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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [fee required]
For the fiscal year ended March 27, 1994
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [no fee required]
Commission File Number 0-19292
PATTEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
5295 Town Center Road, Boca Raton, Florida 33486
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (407) 391-6336
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange, Pacific Stock Exchange
8-1/4% Convertible Subordinated Debentures due 2012 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
in the definitive proxy statement incorporated by reference into Part III of
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant:
$58,944,711 based upon the closing sale price of the Company's Common
Stock on the New York Stock Exchange on June 13, 1994 (or $3.25 per share) and
assuming conversion of $28,543,000 principal amount of 8 1/4% Convertible
Subordinated Debentures at a conversion rate of $9.09 per share. The
$58,944,711 includes 4,400,453 shares of Common Stock held by Franklin
Resources, Inc. or its wholly-owned subsidiaries ("Franklin"), including
302,200 shares issuable upon conversion of $2,747,000 aggregate principal
amount of 8 1/4% Convertible Subordinated Debentures. Shares held by Franklin
represent holdings as reported on the most recent Form 13(G) filed with the
Securities and Exchange Commission, retroactively adjusted to reflect a 4%
stock dividend paid on May 31, 1994.
2
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding
Class as of June 13,1994
----- ------------------
Common Stock, $.01 par value 18,507,050
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the registrant's annual report to
shareholders for the fiscal year ended March 27, 1994 are incorporated by
reference into Part II hereof and specifically identified portions of the
registrant's definitive proxy statement to be filed for its Special Meeting in
Lieu of Annual Meeting of Shareholders to be held on July 27, 1994 are
incorporated by reference into Part III hereof.
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PATTEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
PAGE
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Acquisition of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Marketing and Sale of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 8
Customer Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Loan Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Collection Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sales of Loans/Pledging of Loans . . . . . . . . . . . . . . . . . . . . . . . . . 12
Loan Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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PART III
PAGE
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Statement Schedules -- Schedule II - Amounts Receivable From Related Parties and
Indemnitees, Promoters and Employees Other Than Related Parties . . . . . . . . . . . . . . . . . . 23
Schedule X - Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . 24
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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PART I
ITEM 1. BUSINESS.
SUMMARY
Patten Corporation, together with its subsidiaries, (the "Company") is the
successor to a business that was formed by Harry S. Patten in 1966. The
Company's primary business is to acquire undeveloped rural properties ranging
in size from approximately 30 to 8,000 acres and to subdivide those properties
into parcels typically one to 35 acres in size. The Company markets and sells
the subdivided parcels primarily to residents of metropolitan areas who seek to
own rural land to satisfy a desire for property ownership and recreational
activities such as hunting, fishing, camping, and for possible future vacation,
retirement or primary homesites. Historically, the Company has not built on or
otherwise developed the land it sells. However, in fiscal 1994, the Company
introduced a housing program in the Southwestern, Southeastern and Western
regions of the United States with plans to expand this program in fiscal 1995.
Additionally, in fiscal 1994, the Company purchased property in Gatlinburg,
Tennessee, for the site of its first timeshare project. The housing program
and timeshare project target markets comparable to the Company's primary
business. At March 27, 1994, the Company had 197 properties consisting of
3,803 parcels and approximately 17,800 acres located in 26 states and the
Province of Ontario, Canada.
Since 1989, all acquisitions of land have required the prior approval of the
Company's investment committee, which currently consists of the Chairman of the
Board and four senior executive officers of the Company (the "Investment
Committee"). The Company seeks to reduce its cash outlay and risks by making
small down payments, generally 1% to 4% of the total purchase price, when
contracting to acquire properties and by completing as many preparations for
resale as possible before actually completing the purchase. Although the
Company has historically acquired substantially all of the inventory it has
placed under contract, its down payment and any preliminary development costs
are the only amounts at risk if it fails to complete the purchase.
Prior to purchasing a property, the Company usually completes surveys,
subdivision plans, soil testing and environmental testing, the scope of which
is based upon the proposed use of the land. The Company reviews applicable
environmental and zoning laws and regulations and seeks all necessary
regulatory approvals to permit subdivision and sale of the property. After
purchasing a property, the improvements necessary to comply with applicable
regulations regarding the sale of subdivided lots, such as construction of
roads and the provision of certain utilities, are frequently commenced. With
regard to the housing operation, the Company expends capital on building
materials and other related infrastructure costs with the Company's risk
minimized by pre-selling houses prior to commencing construction. The Company
also seeks to minimize its timeshare development risk. The Company commenced
infrastructure and amenity development subsequent to purchasing the land for
its first timeshare project and is pre-selling timeshare weeks by utilizing a
model unit. Seller or bank financing is frequently obtained by the Company for
the properties it purchases, and in some cases for development costs.
Typically, such indebtedness is reduced by a predetermined percentage of the
proceeds from the sale of individual parcels or units. During fiscal 1994 and
fiscal 1993, the Company financed $12.8 million and $9.3 million, or 33.3% and
36.6%, respectively, of its property inventory, including acquisition and
development costs.
The Company begins to market parcels as soon as practicable, with the sale of
acquired properties typically being completed within two to 24 months from
closing of the acquisition. The holding period may be extended in areas where
the subdivision approval process is more complex. Sales of real estate in
fiscal 1994, fiscal 1993 and fiscal 1992 were $63.4 million, $53.3 million and
$45.1 million, respectively.
The Company offers up to 90% financing for buyers of its parcels and timeshare
units who qualify for financing. The Company structures its sales and
financing activities so that the purchase money mortgage loans (the
"Receivables") arising from land sales and contracts for deed from timeshare
sales may be pledged or sold in separate financing transactions to provide
liquidity for the Company. This liquidity allows the Company to continue to
provide financing for the sale of its parcels. During fiscal 1994 and fiscal
1993, the Company received in cash approximately $41 million and $28 million,
or 65.9% and 56.3%, respectively, of the aggregate purchase price of the
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sales of properties which closed during these years, while financing the
remaining amounts. Housing sales are financed by third party lenders.
The Receivables originated by the Company are typically packaged in portfolios
and sold, utilized as collateral in financing transactions, or combined in
pools that serve to support issuance of mortgage-backed securities, as either
debt or pass-through securities collateralized or evidenced by interests in
distributions from such specific pools. In three instances, the Company has
elected to have the issuance of its mortgage-backed securities treated as Real
Estate Mortgage Investment Conduits ("REMIC"s), which election permits
favorable tax treatment to investors who purchase securities collateralized by,
or representing undivided fractional interests in, mortgage obligations, which
securities generally have different maturity terms and payment priorities.
The Company's continued growth depends upon obtaining outside sources of
funding to finance new property purchases, fund operations, satisfy debt
obligations and provide loans to purchasers of parcels. In the past, the
Company has funded its activities through various sources, including borrowings
under secured and unsecured lines of credit, sales of Receivables and the sale
of debt and equity securities. These arrangements require the Company to
comply with certain covenants and retain certain contingent liabilities. As of
March 27, 1994, the Company had outstanding $34.7 million of 8 1/4% convertible
subordinated debentures, $25.8 million in mortgage-backed notes payable and
$11.5 million in lines of credit and notes payable, with an aggregate weighted
average interest rate on all such indebtedness of 8.4%. The Company
anticipates that it will continue to require external sources of funding. See
Item 7 under Part II below.
In response to economic and real estate market conditions, primarily in the
Northeast, which adversely affected the Company's operations, the Company has
actively pursued regional diversification, with greater emphasis on the
Southeast, Southwest and West regions of the United States.
At March 27, 1994, the Company had 333 full-time and part-time employees. The
Company's executive offices are located at 5295 Town Center Road, Boca Raton,
Florida 33486. Its telephone number at such address is (407) 391-6336.
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
and on the Pacific Stock Exchange ("PSE") under the symbol "PAT." The
Company's 8 1/4% convertible subordinated debentures due 2012 are also listed
on the NYSE.
ACQUISITION OF INVENTORY
In order to provide centralized and uniform controls on the type, location and
amount of inventory that the Company acquires, since 1989, all inventory
acquisitions have required the approval of the Investment Committee, presently
comprised of Harry S. Patten, Chairman of the Board, George F. Donovan,
President and Chief Executive Officer, Alan L. Murray, Treasurer and Chief
Financial Officer, Daniel C. Koscher, Vice President, Chief Accounting Officer
and Assistant Secretary, and Patrick E. Rondeau, Vice President, Director of
Legal Affairs and Clerk/Secretary. The Investment Committee reviews each
proposed acquisition to determine whether the property to be acquired meets
certain criteria. In the approval process, the Investment Committee considers
such established criteria as the economic conditions in the area in which the
parcel is located, environmental sensitivity, availability of financing,
whether the property is consistent with the Company's general policies and the
anticipated ability of that property to produce acceptable profit margins and
cash flow. Since May 1990, sales of property approved by the Investment
Committee have resulted in average gross margins of approximately 58%. Prior
to the formation of the Investment Committee, the determination of whether to
buy most properties was typically made by the Company's regional managers,
together with one or more members of the Company's senior management.
The Company, through its regional offices, and subject to Investment Committee
review and approval, typically acquires inventory that is located within one to
five hours driving distance of metropolitan areas, are suitable for
subdivision, have attractive topographical features and, based upon anticipated
resale value, will result in an acceptable profit margin and cash flow to the
Company. Properties acquired by the Company in fiscal 1994 ranged in size from
33 to 2,274 acres. Properties are generally subdivided for resale into parcels
ranging in size from one to 35 acres. In fiscal 1994, the Company acquired
12,529 acres in 35 separate transactions with a total purchase price
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of $18.8 million, or $1,500 per acre. Seller or bank financing of $11.7
million, or 62% of the total purchase price, was obtained.
The Company has several specialists who assist regional management in locating
inventory for acquisition. The Company has established contacts with numerous
land owners and real estate brokers in many of its market areas, and because of
such contacts and its long history of acquiring properties, the Company is
generally in a favorable position to learn of available inventory. The
Company's objective is to develop strong relationships with major property
owners and brokers. Regional offices regularly contact such property owners,
such as timber companies and financial institutions, as well as real estate
brokers, by a combination of telephone, mail and personal visits. In addition,
the Company occasionally places advertisements in local and national newspapers
indicating an interest in acquiring land. To date, the Company's regional
offices have been able to locate and acquire adequate quantities of inventory
which meet the criteria established by the Investment Committee to support
their operational activities.
Once an appropriate property is located, the Company begins performing due
diligence procedures and enters into a purchase agreement with the seller. It
is generally the Company's policy to advance only a small down payment, which
typically ranges from 1% to 4% of the total purchase price, when signing a
contract to acquire inventory and to limit the liquidated damages associated
with properties under contract for purchase to the amount of its down payment
and any preliminary development costs. In most cases, the Company is not
required to advance the full purchase price or enter into a note payable
obligation until all regulatory approvals for the subdivision and sale of land
have been obtained. While local approvals are being sought, the Company will,
in certain instances, engage in test marketing of the subdivided parcels and,
with the consent of the seller and the knowledge of prospective purchasers,
occasionally attempt to pre-sell parcels, subject to closing its purchase of
the property. When substantially all approvals have been received, the closing
on the property occurs and the Company obtains title. Typically, the time
between execution of a purchase agreement and closing on a property has
generally been six to 12 months. Although the Company generally retains the
right to cancel purchase agreements without any loss beyond forfeiture of the
down payment and preliminary development costs, few purchase agreements have
been canceled.
By requiring, in most cases, that all regulatory approvals be obtained prior to
closing and by making small down payments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy enables the
Company to reduce the time during which it actually owns specific properties,
the market risk associated with holding real estate and the risk of acquiring
property that may not be suitable for sale. It also provides a source of
available properties to meet customer demand. In certain instances, however,
the Company has acquired properties and then held such properties until their
prime marketing seasons.
As of March 27, 1994, the Company had aggregate down payments of $739,500
associated with 18 properties under contract for purchase. Such properties
represent 40,994 acres with an aggregate purchase price of $24.4 million, or
$595 per acre.
Prior to closing on a purchase of inventory, the Company's policy is to
complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open
space, scenic vistas, recreation, transportation and community growth and
character. To obtain this information, the Company's acquisition specialists
typically consult with various groups and agencies including the appropriate
county and state planning agencies, environmental groups, state heritage
programs, soil conservation agencies and forestry groups. If the Company's
environmental assessment indicates that the proposed subdivision meets
environmental criteria and zoning, building, health and other laws, the Company
develops a formal land use plan, which forms a basis for determining an
appropriate acquisition price. The Company attempts, where possible, to
accommodate the existing topographical features of the land, such as streams,
hills, wooded areas, stone walls, farm buildings and roads. Prior to closing
on an acquisition, the Company will typically have the property surveyed by a
professional surveyor as well as have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company obtains
title insurance on the property.
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The following table sets forth as of the periods indicated, the aggregate cost
of property owned by the Company classified by major geographic region.
MARCH 27, 1994 MARCH 28, 1993
----------------------------------------- ------------------------------------
INVENTORY INVENTORY
TOTAL VALUATION TOTAL VALUATION
GEOGRAPHIC REGION ACRES COST RESERVE ACRES COST RESERVE
----------------- ----- ------- ------------ ----- ---------- -----------
Northeast . . . . . . . 1,242 $ 7,110,231 $ 2,523,180 1,717 $ 8,979,960 $3,275,409
Mid-Atlantic . . . . . 2,160 5,218,675 36,497 3,049 4,856,762 129,917
Southeast . . . . . . . 1,429 13,135,384 1,932,971 3,409 13,768,159 2,919,175
Midwest . . . . . . . . 1,723 7,532,470 50,555 908 2,198,219 57,982
Southwest . . . . . . . 3,630 5,191,291 5,450 2,311 3,632,534 29,943
West . . . . . . . . . 7,384 6,102,910 14,950 8,471 3,669,354 15,099
Ontario, Canada . . . . 224 386,584 --- 200 448,396 ---
------ ----------- ----------- ------ ---------- ----------
17,792 44,677,545 $ 4,563,603 20,065 37,553,384 $6,427,525
====== =========== ====== ==========
Inventory valuation
reserve . . . . . . (4,563,603) (6,427,525)
----------- -----------
Inventory, net . . . . $40,113,942 $31,125,859
=========== ===========
MARKETING AND SALE OF INVENTORY
In general, as soon as a property has been acquired and any appropriate
improvements have been completed, the Company establishes selling prices for
the individual parcels taking into account such matters as regional economic
conditions, quality as a building site, scenic views, road frontage and natural
features such as lakes, streams, ponds and wooded areas. The Company also
considers recent sales of comparable parcels in the area. Initial decisions on
pricing of parcels in a given area are made by the Company's regional managers
and, in all cases, are subject to approval by the Investment Committee.
The Company's most widely used marketing technique is advertisement in major
newspapers in metropolitan areas located within a one to five hour drive from
the property, as well as local newspapers. A sales representative
knowledgeable about the property answers each call, discusses the property with
the prospective purchaser, attempts to ascertain the purchaser's needs and
whether the parcel would be suitable for that person, and arranges an
appointment for the purchaser to visit the property. Substantially all
prospective customers inspect a property before purchasing. The Company also
conducts direct mail campaigns to market property using brochures describing
available parcels, as well as television and radio advertising. During fiscal
1994, the Company incurred $4.5 million in advertising expense, or 7.1% of
sales of real estate, compared to $3.6 million incurred in advertising expense,
or 6.8% of sales of real estate during fiscal 1993.
The success of the Company's marketing effort depends heavily on the knowledge
and experience of its sales personnel, substantially all of whom are employees
of the Company. The Company requires that prior to initiating the marketing
effort for a property, every sales representative walk the property and become
knowledgeable about each parcel and applicable zoning, subdivision and building
code requirements. The Company maintains continued training programs,
including training with regional office sales managers, weekly sales meetings,
and frequent meetings with an executive officer of the Company. Additionally,
the sales staff are evaluated against performance standards as established by
the executive officers of the Company. Substantially all of a sales
representative's compensation is commission-based.
The Company requires its sales staff to provide each customer with a written
disclosure statement regarding the real estate to be sold prior to the time the
customer signs a purchase agreement. Either a U.S. Department of Housing and
Urban Development ("HUD") lot information statement, where required, or a
Company generated "Vital Information Statement" sets forth relevant information
with respect to, and risks associated with, the property and is signed by every
purchaser. The Company believes that each information statement contains all
material and relevant information a customer requires to make an informed
decision as to whether or not to purchase, such as availability
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and estimated cost of utilities, restrictions regarding property usage, status
of access roads and information regarding rescission rights.
After deciding to purchase a parcel or unit, the buyer enters into a contract
and pays the Company a deposit of at least 10% of the purchase price. It is
the Company's policy to give all purchasers the right to cancel purchase
agreements within specified periods after execution in accordance with
statutory requirements. The closing of a land sale usually occurs two to eight
weeks after payment of the deposit while a house sale closing may occur two to
six months after payment of the deposit. Upon closing of a land or house sale,
the Company delivers to the buyer a warranty deed and a recent survey of the
property. For timeshare sales, the Company delivers a deed to the customer
when the purchase price has been paid in full. Title insurance is available at
the purchaser's expense.
The following table sets forth certain information regarding sales of parcels
for the periods indicated.
YEARS ENDED
----------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1994 1993 1992
------------- ------------- -------------
Number of parcels sold (1) . . . . . . 2,489 (2) 2,560 2,151
Average sales price per parcel (1) . . $ 25,511 (2) $ 21,368 $ 21,513
Average sales price per acre (1) . . . 3,851 (3) 1,990 2,392
Gross margins on sales of real estate . 51.5% 46.7% 36.3%
Percentage of closed sales financed
by the Company (4) . . . . . . . . . 34.1% 43.7% 47.8%
(1) Calculated by adding back sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods. The average sales price per parcel, net of the effects of
deferred sales, was $25,468, $20,839 and $20,967 for fiscal 1994, 1993 and
1992, respectively.
(2) Parcels sold in fiscal 1994 included 2,445 parcels sold from the Company's
land operation and 44 parcels sold from the Company's housing operation.
The average sales price of all parcels sold during fiscal 1994 excluding
housing operation sales was $24,665. The average sales price of housing
parcels including the housing unit during fiscal 1994 was $70,044.
(3) The aggregate acres sold in fiscal 1994 was approximately 16,459,
including 16,342 acres sold from the land operation and 117 acres sold
from the housing operation. The average sales price per acre excluding
housing operations in fiscal 1994 was $3,690.
(4) Computed by dividing the aggregate dollar amount of financed sales of real
estate that closed during the period by the aggregate dollar amount of
total closed sales for the period.
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The following tables below outline sales, parcels sold and average sales price
per parcel by geographic region for the fiscal years indicated.
REAL ESTATE SALES
(DOLLARS IN THOUSANDS)
YEARS ENDED
---------------------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
------------------ ------------------- --------------------
GEOGRAPHIC REGION AMOUNT % AMOUNT % AMOUNT %
----------------- ------ ----- ------ ----- ------ ----
Northeast . . . . . . . . $ 2,034 3.2% $ 3,794 7.1% $ 7,596 16.8%
Mid-Atlantic . . . . . . 7,899 12.5 12,710 23.9 12,355 27.4
Southeast . . . . . . . . 9,978 15.8 6,728 12.6 4,236 9.4
Midwest . . . . . . . . . 10,645 16.8 6,222 11.7 5,118 11.4
Southwest . . . . . . . . 24,244 38.2 16,015 30.0 10,938 24.3
West . . . . . . . . . . 8,432 13.3 7,710 14.4 4,214 9.3
Canada . . . . . . . . . 157 .2 170 .3 643 1.4
-------- ----- -------- ------ --------- -----
Totals (1) . . . . . . . $ 63,389 (2) 100.0% $ 53,349 100.0% $ 45,100 100.0%
======== ===== ======== ===== ========= =====
PARCELS SOLD AND AVERAGE SALES PRICE PER PARCEL
YEARS ENDED
--------------------------------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
------------------------ -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
----------------- ------------ ---------- ------------ ---------- ------------ ----------
Northeast . . . . . . . 115 $ 17,687 251 $ 15,018 366 $ 20,754
Mid-Atlantic . . . . . 367 20,700 545 23,538 563 22,128
Southeast . . . . . . . 376 26,537 439 15,227 252 16,808
Midwest . . . . . . . . 437 22,767 279 23,049 225 24,741
Southwest . . . . . . . 940 27,140 740 22,970 541 21,370
West . . . . . . . . . 242 34,180 292 26,785 180 23,409
Canada . . . . . . . . 12 13,037 14 12,101 24 26,805
----- -------- ----- --------- ----- ---------
Totals (1) . . . . . . 2,489 (2) $ 25,511 (2) 2,560 $ 21,368 2,151 $ 21,513
===== ======== ===== ========= ===== =========
(1) Calculated by adding back sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods.
(2) Fiscal 1994 sales of $63.4 million include 44 housing operation unit sales
aggregating $3.1 million. The average sales price per parcel excluding
housing operation sales during fiscal 1994 was $24,665. The average sales
price of housing parcels including the housing unit during fiscal 1994 was
$70,044. There were no timeshare in fiscal 1994.
The Company's gross margins were 51.5%, 46.7% and 36.3% for fiscal 1994, 1993
and 1992, respectively.
In fiscal 1994 and fiscal 1993, sales of real estate increased 18.8% and 18.3%,
respectively, from sales during the prior year. Furthermore, the Company has
experienced an improvement in sales of real estate from fiscal 1992 to fiscal
1994 in many of its operations outside of the Northeast. Sales remain
depressed in the Northeast, where approximately 11.4% of the Company's net
inventory at March 27, 1994, was located.
The Company merged seven of its Northeast subsidiaries into a new corporation.
The new corporation has operated as Patten Liquidation Sales Corporation since
March 29, 1993. The new corporation has availed itself of an exemption
provided by HUD, which allows the cross referral of customers from one
Northeast office to another.
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Management believes this action will accelerate the liquidation of Northeast
inventory, result in reduced advertising, selling and other disposal costs and
the common promotion of substantially all of the Company's inventory in the
Northeast.
CUSTOMER FINANCING
The Company offers financing of up to 90% of the purchase price of a parcel to
all buyers of its properties who qualify for such financing. The term of
repayment on such financing has historically ranged from five to 15 years
although the Company, by offering reduced interest rates, has been successful
in encouraging customers during the last two years to finance their purchases
over shorter terms and provide increased down payments. Management believes
such strategy has improved the quality of its notes receivable during the last
three fiscal years. During fiscal 1994, fiscal 1993 and fiscal 1992, the
Company received in cash 65.9%, 56.3% and 52.2%, respectively, of the aggregate
purchase price of the sale of real estate which closed during that period and
financed the remaining amounts. Purchasers who utilize the Company's financing
generally pay 10% to 50% of the purchase price of a parcel in cash and the
balance is supported by a promissory note, secured by a first mortgage on the
parcel sold. During fiscal 1994, the average down payment provided by
customers who used Company financing was 21.5% of the purchase price of
parcels. The promissory notes may be prepaid without penalty. As of March 27,
1994, the Company or its special purpose financing subsidiaries (the
"Receivable Subsidiaries") held $42.9 million in Receivables net of reserves
for loan losses from purchasers of parcels, representing 2,959 customers. As
of March 28, 1993, the Company or its Receivables Subsidiaries held $32.8
million in Receivables net of reserves for loan losses from purchasers of
parcels, representing 2,255 customers. See Note 8 and 9 to the Consolidated
Financial Statements which are incorporated by reference into Item 8, Part II
from the Company's 1994 Annual Report to Shareholders. Approximately 92% of
the principal amount of the Company's Receivables from customers bear interest
at a variable rate, with rates up to 9.9% over the applicable index, subject to
applicable usury laws. The Company believes its financing is attractive to
purchasers because buyers find it convenient to handle all facets of the
purchase of real estate through a single source and because down payments
required by the Company are typically competitive with those required by banks
and mortgage companies on similar properties when such institutions offer this
type of credit.
At March 27, 1994, 3.3% of the aggregate $48.9 million principal amount of
Company-originated loans which were held by the Company or sold through
programs under which the Company has a contingent liability were more than 30
days past due compared to 4.8% of the aggregate $40 million principal amount of
such loans as of March 28, 1993. In cases of default, the Company may take
title to the parcel in lieu of foreclosure. If the Company is unable to obtain
a deed in lieu of foreclosure, the Company forecloses on the mortgage securing
such note. The Company has been less successful reselling reacquired parcels
located in the Northeast at historical profit levels, due primarily to soft
real estate market conditions since fiscal 1990. The Company recorded loan
loss provisions of $795,000 during fiscal 1994, $400,000 during fiscal 1993 and
$780,000 during fiscal 1992, respectively. In fiscal 1994, the Company charged
$797,113 against its reserve for loan losses to reflect the difference between
the unpaid balance of non-performing notes receivable and the estimated net
realizable value of the reacquired inventory, compared to $990,000 charged in
fiscal 1993.
LOAN UNDERWRITING
The Company has established loan underwriting criteria and procedures designed
to reduce credit losses on its loan portfolio. The loan underwriting process
includes reviewing the credit history, verifying employment, calculating
certain debt-to-income ratios and, on a selective basis, conducting a telephone
interview with the customer. The primary focus of the Company's underwriting
is to determine the applicant's ability to repay the loan. This assessment is
based on a number of factors, including the relationship of the applicant's
required monthly payment to disposable income. The Company also examines the
applicant's credit history through various credit reporting agencies. In order
to verify an applicant's employment status, the Company generally contacts the
applicant's employer and, if necessary, obtains current pay stubs and recent
tax returns and other tax forms. Loans by the Company are made solely to
finance real estate sold by the Company.
Customer financing requires the submission of a completed and signed credit
application, purchase and sale agreement and pre-authorized checking agreement
accompanied by a voided check, if applicable, to the credit
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department located at the Company's corporate headquarters where all credit
decisions are made. Loan amounts under $50,000 are approved by designated
personnel located in the Company's corporate headquarters. Loan amounts of
$50,000 or more require approval from a senior executive officer. In addition,
rejected applications and any material exceptions to the underwriting policy
are also reviewed by senior management. Customers are notified of the reasons
for credit rejection by mail.
After the credit decision has been made, the credit department categorizes the
file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer.
Closings are typically conducted at the office of the Company's local attorney
or settlement agent, although in some cases the closing may take place by mail.
The Company encourages customers to increase their down payment and reduce the
loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their down payment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is
one percent greater than the prevailing rate.
When the original closing documents are received from the closing agent, the
Company verifies that the loan closed under terms approved by the Company's
credit department. A complete quality control audit is performed to verify
that required documents have been received and have been prepared and executed
correctly. If any corrections are required, notification is sent to the
regional office.
A loan file typically includes a copy of the signed security instrument, the
mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage
and an original note endorsement from the Company's subsidiary originating the
sale and the loan to the Company. After the initial closing documents are
received, the recorded mortgage and assignment and original title insurance
policy are required in order to complete the loan file.
COLLECTION POLICIES
With respect to delinquent mortgage loans, collection efforts and delinquency
information are managed at the Company's corporate headquarters. Servicing of
the mortgage portfolio is handled by a staff of experienced collectors,
assisted by an on-line mortgage collection computer system. Unless
circumstances otherwise dictate, collection efforts are generally made by mail
and telephone. Collection efforts begin when an account is five days past due,
at which time the Company mails a reminder letter. When an account reaches 10
days past due, attempts are made to contact the borrower via telephone to
determine the reason for the delinquency and to attempt to bring the account
current. The determination of how to work out a delinquent loan is based upon
many factors, including the borrower's payment history and the reason for the
current inability to make timely payments. If no agreement is made or the
borrower does not abide by the agreement, collection efforts continue until the
account is brought current or legal action is commenced. Under the terms of
the promissory note executed by the borrower, the borrower is in default when
the loan becomes 30 days delinquent. The Company declares the loan in default
when the loan becomes 45 days delinquent. When the loan is 90 days past due,
the accrual of interest is stopped (unless the loan is considered an
in-substance foreclosure loan, in which case all accrued interest is reversed
since the Company's means of recovery in such cases is determined to be through
resale of the underling collateral and not through collection on the note) and
the Credit and Collection Manager, Asset Recovery Specialist Manager and Vice
President and Director of the Mortgage Department determine the action to be
taken.
SALES OF LOANS/PLEDGING OF LOANS
Since 1986, the Company, primarily through its Receivables Subsidiaries, has
sold or pledged substantially all of its mortgage loan originations, generally
retaining the right and obligation to service the loans. Generally, the Company
transfers the mortgage loans to the Receivables Subsidiaries, which in turn
enter into institutional financing transactions or securitizations. The loans
are typically sold with limited recourse, with the Company retaining limited
contingent liability for defaults by borrowers. In the case of certain sales,
the Company is only required to
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guarantee the repayment of a note until a portion of the amount due on the note
is paid. In the case of loans pledged, the Company generally must repurchase
or replace mortgage loans which are more than 90 days delinquent. At March 27,
1994, the Company was subject to limited recourse requirements on approximately
$5.3 million of Receivables sold. The delinquency on such loans was immaterial
at March 27, 1994.
The Company, through its Receivable Subsidiaries, completed two REMIC
transactions in 1989 and 1992. A third REMIC transaction closed on May 11,
1994. Under the terms of these transactions, the Company has no obligation to
repurchase the Receivables due to default by the borrowers. The Company does,
however, have the obligation to repurchase the Receivables in the event that
there is any material defect in the loan documentation and related
representations and warranties. See Notes 8 and 9 to the Consolidated
Financial Statements which are incorporated by reference into Item 8, Part II
from the Company's 1994 Annual Report to Shareholders.
LOAN SERVICING
Mortgage loan servicing includes collecting payments from borrowers and
remitting such funds to the owners of or investors in such loans, accounting
for loan principal and interest, making advances when required, contacting
delinquent borrowers, foreclosing in the event that defaults are not remedied
and performing other administrative duties. A servicer's obligation to provide
mortgage loan servicing and its rights to collect fees are set forth in a
servicing agreement. The Company has the obligation and right to service all
the loans it originates and retains the obligation and right with respect to
substantially all the loans it sells. The Company typically receives a
servicing fee of approximately .5% of the outstanding scheduled principal
balance which is deducted from payments received on substantially all of the
Company's servicing portfolio. At March 27, 1994, the Company's loan servicing
portfolio totaled $131.8 million.
CUSTOMER SERVICE
The Company stresses customer satisfaction and maintains two full-time customer
service representatives in its Boca Raton headquarters to respond to customer
inquiries. In addition, an annual customer service survey is conducted which
polls each customer who has purchased property in the last twelve months. At
closing, purchasers are provided with a toll-free customer service phone number
to facilitate any additional information requests.
REGULATION
The real estate industry is subject to extensive regulation. The Company is
subject to compliance with various federal, state and local environmental,
zoning and other statutes and regulations regarding the acquisition,
subdivision and sale of real estate and timeshare interests and various aspects
of its financing operations. The Interstate Land Sales Full Disclosure Act
establishes strict guidelines with respect to the marketing and sale of land in
interstate commerce. HUD has enforcement powers with respect to this statute.
In some instances, the Company has been exempt from HUD registration
requirements because of the size or number of the subdivided parcels and the
limited nature of its offerings. The Company, at its discretion, may formally
request an exemption advisory opinion from HUD to confirm the exempt status of
any particular offering. Several such exemption requests have been submitted
to and approved by HUD. In those cases where the Company and its legal counsel
determine parcels must be registered to be sold, the Company files registration
materials disclosing financial information concerning the property, evidence of
title and a description of the intended manner of offering and advertising such
property. The Company bears the cost of such registration, which includes
legal and filing fees. Many states also have statutes and regulations
governing the sale of real estate. Consequently, the Company regularly
consults with counsel for assistance in complying with federal, state and local
law. The Company believes that it is in compliance in all material respects
with existing regulations. The Company must obtain the approval of numerous
governmental authorities for its acquisition and marketing activities and
changes in local circumstances or applicable laws may necessitate the
application for, or the modification of, existing approvals. The expansion of
such regulation in recent years has increased the average time period from
acquisition to sale of certain property and has imposed additional compliance
costs.
The Company's customer financing activities are also subject to extensive
regulation, which may include without limitation, Truth-in-Lending-Reg. Z,
Fair Debt Collection Practices Act, Equal Credit Opportunity Act-Reg. B,
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Electronic Funds Transfer Act-Reg. E, Home Mortgage Disclosure Act-Reg.
C, Unfair or Deceptive Acts or Practices-Reg. AA and Right to Financial Privacy
Act. The Company believes that it is in compliance in all material respects
with such regulations.
In fiscal 1988, the Company established regional operations in Ontario, Canada.
The Company's operations in Canada are subject to compliance with all
applicable Canadian federal and provincial environmental, zoning, financing and
other statutes regarding the acquisition, subdivision, financing and sale of
real estate. During fiscal 1994, 1993 and 1992, the Company's operations in
Canada accounted for .3%, .3% and 1.4%, respectively, of the Company's total
real estate sales during those periods.
Management is currently not aware of any pending regulatory contingencies that
are expected to have a materially adverse impact on the Company.
COMPETITION
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business, some of which are larger and have greater financial resources than
the Company. Such competition may be generally smaller in more rural markets
in which the Company operates. The Company believes that it can compete on the
basis of its reputation and the price, location and quality of the products it
offers for sale, as well as its experience in acquiring and selling
recreational rural real estate. In its customer financing activities, the
Company competes with banks, mortgage companies, other financial institutions
and governmental agencies offering financing of real estate. The Company
believes that, based on its interest rates and repayment schedules, the
financing packages it offers are competitive with those of other institutions
which offer such financing.
PERSONNEL
As of March 27, 1994, the Company had 333 full-time and part-time employees, 66
of which are located at the Company's headquarters in Boca Raton, Florida and
267 employees including three divisional presidents, 18 regional and district
managers, 150 sales personnel, 11 acquisition specialists and 85 administrative
and other support personnel located in regional offices throughout the United
States and Canada. None of the Company's employees is represented by a
collective bargaining unit, and the Company believes that relations with its
employees generally are excellent.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
Name Age Position
---- --- --------
George F. Donovan 55 President and Chief Executive Officer
Alan L. Murray 47 Treasurer and Chief Financial Officer
Daniel C. Koscher 36 Vice President, Chief Accounting Officer and Assistant Secretary
Patrick E. Rondeau 47 Vice President, Director of Corporate Legal Affairs and Clerk/Secretary
GEORGE F. DONOVAN joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993 and Chief Executive
Officer in December 1993. Mr. Donovan also has served as an officer of a
number of other recreational real estate corporations, including Leisure
Management International, of which he was President from 1991 to 1993. From
1989 to 1991, Mr. Donovan served as President and Chief Executive Officer of
Thousand Trails, and from 1988 to 1989 he formed and operated the Donovan
Companies.
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ALAN L. MURRAY joined the Company in July 1990 and was elected Treasurer in
September 1990. Mr. Murray was elected Chief Financial Officer in May 1991.
Prior to joining the Company, Mr. Murray had previously held the position of
President of Mount Holly, Inc. and Northeast Country Properties, Inc.,
practiced as a certified public accountant in southern Vermont and western
Massachusetts, held the position of corporate controller of Felters Company and
practiced as a certified public accountant in the audit department of Coopers &
Lybrand.
DANIEL C. KOSCHER joined the Company in 1986. He served as Divisional
Controller of the Company and subsequently as Director of Accounting until he
became Vice President and Chief Accounting Officer in June 1990. Prior to his
employment with the Company, Mr. Koscher held various accounting positions
with the William Carter Company, a manufacturing company located in Needham,
Massachusetts, and Cipher Data Products, Inc., a computer peripheral
manufacturer located in San Diego, California. Mr. Koscher also held the
position of audit agent for the State of Nevada.
PATRICK E. RONDEAU joined the Company in July 1990 and was elected Vice
President and Director of Corporate Legal Affairs in September 1990 and
Clerk/Secretary in February 1993. For more than five years prior to his
employment with the Company, Mr. Rondeau was a senior partner of Freedmen,
DeRosa & Rondeau, located in North Adams, Massachusetts, which firm serves as
legal counsel to the Company on various matters.
The Company's By-Laws provide that except as otherwise provided by law or the
charter and by-laws of the Company, the Chairman, President, Treasurer and the
Clerk hold office until the first meeting of the Board of Directors following
the next annual meeting of shareholders and until their respective successors
are chosen and qualified and that all other officers hold office for the same
period unless a shorter time is specified in the vote appointing such officer
or officers.
ITEM 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida in
approximately 14,000 square feet of leased space. On March 27, 1994, the
Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern and Western regions of the
United States as well as the Province of Ontario, Canada.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time becomes
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of parcels of land. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees,
occasionally involving charges of wrongful acts by the Company and its officers
or other employees. The Company believes that substantially all of the above
are incidental to its business. During fiscal 1994, the Company defended and
settled approximately 23 claims, proceedings or disputes. The total cost of
such defense and settlements was not material in amount. The Company currently
is a party to approximately 20 claims, proceedings or disputes, some of which
are in the early administrative or demand stage and have not yet resulted in
civil lawsuits. Based upon the information available to it, the Company
believes that it has various defenses to all of the charges and intends to
vigorously defend each of the claims. However, the potential outcome or
exposure of the Company with respect to these proceedings is not determinable
at this time. See Note 11 to the Consolidated Financial Statements which are
incorporated by reference into Item 8, Part II from the Company's 1994 Annual
Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the NYSE and on the PSE under the
symbol "PAT." The Company's 8 1/4% convertible subordinated debentures due
2012 are also listed on the NYSE. The following table sets forth, for the
periods indicated, the high and low sales price per share of common stock as
reported on the NYSE.
Fiscal 1994 (1): High Low
---- ---
First Quarter . . . $3 7/8 $2 5/8
Second Quarter . . . 4 1/8 3 1/8
Third Quarter . . . 5 3 1/8
Fourth Quarter . . . 4 3 1/8
Fiscal 1993 (1): High Low
---- ---
First Quarter . . . $ 1 3/4 $ 1 5/8
Second Quarter . . . 2 1/8 1 1/2
Third Quarter . . . 3 3/8 2
Fourth Quarter . . . 4 1/8 3
(1) Because the 4% common stock dividends declared in June, 1993 and
April, 1994 were not material in terms of number of shares issuable nor was
the market price materially affected, no adjustment to the high or low sales
prices has been made to the above table.
As of May 2, 1994, there were 2,017 registered holders of record of common
stock and approximately 2,500 holders of common stock in "street name."
No cash dividends have been declared on the Company's common stock since the
third quarter of fiscal 1990. The Company is restricted from paying cash
dividends under the terms of certain of its debt instruments. See Note 6 to
the Consolidated Financial Statements which are incorporated by reference into
Item 8, Part II from the Company's 1994 Annual Report to Shareholders.
The registrar and transfer agent for the Company's common stock is Mellon
Securities Transfer Services of East Hartford, Connecticut 06105.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data with respect to
the operations of the Company and its subsidiaries. The information provided
should be read in conjunction with the Consolidated Financial Statements and
related Notes which are incorporated by reference into Item 8, Part II from the
Company's 1994 Annual Report to Shareholders.
PATTEN CORPORATION
SELECTED FINANCIAL DATA
(Amounts in thousands except for per share data)
MARCH 27, MARCH 28, MARCH 29, MARCH 31, APRIL 1,
1994 1993 1992 1991 (3) 1990 (3)
-------- -------- -------- --------- ---------
INCOME STATEMENT DATA
---------------------
Sales of real estate ......... $63,389 $53,349 $ 45,100 $63,691 $ 101,195
Interest Income (1) ......... 7,952 10,191 16,515 17,966 19,174
------- ------- ------- ------- ---------
Total revenues .............. 71,341 63,540 61,615 81,657 120,369
Income (loss) from
operations .................. 6,778 3,604 1,089 (49,253) (23,932)
Net income (loss) ........... 4,931 3,457 1,368 (32,189) (12,894)
Net income (loss)
per common share -
Primary and fully diluted .25 .18 .07 (1.82) (.73)
OPERATING DATA
--------------
Gross margin on sales of
real estate (2) ............. 51.5% 46.7% 36.3% 30.2% 46.8%
Average sales price per period $25,468 $20,839 $ 20,967 $24,217 $ 24,273
Number of parcels sold ....... 2,489 2,560 2,151 2,630 4,169
Average interest rate earned on
notes receivable at period
end .......................... 10.9% 11.0% 12.1% 13.9% 14.0%
BALANCE SHEET DATA
------------------
Notes receivable, net ....... $42,882 $32,772 $102,304 102,693 106,923
Inventory, net ............... 40,114 31,126 33,749 34,600 70,245
Total assets ................. 139,617 122,853 182,193 198,799 261,371
Short-term debt ............. --- 6,500 --- --- ---
Current portion of lines
of credit, notes payable and
mortgage backed debt ........ 5,741 5,684 13,503 16,549 22,298
Long-term portion of lines
of credit, notes payable and
mortgage backed debt ........ 31,556 14,418 76,209 89,969 96,524
8 1/4% convertible
subordinated debentures .... 34,739 34,739 34,739 34,739 34,739
Shareholders' equity ......... 51,854 46,868 43,378 42,010 74,183
Cash dividends per common
share......................... --- --- --- --- .06
Book value per common share... $ 2.91 $ 2.74 $ 2.54 $ 2.46 $ 4.35
Shares outstanding at end
of year (000's) ............. 17,796 17,083 17,061 17,061 17,038
ASSET QUALITY RATIOS
--------------------
Inventory valuation reserve
to gross inventory (3) ...... 10.2% 17.1% 29.6% 43.4% 12.9%
Charge-offs net of recoveries
to average loans ............ 2.1% 2.1% 1.3% 1.5% --
Reserve for loan losses to
period end loans ............ 1.2% 1.9% 2.1% 2.6% .5%
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(1) Fiscal 1993 includes a $695,000 gain from the 1992 REMIC transaction.
(2) Gross margin is computed by reference to the difference between the sale
price and the related cost of inventory, including the cost of
improvements and amenities, divided by the sale price.
(3) During fiscal 1990 and 1991, the Company experienced a downturn in the
market for real estate, particularly in the Northeast. Accordingly,
significant provisions for the write-down of inventory to estimated net
realizable value and estimated loan losses were recorded which
contributed to substantial net losses in each fiscal year. The Company's
operating results improved subsequent to fiscal 1991 due, in part, to the
gradual improvement in the real estate market as well as the Company's
program to liquidate inventory in the Northeast in favor of greater
geographic diversification in markets less affected by adverse market
conditions. The inventory reserve to gross inventory asset quality ratio
has decreased in connection with the liquidation of the related inventory
previously reserved for.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information provided under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
1994 Annual Report to Shareholders, which is an exhibit hereto, is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries and
the related Notes thereto and auditor's report appearing on pages 24 through 38
of the Company's 1994 Annual Report to Shareholders, which is an exhibit
hereto, are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the Company provided under the
headings "Election of Directors" and "Certain Transactions and Other
Information" in the Company's definitive notice of annual meeting and proxy
statement (the "Proxy Material") to be filed in connection with the Special
Meeting in Lieu of Annual Meeting of Shareholders of the Company to be held on
July 27, 1994 is incorporated herein by reference. Information concerning the
executive officers of the Company appears in Part I of this Annual Report on
Form 10-K.
The present members of the Board of Directors of the Company are:
Joseph C. Abeles, Trustee, Abel Associates Trust
George F. Donovan, President and Chief Executive Officer, Patten Corporation
Ralph A. Foote, Esq., Senior Partner, Conley & Foote
Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook
Harry S. Patten, Chairman of the Board, Patten Corporation
Stuart A. Shikiar, General Partner, Omega Advisors
Bradford T. Whitmore, General Partner, Grace Brothers, Ltd.
SECTION 16 COMPLIANCE
Rule 16(a)-3 of the Securities Exchange Act of 1934 requires that, subject to
certain exceptions, a statement of changes in beneficial ownership of
securities of an issuer held by a director or officer be reported on Form 4
within ten (10) days after the end of the month in which the change occurs.
In November, 1993, Harry S. Patten, the Chairman of the Board of Directors of
the Company, sold 23,300 shares of Common Stock. The transaction was reported
to the Securities and Exchange Commission on Form 4 on January 7, 1994,
twenty-eight (28) days after the required filing date.
ITEM 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Election of Directors," "Board of
Directors and its Committees," "Executive Compensation" and "Certain
Transactions and Other Information" in the Company's Proxy Material is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners: the information
provided under the heading "Principal Stockholders," in the Company's
Proxy Material is incorporated herein by reference.
(b) Security ownership of management: the information concerning
beneficial ownership of the Company's common stock by its directors
and executive officers provided under the headings "Election of
Directors" and "Principal Stockholders" in the Company's Proxy
Material is incorporated herein by reference.
(c) Changes in control: None.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with management and others: the information provided
under the headings "Election of Directors," "Executive Compensation,"
"Principal Stockholders" and "Certain Transactions and Other
Information" in the Company's Proxy Material is incorporated herein by
reference.
(b) Certain business relationships: the information concerning
relationships regarding directors, or nominees for director, that
exist or have existed during the Company's fiscal year ended March 27,
1994 provided under the headings "Election of Directors" and "Certain
Transactions and Other Information" in the Company's Proxy Material is
incorporated herein by reference.
(c) Indebtedness of management: the information provided under the
heading "Certain Transactions and Other Information" in the Company's
Proxy Material and the information contained in Financial Statement
Schedule II contained in this Annual Report on Form 10-K is
incorporated herein by reference.
(d) Transactions with promoters: None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following Consolidated Financial Statements of the Company and its
subsidiaries and the auditor's report relating thereto, included in
the Company's 1994 Annual Report to Shareholders on the pages
indicated, are incorporated by reference into Item 8 hereto:
Page
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Balance Sheets as of March 27, 1994
and March 28, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Income for
each of the three years in the period ended
March 27, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows for
each of the three years in the period ended
March 27, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-27
Consolidated Statements of Shareholders'
Equity for each of the three years in the
period ended March 27, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-38
2. The following financial statement schedules of Patten Corporation and
its subsidiaries are filed herewith on pages 23 and 24 and included in
Item 14(a)(2):
Schedule II - Amounts Receivable from Related Parties and Indemnitees,
Promoters, and Employees other than Related Parties
Schedule X - Supplementary Income Statement Information
All other schedules to the Consolidated Financial Statements are omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 25-26 hereof, which Exhibit Index is incorporated herein by
reference.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated May 11, 1994 reporting
information under Item 5 of Form 8-K.
(c) Exhibits. See (a)(3) above.
(d) Financial Statement Schedules. See (a)(2) above.
21
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: June 21, 1994 By: /s/ GEORGE F. DONOVAN
------------------------------------------------
George F. Donovan, President and Chief Executive Officer
Date: June 21, 1994 By: /s/ ALAN L. MURRAY
------------------------------------------------
Alan L. Murray, Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: June 21, 1994 By: /s/ DANIEL C. KOSCHER
------------------------------------------------
Daniel C. Koscher, Chief Accounting Officer,
Vice President and Assistant Secretary
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 21st day of June, 1994.
/s/ HARRY S. PATTEN Chairman of the Board
- - - ---------------------------------
Harry S. Patten
/s/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- - - ---------------------------------
George F. Donovan
/s/ ALAN L. MURRAY Treasurer and Chief Financial Officer
- - - ---------------------------------
Alan L. Murray (Principal Financial Officer)
/s/ DANIEL C. KOSCHER Chief Accounting Officer, Vice President
- - - --------------------------------- and Assistant Secretary
Daniel C. Koscher (Principal Accounting Officer)
/s/ JOSEPH C. ABELES Director
- - - ---------------------------------
Joseph C. Abeles
/s/ RALPH A. FOOTE Director
- - - ---------------------------------
Ralph A. Foote
/s/ FREDERICK M. MYERS Director
- - - ---------------------------------
Frederick M. Myers
/s/ BRADFORD T. WHITMORE Director
- - - ---------------------------------
Bradford T. Whitmore
/s/ STUART A. SHIKIAR Director
- - - ---------------------------------
Stuart A. Shikiar
22
23
PATTEN CORPORATION
SCHEDULE II
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND INDEMNITEES,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
For each of the three years in the period ended March 27, 1994
BALANCE AT END OF PERIOD
BALANCE AT ------------------------
BEGINNING AMOUNTS AMOUNTS
OF PERIOD ADDITION COLLECTED CURRENT LONG TERM
--------- ----------- ------------ ---------- ---------
Name of Debtor
--------------
Year ended March 29, 1992
-------------------------
Michael S. Patten and
Michael T. Emmons (1) . . . $ 174,368 $ --- $ 36,591 $ 3,807 $ 133,970
Harry S. Patten and
Willard A. Rhodes (1) . . . 211,027 --- 35,997 11,754 163,276
Joseph R. O'Brien . . . . . 117,006 --- 4,877 112,129 ---
Year ended March 28, 1993
-------------------------
Michael S. Patten and
Michael T. Emmons . . . . . 137,777 --- 4,867 11,227 121,683
Harry S. Patten and
Willard A. Rhodes . . . . . 175,030 --- 130,348 3,627 41,055
Joseph R. O'Brien . . . . . 112,129 --- 50,533 61,596 ---
Year ended March 27, 1994
-------------------------
Michael S. Patten and
Michael T. Emmons . . . . . 132,910 --- 107,981 2,491 22,438
Harry S. Patten and
Willard A. Rhodes . . . . . 44,682 --- 44,682 --- ---
Joseph R. O'Brien . . . . . 61,596 9,580 -- 70,864 ---
(1) Notes secured by land purchased from Patten Corporation. The notes bear
interest at an initial rate of 10% per annum, adjustable annually to a
rate not in excess of prime plus 2% and have a term of 15 years.
23
24
PATTEN CORPORATION
SCHEDULE X
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For each of the three years in the period ended March 27, 1994
YEARS ENDED
----------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
-------------- -------------- --------------
Advertising costs . . . . . . $ 4,480,345 $ 3,641,947 $3,123,225
=========== =========== ==========
Taxes, other than payroll
and income taxes . . . . . $ 742,304 $ 1,025,242 $ 878,314
=========== =========== ==========
Amounts for maintenance and repairs and royalties are not presented as such
amounts are less than 1% of total sales and revenues.
24
25
PATTEN CORPORATION
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
3.1 Restated Articles of Organization as amended (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended April 2, 1989)
3.2 By-laws of Registrant, as amended May 31, 1991 (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended March 31, 1991)
4.3 Form of Warrant Agreement among Registrant, Drexel Burnham Lambert Incorporated and
First Albany Corporation with form of Warrant Certificate attached (incorporated by
reference to exhibit of same designation to Registration Statement on Form S-1, File
No. 33-756)
4.4 Specimen of Common Stock Certificate (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-1, File No. 33-13076)
4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's 8 1/4% Convertible
Subordinated Debentures Due 2012, including Form of Debenture (incorporated by
reference to exhibit of same designation to Registration Statement on Form S-1, File
No. 33-13753)
10.17 Registrant's 1988 Outside Directors Stock Option Plan (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
March 31, 1987)
10.24 Form of Agreement dated June 27, 1989 between Registrant and Peoples Heritage Savings
Bank relating to sale of mortgage notes receivable (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
April 2, 1989)
10.27 Registrant's Second Amended and Restated 1985 Stock Option Plan (incorporated by
reference to exhibit of same designation to Registration Statement on Form S-1, File
No. 3-13753)
10.41 Pooling and Servicing Agreement dated September 15, 1989 among Patten Mortgage Trust I,
Patten Corporation, Patten Receivables Finance Corporation VII and Bankers Trust
Company as Trustee (incorporated by reference to exhibit of same designation to Current
Report on Form 8-K dated October 19, 1989)
10.47 Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by
Patten Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and
Patten Corporation as Guarantor (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990)
10.53 Modification dated July 16, 1990 of Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI,
Greyhound Real Estate Finance Company and Patten Corporation as Guarantor (incorporated
by reference to exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended April 1, 1990)
10.58 Amendment to the Security Agreement entered into as of March 23, 1991, by Patten
Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and Patten
Corporation as Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 31, 1991)
10.74 Waiver dated May 11, 1992 together with modification letter dated June 15, 1992 with
respect to the Amended Security Agreement entered into as of March 23,1991 by Patten
Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and Patten
Corporation as guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 29, 1992)
25
26
EXHIBIT DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
10.77 Registrant's Amended 1988 Outside Directors Stock Option Plan (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal
year ended March 29, 1992)
10.79 Registrant's Retirement Savings Plan (incorporated by reference to Registration
Statement on Form S-8, File No. 33-48075)
10.81 Pooling and Servicing Agreement dated June 30, 1992 among Patten Corporation REMIC
Trust, Series 1992-1, Patten Corporation, Patten Receivables Finance Corporation VIII
and First Trust National Association as Trustee (incorporated by reference to exhibit
of same designation in Registration Statement on Form S-2, File No. 33-61476)
10.82 Employment Agreement dated as of December 20, 1993 by and between Patten Corporation
and George F. Donovan (incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q for the period ended December 26, 1993)
10.83 Employment Agreement dated as of December 20, 1993 by and between Patten Corporation
and Harry S. Patten (incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q for the period ended December 26,1993)
10.84 Pooling and Servicing Agreement dated as of April 15, 1994, among Patten Receivables
Finance Corporation IX, Patten Corporation, Patten Corporation REMIC Trust, Series
1994-1 and First Trust National Association, as Trustee
10.85 Loan and Security Agreement by and between Patten Corporation and Foothill Capital
Corporation dated as of October 29, 1993
10.86 First Amendment dated December 23, 1993 to Loan and Security Agreement by and between
Patten Corporation and Foothill Capital Corporation dated as of October 29, 1993
10.87 Loan and Security Agreement dated as of June 11, 1993 by and among Patten Receivables
Finance Corporation III, Patten Corporation and General Electric Capital Corporation
10.88 Amendment dated May 12, 1993 to Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI,
Greyhound Real Estate Finance Company and Patten Corporation as Guarantor
10.89 Amendment dated February 18, 1994 to Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI,
Greyhound Real Estate Finance Company and Patten Corporation as Guarantor
11.1 Statement re: Computation of Earnings Per Share (such information is incorporated by
reference to the Statement of Income of the Consolidated Financial Statements appearing
on page 25 of the Company's 1994 Annual Report to Shareholders, which is an exhibit
hereto)
13.1 1994 Annual Report to Shareholders (with the exception of the information incorporated
by reference included in Items 7 and 8, the 1994 Annual Report to Shareholders is not
deemed filed as part of this Annual Report on Form 10-K)
18 Letter re: Change in Accounting Principle (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990)
23 Consent of Ernst & Young
26