<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 December 31, 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
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(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
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(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 26, 1996, there were 19,541,475 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
ITEM 1. FINANCIAL STATEMENTS PAGE
----
CONSOLIDATED BALANCE SHEETS AT
DECEMBER 31, 1995 AND APRIL 2, 1995................ 3
CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS
ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995........ 4
CONSOLIDATED STATEMENTS OF INCOME - NINE MONTHS
ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995........ 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995........ 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.................................... 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................... 29
SIGNATURES.................................................... 30
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
(UNAUDITED)
DECEMBER 31, APRIL 2,
ASSETS 1995 1995
------------- -------------
<S> <C> <C>
Cash and cash equivalents (including restricted cash of
approximately $8.2 million and $5.2 million at
December 31, 1995 and April 2, 1995, respectively)... $ 10,210,031 $ 7,588,475
Contracts receivable, net.............................. 10,010,928 13,051,254
Notes receivable, net.................................. 31,866,716 39,269,269
Investment in securities............................... 9,592,741 18,097,917
Inventory, net......................................... 76,919,006 63,386,672
Property and equipment, net............................ 4,951,919 4,801,824
Debt issuance costs.................................... 1,151,944 1,739,555
Other assets........................................... 5,314,174 4,287,393
------------ ------------
TOTAL ASSETS......................................... $150,017,459 $152,222,359
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable....................................... $ 1,939,924 $3,134,753
Accrued liabilities and other.......................... 5,340,021 11,292,846
Lines of credit and notes payable...................... 19,223,040 20,431,346
Deferred income taxes.................................. 8,423,974 5,069,719
Mortgage-backed notes payable.......................... 17,256,802 19,514,718
Commitments and contingencies.......................... --- ---
8.25% convertible subordinated debentures.............. 34,739,000 34,739,000
------------ ------------
TOTAL LIABILITIES.................................... 86,922,761 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; 19,537,515 and 19,470,734 shares
outstanding at December 31, 1995 and April 2, 1995,
respectively......................................... 195,375 194,707
Capital-in-excess of par value......................... 67,002,263 66,839,599
Retained earnings (deficit)............................ (4,102,940) (8,994,329)
------------ ------------
Total shareholders' equity............................. 63,094,698 58,039,977
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $150,017,459 $152,222,359
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------------ ------------------
<S> <C> <C>
REVENUES:
Sales of real estate........................ $23,934,805 $19,253,999
Interest income and other................... 1,482,850 1,974,408
----------- -----------
25,417,655 21,228,407
COST AND EXPENSES:
Cost of real estate sold.................... 13,130,540 9,783,941
Selling, general and administrative expense. 9,285,063 8,207,234
Interest expense............................ 1,263,843 1,619,482
Provision for losses........................ 120,000 187,000
----------- -----------
23,799,446 19,797,657
----------- -----------
Income from operations...................... 1,618,209 1,430,750
Other income................................ 51,323 63,337
----------- -----------
Income before income taxes.................. 1,669,532 1,494,087
Provision for income taxes.................. 684,508 612,576
----------- -----------
NET INCOME.................................. $ 985,024 $ 881,511
=========== ===========
INCOME PER COMMON SHARE:
Net income.................................. $ .05 $ .04
=========== ===========
Weighted average number of common and common
equivalent shares (1)..................... 20,800,435 20,427,156
=========== ===========
</TABLE>
(1) The current three month period includes 19,537,515 average common
shares outstanding plus 1,262,920 average dilutive stock options. The
prior year three month period includes 19,437,936 average common shares
outstanding plus 989,220 average dilutive stock options.
See accompanying notes to consolidated financial statements.
4
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PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------------- -------------------
<S> <C> <C>
REVENUES:
Sales of real estate........................ $81,833,882 $66,682,358
Interest income and other................... 5,847,081 5,181,090
----------- -----------
87,680,963 71,863,448
COST AND EXPENSES:
Cost of real estate sold.................... 42,545,277 32,398,208
Selling, general and administrative expense. 31,399,095 26,745,945
Interest expense............................ 5,111,687 5,059,272
Provision for losses........................ 499,942 602,000
----------- -----------
79,556,001 64,805,425
----------- -----------
Income from operations...................... 8,124,962 7,058,023
Other income................................ 120,680 192,078
----------- -----------
Income before income taxes.................. 8,245,682 7,250,101
Provision for income taxes.................. 3,354,253 2,972,542
----------- -----------
NET INCOME.................................. $ 4,891,389 $ 4,277,559
=========== ===========
INCOME PER COMMON SHARE:
Net income.................................. $ .24 $.21
=========== ===========
Weighted average number of common and common
equivalent shares (1)..................... 20,772,019 20,454,932
=========== ===========
</TABLE>
(1) The current nine month period includes 19,523,524 average common shares
outstanding plus 1,248,495 average dilutive stock options. The prior year
nine month period includes 19,434,653 average common shares outstanding
plus 1,020,279 average dilutive stock options.
See accompanying notes to consolidated financial statements.
5
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PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------------ -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers including net
cash collected as servicer of notes receivable
to be remitted to investors......................... $ 71,410,181 $ 56,736,844
Interest received..................................... 4,922,563 3,912,864
Cash paid for land acquisitions and real estate
development......................................... (47,093,316) (33,896,012)
Cash paid to suppliers, employees and sales
representatives..................................... (35,815,654) (27,171,450)
Interest paid......................................... (5,615,154) (5,450,966)
Net income taxes paid................................. (2,396,839) (2,318,179)
Proceeds from borrowings collateralized by notes
receivable.......................................... 14,464,206 6,304,246
Net proceeds from REMIC transaction................... 28,688,041 22,706,101
Payments on borrowings collateralized by notes
receivable.......................................... (16,722,122) (12,536,898)
Cash received from 1995 Class C REMIC Certificates.... 172,726 ---
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 12,014,632 8,286,550
------------ ------------
INVESTING ACTIVITIES:
Net cash flow from purchases and sales of
property and equipment.............................. (476,190) (1,330,033)
Additions to other long-term assets................... (157,000) (248,474)
------------ ------------
NET CASH FLOW USED BY INVESTING ACTIVITIES............ (633,190) 1,578,507)
------------ ------------
FINANCING ACTIVITIES:
Borrowings under line of credit facilities............ 4,210,000 5,067,305
Payments under line of credit facilities.............. (2,564,111) (5,588,070)
Payments on other long-term debt...................... (10,569,107) (10,839,994)
Proceeds from exercise of employee stock options...... 163,332 9,414
Payment for dividends in lieu of fractional shares.... --- (2,812)
------------ ------------
NET CASH FLOW USED BY FINANCING ACTIVITIES............ (8,759,886) (11,354,157)
------------ ------------
Net increase (decrease) in cash and cash equivalents.. 2,621,556 (4,646,114)
Cash and cash equivalents at beginning of period...... 7,588,475 9,308,047
------------ ------------
Cash and cash equivalents at end of period............ $ 10,210,031 $ 4,661,933
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------ ---------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income........................................ $ 4,891,389 $ 4,277,559
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation and amortization................... 1,175,264 970,670
Loss on sale of property and equipment.......... 43,109 24,066
Provision for losses............................ 499,942 602,000
Interest accretion on investment in securities.. (960,583) (1,539,923)
Proceeds from borrowings collateralized
by notes receivable net of principal repayments (2,257,916) (6,232,652)
(INCREASE) DECREASE IN ASSETS:
Contracts receivable.............................. 3,040,326 1,295,806
Investment in securities.......................... 9,465,759 10,475,856
Inventory......................................... (4,708,530) (2,557,665)
Other assets...................................... (745,766) 987,252
Notes receivable.................................. 5,365,037 2,390,164
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities and other (7,147,654) (3,454,126)
Deferred income taxes............................. 3,354,255 1,047,543
------------ ------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES.... $ 12,014,632 $ 8,286,550
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES
Inventory acquired through financing.............. $ 7,286,230 $ 18,527,174
============ ============
Inventory acquired through foreclosure or deedback
in lieu of foreclosure, net of recoveries....... $ 1,573,574 $ 957,140
============ ============
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 nine month periods ended December 31, 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 certain sites. Revenue recognition for
each of the Company's operating divisions is discussed below.
LAND DIVISION
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 includes transactions with investors and developers,
including large-acreage bulk sales. 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.
RESORTS DIVISION
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.
8
<PAGE> 9
COMMUNITIES DIVISION
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 (which arose from land sales)
to banks and financial institutions to supplement its liquidity. At
December 31, 1995, the Company was contingently liable for the outstanding
principal balance of notes receivable previously sold aggregating
approximately $1.4 million. As of such date, delinquency on these loans
was not material. In most cases, the recourse from the purchaser 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 $500,000 and
$602,000 for the nine months ended December 31, 1995 and January 1, 1995,
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>
DECEMBER 31, 1995 APRIL 2, 1995
----------------- -------------
<S> <C> <C>
Land Division............................................... $48,909,161 $45,019,943
Communities Division........................................ 14,389,633 13,125,818
Resorts Division ........................................... 13,620,212 5,240,911
----------------- -------------
$76,919,006 $63,386,672
================= =============
</TABLE>
6. REMIC TRANSACTION
On July 12, 1995, the Company completed a private placement transaction
elected to be treated as a Real Estate Mortgage Investment Conduit
("REMIC"), pursuant to which 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
9
<PAGE> 10
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 held by the Company or pledged 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 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 from the transaction was
approximately $1.1 million and the after-tax gain was $672,000.
The Company acts as servicer under the Pooling Agreement and is 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.
7. OTHER DEVELOPMENTS
The Company has called a special meeting of shareholders to be held on
February 15, 1996. The purpose of the meeting is to seek shareholder
approval for an amendment to the Company's Restated Articles of
Organization, as amended, changing the name of the Company to Bluegreen
Corporation.
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 $12.0 million for the
nine months ended December 31, 1995 and $8.3 million for the nine months
ended January 1, 1995. During the current nine month period sales of real
estate increased over the comparable period of the prior year.
Accordingly, cash received from customers on the Consolidated Statement of
Cash Flow was $14.7 million higher than during the nine months last year.
In addition, the proceeds from a REMIC transaction completed in the current
year together with borrowings, (net of payments) collateralized by notes,
generated $10.0 million more in cash than during the prior year. However,
cash paid for land acquisition and development increased by $13.2 million
during the current period over the comparable period last year. 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. In the prior
year, the Company acquired several large land properties including
approximately 22,000 acres in south central Colorado. In addition to
higher acquisition and development spending, cash paid to suppliers and
employees (which include sales representatives) increased by $8.6 million.
During the nine months ended December 31, 1995 and January 1, 1995, the
Company received in cash $65.6 million or 70% and $51.4 million or 76%,
respectively, of its sales of real estate that closed during these periods.
The decrease in the percentage of cash received is primarily attributable
to an increase in timeshare sales over the comparable period last year.
Timeshare sales accounted for 12% of consolidated sales of real estate
during the nine months ended December 31, 1995, compared to 5% of
consolidated sales for the same period last year. Furthermore,
approximately 85% of the principal balance of timeshare sales has
historically been internally financed by the Company. Management expects
that in upcoming quarters, the percentage of sales received in cash may
decrease further due to the recent introduction of a fixed interest rate
program offered to qualified land customers along with anticipated
increases in timeshare sales as a percentage of consolidated sales.
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 nine months ended December 31, 1995 and January 1, 1995, the Company
raised $14.5 million and $6.3 million, respectively, from the pledge of
Receivables. During the nine months ended December 31, 1995 and January 1,
1995, 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.
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<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 December 31, 1995, the outstanding
principal balance under the facility was $10.8 million, comprised of $7.4
million secured by Receivables and $3.4 million secured by land inventory.
Accordingly, as of December 31, 1995, the Company had the ability to borrow
up to an additional $9.2 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 $140,000 was outstanding as of December 31, 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. The interest rate charged under the facility is prime plus
2.25%. At December 31, 1995, there was $7.2 million outstanding under the
facility, comprised of $600,000 secured by land and $6.6 million secured by
timeshare receivables. The ability to borrow under the facility expired in
June, 1995 and the indebtedness is due December, 1997. The Company has
received a commitment from the lender to increase the borrowings available
under the facility to $20 million and to renew the revolver. Any funding
under the line of credit would be subject to customary conditions.
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 December 31, 1995, there was $1.2
million outstanding under the facility 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 commitment from a South Carolina financial
institution for a $13.5 million secured line of credit for the construction
and development of Phase I of its Myrtle Beach timeshare resort. (As
discussed earlier, the Myrtle Beach oceanfront property was acquired during
the second quarter of fiscal 1996 and Phase I consists of 114 residential
units.) The terms of the development line are currently being finalized
with the lender and any funding under the facility will be subject to
customary conditions.
The Company is also engaged in discussions with another financial
institution to finalize the terms of a $10 million facility for the pledge
of timeshare Receivables, in addition to a $13.5 million inventory loan to
"take-out" the construction lender discussed in the preceding paragraph.
Any funding under the facility will be subject to customary conditions.
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
12
<PAGE> 13
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 December 31, 1995, the outstanding principal
balance under the facility was $3.9 million, comprised of $3.2 million
secured by Receivables and $691,000 secured by land inventory.
Accordingly, as of December 31, 1995, the Company had the ability to borrow
up to an additional $6.1 million secured by, and subject to the
availability of, eligible Receivables and land inventory. All principal
and interest payments received on pledged Receivables are applied to
principal and interest due under the Receivables portion of this facility.
The Company is required to pay the financial institution 55% of the
contract price of land sales associated with pledged inventory when any
such inventory is sold until the land indebtedness is paid in full. 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 was
committed to advance 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 December 31, 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 nine months ended December 31, 1995 and January 1, 1995, the
Company financed $11.5 million or 20% and $18.5 million or 44%,
respectively, of its property inventory, including acquisition and
development costs. The increase in the percentage of acquisition and
development costs paid in cash reflects additional internal capital
generated from the proceeds of a REMIC transaction. See Note 6 to the
Consolidated Financial Statements included under Item I.
In addition to the sources of capital available under credit facilities
discussed above, the balance of the Company's unrestricted cash and cash
equivalents was $2.0 million at December 31, 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) acquiring and developing 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 $76.9 million at December 31, 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 December
31, 1995 was approximately $104.7 million (not including housing unit costs
subsequent to fiscal 1996 or the cost of manufactured/module homes for
units not yet under development and contract for sale, which the Company is
unable to determine at this time). The Company anticipates spending $13.9
million of the capital development requirements over the remaining quarter
of fiscal 1996. The anticipated cash requirements are allocated to the
Company's operating divisions as follows:
Land Division The Company expects to spend $31.2 million to improve land
which typically includes expenditures for road and utility construction,
surveys and engineering fees, including $6.6 million to be spent during the
remaining quarter of fiscal 1996.
13
<PAGE> 14
Communities Division The Company expects to spend $2.8 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. The Company attempts
to pre-qualify prospective home purchasers and secures a purchase contract
prior to commencing unit construction to reduce standing inventory risk.
The total cash requirement of $2.8 million is expected to be spent during
the remaining quarter of fiscal 1996.
Resorts Division The Company expects to spend $70.7 million for building
materials, amenities and other infrastructure costs such as road and
utility construction, surveys and engineering fees, including $4.5 million
to be spent over the remaining quarter of fiscal 1996. See earlier
discussion of commitments for the financing of Resorts Division property
under "Sources of Capital".
The table below outlines certain information with respect to the estimated
funds expected to be spent to fully develop property owned as of December
31, 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................. $25,342,505 $38,532 $--- $25,381,037
Rocky Mountains........... 1,244,373 3,327 --- 1,247,700
West...................... 2,835,531 --- --- 2,835,531
Midwest................... 428,520 --- 43,400,048 43,828,568
Southeast................. 548,351 2,723,719 27,312,319 30,584,389
Northeast................. 648,449 --- --- 648,449
Mid-Atlantic.............. 198,491 --- --- 198,491
Canada.................... --- --- --- ---
----------- ------------ ------------------ -------------
Total estimated spending.. 31,246,220 2,765,578 70,712,367 104,724,165
Net inventory at
December 31, 1995....... 48,909,161 14,389,633 13,620,212 76,919,006
----------- ------------ ------------------ -------------
Total estimated cost basis
of fully developed
inventory............... $80,155,381 $17,155,211 $84,332,579 $181,643,171
=========== ============ ================== =============
</TABLE>
The Company's net inventory as of December 31, 1995 and April 2, 1995
summarized by division is set forth in the tables below.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL
- ----------------- ----------- ------------ ------------------ -----------
<S> <C> <C> <C> <C>
Southwest........ $19,289,619 $233,963 $--- $19,523,582
Rocky Mountains.. 11,256,539 62,773 --- 11,319,312
West............. 6,278,436 --- --- 6,278,436
Midwest.......... 4,523,483 --- 9,471,401 13,994,884
Southeast........ 1,919,432 14,092,897 4,148,811 20,161,140
Northeast........ 2,281,460 --- --- 2,281,460
Mid-Atlantic..... 3,331,717 --- --- 3,331,717
Canada........... 28,475 --- --- 28,475
----------- ------------ ------------------ -----------
Totals........... $48,909,161 $14,389,633 $13,620,212 $76,919,006
=========== ============ ================== ===========
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
APRIL 2, 1995
-------------
GEOGRAPHIC REGION LAND COMMUNITIES 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............. --- --- --- ---
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>
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 Southwestern, Western and Rocky Mountain regions of the
United States due to anticipated strong consumer demand and expanded sales
efforts. In addition, the Company acquired land in the West consisting of
approximately 6,200 acres located near Prescott, Arizona in the second
quarter of fiscal 1996. Sales from the Arizona property commenced in the
fourth quarter of fiscal 1996. Management expects that its land holdings in
the Southeast and Midwest will remain relatively level in upcoming
quarters. 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.
Communities Division inventory as of December 31, 1995, consisted of land
inventory of $9.9 million and $4.5 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 which was
attributable to infrastructure development and the purchase of acreage near
Orlando, Florida for $507,000 was equally offset by sales of land
inventory. The increase in housing unit construction-in-progress is
associated with the Company's manufactured and modular home developments in
North Carolina.
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
$1.4 million at December 31, 1995 for certain land properties acquired
prior to fiscal 1990. During the nine months ended December 31, 1995,
$794,000 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 nine
months ended January 1, 1995, approximately $647,000 and $1.1 million 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 nine months ended December 31, 1995 and January 1,
1995, the Company received 30% and 24%, respectively, of its consolidated
sales of real estate which closed during the period in the form of
Receivables. The increase in the percentage of sales financed by the
Company is attributable to an increase in timeshare sales over the
comparable period last year. Timeshare sales accounted for 12% of
consolidated sales of real estate during the nine months ended December 31,
1995, compared to 5% of consolidated sales for the same period last year.
Furthermore, approximately 85% of timeshare sales has historically been
internally financed by the Company. Management also expects that in
upcoming quarters, the percentage of sales received in cash may further
decrease due to the recent introduction of a fixed interest rate program
offered to qualified land customers. This program had an immaterial effect
on the relationship of cash versus financed land sales during the current
nine month period.
15
<PAGE> 16
At December 31, 1995, $20.2 million of Receivables were pledged as
collateral to secure financings of the Company's Receivable Subsidiaries or
other Company indebtedness, while $12.5 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 December 31, 1995 was primarily attributable to the
retirement of indebtedness under certain mortgage-backed debt agreements
pursuant to the 1995 REMIC transaction. See Note 6 to the Consolidated
Financial Statements included under Item 1.
At December 31, 1995, approximately 3.95% or $1.3 million of the aggregate
$34.1 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 $34.1 million principal
amount of loans, $32.7 million were held by the Company, while
approximately $1.4 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 increase in the dollar amount of delinquency is
partially attributable to the season; delinquency has traditionally tracked
higher during the holiday months. Other factors contributing to the
increase in delinquency are believed to be similar to those experienced by
other lenders as evidenced by national statistics siting an increase in the
national delinquency rate for residential mortgages. In addition to the
dollar amount of delinquencies increasing, the amount of Receivables
decreased. This caused a further increase in the delinquency rate as a
percent of Receivables. The reduction in Receivables was the result of the
sale of notes under the 1995 REMIC. See Note 6 to the Consolidated
Financial Statements included under Item 1.
RESULTS OF OPERATIONS.
Three Months Ended - December 31, 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, 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 December 31, 1995 and January 1, 1995.
<TABLE>
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
----------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate... $15,082 100.0% $ 4,436 100.0% $4,417 100.0% $23,935 100.0%
Cost of real estate
sold................... 7,767 51.5% 3,794 85.5% 1,569 35.5% 13,130 54.9%
------- -------- ------- ------ ------ ------ ------- ------
Gross profit........... 7,315 48.5% 642 14.5% 2,848 64.5% 10,805 45.1%
Field selling, general
and administrative
expense (1)............ 4,570 30.3% 781 17.6% 2,440 55.2% 7,791 32.5%
------- -------- ------- ------ ------ ------ ------- ------
Field operating profit
(loss) (2)............. $ 2,745 18.2% $ (139) (3.1)% $ 408 9.3% $ 3,014 12.6%
======= ======== ======= ====== ====== ====== ======= ======
</TABLE>
<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... $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 (1)............ 5,222 34.1% 299 10.9% 546 45.2% 6,067 31.5%
------- ------ ------ ------ ------ ------- ------- ------
Field operating profit
(loss) (2)............. $ 3,457 22.6% $(226) (8.2)% $ 172 14.2% $ 3,403 17.7%
======= ====== ====== ====== ====== ======= ======= ======
</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 24% to $23.9 million for the
three months ended December 31, 1995 compared to $19.3 million for the
three months ended January 1, 1995. 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.
Accordingly, 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 applying percentage of completion accounting to sales
transactions). See also Note 2 to the Consolidated Financial Statements
included under Part I, Item 1.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
<S> <C> <C>
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------
Number of parcels sold............................................ 474 499
Average sales price per parcel................................. $32,666 $30,663
Average sales price per parcel excluding one large acreage bulk sale
in the Southeast in the current
period.................................................................
..... $31,783 $30,663
Gross margin........................................................... 49% 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>
THREE MONTHS ENDED
---------------------------------------------------------------
DECEMBER 31, 1995 JANUARY 1, 1995
------------------------- ------------------------------------
AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF PARCELS SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL SOLD PER PARCEL
- ----------------- ------------ ----------- -------------------- --------------
<S> <C> <C> <C> <C>
Southwest........ 241 $35,161 192 $40,796
Rocky Mountains. 54 $33,832 87 $30,601
Midwest.......... 67 $24,346 86 $21,743
Southeast........ 47 $49,492 67 $23,000
Northeast........ 21 $15,820 20 $24,950
Mid-Atlantic..... 39 $21,974 46 $19,071
Canada........... 5 $7,229 1 $18,540
------------ ----------- -------------------- --------------
Totals........... 474 $32,666 499 $30,663
============ ====================
</TABLE>
The number of parcels sold in the Southwest increased during the current
period due to more sales made from the Company's Riudoso, New Mexico and
Houston, Texas projects than during the prior year quarter. The average
sales price per parcel in the Southwest decreased during the current period
due to a change in the sales mix resulting in fewer waterfront parcel sales
(which traditionally have supported higher retail sales prices).
18
<PAGE> 19
The number of parcels sold in the Rocky Mountains region decreased during
the current period due to less sales from the Company's Montana and
Colorado properties, partially offset by more sales in Idaho. The average
sales price per parcel in the Rocky Mountains region increased during the
current quarter primarily due to the sale of larger acreage tracts in two
recently acquired projects located in Colorado.
The number of parcels sold in the Midwest decreased during the current
period due to less sales from the Company's Tennessee properties.
In the Southeast, the Company sold fewer, more expensive parcels from its
North Carolina and South Carolina waterfront properties during the current
period.
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 quarter last year to 47% for the current quarter was attributable to
(i) an overall reduction in gross margins in the Rocky Mountains region
from 60% for the quarter last year to 48% for the current quarter (ii) a
reduction in gross margins in the Company's New Mexico property from 57%
for the quarter last year to 35% 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 sold a bulk
parcel during the current quarter in the Southeast for $450,000 which
generated a loss of approximately $25,000. This Southeast parcel was
originally intended to be the final phase of a multi-phase lake development
which was acquired by the Company prior to the formation of the Investment
Committee in the late 1980's. See Investment Committee discussion below.
The Company elected to sell the parcel in bulk at a loss rather than
continue the capital intensive development along with sales efforts on a
retail basis. Management believes that selling this property on a retail
basis would have prolonged the sellout period, subjected the Company to
additional carrying costs and produced marginal operating profits.
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 $2.3 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 less sales from 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 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
this range on the remaining Colorado inventories. The Company also owns a
land property in New Mexico (classified under the Southwest region in the
earlier tables). The Company expects the multi-phase project to generate
an average gross margin of 43% over its sellout. No assurances can be given
that the Company can maintain historical or anticipated gross margins.
RESORTS DIVISION
During the third quarter of fiscal 1996 and 1995, sales of timeshare
intervals contributed $4.4 million or 18% and $1.2 million or 6%,
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.
Accordingly, 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 applying percentage of completion accounting to sales
transactions).
19
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
DECEMBER 31, JANUARY 1,
1995 1995
-------------- -------------
<S> <C> <C>
Number of intervals sold....................................... 488 431
Average sales price per interval..................................... $7,755 $6,100
Gross margin......................................................... 65% 59%
</TABLE>
The number of timeshare intervals sold increased to 488 for the current
quarter compared to 431 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, 315 intervals were sold from the Gatlinburg resort and an
additional 173 intervals were sold from the Company's second resort in
neighboring Pigeon Forge, Tennessee. The reduction in interval sales
during the current quarter from the Company's Gatlinburg resort partially
reflects adverse weather conditions in December combined with higher
quarterly cancellations. When a contract is canceled in the same year as
the related sale, all entries applicable to the sale are reversed and
nonrecoverable selling expenses are charged to operations. When a contract
is canceled in a year subsequent to the year in which the underlying sale
is recorded, the outstanding balance, less recoverable costs, is charged to
the reserve for loan losses. The Company provides for losses on contracts
receivable through a charge against earnings at the time of sale at a rate
based upon historical cancellation experience.
Gross margins on interval sales increased from 59% for the third quarter of
last year to 65% for the current quarter. The increase in gross margins
from the Company's Gatlinburg, Tennessee resort was primarily due to the
sales of intervals at higher prices which yielded higher gross margins. In
the prior year, certain introductory pricing had been offered to
prospective customers. In addition, average gross margins during the
current quarter were favorably impacted by Pigeon Forge sales.
COMMUNITIES DIVISION
During the third quarter of fiscal 1996, the Company's Communities Division
contributed $4.4 million in sales revenue, or approximately 19% of total
consolidated revenues from the sale of real estate. During the third
quarter of fiscal 1995, the Communities Division generated $2.7 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
------------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------
<S> <C> <C>
Number of homes/lots sold 53 26
Average sales price...... $83,690 $105,567
Gross margin............. 14% 3%
</TABLE>
The reduction in the average sales price was primarily attributable to a
greater number of lot-only sales in the current quarter. The $4.4 million
in current quarter sales was comprised of 35 manufactured homes with an
average sales price of $76,101, 7 site-built homes with an average sales
price of $143,043, 10 sales of lots at an average sales price of $24,040
and one larger acreage Southwestern bulk lot sale for $530,320. The $2.7
million in prior year third quarter sales was comprised 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. The improvement in the gross margin
20
<PAGE> 21
is also attributable to the more dominant mix of lot-only sales, most
heavily affected by the larger acreage bulk sale.
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 DECEMBER 31, 1995
---------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORTS TOTAL %
- ----------------- ----------- ----------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Southwest........ $8,053,746 $1,531,623 $--- $9,585,369 40.1%
Rocky Mountains.. 1,830,557 112,900 --- 1,943,457 8.1%
Midwest.......... 1,637,088 --- 4,416,910 6,053,998 25.3%
Southeast........ 2,327,800 2,791,032 --- 5,118,832 21.3%
Northeast........ 332,225 --- --- 332,225 1.4%
Mid-Atlantic..... 864,782 --- --- 864,782 3.6%
Canada........... 36,142 --- -- 36,142 .2%
----------- ----------- --------------- ----------- ------
Totals........... $15,082,340 $4,435,555 $4,416,910 $23,934,805 100.0%
=========== =========== =============== =========== ======
</TABLE>
<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%
Rocky Mountains.. 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>
Interest income decreased 25% to $1.5 million for the third quarter of
fiscal 1996 compared to $2.0 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. The table set forth below outlines interest income earned
from each category of asset for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
<S> <C> <C>
DECEMBER 31, JANUARY 1,
INTEREST INCOME AND OTHER: 1995 1995
- -------------------------- ------------ ----------
Receivables held and servicing fees
from whole-loan sales..................... $1,039,627 $1,241,915
Securities retained in connection with REMIC
financings including REMIC servicing fee.. 324,841 637,529
Cash and cash equivalents................... 118,384 94,964
------------ ----------
Totals...................................... $1,482,852 $1,974,408
============ ==========
</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 during the second quarter of fiscal 1996. As a
result of the REMIC transaction, the Company recognized less interest
income during the current quarter due to both lower (i) average Receivables
held and (ii) average securities held
21
<PAGE> 22
(due to the 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 $9.3 million and $8.2 million for the three months
ended December 31, 1995 and January 1, 1995, respectively. A significant
portion of S,G&A expenses is variable relative to sales and profitability
levels, and therefore, increases with corresponding growth in sales of real
estate. As a percentage of sales of real estate, S,G&A expenses decreased
from 43% for the quarter last to 39% for the current year quarter. The
reduction as a percent of sales was largely the result of lowering certain
corporate general and administrative expenses and Land Division S,G&A
expenses, offset by an increase in S,G&A expenses for the Communities and
Resorts Division.
Interest expense totaled $1.3 million and $1.6 million for the third
quarter of fiscal 1996 and 1995, respectively. The decrease in interest
expense for the current period was primarily attributable to an increase in
the amount of interest capitalized to inventory for each period. The
Company capitalized interest totaling $206,000 during the three months last
year, compared to $654,000 for the three months this year. The increase in
capitalized interest is the direct result of the Company acquiring certain
inventory which requires significant development with longer sellout
periods. The favorable impact from the increased capitalized interest was
partially offset by higher interest expense on average outstanding debt for
the current quarterly period. Although the average indebtedness remained
relatively level between periods ($70.4 million for the current quarter
versus $70.2 million for the prior year quarter), the average interest rate
increased. The average interest rate increased due to a rise in the prime
lending rate. (Approximately 50% of the Company's outstanding indebtedness
is variable rate tied to the prime lending rate.)
The Company recorded provisions for loan losses totaling $120,000 and
$187,000 for the three months ended December 31, 1995 and January 1, 1995,
respectively. During the third quarter of fiscal 1996 and 1995, the
Company charged-off $172,000 and $195,000, respectively, to its reserve for
loan losses.
Income from consolidated operations was $1.6 million and $1.4 million for
the three months ended December 31, 1995 and January 1, 1995, respectively.
The improvement for the current quarter was primarily the result of
increased sales of real estate, partially offset by lower gross margins and
lower net interest spread. Net interest spread, which represents the
difference between interest income and interest expense, decreased by
approximately $136,000.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
the third 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 December 31, 1995 and January 1, 1995.
Net income was $985,000 and $882,000 for the three months ended December
31, 1995 and January 1, 1995, respectively.
22
<PAGE> 23
RESULTS OF OPERATIONS.
Nine months Ended - December 31, 1995
The following tables set forth selected financial data for the business
units comprising the consolidated operations of the Company for the nine
months ended December 31, 1995 and January 1, 1995.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------
LAND COMMUNITIES RESORTS TOTAL
---------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of real estate... $60,148 100.0% $11,814 100.0% $9,871 100.0% $81,834 100.0%
Cost of real estate
sold................... 28,994 48.2% 10,282 87.0% 3,268 33.1% 42,545 52.0%
------- ------ ------- ------ ------ -------- ------- -----
Gross profit........... 31,154 51.8% 1,532 13.0% 6,603 66.9% 39,289 48.0%
Field selling, general
and administrative
expense (1)............ 18,180 30.2% 2,190 18.5% 5,889 59.7% 26,259 32.1%
------- ------ ------- ------ ------ -------- ------- -----
Field operating profit
(loss) (2)............. $12,974 21.6% $ (658) (5.5)% $ 714 7.2% $13,030 15.9%
======= ====== ======= ======= ====== ======== ======= =====
</TABLE>
<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... $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 (1)............ 16,958 31.1% 1,230 13.7% 2,208 71.9% 20,396 30.6%
------- ------ ------ ------ ------ ------- --------- --------
Field operating profit
(loss) (2)............. $14,283 26.1% $ (188) ( 2.1)% $ (207) ( 6.7)% $13,888 20.8%
======= ====== ====== ====== ====== ======= ========= ========
</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 23% to $81.8 million for the
nine months ended December 31, 1995 compared to $66.7 million for the nine
months ended January 1, 1995. 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.
Accordingly, the application of multiplying the number of parcels sold by
the average sales price per parcel
23
<PAGE> 24
yields aggregate sales different than that reported on the earlier table
(outlining sales revenue by business unit AFTER applying percentage of
completion accounting to sales transactions).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------
<S> <C> <C>
Number of parcels sold................ 1,618 1,761
Average sales price
per parcel............................ $34,619 $31,004
Average sales price per parcel excluding
a large acreage bulk sale in each of the
Rocky Mountains and Southeast regions
in the current period................. $32,837 $31,004
Gross margin.......................... 52% 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>
NINE MONTHS ENDED
------------------------------------------------------
DECEMBER 31, 1995 JANUARY 1, 1995
------------------------- ---------------------------
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........ 733 $37,475 750 $36,046
Rocky Mountains.. 202 $49,339 238 $33,458
Midwest.......... 222 $31,201 266 $26,635
Southeast........ 170 $37,007 225 $28,438
Northeast........ 96 $12,727 86 $22,921
Mid-Atlantic..... 180 $22,021 183 $21,917
Canada........... 15 $11,674 13 $10,313
------------ ----------- ----------- -----------
Totals........... 1,618 $34,619 1,761 $31,004
============ ===========
</TABLE>
The decrease in the parcels sold in the Southwest during the current year
was attributable to a shortage of ready-to-market property during the first
fiscal quarter (the second and third quarters of fiscal 1996 yielded more
parcel sales than the comparable prior year period).
The number of parcels sold in the Rocky Mountains region decreased during
the current period due to less sales from the Company's Montana property,
partially offset by more sales from the Colorado and Idaho properties. The
average sales price per parcel in the Rocky Mountains region increased
during the current nine month period due to the sale of larger acreage
tracts in two recently acquired projects located in Colorado. In addition,
during the nine months ended December 31, 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 $ 37,146.
24
<PAGE> 25
The number of parcels sold in the Midwest decreased during the current
period due to less sales from the Company's Tennessee properties, however,
the average sales price per parcel increased. 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 during the first quarter of fiscal 1996.
This was partially offset by higher sales of more expensive parcels from
the Company's North Carolina property.
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 nine months last year to 52% for the current nine 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 59% for the nine month period last year to 50%
for the current year, (iii) a reduction in gross margins for certain
parcels in Mid-Atlantic and Southeast regional projects which neared
sell-out and (iv) a greater number of parcel sales in the Northeast where
the Company has experienced little to no gross profits.
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 $2.3 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 this range on the remaining
Colorado inventories. The Company also owns a land property in New Mexico
(classified under the Southwest region in the earlier tables). The Company
expects the multi-phase project to generate an average gross margin of 43%
over its sellout. No assurances can be given that the Company can maintain
historical or anticipated gross margins.
RESORTS DIVISION
During the nine month periods of fiscal 1996 and 1995, sales of timeshare
intervals contributed $9.9 million or 12% and $3.1 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.
Accordingly, 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 applying percentage of completion accounting to sales
transactions).
25
<PAGE> 26
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------ ------
<S> <C> <C>
Number of intervals sold................. 1,340 829
Average sales price per interval......... $7,611 $6,430
Gross margin............................. 67% 65%
</TABLE>
The number of timeshare intervals sold increased to 1,340 for the current
nine month period compared to 829 for the comparable nine 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 nine month period, 1,088 intervals were sold from the
Gatlinburg resort and an additional 252 intervals were sold from the
Company's second resort in neighboring Pigeon Forge, Tennessee.
Gross margins on interval sales increased from 65% for the nine month
period last year to 67% for the current year nine month period. The
increase in gross margins from the Company's Gatlinburg, Tennessee resort
was attributable to sales at higher prices which yielded higher gross
margins, partially offset by additional development costs incurred on unit
construction and certain amenities of the project. In the prior year,
certain introductory pricing had been offered to prospective customers. In
addition, average gross margins were favorably impacted by Pigeon Forge
sales which commenced in the second fiscal quarter of fiscal 1996.
COMMUNITIES DIVISION
During the nine month period of fiscal 1996, the Company's Communities
Division contributed $11.8 million in sales revenue, or approximately 14%
of total consolidated revenues from sales of real estate. During the nine
month period of fiscal 1995, the Communities Division generated $6.3
million in sales revenue, or approximately 14% 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>
NINE MONTHS ENDED
------------------------------
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------------
<S> <C> <C>
Number of homes/lots sold 149 106
Average sales price...... $79,289 $85,037
Gross margin............. 13% 12%
</TABLE>
The $11.8 million in current year sales was comprised of 89 manufactured
homes with an average sales price of $74,119, 19 site-built homes with an
average sales price of $200,941, 40 sales of lots-only at an average sales
price of $21,732 and one larger acreage Southwestern bulk lot sale for
$530,320. The $9.0 million in prior year sales was comprised 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.
The increase in the average gross margin from 12% for the prior year nine
month period to 13% for the current nine month period reflects a more
dominant mix of lot-only sales, most heavily affected by one larger acreage
bulk sale. This was partially offset by 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
26
<PAGE> 27
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 nine months of last year.
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 DECEMBER 31, 1995
--------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORT TOTAL %
- ----------------- ----------- ----------- --------------- ----------- ------
<S> <C> <C> <C> <C> <C>
Southwest........ $30,135,056 $2,573,405 $--- $32,708,461 39.9%
Rocky Mountains.. 9,966,520 397,317 --- 10,363,837 12.7%
Midwest.......... 7,739,757 --- 9,871,343 17,611,100 21.5%
Southeast........ 6,626,649 8,843,326 --- 15,469,975 18.9%
Northeast........ 1,221,765 --- --- 1,221,765 1.5%
Mid-Atlantic..... 4,283,630 --- --- 4,283,630 5.3%
Canada........... 175,114 --- --- 175,114 .2%
----------- ----------- --------------- ----------- ------
Totals........... $60,148,491 $11,814,048 $9,871,343 $81,833,882 100.0%
=========== =========== =============== =========== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 1, 1995
----------------------------------------------------------------
GEOGRAPHIC REGION LAND COMMUNITIES RESORT TOTAL %
- ----------------- ----------- ----------- ---------------- ------------ ------
<S> <C> <C> <C> <C> <C>
Southwest........ $27,034,869 $825,067 $--- $27,859,936 41.8%
Rocky Mountains.. 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>
Interest income increased 13% to $5.8 million for the nine month period of
fiscal 1996 compared to $5.2 million for the nine 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>
NINE MONTHS ENDED
------------------------
DECEMBER 31, JANUARY 1,
INTEREST INCOME AND OTHER: 1995 1995
- -------------------------- ------------ ----------
<S> <C> <C>
Receivables held and servicing fees
from whole-loan sales..................... $3,096,118 $3,286,941
Securities retained in connection with REMIC
financings including REMIC servicing fee.. 1,262,665 1,891,644
Gain (loss) on REMIC transaction............ 1,119,572 (411,300)
Cash and cash equivalents................... 368,726 413,805
------------ ----------
Totals...................................... $5,847,081 $5,181,090
============ ==========
</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
held by the Company or pledged 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 lower (i) average securities held for the period
(due to the
27
<PAGE> 28
retirement of securities issued pursuant to the Company's 1992 REMIC) (ii)
average Receivables held for the period and (iii) average cash and cash
equivalents. The Company recorded a loss of $411,300 in connection 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 $31.4 million and $26.7 million for the nine months
ended December 31, 1995 and January 1, 1995, respectively. A significant
portion of S,G&A expenses is variable relative to sales and profitability
levels, and therefore, increases with corresponding growth in sales of real
estate. As a percentage of sales of real estate, S,G&A expenses decreased
from 40% for the nine months last year to 38% for the current nine month
period. The decrease as a percent of sales was largely the result of
lowering certain corporate general and administrative expenses and Land
Division S,G&A epenses, offset by an increase in S,G&A expenses for the
Communities Division.
Interest expense totaled $5.1 for both the nine month periods of fiscal
1996 and 1995, respectively. While the Company capitalized to inventory
approximately $811,000 more in interest expense during the current year,
this was offset by increased interest expense on higher average outstanding
indebtedness. The increase in capitalized interest is the direct result of
the Company acquiring certain inventory which requires significant
development with longer sellout periods. The average interest rate
increased due to a rise in the prime lending rate. (Approximately 50% of
the Company's outstanding indebtedness is variable rate tied to the prime
lending rate.)
The Company recorded provisions for loan losses totaling $500,000 and
$602,000 for the nine months ended December 31, 1995 and January 1, 1995,
respectively. During the nine month periods of fiscal 1996 and 1995, the
Company charged-off $462,000 and $516,000 respectively, to its reserve for
loan losses.
Income from consolidated operations was $8.1 million and $7.1 million for
the nine months ended December 31, 1995 and January 1, 1995, 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 $613,000.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
the nine months 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
nine months ended December 31, 1995 and January 1, 1995.
Net income was $4.9 million and $4.3 million for the nine months ended
December 31, 1995 and January 1, 1995, 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 from the descriptions
provided herein.
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
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
None.
29
<PAGE> 30
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, 1996 By: /S/ GEORGE F. DONOVAN
-------------------------------------
George F. Donovan
President and
Chief Executive Officer
Date: February 14, 1996 By: /S/ ALAN L. MURRAY
-------------------------------------
Alan L. Murray
Treasurer and Chief Financial Officer
(Principal Financial Officer)
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD ENDING DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED UNDER PART I, ITEM 1.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-03-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,210,031
<SECURITIES> 9,592,741
<RECEIVABLES> 41,877,644
<ALLOWANCES> 0
<INVENTORY> 76,919,006
<CURRENT-ASSETS> 6,466,118
<PP&E> 4,951,919
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,017,459
<CURRENT-LIABILITIES> 52,183,761
<BONDS> 34,739,000
0
0
<COMMON> 195,375
<OTHER-SE> 62,899,323
<TOTAL-LIABILITY-AND-EQUITY> 150,017,459
<SALES> 81,833,882
<TOTAL-REVENUES> 87,801,643
<CGS> 42,545,277
<TOTAL-COSTS> 42,545,277
<OTHER-EXPENSES> 31,399,095
<LOSS-PROVISION> 499,942
<INTEREST-EXPENSE> 5,111,687
<INCOME-PRETAX> 8,245,642
<INCOME-TAX> 3,354,253
<INCOME-CONTINUING> 4,891,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,891,389
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
