UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1996 Commission File Number 33-87024C
- --------------------------------------- --------------------------------
TAYLOR INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1373372
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
43 Main Street SE, Suite 506
Minneapolis, MN 55414
(Address of principal executive offices)
Issuer's telephone number, including area code: (612)331-6929
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) or 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value - 488,884 shares as of September 30, 1996
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995................... 3
Condensed Consolidated Statements of Operations Three
and Nine month periods ended September 30, 1996
and 1995................................................... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995.............. 5
Notes to Condensed Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 7
Part II....................................................11
Signatures.................................................12
<TABLE>
<CAPTION>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996 DECEMBER 31,1995
ASSETS
<S> <C> <C>
INVENTORY - Principally land held for sale $14,593,095 $11,255,151
CONTRACTS AND MORTGAGES RECEIVABLE 7,467,706 8,026,145
INVESTMENT IN JOINT VENTURE 66,953 53,633
OTHER ASSETS:
Cash 82,870 435,966
Notes receivable from officer 250,000 250,000
Tax increment financing receivable 861,101 735,131
Other receivables 262,737 196,492
Prepaid expenses 254,363 158,703
Land, buildings, and equipment, less accumulated depreciation of
$461,919 and $316,423, respectively 837,087 611,742
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $116,874 and $73,691, respectively 510,417 511,249
----------- -----------
Total other assets 3,058,575 2,899,283
----------- -----------
$25,186,329 $22,234,212
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 3,575,130 $ 7,213,084
NOTES PAYABLE 8,756,623 2,417,590
CONTRACTS AND MORTGAGES PAYABLE 353,002 1,004,290
SENIOR SUBORDINATED DEBT 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 507,892 255,705
Accrued liabilities 529,313 551,817
Income taxes payable 88,721 63,670
Deposits on land sales and purchase agreements 102,740 39,915
----------- -----------
Total other liabilities 1,228,666 911,107
DEFERRED INCOME TAXES 1,558,521 1,467,851
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
488,884 and 483,343 shares issued and outstanding, respectively 4,889 4,833
Additional paid-in capital 766,650 668,841
Retained earnings 4,952,848 4,556,616
----------- -----------
Total stockholders' equity 5,724,387 5,230,290
----------- -----------
$25,186,329 $22,234,212
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 3O, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 6,259,105 $ 3,544,736 $ 14,541,879 $ 10,282,009
Interest income on contracts receivable 240,039 241,440 718,985 674,142
Equity in earnings (loss) of 50% owned subsidiary
and joint venture 9,286 (6,974) 13,320 (23,167)
Other revenue 118,090 105,875 472,189 298,008
------------ ------------ ------------ ------------
Total revenue 6,626,520 3,885,077 15,746,373 11,230,992
EXPENSES:
Cost of sales 3,925,164 1,868,010 8,763,024 5,159,228
Selling, general, and administrative 1,868,944 1,447,463 5,039,497 4,069,694
Interest expense 410,606 350,726 1,202,816 992,923
------------ ------------ ------------ ------------
Total costs and expenses 6,204,714 3,666,199 15,005,337 10,221,845
INCOME BEFORE INCOME TAXES 421,806 218,878 741,036 1,009,147
PROVISION FOR INCOME TAXES 179,690 96,231 321,521 436,566
------------ ------------ ------------ ------------
NET INCOME $ 242,116 $ 122,647 $ 419,515 $ 572,581
============ ============ ============ ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.50 $ 0.25 $ 0.87 $ 1.18
============ ============ ============ ============
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 487,736 483,312 483,490 483,312
============ ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 419,515 $ 572,581
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 205,852 93,306
Loss on sale of assets 7,237
Deferred income taxes 90,670 284,625
Equity in (earnings) loss of 50% owned subsidiary and joint venture (13,320) 23,168
Contracts and mortgages receivables funded (2,749,107) (2,729,636)
Payments on contracts and mortgages receivable 2,523,735 2,118,227
Contracts and mortgages receivable sold 783,812
Decrease in inventory - land held for sale 2,426,952 462,062
Increase in other receivables (192,215)
Increase (decrease) in prepaid expenses (95,660) 52,907
Increase in all other assets and notes receivable from officers (48,915) (425,088)
Increase in other liabilities 2,547
Increase (decrease) increase in accounts payable 252,189 (132,250)
Increase in deposits on land sales and purchase agreements 62,825 40,402
----------- -----------
3,256,602 (212,277)
----------- -----------
Net cash provided by operating activities 3,676,117 360,304
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (268,500) (131,376)
Proceeds from sale of property and equipment 14,400
Investment in joint venture (31,634)
----------- -----------
Net cash used in investing activities (254,100) (163,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (3,637,954) (374,044)
Proceeds from notes payable (note 2) 5,613,167
Proceeds from issuance of senior subordinated debt 2,760,000
Repayment of notes, contracts, and mortgage payables (5,824,906) (2,563,051)
Issuance of common stock 100,000
Retirement of common stock (25,420)
Payment of senior subordinated debt (10,000)
----------- -----------
Net cash used in financing activities (3,775,113) (187,095)
----------- -----------
DECREASE IN CASH (353,096) 10,199
CASH AT BEGINNING OF PERIOD 435,966 288,108
----------- -----------
CASH AT END OF PERIOD $ 82,870 $ 298,307
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,233,159 $ 971,630
=========== ===========
Income taxes $ 232,800 $ 250,000
=========== ===========
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 5,899,485 $ 2,486,604
=========== ===========
Noncash financing activity - debt issuance costs paid from
senior subordinated debt proceeds $ 240,000
===========
See notes to condensed consolidated financial statements.
</TABLE>
TAYLOR INVESTMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The condensed consolidated balance sheets as of September 30, 1996 and
December 31, 1995, and the condensed consolidated statements of
operations for the three and nine month periods ended September 30, 1996
and 1995 and the condensed consolidated statements of cash flows for the
nine months ended September 30, 1996 and 1995 have been prepared by the
management of Taylor Investment Corporation without audit. In the opinion
of management, these condensed consolidated financial statements reflect
all adjustments (consisting of normal, recurring adjustments) necessary to
present fairly the financial position of Taylor Investment Corporation at
September 30, 1996 and the results of operations and cash flows for all
periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
statements should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's 1995 Form
10-KSB.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full year.
2. In the first quarter of 1996, the Company closed on transfers of contracts
and mortgages receivable with recourse in the amount of $1,313,377, with
put options on the five year anniversary of the transfers. The transfers
were priced at a premium, with servicing retained by the Company. The
Company had additional transfers of contracts and mortgages receivable in
the second quarter under similar terms and conditions, as follows:
Anniversary Date
Amount for put option
---------------- ----------------
$2,774,874 5 year
$463,428 4 year
$214,930 3 year
$284,458 2 year
$562,100 2 year
These transfers of contracts and mortgages receivables, to the extent the
term of such receivables extends beyond the date of the put options, have
been recorded as financing transactions. For receivables which are due
prior to the put option date the Company recognized the transfer as a sale
of receivables and accrued the servicing and other costs related to such
receivables. The condensed consolidated statements of operations for the
nine months ended September 30, 1996 include a gain of $17,905 related to
the transfers which qualified as sales.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995.
Sales of $6,259,105, including $1,362,611 in sales of shell homes, condominiums
and townhomes, ("structures") for the quarter ended September 30, 1996 increased
by $2,714,369 from the same period in 1995. Land sales of $4,896,494 increased
by $1,927,859 from the same period in 1995, and structure sales increased by
$786,510. The increase in land sales is partially due to the addition of a new
sales office in Jasper, Georgia, and to expanded inventory levels for the Rice
Lake, Wisconsin and Brainerd, Minnesota offices. The increase in structure sales
is attributable to the increase in construction and sales of shell cabins, as
well as, an increase in the sale of whole owner units at the Laurentian Resort.
Gross profit was $2,333,941 or 37.3%, for the quarter ended September 30, 1996
compared to $1,676,726, or 47.3%, for the same period in 1995. The gross profit
margin on land sales was 46.2% for 1996 and 48.6% for 1995. Gross profit margin
on land sales decreased primarily due to the emphasis of selling lots that had
been in inventory for more than one year, at lower margins. The gross profit on
structure sales was 5.3% for 1996 and 40.6% for 1995. In the quarter ended
September 30, 1996, management decided to reduce whole ownership inventory at
the Laurentian Resort. Therefore, unit prices on seven units were discounted and
sold during the quarter. In the quarter ended September 30, 1995, structure
sales were comprised primarily of timeshare unit sales which traditionally yield
a higher gross profit margin.
Interest income was $240,039 and $241,440 for the third quarters in 1996 and
1995, respectively. The nominal decrease is attributable to the average
receivable balance being lower throughout the quarter in 1996, than in the same
period in 1995. For the quarter, equity earnings increased $16,260, due to the
increase in sales revenue of the joint venture. Other revenue, consisting of
real estate closing and documentation fees, resort management fees and other
miscellaneous income, was $118,090 for the third quarter in 1996, compared to
$105,875 for the same period in 1995. This increase is primarily due to the
increased sales in the third quarter of 1996, which results in additional
closing fee income.
Selling, general and administrative expenses of $1,868,944 were 29.9% of sales
for the third quarter of 1996. These expenses were $1,447,463, or 40.8% of
sales, for the same period in 1995. The increase of $421,481 in selling, general
and administrative expense is due to selling related expenses of advertising and
commissions associated with higher sales.
Interest expense for the quarter ended September 30, 1996 increased $59,880, to
$410,606 from the same period in 1995 due to an increase in average debt to
finance inventory. Inventory levels have increased significantly to $14,593,095
at September, 1996 from $11,255,151 at December 31, 1995.
Income tax expense for the quarters ended September 30, 1996 and 1995 was 42.6%
and 43.9%, respectively, of income before income taxes. Income tax expense is
based on the Company's estimated annual income tax rate which includes state
income taxes.
COMPARISON OF THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995.
Sales for the nine months ended September 30, 1996, were $14,541,879, an
increase of $4,259,870 million, or 41.4% compared to the same period in 1995.
The increase in sales is due to the opening of a new sales office in Jasper,
Georgia, and to the increase in the amount of inventory the Company was able to
develop for sale during 1996.
Gross profit for the first nine months of 1996 was $5,778,855, or 39.7% of
sales, compared to $5,122,781 or 49.8% of sales for the same period in 1995. The
decrease in gross profit margin is partially due to the aggressive sales program
to sell a majority of Laurentian inventory by year end. This resulted in
discounting timeshare sales prices. Land sales also contributed to the decrease
in profit margin due to price discounts on slower-moving inventory. Profit
margins for land decreased to 45.9% in the first nine months of 1996, compared
to 51.2% for the same period in 1995.
Interest income of $718,985 for the first nine months of 1996 is 6.7% higher
than for the same period in 1995, due to an increase in the average balance of
contracts and mortgages receivable. Other revenue of $472,189 increased 58.4%
from 1995, due primarily to tax increment financing recognized on lots
previously sold of $131,523.
For the first nine months of 1996, selling, general, and administrative expenses
were $5,039,497, or 34.7% of sales, compared to $4,069,694, or 39.6% of sales in
1995. The decrease in selling, general and administrative expense, as a percent
of sales, is primarily due to fixed costs being spread over higher sales. The
increase in these expenses of $969,803 was attributable to selling related
expenses of advertising and commissions.
Interest expense of $1,202,816 for the first nine months of 1996 is $209,893
higher than for the same period in 1995, primarily due to increased levels of
debt incurred to purchase inventory.
Income tax expense for the first nine months of 1996 and 1995 was 43.4% and
43.3%, respectively, of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash flow from operations as land inventory is sold and
collections are made on its contracts and mortgages receivable. Taylor's primary
use of cash flow is for financing its ongoing acquisition of land and the
subsequent customer mortgage financing. Secondarily, the Company uses cash to
reduce the aggregate amounts outstanding under its Credit Agreement, notes and
mortgages payable. The following table sets forth the Company's net cash flows
for operating, inventory and financing activities for the nine months ended
September 30, 1996, and 1995.
Nine months ended Nine months ended
September 30, 1996 September 30, 1995
------------- ------------
Net cash provided by (used in):
Operating activities $ 3,676,117 $ 360,304
Investing activities (254,100) (163,010)
Financing activities (3,775,113 (187,095)
------------ ------------
Net (decrease) increase in cash $ (353,096) $ 10,199
Cash provided by operations for the first nine months of 1996 and 1995 was
$3,676,117 and $360,304, respectively. The principal sources of cash flow for
the first nine months of 1996 were cash received from sales of land and
structures, as well as, the sale of and payments collected on contracts and
mortgages receivable exceeding those funded during the period. For the same
period in 1995, the source of cash flow was primarily net income and cash
received from sales of land and structures during the first nine months of 1995.
Cash used in investing activities was $254,100 and $163,010 for the nine months
ended September 30, 1996 and 1995, respectively, primarily for the purchase of
property and equipment.
Sources of financing as of September 30, 1996 and December 31, 1995 are detailed
in the following table:
SOURCES OF FINANCING
September 30, 1996 December 31, 1995
--------------------- ---------------------
Lines of Credit $ 3,575,130 21.5% $ 7,213,084 49.3%
Notes Payable 1 8,756,623 52.5% 2,417,590 16.5%
Mortgages Payable 353,002 2.1% 1,004,290 6.9%
Subordinated Debt 3,990,000 23.9% 3,990,000 27.3%
----------- ----- ----------- -----
Total Debt $16,674,755 100.0% $14,624,964 100.0%
=========== ===== =========== =====
- ------------------------------------
1 Notes payable include the Diversified Business Credit, Inc. real estate
line of credit in the amounts of $1,392,403 and $314,030 as of September 30,
1996 and December 31, 1995, respectively.
The balance of notes payable was $8,756,623 and $2,417,590 as of September 30,
1996 and December 31, 1995, respectively. The large increase in the balance of
notes payable was attributable to the issuance of notes payable of $5,613,167 in
connection with the sale of contract and mortgages receivable which was recorded
as a financing transaction and to increased financing to acquire inventory.
Proceeds received were used to pay down the Lines of Credit with Diversified
Business Credit, Inc.
As of September 30, 1996 contracts and mortgages receivable outstanding were
approximately $7.5 million compared to $8.0 million as of December 31, 1995.
This decrease is in part due to the sale of $783,813 of mortgages receivable.
The decline in the portfolio is also due to a decrease in the number of
customers electing to use the Company's financing program. Cash sales for the
first nine months in 1996 and 1995, as a percentage of total sales, were 81.1%
and 73.6%, respectively.
Based on expected cash generated from operations, inventory management and the
above financing sources available, management believes it has adequate sources
of financing to fund its cash requirements for the remainder of 1996 and into
1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults in Senior Securities
Not applicable
Item 4. Other Information
Not applicable
Item 5. Exhibits and Reports on From 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule for SEC use.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered
by this report.
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.
Taylor Investment Corporation
-----------------------------------------------
(Registrant)
Dated: November 11, 1996 /S/ Philip C. Taylor
-----------------------------------------------
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: November 11, 1996 /S/ Joel D. Kaul
-----------------------------------------------
Joel D. Kaul
Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 82,870
<SECURITIES> 0
<RECEIVABLES> 8,841,544
<ALLOWANCES> 0
<INVENTORY> 14,593,095
<CURRENT-ASSETS> 0
<PP&E> 1,299,006
<DEPRECIATION> 461,919
<TOTAL-ASSETS> 25,186,329
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
0
0
<COMMON> 4,889
<OTHER-SE> 5,719,498
<TOTAL-LIABILITY-AND-EQUITY> 25,186,329
<SALES> 6,259,105
<TOTAL-REVENUES> 6,626,520
<CGS> 3,925,164
<TOTAL-COSTS> 3,925,164
<OTHER-EXPENSES> 2,279,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 410,606
<INCOME-PRETAX> 421,806
<INCOME-TAX> 179,690
<INCOME-CONTINUING> 242,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242,116
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
