SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_____________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14830
CONTINENTAL HOMES HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 86-0554624
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7001 N. Scottsdale Road, Suite 2050 85253
Scottsdale, Arizona (Zip Code)
(Address of principal executive offices)
(602) 483-0006
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock December 31, 1993
--------------------- -----------------
$.01 per value 6,955,345
____________________________________________________________________________
CONTINENTAL HOMES HOLDING CORP.
FORM 10-Q
FOR THE QUARTER ENDED
NOVEMBER 30, 1993
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of November 30, 1993
and May 31, 1993 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the three and
six months ended November 30, 1993 and 1992 . . . 4
Consolidated Statements of Cash Flows for the six
months ended November 30, 1993 and 1992 . . . . . 5
Notes to unaudited Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 12
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 30, May 31,
1993 1993
------------ -------
ASSETS (In thousands)
Homebuilding:
Cash $ 22,225 $ 11,552
Receivables 8,071 8,648
Homes, lots and improvements in production 167,854 142,589
Property and equipment, net 1,883 667
Prepaid expenses and other assets 8,155 7,107
Excess of cost over related net assets acquired 7,157 2,235
Investment in unconsolidated joint ventures 2,296 --
-------- --------
217,641 172,798
-------- --------
Mortgage banking and title operations:
Mortgage loans held for sale 18,924 8,825
Mortgage loans held for long-term
investment, net 26,391 5,003
Other assets 1,261 899
-------- --------
46,576 14,727
-------- --------
Total assets $264,217 $187,525
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 30,563 $ 21,059
Notes payable, senior and convertible debt 106,429 106,183
Deferred income taxes 2,026 ( 89)
-------- --------
139,018 127,153
-------- --------
Mortgage banking and title operations:
Notes payable 4,523 3,500
Bonds payable 27,255 5,104
Other 1,380 218
-------- --------
33,158 8,822
-------- --------
Total liabilities 172,176 135,975
-------- --------
Commitments and contingencies
Stockholders' equity
Series A Preferred stock, $.01 par value:
Authorized - 2,000,000 shares
Issued - None -- --
Common stock, $.01 par value:
Authorized - 10,000,000 shares
Issued - 7,080,900 and 5,376,500 shares 71 54
Treasury stock, at cost - 151,305 and
187,055 shares (303) (631)
Capital in excess of par value 59,235 25,033
Retained earnings 33,038 27,094
-------- --------
Total stockholders' equity 92,041 51,550
-------- --------
Total liabilities and stockholders' equity $264,217 $187,525
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these unaudited consolidated balance sheets.
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three months ended Six months ended
November 30, November 30,
------------------ ----------------
1993 1992 1993 1992
---- ---- ---- ----
REVENUES
Home sales $ 87,702 $ 48,091 $164,626 $ 98,771
Land sales 166 3,052 420 3,182
Mortgage banking 1,820 639 2,865 1,271
Other income, net 429 149 606 306
-------- -------- -------- --------
Total revenues 90,117 51,931 168,517 103,530
-------- -------- -------- --------
COSTS AND EXPENSES
Homebuilding:
Cost of home sales 71,593 38,734 134,258 79,852
Cost of land sales 85 3,161 427 3,335
Selling, general and
administrative expenses 10,085 5,211 17,772 10,547
Interest, net 1,362 1,614 2,519 2,785
Mortgage banking and title
operations:
Selling, general and
administrative expenses 1,325 386 2,028 750
Interest, net (16) (12) 19 (54)
-------- -------- -------- --------
Total costs and expenses 84,434 49,094 157,023 97,215
-------- -------- -------- --------
Equity in loss of unconsolidated
joint ventures (22) (136) (32) (332)
-------- -------- -------- --------
Income before income taxes 5,661 2,701 11,462 5,983
Income taxes 2,434 1,086 4,998 2,398
-------- -------- -------- --------
Net income $ 3,227 $ 1,615 $ 6,464 $ 3,585
======== ======== ======== ========
Earnings per common share $ .56 $ .32 $ 1.19 $ .70
Earnings per common share
assuming full dilution $ .50 $ .30 $ 1.03 $ .66
Cash dividend per share $ .05 $ .05 $ .10 $ .10
Weighted average number of
shares outstanding 5,711,566 5,114,503 5,451,810 5,108,165
========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these unaudited consolidated statements.
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
November 30,
----------------
1993 1992
---- ----
(In Thousands)
Cash flows from operating activities:
Net income $ 6,464 $ 3,585
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,080 719
Increase (decrease) in deferred income taxes 260 (10)
Decrease (increase) in assets
Homes, lots and improvements in production 2,660 (4,732)
Receivables 9,297 8,152
Prepaid expenses and other assets (1,043) 714
Increase in liabilities
Accounts payable and other liabilities 1,226 2,149
-------- --------
Net cash provided by operating activities 19,944 10,577
-------- --------
Cash flows from investing activities:
Net additions of property and equipment (281) (94)
Cash advanced to unconsolidated joint ventures -- (1,225)
Cash received from unconsolidated joint ventures 2,391 --
Cash paid for Milburn Investments, Inc.
and Subsidiaries, net of cash acquired (7,042) --
-------- --------
Net cash used by investing activities (4,932) (1,319)
-------- --------
Cash flows from financing activities:
Decrease in notes payable to financial
institutions (28,557) (50,035)
Retirement of bonds payable (3,609) (2,385)
Sale of common stock 34,219 --
Redemption of Series A Preferred Stock (6,200) --
Issuance of 12% Senior Notes -- 71,598
Retirement of 12-3/4% Senior Notes -- (16,817)
Stock options exercised 328 195
Dividends paid (520) (509)
-------- --------
Net cash provided (used) by financing activities (4,339) 2,047
-------- --------
Net increase in cash 10,673 11,305
Cash at beginning of period 11,552 5,070
-------- --------
Cash at end of period $ 22,225 $ 16,375
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 4,021 $ 3,783
Income taxes $ 4,510 $ 2,195
Supplemental schedule of non-cash investing and financing activities:
On July 29, 1993, the Company acquired Milburn Investments, Inc. and
Subsidiaries. Non-cash consideration paid included the issuance of $6.3
million of Series A preferred stock. As a result of the acquisition, the
Company recorded additional assets of $92,660,000 (primarily homes, lots and
improvements in production and mortgage related assets) and liabilities of
$66,590,000 (primarily notes payable to financial institutions and mortgage
related debt).
The accompanying notes to consolidated financial statements are an integral
part of these unaudited consolidated statements.
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of
Continental Homes Holding Corp. and its subsidiaries ("Company"). In
the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
Company's financial position, results of operations and cash flows for
the periods presented.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the related disclosures
contained in the Company's annual report on Form 10-K for the year
ended May 31, 1993, filed with the Securities and Exchange Commission.
The results of operations for the three and six months ended November
30, 1993 are not necessarily indicative of the results to be expected
for the full year.
Note 2. Interest Capitalization
The Company follows the practice of capitalizing for its homebuilding
operations certain interest costs incurred on land under development
and homes under construction. Such capitalized interest is included
in cost of home sales when the units are delivered. The Company
capitalized such interest in the amount of $3,861,000 and $2,830,000
and expensed as a component of cost of goods sold $3,568,000 and
$3,350,000 in the six months ended November 30, 1993 and 1992,
respectively.
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Notes Payable, Senior and Subordinated Debt
Notes payable, senior and convertible debt for homebuilding consist
of:
November 30, May 31,
1993 1993
------------ -------
(In thousands)
12% senior notes, due 1999, net of
discount of $686 and $752 $ 74,314 $ 74,248
6-7/8% convertible subordinated notes,
due 2002, net of discount of $2,885
and $3,065 32,115 31,935
-------- --------
$106,429 $106,183
======== ========
Note 4. Interest, Net
Interest, net is comprised of interest expense and interest income.
The summary of the components of interest, net is as follows:
Three months ended Six months ended
November 30, November 30,
------------------ ----------------
1993 1992 1993 1992
---- ---- ---- ----
(In thousands)
Interest expense,
homebuilding $ 1,416 $ 1,789 $ 2,637 $ 3,037
Interest income,
homebuilding (54) (175) (118) (252)
------- ------- ------- -------
$ 1,362 $ 1,614 $ 2,519 $ 2,785
======= ======= ======= =======
Interest expense, mortgage
banking $ 871 $ 349 $ 1,384 $ 746
Interest income, mortgage
banking (887) (361) (1,365) (800)
------- ------- ------- -------
$ (16) $ (12) $ 19 $ (54)
======= ======= ======= =======
Note 5. Acquisition of Milburn Investments, Inc.
On July 29, 1993, the Company completed the acquisition (the
"Acquisition") of 100% of the Common Stock of Milburn Investments, Inc.
("Milburn"), for approximately $26.3 million. The consideration consisted
of approximately $20 million in cash and $6.3 million in Series A Preferred
Stock issued by the Company. On November 4, 1993 the Company redeemed the
Series A Preferred Stock.
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
ITEM 2.
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
---------------------
Homebuilding
The following table sets forth, for the periods indicated, unit
activity, average sales price and revenue from home sales for the Company:
Quarters ended Six months ended
November 30, November 30,
------------------- -------------------
1993 1992 1993 1992
---- ---- ---- ----
Units delivered 738 436 1,409 888
Average sales price $118,837 $110,300 $116,838 $111,229
Revenue from homes
sales (000's) $ 87,702 $ 48,091 $164,626 $ 98,771
Percentage increase
from prior year 82.4 % 18.8 % 66.7% 22.9%
Change due to volume 69.3 % 24.9 % 58.7% 23.0%
Change due to average
sales price 13.1 % (6.1) % 8.0% (.1)%
The volume increase of 69.3% (18.8% excluding Milburn) in the quarter
ended November 30, 1993 compared to the same period in the prior year was
attributable to the improved housing markets in the Phoenix and Denver
areas, the Acquisition and increased deliveries in California as a result of
the Company's aggressive marketing in that location. The increase in
average sales price was primarily due to deliveries in California, most of
which were in the move-up market. The quarter ended November 30, 1993
results include 220 deliveries from Milburn with an average sales price of
$108,600 per home, resulting in incremental revenue of $23,891,000.
The following table summarizes information related to the Company's
backlog at the dates indicated:
November 30,
-------------------------------------
(Dollars in thousands)
1993 1992
---- ----
Units Dollars Units Dollars
----- ------- ----- -------
Phoenix 605 $ 71,422 587 $ 63,780
Austin 181 19,849 -- --
Denver 69 12,092 33 4,405
California 40 10,408 23 5,829
----- -------- ----- --------
Total backlog 895 $113,771 643 $ 74,014
===== ======== ===== ========
Average price per unit $127 $115
======== ========
The increase in backlog at November 30, 1993 in Phoenix and Denver was
due to the improved housing markets in both locations, which the Company
believes resulted primarily from improved economic conditions in these
markets and lower mortgage interest rates. The increase in the California
backlog is attributable to the marketing incentives and discounts offered in
fiscal 1994 to sell the remaining inventory. The aggregate sales value of
new contracts signed increased 58% as a result of the Austin acquisition in
the three months ended November 30, 1993 to $83,270,000 representing 671
homes (including $22,477,000 in Austin representing 206 homes) as compared
with $52,796,000 representing 477 homes for the three months ended November
30, 1992. The significant volume increase in Phoenix resulted in the
Company selling out of several subdivisions faster than anticipated. This
resulted in fewer homes available for sale in the second fiscal quarter of
1994 compared to the same period in fiscal 1993. The Company will have
additional new subdivisions opening in the third and fourth quarters of
fiscal 1994.
<TABLE>
The following table summarizes information related to cost of home sales, selling, general and
administrative ("SG&A") expenses and interest, net for homebuilding:
Quarters ended November 30, Six months ended November 30,
--------------------------- -----------------------------
1993 1992 1993 1992
---- ---- ---- ----
Dollars % Dollars % Dollars % Dollars %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from home sales $ 87,702 100.0% $ 48,091 100.0% $164,626 100.0% $98,771 100.0%
Cost of homes sales 71,593 81.6 38,734 80.5 134,258 81.6 79,852 80.8
-------- ----- -------- ----- -------- ----- -------- -----
Gross profit 16,109 18.4 9,357 19.5 30,368 18.4 18,919 19.2
SG&A expenses 10,085 11.5 5,211 10.8 17,772 10.8 10,547 10.7
-------- ----- -------- ----- -------- ----- -------- -----
Operating income
from homebuilding 6,024 6.9 4,146 8.7 12,596 7.6 8,372 8.5
Interest, net 1,362 1.6 1,614 3.4 2,519 1.5 2,785 2.8
-------- ----- -------- ----- -------- ----- -------- -----
Pre-tax profit
from homebuilding $ 4,662 5.3% $ 2,532 5.3% 10,077 6.1 % $ 5,587 5.7%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
<PAGE>
Gross profit from home sales was 18.4% (20.9% excluding California
operations) for the three months ended November 30, 1993 compared to 19.5%
(20.8% excluding California operations) for the corresponding fiscal 1993
period. The gross profit on the Milburn deliveries was 20.2% (23.6% before
purchase accounting adjustments). Gross profit from home sales was 18.4%
(20.8% excluding California operations) for the six months ended November
30, 1993 compared to 19.2% (20.5% excluding California operations) for the
six months ended November 30, 1992. The Southern California market remains
very weak due to difficult economic conditions, concerns about home values
and low consumer confidence. Accordingly, the Company has aggressively
marketed its California homes by offering sales incentives and discounts.
California's depressed market will continue to have a negative impact on the
Company's earnings since volume is not sufficient to offset general and
administrative expenses and interest which is expensed and not capitalized.
SG&A expenses for each home delivered were $13,665 and $11,952 in the
second quarter of fiscal 1994 and 1993, respectively and $12,613 and $11,877
in the first six months of fiscal 1994 and 1993, respectively. The increase
in total SG&A expenses for the quarter and six months ended November 30,
1993 was due to higher variable marketing costs (primarily sales commissions
and model furniture amortization) due to the increase in the number of homes
delivered, higher salaries and higher customer service costs. In addition,
the current fiscal quarter and six months included $3,471,000 and
$4,645,000, respectively of SG&A expenses from Milburn and $195,000 and
$260,000, respectively related to the amortization of the excess of cost
over related net assets acquired. The Company capitalizes certain SG&A
expenses for homebuilding. Accordingly, total SG&A costs incurred for
homebuilding were $11,157,000 and $19,979,000 for the three and six months
ended November 30, 1993 compared to $5,809,000 and $12,091,000 for the
corresponding fiscal 1993 periods.
Interest, net for homebuilding was $1,362,000 and $1,614,000 for the
three months ended November 30, 1993 and 1992, respectively. For the six
month period ended November 30, 1993, interest, net for homebuilding was
$2,519,000 compared with $2,785,000 for the six months ended November 30,
1992. The fiscal quarter includes $68,000 of interest, net from Milburn.
The Company capitalizes certain interest costs for its homebuilding
operations and includes such capitalized interest in cost of home sales when
the related units are delivered. Accordingly, total interest incurred by
the Company was $3,324,000 and $6,498,000 for the three and six months ended
November 30, 1993 respectively compared to $3,154,000 and $5,867,000 for the
three and six months ended November 30, 1992, respectively.
The Company's pre-tax profit from homebuilding (excluding
unconsolidated joint ventures) for the six months ended November 30, 1993
was $10,077,000 compared to $5,587,000 for the corresponding period ended
November 30, 1992. The increase in pre-tax profit was due primarily to
greater volume in Phoenix and Milburn's results which contributed
$2,430,000 of pre-tax profit.
Mortgage Banking
The Company's mortgage banking operations are conducted through its
wholly-owned subsidiaries American Western Mortgage Company ("AWMC") in
Arizona and Miltex Management, Inc. ("MMI") in Texas. The following table
summarizes operating information for the Company's mortgage banking
operations:
Quarters ended Six months ended
November 30, November 30,
-------------- ----------------
1993 1992 1993 1992
---- ---- ---- ----
(Dollars in thousands)
Number of loans originated 753 234 1,172 526
Loan origination fees $ 643 $ 198 $1,031 $ 451
Sale of servicing and
marketing gains 1,044 335 1,622 648
Other revenue 133 106 212 172
------ ------ ------ ------
Total revenues 1,820 639 2,865 1,271
General and administrative
expenses 1,083 386 1,697 750
------ ------ ------ ------
Operating income $ 737 $ 253 $1,168 $ 521
====== ====== ====== ======
Revenues from mortgage banking operations increased in the quarter and
six months ended November 30, 1993 primarily due to the Acquisition. The
amounts for the quarter ended November 30, 1993 include 502 loan
originations and $1,243,000 and $526,000 of revenues and operating income,
respectively, from MMI. The Company maintains a portion of the loan
servicing and, at November 30, 1993, the servicing portfolio was
approximately $60,570,000.
Consolidated Operations
Net income was $6,464,000 ($1.19 per share, $1.03 fully diluted) for
the six months ended November 30, 1993 compared to $3,585,000 ($.70 per
share, $.66 fully diluted) for the period ended November 30, 1992. The six
months ended November 30, 1993 included $2,052,000 of net income from the
results of Milburn.
Liquidity and Capital Resources
-------------------------------
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisition and inventory balances. The Company has
financed, and expects to continue to finance, its working capital needs
through funds generated by operations and borrowings. Funds for future land
acquisitions and construction costs are expected to be provided primarily by
cash flows from operations and future borrowings as permitted under the 12%
Senior Note Indenture. At November 30, 1993, the Company had unsecured
lines of credit from two lenders for aggregate borrowings (excluding
mortgage warehouse lines) of up to $15,000,000. At November 30, 1993, there
were no amounts outstanding under its credit lines. In connection with the
Acquisition, the Company assumed a $25,000,000 secured revolving line of
credit. At November 30, 1993, there were no amounts outstanding under this
credit line. The Company's revolving lines of credit bear interest at rates
ranging from prime plus 1/2% to prime plus 1%. The Company believes that
amounts generated from operations and such additional borrowings will
provide funds adequate to finance its homebuilding activities and meet its
debt service requirements. The Company does not have any significant
current commitments for capital expenditures.
AWMC has a warehouse line of credit for $15,000,000 which is guaranteed
by the Company. In addition, MMI has a warehouse line of credit for
$10,000,000. Pursuant to the warehouse lines of credit, the Company issues
drafts to fund its mortgage loans. The amount represented by a draft is
drawn on the warehouse line of credit when the draft is presented for
payment. At November 30, 1993, no amounts were outstanding under the
warehouse lines of credit and the amount of funding drafts that had not been
presented for payment was $4,523,000. The Company believes that these lines
are sufficient for its mortgage banking operations.
On August 5, 1992, the Company completed the sale of $75,000,000
principal amount of its 12% Senior Notes due 1999. The Senior Notes were
issued at 98.85% of par and are not redeemable until 1997. The Company used
a portion of the net proceeds thereof to repay all amounts outstanding under
its lines of credit. On September 4, 1992 the Company used $16,817,000 of
these proceeds to redeem its 12-3/4% Senior Notes.
On July 29, 1993 the Company acquired all of the outstanding capital
stock of Milburn for approximately $26.3 million ($20 million in cash and
$6.3 million of Series A Preferred Stock).
In November, the Company completed a public offering of 1,704,400
shares of Common Stock at $21.50 per share. The net proceeds of the
offering (approximately $34,219,000) were used to redeem the Series A
Preferred Stock and to reduce temporarily all amounts outstanding under the
Company's revolving lines of credit and mortgage banking warehouse lines of
credit.
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
10 Modification and Extension Agreement dated as of November
22, 1993 between Bank One, Arizona, NA (formerly Valley
National Bank of Arizona) and AWMC.
11 Statement of Computation of Earnings Per Share.
(b) Reports on Form 8-K: There were no reports on Form 8-K
filed for the three months ended November 30, 1993.
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
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.
CONTINENTAL HOMES HOLDING CORP.
Date: January 10, 1993 By: /s/ Kenda B. Gonzales
--------------------------
KENDA B. GONZALES
Secretary and Treasurer
(Chief Financial Officer)
Date: January 10, 1993 By: /s/ Donald R. Loback
--------------------------
DONALD R. LOBACK
Co-Chief Executive Officer
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
10 Modification and Extension Agreement dated
as of November 22, 1993 between Bank One,
Arizona, NA (formerly Valley National
Bank of Arizona) and AWMC.
11 Statement of Computation of Earnings Per
Share.
MODIFICATION AND EXTENSION AGREEMENT
------------------------------------
DATE: November 22, 1993
PARTIES: Borrower: AMERICAN WESTERN MORTGAGE COMPANY, a Colorado
corporation
Bank: BANK ONE, ARIZONA, NA, a national banking
association, formerly known as The Valley
National Bank of Arizona
RECITALS:
A. Bank has extended to Borrower credit ("Loan") in the
principal amount of $15,000,000.00 pursuant to the Amended and Restated
Warehousing Credit and Security Agreement, dated September 26, 1991 ("Loan
Agreement"), and evidenced by the Promissory Note, dated November 27, 1992
("Note").
B. The Loan is secured by, among other things, the security
interest in various promissory notes and deeds of trust granted by Borrower
to Bank pursuant to the Loan Agreement. The agreements, documents, and
instruments securing the Loan and the Note are referred to individually and
collectively as the "Security Documents".
C. Bank and Borrower have executed and delivered previously the
following agreements ("Modifications") modifying the terms of the Loan, the
Note, the Loan Agreement, and/or the Security Documents: (i) Letter of
Agreement dated May 28, 1992, (ii) Modification Agreement dated September
22, 1992, (iii) Modification Agreement dated November 27, 1992, and (iv)
Letter of Agreement dated February 25, 1993. (The Note, the Loan Agreement,
the Security Documents, any arbitration resolution, any environmental
certification and indemnity agreement, and all other agreements, documents,
and instruments evidencing, securing, or otherwise relating to the Loan, as
modified in the Modifications, are sometimes referred to individually and
collectively as the "Loan Documents". Hereinafter, "Note", "Loan
Agreement", and "Security Documents", shall be such documents as modified in
the Modifications. All other capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Loan
Agreement).
D. Borrower has requested that Bank modify the Loan and the
Loan Documents as provided herein. Bank is willing to so modify the Loan
and the Loan Documents, subject to the terms and conditions herein.
AGREEMENT:
---------
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
--------------------
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
------------------------------
2.1 The Loan Documents are modified as follows:
2.1.1 The maturity date of the Loan and the Note is changed
from December 1, 1993 to February 1, 1994. On the maturity date Borrower
shall pay to Bank the unpaid principal, accrued and unpaid interest, and all
other amounts payable by Borrower under the Loan Documents as modified
herein. All commitments of Bank to make loans and advances pursuant to the
Loan Documents shall expire on the maturity date as so extended.
2.2 Each of the Loan Documents is modified to provide that it shall be a
default or an event of default thereunder if Borrower shall fail to comply
with any of the covenants of Borrower herein or if any representation or
warranty by Borrower herein or by any guarantor in any related Consent and
Agreement of Guarantor(s) is materially incomplete, incorrect, or misleading
as of the date hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents
shall be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
---------------------------------------------
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or
interests in property granted as security in the Loan Documents shall remain
as security for the Loan and the obligations of Borrower in the Loan
Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Loan Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition
of Borrower or any other person whose financial statement has been delivered
to Bank in connection with the Loan from the most recent financial statement
received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance
with their terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power, and authority to
execute and deliver this Agreement and to perform the Loan Documents as
modified herein. The execution and delivery of this Agreement and the
performance of the Loan Documents as modified herein have been duly
authorized by all requisite action by or on behalf of Borrower. This
Agreement has been duly executed and delivered on behalf of Borrower.
5. BORROWER COVENANTS.
------------------
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such additional
agreements, documents, and instruments as reasonably required by Bank to
effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank
and its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in
law or equity, that Borrower has or in the future may have, whether known or
unknown, (i) in respect of the Loan the Loan Documents, or the actions or
omissions of Bank in respect of the Loan or the Loan Documents and (ii)
arising from events occurring prior to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this Agreement,
Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and
all amounts, other than interest and principal, due and payable by Borrower
under the Loan Documents as of the date hereof.
5.3.2 All the internal and external costs and expenses
incurred by Bank in connection with this Agreement (including, without
limitation, inside and outside attorneys, appraisal, appraisal review,
processing, title, filing, and recording costs, expenses, and fees).
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
-------------------------------------------
Bank shall not be bound by this Agreement until (i) Bank has executed and
delivered this Agreement, (ii) Borrower has performed all of the obligations
of Borrower under this Agreement to be performed contemporaneously with the
execution and delivery of this Agreement, (iii) each guarantor(s) of the
Loan, if any, has executed and delivered to Bank a Consent and Agreement of
Guarantor(s), and (iv) if required by Bank, Borrower and any guarantor(s)
have executed and delivered to Bank an arbitration resolution, an
environmental questionnaire, and an environmental certification and
indemnity agreement.
7. ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION OR WAIVER.
----------------------------------------------------------
The Loan Documents as modified herein contain the entire understanding and
agreement of Borrower and Bank in respect of the Loan and supersede all
prior representations, warranties, agreements, arrangements, and
understandings. No provision of the Loan Documents as modified herein may
be changed, discharged, supplemented, terminated, or waived except in a
writing signed by Bank and Borrower.
8. BINDING EFFECT.
--------------
The Loan Documents as modified herein shall be binding upon, and inure to
the benefit of, Borrower and Bank and their respective successors and
assigns.
9. CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Arizona, without giving effect to conflicts of law
principles.
10. COUNTERPART EXECUTION.
---------------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same document. Signature pages may be detached from the
counterparts and attached to a single copy of this Agreement to physically
form one document.
DATED as of the date first above stated.
AMERICAN WESTERN MORTGAGE COMPANY,
a Colorado corporation
By:/s/ Kenda B. Gonzales
-------------------------------
Name: Kenda B. Gonzales
-------------------------------
Title: President
-------------------------------
BANK ONE, ARIZONA, NA, a
national banking association,
formerly known as The Valley
National Bank of Arizona
By:/s/ Rhonda R. Williams
-------------------------------
Name: Rhonda R. Williams
-------------------------------
Title: Corporate Officer
-------------------------------
CONSENT AND AGREEMENT OF GUARANTOR(S)
-------------------------------------
With respect to the Modification Agreement, dated November 19, 1993
("Agreement"), between American Western Mortgage Company, a Colorado
corporation ("Borrower") and Bank One, Arizona, NA, a national banking
association, formerly known as The Valley National Bank of Arizona,
("Bank"), the undersigned (individually and, if more than one, collectively
"Guarantor") agrees for the benefit of Bank as follows:
1. Guarantor acknowledges (i) receiving a copy of and reading
the Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii)
the effectiveness of (A) the Guaranty, dated November 27, 1992 ("Guaranty"),
by the undersigned for the benefit of Bank, as modified herein, and (B) any
other agreements, documents, or instruments securing or otherwise relating
to the Guaranty, (including, without limitation, any arbitration resolution
and any environmental certification and indemnity agreement previously
executed and delivered by the undersigned), as modified herein. The Guaranty
and such other agreements, documents, and instruments, as modified herein,
are referred to individually and collectively as the "Guarantor Documents".
2. Guarantor consents to the modification of the Loan Documents
and all other matters in the Agreement.
3. Guarantor fully, finally, and forever releases and discharges
Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all actions, causes of action, claims,
debts, demands, liabilities, obligations, and suits of whatever kind or
nature, in law or equity, that Guarantor has or in the future may have,
whether known or unknown, (i) in respect of the Loan, the Loan Documents,
the Guarantor Documents, or the actions or omissions of Bank in respect of
the Loan, the Loan Documents, or the Guarantor Documents and (ii) arising
from events occurring prior to the date hereof.
4. Guarantor agrees that all references, if any, to the Note,
the Loan Agreement, the Deed of Trust, the Security Documents, and the Loan
Documents in the Guarantor Documents shall be deemed to refer to such
agreements, documents, and instruments as modified by the Agreement.
5. Guarantor reaffirms the Guarantor Documents and agrees that
the Guarantor Documents continue in full force and effect and remain
unchanged, except as specifically modified by this Consent and Agreement of
Guarantor(s). Any property or rights to or interests in property granted as
security in the Guarantor Documents shall remain as security for the
Guaranty and the obligations of Guarantor in the Guaranty.
6. Guarantor agrees that the Loan Documents, as modified by the
Agreement, and the Guarantor Documents, as modified by this Consent and
Agreement of Guarantor(s), are the legal, valid, and binding obligations of
Borrower and the undersigned, respectively, enforceable in accordance with
their terms against Borrower and the undersigned, respectively.
7. Guarantor agrees that Guarantor has no claims, counterclaims,
defenses, or offsets with respect to the enforcement against Guarantor of
the Guarantor Documents.
8. Guarantor represents and warrants that there has been no
material adverse change in the financial condition of any Guarantor from the
most recent financial statement received by Bank.
9. Guarantor agrees that this Consent and Agreement of
Guarantor(s) may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same document. Signature and acknowledgement pages may be detached
from the counterparts and attached to a single copy of this Consent and
Agreement of Guarantor(s) to physically form one document.
DATED as of the date of the Agreement.
CONTINENTAL HOMES, INC., a
Delaware corporation
By:/s/ Kenda B. Gonzales
---------------------------
Name: Kenda B. Gonzales
-------------------------
Title:Financial Vice President
------------------------
CONTINENTAL HOMES HOLDING
CORP.,a Delaware corporation
By:/s/ Kenda B. Gonzales
---------------------------
Name: Kenda B. Gonzales
-------------------------
Title: Secretary and Treasurer
------------------------
"Guarantors"
<PAGE>
State of _________ )
) ss.
County of ________ )
The above instrument was acknowledged before me this ______
day of ______________________, 19___, by _____________________
the_______________________________of CONTINENTAL HOMES, INC., a Delaware
corporation on behalf of the corporation.
My commission expires:
______________________ _______________________________
Notary Public
State of _________ )
) ss.
County of ________ )
The above instrument was acknowledged before me this ______
day of ______________________, 19___, by _____________________
the_______________________________of CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation on behalf of the corporation.
My commission expires:
______________________ _______________________________
Notary Public
Exhibit 11
Continental Homes Holding Corp.
Computation of Earnings Per Share
Three months ended Six months ended
November 30, 1993 November 30, 1993
------------------ -----------------
Fully diluted:
Net income $3,227,000 $6,464,000
Interest expense on convertible
subordinated notes, net of income
taxes 401,000 802,000
---------- ----------
$3,628,000 $7,266,000
Weighted average number of
shares outstanding 5,711,566 5,451,810
Conversion of convertible
subordinated notes (42.55 shares
per $1,000 principal amount of
notes) 1,489,250 1,489,250
Incremental shares relating to
stock options exercisable 120,500 125,893
---------- ----------
Weighted average number of shares
outstanding assuming full dilution 7,321,316 7,066,953
========== ==========
Fully diluted net income per share $ .50 $1.03
===== =====
