resorts Division.
The Company has received a preliminary commitment from a financial institution
for a $13.5 million secured line of credit for the development of Phase I of
its Myrtle Beach timeshare resort. Any funding under the line of credit would
be subject to customary conditions. (As discussed earlier, the Myrtle Beach
oceanfront property was acquired during the second quarter of fiscal 1996.) The
terms of the development line are currently being finalized with the lender.
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 finance real estate
acquisition and development costs. Interest is charged at a rate of prime plus
2.0%. At October 1, 1995, the outstanding principal balance of borrowings
secured by land inventory totaled $1.1 million. 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. The Company intends to re-borrow under the Receivables portion
of the facility, subject to the availability of eligible collateral, as its
capital requirements dictate. All principal and interest payments received on
pledged Receivables are applied to principal and interest due under the
Receivables portion of this
12
<PAGE> 13
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 October 1,
1995, the Company had the ability to borrow up to an additional $8.9 million
secured by, and subject to the availability of, eligible Receivables and land
inventory under this facility. The facility expires in October, 1998.
In addition to the land and resort financing described above, the Company
established financing for a North Carolina project managed under its
Communities Division. Under the terms of the financing, the lender advanced up
to an aggregate of $5.0 million for development. The ability to borrow under
the facility expired in June, 1995 and is not intended to be renewed. The
indebtedness is 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 October 1, 1995, there
was $380,000 outstanding under the loan. 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 six months ended October 1, 1995 and September 25, 1994, the Company
financed $10.3 million or 23% and $9.3 million or 25%, respectively, of its
property inventory, including acquisition and development costs.
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 $5.6 million at October 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 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 $75.1 million at October 1, 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 October 1, 1995 was
approximately $109.2 million (not including housing unit costs subsequent to
fiscal 1996 or the cost of manufactured homes for units currently not under
contract for sale, which the Company is unable to determine at this time). The
Company anticipates spending $17.2 million of the capital development
requirements over the remaining two quarters of fiscal 1996. The anticipated
cash requirements are allocated to the Company's operating divisions as
follows:
LAND DIVISION The Company expects to spend $34.2 million to improve land
which typically includes expenditures for road and utility construction,
surveys and engineering fees, including $6.0 million to be spent during the
remaining two quarters of fiscal 1996.
COMMUNITIES DIVISION The Company expects to spend $5.5 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. (Because the Company does not
typically engage in speculative home-building, prospective home purchasers are
pre-qualified and a purchase contract exists prior to the Company commencing
unit construction. Accordingly, estimated spending excludes development
associated with future home sales.) The total cash requirement of $5.5 million
are expected to be spent during the remaining two quarters of fiscal 1996.
13
<PAGE> 14
RESORTS DIVISION The Company expects to spend $69.5 million for building
materials, amenities and other infrastructure costs including road and utility
construction, surveys and engineering fees, including $5.7 million to be spent
over the remaining two 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 October 1,
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.
<TABLE>
<CAPTION>
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL
----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Southwest . . . . . . . . . . . $25,846,281 $ 245,965 $ ---- $ 26,092,246
Rocky Mountains . . . . . . . 2,133,465 5,663 --- 2,139,128
West . . . . . . . . . . . . . 3,136,581 --- --- 3,136,581
Midwest . . . . . . . . . . . . 695,087 --- 46,007,616 46,702,703
Southeast . . . . . . . . . . . 1,363,109 5,211,724 23,500,000 30,074,833
Northeast . . . . . . . . . . . 663,424 --- --- 663,424
Mid-Atlantic . . . . . . . . . 381,036 --- --- 381,036
Canada . . . . . . . . . . . . --- --- --- ---
----------- ----------- ----------- ------------
Total estimated spending . . . 34,218,983 5,463,352 69,507,616 109,189,951
Net inventory at
October 1, 1995 . . . . . . . 50,226,979 13,031,285 11,822,144 75,080,408
----------- ----------- ----------- ------------
Total estimated cost basis
of fully developed
inventory . . . . . . . . . $84,445,549 $18,494,637 $81,330,173 $184,270,359
=========== =========== =========== ============
</TABLE>
The Company's net inventory as of October 1, 1995 and April 2, 1995 summarized
by division is set forth in the tables below.
<TABLE>
<CAPTION>
OCTOBER 1, 1995
---------------
GEOGRAPHIC REGION LAND COMMUNITIES (1) RESORTS TOTAL
----------------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Southwest . . . . . $16,046,856 $ 1,210,366 $ --- $17,257,222
Rocky Mountains . 11,162,559 162,726 --- 11,325,285
West (2) . . . . . 5,805,088 --- --- 5,805,088
Midwest . . . . . . 7,842,476 --- 8,205,143 16,047,619
Southeast . . . . . 3,204,867 11,658,193 3,617,001 18,480,061
Northeast . . . . . 2,609,365 --- --- 2,609,365
Mid-Atlantic . . . 3,466,224 --- --- 3,466,224
Canada . . . . . . 89,544 --- --- 89,544
----------- ----------- ----------- -----------
Totals . . . . . . $50,226,979 $13,031,285 $11,822,144 $75,080,408
=========== =========== =========== ===========
</TABLE>
14
<PAGE> 15
<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
Rocky Mountains . . 9,356,508 433,933 --- 9,790,441
West (2) . . . . . . --- --- --- ---
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 October 1, 1995, consisted of land
inventory of $10.2 million and $2.8 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 and the purchase of acreage near Orlando,
Florida for $507,000. The Company did not acquire any additional land
inventory intended to be marketed and sold as part of the Communities
Division during any period of fiscal 1995.
(2) The Company acquired approximately 6,200 acres located near Prescott,
Arizona during fiscal 1996.
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 Rocky Mountain regions of the United States due to anticipated
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 increase in
inventory under the Resorts Division is attributable to the acquisition of an
oceanfront property in Myrtle Beach, South Carolina for $3.5 million along with
further development of existing resorts in Tennessee.
The Company currently maintains inventory valuation reserves which totaled $1.9
million at October 1, 1995 for certain land properties acquired prior to fiscal
1990. During the six months ended October 1, 1995, $273,000 and $160,000 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 six months ended September 25, 1994,
approximately $534,000 and $644,000 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 six months ended October 1, 1995 and September 25, 1994, the Company
received 21% and 22%, respectively, of its consolidated 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 six months ended October 1, 1995, the Company
received 15% of its Resorts Division sales of intervals in the form of
Receivables. Resort Division sales were not material for the six months ended
September 25, 1994.
At October 1, 1995, $13.8 million of Receivables were pledged as collateral to
secure financings of the Company's Receivable Subsidiaries or other Company
indebtedness, while $13.2 million of Receivables were not pledged or
encumbered. 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 reduction in encumbered Receivables at October 1, 1995 was
primarily attributable to the retirement of indebtedness under certain
mortgage-backed debt agreements
15
<PAGE> 16
pursuant to the 1995 REMIC transaction. See Note 6 to the Consolidated
Financial Statements included under Item 1.
At October 1, 1995, approximately 2.7% or $720,000 of the aggregate $28.7
million principal amount of loans which were held by the Company, or by third
parties under financings for which the Company has a recourse liability, were
more than 30 days past due. Of the $28.7 million principal amount of loans,
$27.0 million were held by the Company, while approximately $1.7 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 by third parties under financings for which the Company has a
recourse liability, were more than 30 days past due. The dollar amount of
delinquency has remained level between periods, while delinquency as a percent
of Receivables increased (due to a reduction in notes held). This was the
result of the sale of Receivables under the 1995 REMIC. See Note 6 to the
Consolidated Financial Statements included under Item 1. The Company credits
the consistency in the dollar amount of delinquency to its ongoing program of
expanded collection efforts and strengthened underwriting criteria involved in
the origination and servicing of Receivables.
RESULTS OF OPERATIONS.
Three Months Ended - October 1, 1995
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 with the exception of the Northeast, Canada and certain areas of the
Mid-Atlantic region. A downturn in the economy in general or in the market for
real estate could have a material adverse affect on the Company.
16
<PAGE> 17
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the three months
ended October 1, 1995 and September 25, 1994.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED OCTOBER 1, 1995
----------------------------------
LAND COMMUNITIES RESORTS TOTAL
------------------ --------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real
estate. . . . . . . $26,634 100.0% $3,761 100.0 % $2,863 100.0% $33,258 100.0%
Cost of real estate
sold . . . . . . . 13,013 48.9% 3,301 87.8 % 910 31.8% 17,224 51.8%
------- ----- ------ ----- ------ ----- ------- -----
Gross profit . . . 13,621 51.1% 460 12.2 % 1,953 68.2% 16,034 48.2%
Field selling,
general and
administrative
expense (1) . . . . 7,610 28.5% 828 22.0 % 1,718 60.0% 10,156 30.5%
------- ----- ------ ----- ------ ----- ------- -----
Field operating
profit (loss) (2) . $ 6,011 22.6% $ (368) (9.8)% $ 235 8.2% $ 5,878 17.7%
======= ===== ====== ====== ====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 25, 1994
-------------------------------------
LAND COMMUNITIES RESORTS TOTAL
------------------ --------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real
estate . . . . . . $20,604 100.0% $3,466 100.0% $1,314 100.0 % $25,384 100.0%
Cost of real estate
sold . . . . . . . 8,451 41.0% 3,037 87.6% 394 30.0 % 11,882 46.8%
------- ----- ------ ----- ------ ----- ------- -----
Gross profit . . . 12,153 59.0% 429 12.4% 920 70.0 % 13,502 53.2%
Field selling,
general and
administrative
expense (1) . . . . 6,429 31.2% 325 9.4% 979 74.5 % 7,733 30.5%
------- ----- ------ ----- ------ ----- ------- -----
Field operating
profit (loss) (2) . $ 5,724 27.8% $ 104 3.0% $ (59) (4.5)% $ 5,769 22.7%
======= ===== ====== ===== ====== ===== ======= =====
</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 31% to $33.3 million for the three
months ended October 1, 1995 compared to $25.4 million for the three months
ended September 25, 1994. The discussion and tables to follow set forth
additional information on the business units comprising the consolidated
operating results.
17
<PAGE> 18
LAND DIVISION
The following table sets forth certain information for sales of parcels
associated with the Company's Land Division for the periods indicated, BEFORE
giving effect to the percentage of completion method of accounting. Revenue on
certain CURRENT period transactions has been deferred under the percentage of
completion method of accounting while revenue on certain PRIOR period
transactions has been recognized pursuant to completion of development.
Accordingly, due to the net effect of accounting for sales under the percentage
of completion method, the application of multiplying the number of parcels sold
by the average sales price per parcel yields aggregate sales different than
that reported on the earlier table (outlining sales revenue by business unit
AFTER reflecting deferred revenue).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- -------------
<S> <C> <C>
Number of parcels sold . . . . . . . . . . . . . 649 649
Average sales price per parcel . . . . . . . . . $36,799 $ 32,108
Average sales price per parcel excluding one
large acreage bulk sale in the current period . . $32,998 $ 32,108
Gross margin . . . . . . . . . . . . . . . . . . 51% 59%
</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
------------------
OCTOBER 1, 1995 SEPTEMBER 25, 1994
--------------- ------------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
- ----------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Southwest . . . . 270 $ 38,086 262 $ 35,284
Rocky Mountains. 100 $ 65,370 87 $ 35,745
Midwest . . . . . 93 $ 31,433 87 $ 33,237
Southeast . . . . 82 $ 24,202 86 $ 32,949
Northeast . . . . 28 $ 17,512 40 $ 20,340
Mid-Atlantic . . 73 $ 21,698 80 $ 23,915
Canada . . . . . 3 $ 26,695 7 $ 4,534
--- -------- --- --------
Totals . . . . . 649 $ 36,799 649 $ 32,108
=== ===
</TABLE>
The average sales price per parcel in the Southwest increased during the
current period due to a change in the region's product mix to include more
waterfront parcels which supported higher retail sales prices.
The average sales price per parcel in the Rocky Mountains region increased
during the current quarter due to the sale of larger acreage tracts in two
recently acquired projects located in Colorado. In addition, the current
quarter average sales prices was affected by a single bulk sale constituting
approximately 8,300 acres in Colorado for $2.5 million. The average sales
price per parcel in the Rocky Mountains region, excluding the $2.5 million bulk
sale, was $40,778.
18
<PAGE> 19
The average sales price in the Southeast decreased, in part, because of slow
sales in a new project in South Carolina. This project replaced a former
property in South Carolina which has sold out, but was at the height of its
marketing efforts during the first half of last year. The former project
generated approximately $1.0 million in real estate sales during the prior year
quarter. In addition, a greater number of less expensive parcels were sold
from the Company's North Carolina property during the second quarter of fiscal
1996 versus the comparable period of the prior year. (However, the average
sales price per parcel from the North Carolina property increased for the six
months of fiscal 1996 over the first half of fiscal 1995.)
The Company continues to liquidate its land inventory in the Northeast, Canada
and certain parts of the Mid-Atlantic region. The Company has reduced its
presence in these areas in response to economic conditions and reduced consumer
demand.
The decrease in the average gross margin for the Land Division from 59% for the
quarter last year to 51% for the current quarter was attributable to (i) the
$2.5 million Colorado bulk sale which yielded a gross margin of 40%, (ii) an
overall reduction in gross margins in the Rocky Mountains region from 55% for
the quarter last year to 48% for the current quarter and (iii) a reduction in
gross margins for certain parcels in Mid-Atlantic and Southeast regional
projects which neared sell-out.
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 $2.6 million of net inventory in the Northeast. In addition, the
Company has experienced lower gross margins during the current period in the
Rocky Mountains region (which includes Colorado, Idaho and Montana) due to a
temporary shortage of ready-to-market property in Montana where gross margins
have historically exceeded the Company historical average of 55%. The
reduction in sales volume from Montana property was offset by an increased
number of larger acreage parcel sales from Colorado projects. The Company has
experienced gross margins generally ranging from 40% to 50% on its Colorado
projects and gross margins are generally not expected to exceed 40% on the
remaining Colorado inventories. The Company also owns a land property in New
Mexico (classifed under the Southwest region in the earlier tables). The
Company expects the multi-phase project to generate gross margins ranging from
10% (on the earlier phases) to 85% (on the later phases) with an average gross
margin of 49% for the project. (The 85% gross margin is associated with a
phase intended to be sold in bulk. In the event of a change in strategy, and
the parcel is sold on a retail basis, gross margins may be adversely impacted.)
No assurances can be given that the Company can maintain historical or
anticipated gross margins.
RESORTS DIVISION
During the second quarter of fiscal 1996 and 1995, sales of timeshare intervals
contributed $2.9 million or 9% and $1.3 million or 5%, respectively, of the
Company's total consolidated revenues from the sale of real estate.
The following table sets forth certain information for sales of intervals
associated with the Company's Resorts Division for the periods indicated,
BEFORE giving effect to the percentage of completion method of accounting.
Revenue on certain CURRENT period transactions has been deferred under the
percentage of completion method of accounting while revenue on certain PRIOR
period transactions has been recognized pursuant to completion of development.
Accordingly, due to the net effect of accounting for sales under the percentage
of completion method, the application of multiplying the number of intervals
sold by the average sales price per interval yields aggregate sales different
than that reported on the earlier table (outlining sales revenue by business
unit AFTER reflecting deferred revenue).
19
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- -------------
<S> <C> <C>
Number of intervals sold . . . . . . . . . . . 582 325
Average sales price per interval . . . . . . . $6,831 $6,624
Gross margin . . . . . . . . . . . . . . . . . 68% 70%
</TABLE>
The number of timeshare intervals sold increased to 582 for the current quarter
compared to 325 for the comparable quarter of the previous fiscal year. During
the prior year, all interval sales were generated from the Company's first
resort in Gatlinburg, Tennessee. During the current year quarter, 502
intervals were sold from the Gatlinburg resort and an additional 80 intervals
were sold from the Company's second resort in neighboring Pigeon Forge,
Tennessee.
Gross margins on interval sales decreased from 70% for the second quarter of
last year to 68% for the current quarter. The reduction in gross margins from
the Company's Gatlinburg, Tennessee resort was attributable to additional
development costs incurred on unit construction and certain amenities of the
project.
COMMUNITIES DIVISION
During the second quarter of fiscal 1996, the Company's Communities Division
contributed $3.8 million in sales revenue, or approximately 11% of total
consolidated revenues from the sale of real estate. During the second quarter
of fiscal 1995, the Communities Division generated $3.5 million in sales
revenue, or approximately 14% of total consolidated revenues from the sales of
real estate.
The following table sets forth certain information for sales associated with
the Company's Communities Division for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- -------------
<S> <C> <C>
Number of homes/lots sold . . . . . . . . . . . 57 43
Average sales price . . . . . . . . . . . . . . $65,965 $80,607
Gross margin . . . . . . . . . . . . . . . . . 12% 12%
</TABLE>
The reduction in the average sales price was primarily attributable to a
greater number of lot-only sales in the current quarter. The $3.8 million in
current quarter sales was comprised of 32 manufactured homes with an average
sales price of $73,110, 5 site-built homes with an average sales price of
$205,733 and 20 sales of lots at an average sales price of $19,590. The $3.5
million in prior year second quarter sales was comprised of 41 manufactured
homes with an average sales price of $76,037 and 2 site-built homes with an
average sales price of $174,289. Gross margins remained level during each
period.
20
<PAGE> 21
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 OCTOBER 1, 1995
----------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
- ----------------- ----------- ----------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Southwest . . . . . . $12,607,830 $ 515,165 $ --- $13,122,995 39.5%
Rocky Mountains . . . 6,533,372 182,467 --- 6,715,839 20.2%
Midwest . . . . . . . 3,028,188 --- 2,863,458 5,891,646 17.7%
Southeast . . . . . . 2,318,419 3,062,348 --- 5,380,767 16.2%
Northeast . . . . . . 490,340 --- --- 490,340 1.5%
Mid-Atlantic . . . . 1,576,140 --- --- 1,576,140 4.7%
Canada . . . . . . . 80,086 --- 80,086 .2%
----------- ---------- ---------- ----------- -----
Totals . . . . . . . $26,634,375 $3,759,980 $2,863,458 $33,257,813 100.0%
=========== ========== ========== =========== =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 25, 1994
-------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
----------------- ----------- ----------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Southwest . . . . . . $ 9,804,566 $ 348,577 $ --- $10,153,143 40.0%
Rocky Mountains . . . 3,109,775 1,342,423 --- 4,452,198 17.5%
Midwest . . . . . . . 2,590,903 --- 1,314,402 3,905,305 15.4%
Southeast . . . . . . 2,376,599 1,775,111 --- 4,151,710 16.4%
Northeast . . . . . . 813,600 --- --- 813,600 3.2%
Mid-Atlantic . . . . 1,876,179 --- --- 1,876,179 7.4%
Canada . . . . . . . 31,735 --- --- 31,735 .1%
----------- ---------- ---------- ----------- ------
Totals . . . . . . . $20,603,357 $3,466,111 $1,314,402 $25,383,870 100.0%
=========== ========== ========== =========== ======
</TABLE>
Interest income increased 24% to $2.2 million for the second quarter of fiscal
1996 compared to $1.8 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 cash equivalents. Interest
income for the current period was also positively affected by the sales of
receivables in 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
------------------
OCTOBER 1, SEPTEMBER 25,
INTEREST INCOME AND OTHER: 1995 1994
- -------------------------- ---------- -------------
<S> <C> <C>
Receivables held and servicing fees
from whole-loan sales . . . . . . . . . . . $ 622,430 $ 992,828
Securities retained in connection with REMIC
financings including REMIC servicing fee . 248,288 613,376
Gain (loss) on REMIC transaction . . . . . . . 1,119,572 ---
Cash and cash equivalents . . . . . . . . . . . 187,005 149,554
---------- ----------
Totals . . . . . . . . . . . . . . . . . . . . $2,177,295 $1,755,758
========== ==========
</TABLE>
The Company completed its most recent REMIC transaction in July, 1995. The
$68.1 million of loans comprising the Mortgage Pool were previously owned by
the REMIC trust established by the Company in 1992 ($46.8 million) or pledged
by a receivables subsidiary, or the Company, to an institutional lender ($21.3
million). Because of more favorable terms offered under the 1995 REMIC, the
Company retired the securities issued pursuant to the 1992 REMIC and included
substantially all of the Receivables in the current year REMIC transaction.
The Company recorded a pre-tax gain of $1.1 million on the 1995 REMIC
transaction. The current quarter REMIC gain was partially offset by reduced
interest income due to both lower (i) average Receivables held for the current
quarter and (ii) average securities held for the current quarter (due to the
21
<PAGE> 22
retirement of securities issued pursuant to the Company's 1992 REMIC). See
also Note 6 to the Consolidated Financial Statements included under Part I,
Item 1.
S,G&A expense totaled $12.2 million and $9.9 million for the three months ended
October 1, 1995 and September 25, 1994, respectively. A significant portion of
S,G&A 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 decreased from 39% for the
quarter last to 37% for the current year quarter. The reduction as a percent
of sales was largely the result of holding corporate general and administrative
expenses level between periods, offset by an increase in S,G&A expenses for the
Communities Division.
Interest expense totaled $1.9 million and $1.7 million for the second quarter
of fiscal 1996 and 1995, respectively. The increase in interest expense for
the current period was primarily attributable to an increase in the average
outstanding indebtedness of the Company.
The Company recorded provisions for loan losses totaling $225,000 and $250,000
for the three months ended October 1, 1995 and September 25, 1994,
respectively. During the second quarter of fiscal 1996 and 1995, the Company
charged-off $164,000 and $217,000, respectively, to its reserve for loan
losses.
Income from consolidated operations was $3.9 million and $3.5 million for the
three months ended October 1, 1995 and September 25, 1994, respectively. The
improvement for the current quarter was primarily the result of increased sales
of real estate, partially offset by lower gross margins. Furthermore, net
interest spread (representing the difference between interest income and
interest expense) increased by approximately $218,000.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for the
second quarters of fiscal 1996 and 1995 was not material to the Company s
results of operations.
The Company recorded a tax provision of 41% of pre-tax income for both the
quarters ended October 1, 1995 and September 25, 1994.
Net income was $2.3 million and $2.1 million for the three months ended October
1, 1995 and September 25, 1994, respectively.
22
<PAGE> 23
RESULTS OF OPERATIONS.
Six Months Ended - October 1, 1995
The following tables set forth selected financial data for the business units
comprising the consolidated operations of the Company for the six months ended
October 1, 1995 and September 25, 1994.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED OCTOBER 1, 1995
--------------------------------
LAND COMMUNITIES RESORTS TOTAL
----------------- --------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate . $45,066 100.0% $ 7,379 100.0 % $5,454 100.0% $57,899 100.0%
Cost of real estate
sold . . . . . . . . . 21,227 47.1% 6,489 87.9 % 1,699 31.2% 29,415 50.8%
------- ----- ------- ----- ------ ----- ------- -----
Gross profit . . . . . 23,839 52.9% 890 3,755 68.8% 28,484 49.2%
12.1 %
Field selling, general
and administrative
expense (1) . . . . . .
13,609 30.2% 1,409 19.1 % 3,449 63.2% 18,467 31.9%
------- ----- -------- ----- ------ ----- ------- -----
Field operating profit
(loss) (2) . . . . . . $10,230 22.7% $ (519) (7.0)% $ 306 5.6% $10,017 17.3%
======= ===== ======== ===== ====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SEPTEMBER 25, 1994
------------------------------------
LAND COMMUNITIES RESORTS TOTAL
----------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate . $39,296 100.0% $ 6,269 100.0% $1,863 100.0 % $47,428 100.0%
Cost of real estate
sold . . . . . . . . . 16,734 42.6% 5,300 84.5% 580 31.1 % 22,614 47.7%
------- ----- ------- ----- ------ ------ ------- -----
Gross profit . . . . . 22,562 57.4% 969 15.5% 1,283 68.9 % 24,814 52.3%
Field selling, general
and administrative
expense (1) . . . . . . 11,698 29.8% 931 14.9% 1,662 89.2 % 14,291 30.1%
------- ----- ------- ----- ------ ------ ------- -----
Field operating
profit (loss) (2) . . . $10,864 27.6% $ 38 .6% $ (379) (20.3)% $10,523 22.2%
======= ===== ======= ===== ====== ====== ======= =====
</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 22% to $57.9 million for the six
months ended October 1, 1995 compared to $47.4 million for the six months ended
September 25, 1994. The discussion and tables to follow set forth additional
information on the business units comprising the consolidated operating
results.
LAND DIVISION
The following table sets forth certain information for sales of parcels
associated with the Company's Land Division for the periods indicated, BEFORE
giving effect to the percentage of completion method of accounting.
23
<PAGE> 24
Revenue on certain CURRENT period transactions has been deferred under the
percentage of completion method of accounting while revenue on certain PRIOR
period transactions has been recognized pursuant to completion of development.
Accordingly, due to the net effect of accounting for sales under the percentage
of completion method, the application of multiplying the number of parcels sold
by the average sales price per parcel yields aggregate sales different than
that reported on the earlier table (outlining sales revenue by business unit
AFTER reflecting deferred revenue).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- -------------
<S> <C> <C>
Number of parcels sold . . . . . . . . . . . . 1,144 1,262
Average sales price per parcel . . . . . . . . $35,429 $31,471
Average sales price per parcel excluding one
large acreage bulk sale in the current period . $33,273 $31,471
Gross margin . . . . . . . . . . . . . . . . . 53% 57%
</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>
SIX MONTHS ENDED
----------------
OCTOBER 1, 1995 SEPTEMBER 25, 1994
--------------- ------------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
- ----------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Southwest . . . . . . 492 $ 38,608 558 $ 34,626
Rocky Mountains . . . 148 $ 54,997 151 $ 35,104
Midwest . . . . . . . 155 $ 34,164 180 $ 30,643
Southeast . . . . . . 123 $ 32,236 158 $ 30,744
Northeast . . . . . . 75 $ 11,861 66 $ 22,306
Mid-Atlantic . . . . 141 $ 22,034 137 $ 22,872
Canada . . . . . . . 10 $ 13,897 12 $ 9,627
----- -------- ----- --------
Totals . . . . . . . 1,144 $ 35,429 1,262 $ 31,471
===== =====
</TABLE>
The average sales price per parcel in the Southwest increased during the
current period due to a change in the region's product mix to include more
waterfront parcels which supported higher retail sales prices. The reduction
in parcels sold during the current year was attributable to a shortage of
ready-to-market property during the first fiscal quarter (the second quarter of
fiscal 1996 yielded slightly more parcel sales than the comparable prior year
period).
The average sales price per parcel in the Rocky Mountains region increased
during the current six month period due to the sale of larger acreage tracts in
two recently acquired projects located in Colorado. In addition, during the
three months ended October 1, 1995, the average sales price was affected by a
single bulk sale constituting approximately 8,300 acres in Colorado for $2.5
million. The average sales price per parcel in the Rocky Mountains region,
excluding the $2.5 million bulk sale, was $38,364.
24
<PAGE> 25
The average sales price per parcel in the Midwest also increased during the
current six month period. During the prior year, certain promotional pricing
was offered to customers in connection with the introduction of two water-front
properties (primarily during the first quarter of last year).
The number of parcels sold in the Southeast decreased because of slow sales in
a new project in South Carolina. This project replaced a former property in
South Carolina which has sold out, but was at the height of its marketing
efforts during the first half of last year. The former project produced 65
sales for $2.2 million last year, while the new South Carolina project
produced 16 sales for $741,000 this year.
The Company continues to liquidate its land inventory in the Northeast, Canada
and certain parts of the Mid-Atlantic region. The Company has reduced its
presence in these areas in response to economic conditions and reduced consumer
demand.
The decrease in the average gross margin for the Land Division from 57% for the
six months last year to 53% for the current six month period was attributable
to (i) the $2.5 million Colorado bulk sale which yielded a gross margin of 40%,
(ii) an overall reduction in gross margins in the Rocky Mountains region from
55% for the six month period last year to 50% for the current year and (iii) a
reduction in gross margins for certain parcels in Mid-Atlantic and Southeast
regional projects which neared sell-out.
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 $2.6 million of net inventory in the Northeast. In addition, the
Company has experienced lower gross margins during the current year in the
Rocky Mountains region (which includes Colorado, Idaho and Montana) due to a
temporary shortage of ready-to-market property in Montana where gross margins
have historically exceeded the Company's historical average of 55%. The
reduction in sales volume from Montana property was offset by an increased
number of larger acreage parcel sales from Colorado projects. The Company has
experienced gross margins generally ranging from 40% to 50% on its Colorado
projects and gross margins are generally not expected to exceed 40% on the
remaining Colorado inventories. The Company also owns a land property in New
Mexico (classifed under the Southwest region in the earlier tables). The
Company expects the multi-phase project to generate gross margins ranging from
10% (on the earlier phases) to 85% (on the later phases) with an average gross
margin of 49% for the project. (The 85% gross margin is associated with a
phase intended to be sold in bulk. In the event of a change in strategy, and
the parcel is sold on a retail basis, gross margins may be adversely impacted.)
No assurances can be given that the Company can maintain historical or
anticipated gross margins.
RESORTS DIVISION
During the six month periods of fiscal 1996 and 1995, sales of timeshare
intervals contributed $5.5 million or 9% and $1.9 million or 4%, respectively,
of the Company's total consolidated revenues from the sale of real estate.
The following table sets forth certain information for sales of intervals
associated with the Company's Resorts Division for the periods indicated,
BEFORE giving effect to the percentage of completion method of accounting.
Revenue on certain CURRENT period transactions has been deferred under the
percentage of completion method of accounting while revenue on certain PRIOR
period transactions has been recognized pursuant to completion of development.
Accordingly, due to the net effect of accounting for sales under the percentage
of completion method, the application of multiplying the number of intervals
sold by the average sales price per interval yields aggregate sales different
than that reported on the earlier table (outlining sales revenue by business
unit AFTER reflecting deferred revenue).
25
<PAGE> 26
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- ------------
<S> <C> <C>
Number of intervals sold . . . . . . . . . . . 890 398
Average sales price per interval . . . . . . . $7,207 $6,787
Gross margin . . . . . . . . . . . . . . . . . 69% 70%
</TABLE>
The number of timeshare intervals sold increased to 890 for the current six
month period compared to 398 for the comparable six month period of the
previous year. During the prior year, all interval sales were generated from
the Company's first resort in Gatlinburg, Tennessee. During the current six
month period, 810 intervals were sold from the Gatlinburg resort and an
additional 80 intervals were sold from the Company's second resort in
neighboring Pigeon Forge, Tennessee.
Gross margins on interval sales decreased from 70% for the six month period
last year to 69% for the current year six month period. The reduction in gross
margins from the Company's Gatlinburg, Tennessee resort was attributable to
additional development costs incurred on unit construction and certain
amenities of the project.
COMMUNITIES DIVISION
During the six month period of fiscal 1996, the Company's Communities Division
contributed $7.4 million in sales revenue, or approximately 13% of total
consolidated revenues from sales of real estate. During the six month period of
fiscal 1995, the Communities Division generated $6.3 million in sales revenue,
or approximately 13% of total consolidated revenues from the sale of real
estate.
The following table sets forth certain information for sales associated with
the Company's Communities Division for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
OCTOBER 1, SEPTEMBER 25,
1995 1994
---------- -------------
<S> <C> <C>
Number of homes/lots sold . . . . . . . . . . . 96 80
Average sales price . . . . . . . . . . . . . . $76,859 $78,365
Gross margin . . . . . . . . . . . . . . . . . 12% 16%
</TABLE>
The $7.4 million in current year sales was comprised of 54 manufactured homes
with an average sales price of $72,834, 12 site-built homes with an average
sales price of $234,715 and 30 sales of lots only at an average sales price of
$20,962. The $6.3 million in prior year sales was comprised of 76 manufactured
homes with an average sales price of $73,512 and 4 site-built homes with an
average sales price of $170,569.
The decrease in the average gross margin from 16% for the prior year six month
period to 12% for the current six month period reflects a change in the product
mix to include a greater number of manufactured home sales from a project
located in the Southeast. This Southeastern project yielded lower gross
margins than the Company's manufactured home project in the Rocky Mountains
region which currently nears sell-out but was at the height of marketing
efforts during the first half of last year.
26
<PAGE> 27
The tables set forth below outline sales by geographic region and division for
the six months ended on the dates indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 1, 1995
--------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORT TOTAL %
- ----------------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Southwest . . . . . . $22,081,310 $1,041,782 $ --- $23,123,092 39.9%
Rocky Mountains . . . 8,135,963 284,417 --- 8,420,380 14.5%
Midwest . . . . . . . 6,102,669 --- 5,454,433 11,557,102 20.0%
Southeast . . . . . . 4,298,849 6,052,294 --- 10,351,143 17.9%
Northeast . . . . . . 889,540 --- --- 889,540 1.5%
Mid-Atlantic . . . . 3,418,848 --- --- 3,418,848 5.9%
Canada . . . . . . . 138,972 --- --- 138,972 .3%
----------- ---------- ---------- ----------- ------
Totals . . . . . . . $45,066,151 $7,378,493 $5,454,433 $57,899,077 100.0%
=========== ========== ========== =========== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 25, 1994
-----------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORT TOTAL %
- ----------------- ---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Southwest . . . . . . $19,202,003 $ 682,277 $ --- $ 19,884,280 41.9%
Rocky Mountains . . . 5,300,643 2,528,788 --- 7,829,431 16.5%
Midwest . . . . . . . 5,214,979 --- 1,862,792 7,077,771 14.9%
Southeast . . . . . . 4,857,528 3,058,142 --- 7,915,670 16.7%
Northeast . . . . . . 1,472,200 --- --- 1,472,200 3.1%
Mid-Atlantic . . . . 3,133,479 --- --- 3,133,479 6.6%
Canada . . . . . . . 115,528 --- --- 115,528 .3%
----------- ---------- ---------- ------------ -------
Totals . . . . . . . $39,296,360 $6,269,207 $1,862,792 $ 47,428,359 100.0%
=========== ========== ========== ============ =======
</TABLE>
Interest income increased 36% to $4.4 million for the six month period of
fiscal 1996 compared to $3.2 million for the six month period of fiscal 1995.
The Company's interest income is earned from its mortgage note receivables,
securities retained pursuant to REMIC financings and cash and cash equivalents.
Interest income for each period was also affected by the sale of receivables in
REMIC transactions. The table set forth below outlines interest income earned
from each category of asset for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 1, SEPTEMBER 25,
INTEREST INCOME AND OTHER: 1995 1994
- -------------------------- ---------- -------------
<S> <C> <C>
Receivables held and servicing fees
from whole-loan sales . . . . . . . . . . . $2,056,492 $2,045,025
Securities retained in connection with REMIC
financings including REMIC servicing fee . 937,824 1,254,115
Gain (loss) on REMIC transaction . . . . . . . 1,119,572 (411,300)
Cash and cash equivalents . . . . . . . . . . . 250,342 318,842
---------- ----------
Totals . . . . . . . . . . . . . . . . . . . . $4,364,230 $3,206,682
========== ==========
</TABLE>
The Company completed its most recent REMIC transaction in July, 1995. The
$68.1 million of loans comprising the Mortgage Pool were previously owned by
the REMIC trust established by the Company in 1992 ($46.8 million) or pledged
by a receivables subsidiary, or the Company, to an institutional lender ($21.3
million). Because of more favorable terms offered under the 1995 REMIC, the
Company retired the securities issued pursuant to the 1992 REMIC and included
substantially all of the Receivables in the current year REMIC transaction.
The Company recorded a pre-tax gain of $1.1 million on the 1995 REMIC
transaction. The current year REMIC gain was partially offset by reduced
interest income due to both lower (i) average securities held for the period
(due to the retirement of securities issued pursuant to the Company's 1992
REMIC) and (ii) average cash and cash equivalents. The Company recorded a loss
of $411,300 in connection
27
<PAGE> 28
with the 1994 REMIC transaction completed in May, 1994. See also Note 6 to the
Consolidated Financial Statements included under Part I, Item 1.
S,G&A expense totaled $22.1 million and $18.5 million for the six months ended
October 1, 1995 and September 25, 1994, respectively. A significant portion of
S,G&A 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 decreased slightly from 39%
for the six months last year to 38% for the current six month period. The
decrease as a percent of sales was largely the result of holding corporate
general and administrative expenses level between periods, offset by an
increase in S,G&A expenses for the Communities Division.
Interest expense totaled $3.8 million and $3.4 million for the six month
periods of fiscal 1996 and 1995, respectively. The increase in interest
expense for the current year was primarily attributable to an increase in the
average outstanding indebtedness of the Company.
The Company recorded provisions for loan losses totaling $380,000 and $415,000
for the six months ended October 1, 1995 and September 25, 1994, respectively.
During the six month periods of fiscal 1996 and 1995, the Company charged-off
$289,000 and $435,000 respectively, to its reserve for loan losses.
Income from consolidated operations was $6.5 million and $5.6 million for the
six months ended October 1, 1995 and September 25, 1994, respectively. The
improvement for the current year was primarily the result of increased sales of
real estate, partially offset by lower gross margins. Furthermore, net
interest spread (representing the difference between interest income and
interest expense) increased by approximately $750,000.
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 half of fiscal 1996 and 1995 was not material to the Company's results of
operations.
The Company recorded a tax provision of 41% of pre-tax income for both the six
months ended October 1, 1995 and September 25, 1994.
Net income was $3.9 million and $3.4 million for the six months ended October
1, 1995 and September 25, 1994, respectively.
28
<PAGE> 29
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.
The results are set forth below.
<TABLE>
<CAPTION>
SHARES 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 a director 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 Directors 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 broker non-votes.
29
<PAGE> 30
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 -- Financial Data Schedule (for SEC use only).
(b) 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 competed on July 12, 1995.
30
<PAGE> 31
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: November 15, 1995 By: /S/ GEORGE F. DONOVAN
----------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: November 15, 1995 By: /S/ ALAN L. MURRAY
----------------------------------
Alan L. Murray
Treasurer and Chief Financial
Officer (Principal Financial
Officer)
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD ENDING OCTOBER 1, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED UNDER PART I, ITEM 1.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-02-1996
<PERIOD-START> APR-03-1995
<PERIOD-END> OCT-01-1995
<CASH> 14,155,871
<SECURITIES> 9,491,573
<RECEIVABLES> 41,188,627
<ALLOWANCES> 0
<INVENTORY> 75,080,408
<CURRENT-ASSETS> 5,212,052
<PP&E> 5,111,513
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,240,044
<CURRENT-LIABILITIES> 11,201,909
<BONDS> 76,962,141
<COMMON> 195,220
0
0
<OTHER-SE> 61,880,774
<TOTAL-LIABILITY-AND-EQUITY> 150,240,044
<SALES> 57,899,077
<TOTAL-REVENUES> 62,332,665
<CGS> 29,414,737
<TOTAL-COSTS> 29,414,737
<OTHER-EXPENSES> 22,114,032
<LOSS-PROVISION> 379,942
<INTEREST-EXPENSE> 3,847,844
<INCOME-PRETAX> 6,576,110
<INCOME-TAX> 2,669,744
<INCOME-CONTINUING> 3,906,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,906,366
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
