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 June 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
incorporation organization) Identification No.)
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 - 481,343 shares as of June 30, 1996
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995................................ 3
Condensed Consolidated Statements of Operations
Three and Six month periods
ended June 30, 1996 and 1995....................................... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 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
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31,1995
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $13,174,220 $11,255,151
CONTRACTS AND MORTGAGES RECEIVABLE 6,534,111 8,026,145
INVESTMENT IN JOINT VENTURE 57,667 53,633
OTHER ASSETS:
Cash 3,993 435,966
Notes receivable from officer 250,000 250,000
Tax increment financing receivable 868,955 735,131
Other receivables 307,787 196,492
Prepaid expenses 355,275 158,703
Land, buildings, and equipment, less accumulated depreciation of
$403,719 and $316,423, respectively 841,430 611,742
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $105,501 and $73,691, respectively 528,353 511,249
----------- -----------
Total other assets 3,155,793 2,899,283
----------- -----------
$22,921,791 $22,234,212
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 2,328,096 $ 7,213,084
NOTES PAYABLE 8,616,971 2,417,590
CONTRACTS AND MORTGAGES PAYABLE 415,191 1,004,290
SENIOR SUBORDINATED DEBT 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 223,181 255,705
Accrued liabilities 372,910 551,817
Income taxes payable 63,670 63,670
Deposits on land sales and purchase agreements 98,620 39,915
----------- -----------
Total other liabilities 758,381 911,107
DEFERRED INCOME TAXES 1,430,883 1,467,851
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
481,343 and 483,343 shares issued and outstanding, respectively 4,813 4,833
Additional paid-in capital 666,725 668,841
Retained earnings 4,710,731 4,556,616
----------- -----------
Total stockholders' equity 5,382,269 5,230,290
----------- -----------
$22,921,791 $22,234,212
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 3O, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 4,519,486 $ 3,525,780 $ 8,282,774 $ 6,737,273
Interest income on contracts receivable 239,286 226,241 478,946 432,702
Equity in earnings (loss) of 50% owned subsidiary
and joint venture (604) (13,049) 4,034 (16,193)
Other revenue 234,955 76,240 354,099 192,133
----------- ----------- ----------- -----------
Total revenue 4,993,123 3,815,212 9,119,853 7,345,915
EXPENSES:
Cost of sales 2,507,789 1,595,722 4,837,860 3,291,218
Selling, general, and administrative 1,616,188 1,319,621 3,170,552 2,622,231
Interest expense 398,987 314,446 792,211 642,197
----------- ----------- ----------- -----------
Total costs and expenses 4,522,964 3,229,789 8,800,623 6,555,646
INCOME BEFORE INCOME TAXES 470,159 585,423 319,230 790,269
PROVISION FOR INCOME TAXES 204,323 251,311 141,831 340,335
----------- ----------- ----------- -----------
NET INCOME $ 265,836 $ 334,112 $ 177,399 $ 449,934
=========== =========== =========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.55 $ 0.69 $ 0.37 $ 0.93
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 481,343 483,312 482,328 483,312
=========== =========== =========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 177,399 $ 449,934
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 128,772 55,674
Loss on sale of assets 7,237
Deferred income taxes (36,968) 91,491
Equity in (earnings) loss of 50% owned subsidiary and joint venture (4,034) 16,193
Contracts and mortgages receivables funded (1,269,595) (1,871,496)
Payments on contracts and mortgages receivable 1,982,817 1,559,738
Contracts and mortgages receivable sold 783,812
Decrease in inventory - land held for sale 1,687,129 960,653
Increase in other receivables (245,119) (40,658)
Increase in prepaid expenses (196,572) (47,020)
Increase in all other assets (48,914) (178,968)
(Decrease in accrued interest payable & misc payable (36,292)
(Decrease) increase in accounts payable (32,524) (73,619)
(Decrease) in accrued salaries, taxes, & real estate taxes payable (142,615) (141,099)
Increase in deposits on land sales and purchase agreements 58,705 11,622
----------- -----------
2,635,839 342,511
----------- -----------
Net cash provided by operating activities 2,813,238 792,445
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (205,116) (118,839)
Proceeds from sale of property and equipment 14,400
Investment in joint venture (31,634)
----------- -----------
Net cash used in investing activities (190,716) (150,473)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (4,884,988) (1,730,299)
Proceeds from notes payable (note 3) 5,613,167
Proceeds from issuance of senior subordinated debt 2,760,000
Repayment of notes, contracts, and mortgage payables (3,757,254) (1,775,209)
Retirement of common stock (25,420)
Payment of senior subordinated debt (10,000)
----------- -----------
Net cash used in financing activities (3,054,495) (755,508)
----------- -----------
DECREASE IN CASH (431,973) (113,536)
CASH AT BEGINNING OF PERIOD 435,966 288,108
----------- -----------
CASH AT END OF PERIOD $ 3,993 $ 174,572
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 792,211 $ 632,662
=========== ===========
Income taxes $ 178,800 $ 250,000
=========== ===========
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 3,754,369 $ 1,174,204
=========== ===========
Noncash financing activity - debt issuance costs paid from
senior subordinated debt proceeds $ 240,000
===========
</TABLE>
See notes to CONDENSED CONSOLIDATED financial statements.
TAYLOR INVESTMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The condensed consolidated balance sheets as of June 30, 1996 and
December 31, 1995, and the condensed consolidated statements of
operations for the three and six month periods ended June 30, 1996 and
1995 and the condensed consolidated statements of cash flows for the
six months ended June 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 June 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 Condensed
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 three and six months ended June 30,
1996 include a gain of $17,905 for both periods 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 JUNE 30, 1996 AND 1995.
Sales of $4,519,486, including $578,274 in sales of shell and turn-key homes,
condominiums and townhomes, ("structures") for the quarter ended June 30, 1996
increased by $993,706 from the same period in 1995. Land sales of $3,941,212
increased by $887,145 from the same period in 1995, and structure sales
increased by $106,561. The increase in land sales is primarily due to the
addition of a new sales office in Jasper, Georgia, and to sales programs to move
inventory held for more than one year. The increase in structure sales is
attributable to the increase in construction and sales of shell and turn-key
homes.
Gross profit was $2,011,697 or 44.5%, for the quarter ended June 30, 1996
compared to $1,930,058, or 54.7%, for the same period in 1995. The gross profit
margin on land sales was 47.7% for 1996 and 56.3% 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 22.6% for 1996 and 44.8% for 1995. The decrease in profit
margin is attributable to timeshare sales representing 28.8% of total structure
sales for 1996 compared to 35.3% in 1995. The profit margin on timeshare sales
average 66.3%, while shell and turn-key homes average 9.4 %. The profit margin
on structure sales will vary by reporting period primarily resulting from
product mix.
Interest income was $239,286 and $226,241 for the second quarter of 1996 and
1995, respectively. The nominal increase is attributable to the average
receivable balance being higher throughout the 1996 quarter, than in the same
period in 1995. For the quarter, equity in the loss of 50% owned joint ventures
decreased $12,445, 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 $234,955 for the second
quarter in 1996, compared to $76,240 for the same period in 1995. This increase
is primarily due to income from tax increment financing income of $131,523, in
1996.
Selling, general and administrative expenses of $1,616,188 were 35.8% of sales
for the second quarter of 1996. These expenses were $1,319,621, or 37.4% of
sales, for the same period in 1995. The increase of $296,567 in selling, general
and administrative expense is due to selling related expenses of advertising and
commissions which increased to 15.8% of sales in 1996 from 12.1% of sales in
1995. Staffing levels, which increased to 130 full and part-time employees in
June, 1996 from 100 in June, 1995 also contributed to the increase. Selling,
general and administrative expense as a percentage of sales decreased by 1.6%,
which is primarily due to fixed expenses.
Interest expense for the quarter ended June 30, 1996 increased $398,987, or
26.9% from the same period in 1995 due to an increase in debt to finance
inventory. Inventory levels have increased to $13,174,220 in June, 1996 from
$8,749,655 in June, 1995.
Income tax expense for the quarters ended June 30, 1996 and 1995 was 43.5% and
42.9%, 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 SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995.
Sales for the six months ended June 30, 1996, were $8,282,774 an increase of
$1,545,501 million, or 22.9% compared to the same period in 1995. The increase
in sales is due to the opening of the new office in Jasper, Georgia, and to the
increase in the sales staff from 45 in 1995 to 55 in 1996, as well as an
increase in the amount of inventory available for sale. Inventory as of June 30,
1996 was $13,174,220 compared to $8,749,655 as of June 30, 1995.
Gross profit for the first six months of 1996 was $3,444,914, or 41.6%, compared
to $3,446,055 or 51.2% for the same period in 1995. The decrease in gross profit
margin is partially due to the product mix in the sale of structures. There were
fewer timeshare sales in 1996, as compared to the same period in 1995. Sales of
shell and turn-key homes, with average gross profit margins of 9.4%, increased
to 71.0% of total structure sales for 1996, compared to 36.0% for the same
period in 1995. The average profit margin for timeshare sales is 66.3%. Land
sales contributed to the decrease in profit margin due to price discounts on
slower-moving inventory. Profit margins for land sales decreased to 45.6% in the
first six months of 1996, compared to 52.5% for the same period in 1995.
Interest income of $478,946 for the first six months of 1996 is 10.7% higher
than for the same period in 1995, due to an increase in the average balance of
contracts and mortgages receivable. Other revenue of $354,099 increased 84.3%
from 1995, due primarily to income from tax increment financing of $131,523.
For the first six months of 1996, selling, general, and administrative expenses
were $3,170,553, or 38.3% of sales, compared to $2,622,231, or 38.9% of sales in
1995. The increase in expenses is principally due to increased staffing and
selling costs.
Interest expense of $792,211 for the first six months of 1996 is $150,014 higher
than for the same period in 1995, this is primarily due to increased levels of
debt incurred to purchase inventory.
Income tax expense for the first six months of 1996 and 1995 was 44.4% and
43.1%, 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 six months ended June
30, 1996, and 1995.
Six months ended Six months ended
June 30, 1996 June 30, 1995
------------- -------------
Net cash provided by (used in):
Operating activities $ 2,813,238 $ 792,445
Investing activities (190,716) (150,473)
Financing activities (3,054,495) (755,508)
------------------------------
Net (decrease) in cash $ (431,973) $(113,536)
Cash provided by operations for the first six months of 1996 and 1995 was
$2,813,238 and $792,445, respectively. The principal sources of cash flow for
the first six months of 1996 was cash received from sales of land and
structures, as well as, 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 the decline in inventory during
the first six months of 1995. Cash used in investing activities was $190,716 and
$150,473 for the six months ended June 30, 1996 and 1995, respectively.
Sources of financing as of June 30, 1996 and December 31, 1995 are detailed in
the following table:
<TABLE>
<CAPTION>
SOURCES OF FINANCING
June 30, 1996 Percentage December 31, 1995 Percentage
------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Lines of Credit $ 2,328,096 15.2% $ 7,213,084 49.3%
Notes Payable(1) 8,616,971 56.1% 2,417,590 16.5%
Mortgages Payable 415,191 2.7% 1,004,290 6.9%
Subordinated Debt 3,990,000 26.0% 3,990,000 27.3%
------------ ----- ------------ -----
Total Debt $ 15,350,258 100.0% $ 14,624,964 100.0%
============ ===== ============ =====
- --------
(1) Notes payable include the Diversified Business Credit, Inc. real estate line
of credit in the amounts of $2,274,055 and $314,030 at June 30, 1996 and
December 31, 1995, respectively.
</TABLE>
The balance of notes payable was $8,616,971 and $2,417,590 for June 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 $5,518,266 in
connection with the transfers of contract and mortgages receivable which were
recorded as financing transactions 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 June 30, 1996 contracts and mortgages
receivable outstanding were approximately $6.5 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 to
purchase the property. Cash sales for the first six months in 1996 and 1995, as
a percentage of total sales, were 84.7% and 72.2%, respectively.
Based on the financing resources identified, management believes it has adequate
sources of financing to fund its cash requirements.
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. Submission of Matters to a Vote of Security Holders
On May 23, 1996 the Security Holders in a meeting duly called, voted
unanimously to eliminate the personal liability of the Directors of the
Company to the fullest extent permitted by Minnesota Statutes 302A.251,
as the same may be amended and supplanted.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on From 8-K
(a) Exhibits.
Not applicable
(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: August 12, 1996 /S/ Philip C. Taylor
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: August 12, 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> JUN-30-1996
<CASH> 3,993
<SECURITIES> 0
<RECEIVABLES> 7,960,853
<ALLOWANCES> 0
<INVENTORY> 13,174,220
<CURRENT-ASSETS> 0
<PP&E> 1,245,149
<DEPRECIATION> 403,719
<TOTAL-ASSETS> 22,921,791
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
0
0
<COMMON> 4,813
<OTHER-SE> 5,377,456
<TOTAL-LIABILITY-AND-EQUITY> 22,921,791
<SALES> 4,519,486
<TOTAL-REVENUES> 4,993,123
<CGS> 2,507,789
<TOTAL-COSTS> 2,507,789
<OTHER-EXPENSES> 2,015,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 398,987
<INCOME-PRETAX> 470,159
<INCOME-TAX> 204,323
<INCOME-CONTINUING> 265,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265,836
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
