<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1995 COMMISSION FILE NUMBER: 0-15925
J.M. PETERS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4100 MACARTHUR BLVD., SUITE 200
NEWPORT BEACH, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
95-2956559
(IRS EMPLOYER
IDENTIFICATION NUMBER)
92660
(ZIP CODE)
(714) 622-8400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK $.10 PAR VALUE
(TITLE OF EACH CLASS)
THE AMERICAN STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
- -
At May 19, 1995, the aggregate market value of the voting stock held by
persons other than the directors, executive officers and principal shareholders
filing Schedules 13D of the Registrant was $7,275,694 as determined by the
closing price on the American Stock Exchange. The basis of this calculation does
not constitute a determination by the Registrant that all of its principal
shareholders, directors and executive officers are affiliates as defined in Rule
405 under the Securities Act of 1933.
At May 19, 1995, there were 14,995,000 shares of Common Stock outstanding.
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<PAGE> 2
PART 1
ITEM 1. BUSINESS
GENERAL
J.M. Peters Company, Inc. ("the Company") is one of the leading
single-family homebuilders in Orange County, California, Las Vegas, Nevada and
Austin, Texas, where it builds and sells homes targeted to entry level and
move-up buyers. Since 1975, the Company has built and sold nearly 9,000 homes in
California, principally in Orange County, but also in the adjacent counties of
Riverside, San Diego and Los Angeles. Since 1969, Durable Homes, Inc.
("Durable"), a wholly owned subsidiary that was acquired by the Company in 1993
(the "Durable Acquisition"), has built and sold nearly 7,000 homes, principally
in Las Vegas but also in Laughlin. Since 1992, Clark Wilson Homes, Inc. ("Clark
Wilson"), a wholly owned subsidiary that was acquired by the Company in 1994
(the "Clark Wilson Acquisition"), has built and sold nearly 700 homes,
principally in Austin, Texas. During the fiscal year ended February 28, 1995,
the Company closed 824 home sales at an average sales price of $166,000
(including 249 homes closed in California at an average sales price of $291,000,
440 homes closed in Nevada at an average sales price of $105,000 and 135 homes
closed in Texas at an average sales price of $134,000).
In August 1992, Capital Pacific Homes, Inc., a Delaware corporation
("CPH"), acquired control of the Company in a $47.25 million purchase (the
"Acquisition") from the Resolution Trust Corporation ("RTC"). At the time of the
Acquisition, the Company had an experienced management team in place and almost
2,000 entitled lots in California. The Acquisition (and the Company's results of
operations for the first six months of fiscal 1993) allowed the Company to
improve significantly its balance sheet, as debt was reduced by $215 million
(from $263 million to $48 million), stockholders' equity increased by $76
million to $51 million and the book value of residential real estate inventories
was written down 51% from $225 million to $111 million. Prior to the
Acquisition, the Company had already taken significant writedowns to its land
inventory, aggregating approximately $140.3 million during fiscal years 1991 and
1992.
STRATEGY
The Company's long-term strategy includes the following key elements:
(1) Diversifying its geographic markets. The Company believes that
geographic market diversification is a key element in achieving long-term
stability and growth. By acquiring Durable and Clark Wilson and
establishing a Phoenix, Arizona operation, the Company has expanded its
geographic reach beyond its Southern California markets to include Las
Vegas and Laughlin, Nevada, Austin, Texas and Phoenix, Arizona. While the
Company has no current plans to expand outside the Nevada, Texas, Arizona
and Southern California markets, it may consider expansion to other markets
in the future.
(2) Diversifying its product. The Company builds homes targeted for
entry level buyers as well as move-up buyers so that it is able to deliver
cost-effective and quality homes to a broad segment of its potential
customer base. Within Austin, Texas, Clark Wilson serves both the entry
level as well as move-up buyers. The Phoenix, Arizona operations will focus
initially on the entry level market. Within Nevada, Durable historically
focused on entry level and first time move-up buyers. Through its J.M.
Peters Nevada, Inc. ("JMPN") subsidiary, the Company positioned itself to
deliver higher-end products in Nevada. Within Southern California, the
Company historically focused on second and third time move-up buyers. Since
the Acquisition in August 1992, the Company has lowered its average price
in Southern California (from $347,000 average price in fiscal year 1992 to
$334,000, $293,000 and $291,000 in fiscal years 1993 and 1994 and 1995,
respectively), enabling the Company to sell to first-time move-up buyers in
Southern California as well as the higher-end segments of that market.
(3) Enhancing the Company's capital base and sources of financial
liquidity. The Company has diversified its sources of financing. As
conventional real estate lending has decreased, the Company has expanded
its focus from traditional project-specific financing to Company-wide
financing through public capital markets. Consistent therewith, in May,
1994 the Company completed the sale of $100,000,000 of 12 3/4% Senior Notes
("Notes") including 790,000 warrants to purchase common stock (the
"Offering"). The proceeds from the offering were used to repay certain debt
of the Company, acquire certain
1
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properties and for general working capital purposes. The Company has also
obtained two $25 million secured lines of credit facilities (one recourse
and one non-recourse) with a bank to provide additional flexibility and
established two non-recourse construction lines of credit for Durable and
Clark Wilson totaling $13.0 and $6.0 million, respectively. The Company
intends to maintain its traditional lending relationships as an additional
source of liquidity to the extent permitted by the indenture to which the
Notes are subject (the "Indenture"). The Company believes this financing
strategy will allow orderly growth and greater flexibility to react quickly
to changing market conditions. The Company also utilizes joint ventures
within its California operations as a source of financing and risk
management. Concurrent with the Acquisition, the Company formed four joint
ventures with an advisor to CalPERS to develop 346 homes. CalPERS invested
an aggregate of $16.6 million of equity to acquire the four projects from
the Company, and subsequently funded approximately $66 million in
construction financing. The four projects were successfully completed
during fiscal 1995. During fiscal 1995, following the success of the four
initial joint ventures, CalPERS entered into two additional joint ventures
with the Company to develop an additional 150 homes, many of which are
projected to close in fiscal 1996.
(4) Controlling costs and maintaining operational efficiency. The
Company has implemented job cost, warranty tracking and construction
scheduling systems and other quality controls to control costs and to
reduce the effect of certain risks inherent in the homebuilding industry.
These systems and controls enable the Company to improve and monitor its
efficiencies.
(5) Minimizing land and inventory risk. The Company carefully manages
its land and inventory risk in a variety of ways. The Company monitors its
supply of owned, optioned and controlled land to ensure an adequate
pipeline of building lots in each of its markets while avoiding excess land
holdings. The Company prefers to purchase entitled land, typically in
parcels of only 50 to 150 lots and makes use of options, seller financing
and joint ventures to reduce its capital commitment and exposure to risks.
"Entitled" land is generally defined as land that has received all
necessary land use approvals for residential development from the
appropriate state, county and local governments, including any required
tract maps, subdivision approvals, and grading and building permits. The
Company generally tries to limit its speculative building by commencing
construction only after some sales have been made and prefers to limit its
construction to 10-15 units at a time. The Company generally purchases and
holds land in amounts sufficient to support home production and sales over
a 24 to 36 month period in California, and in amounts sufficient to support
home production and sales over an 18 to 24 month period in Nevada, Texas
and Arizona.
GEOGRAPHIC MARKETS
At February 28, 1995, the Company was in various stages of development with
respect to 35 active projects, including 13 projects located in the Orange, Los
Angeles and Riverside Counties of Southern California, 8 projects located in Las
Vegas and Laughlin, Nevada, 12 projects located in Austin, Texas and 2 projects
located in Phoenix, Arizona. The Company is actively selling homes in 32 of
these projects. The Company's homes currently range in size from 1,284 to 6,287
square feet in Southern California, from 930 to 3,290 square feet in Nevada,
from 1,200 to 3,530 square feet in Texas and from 930 to 2,182 square feet in
Arizona. The Company's homes are currently priced from $129,900 to $1,200,000 in
Southern California, from $86,000 to $255,000 in Nevada, from $99,000 to
$200,000 in Texas and from $69,000 to $126,000 in Arizona. At February 28, 1995,
the Company owned approximately 2,483 building sites (1,233 in California, 847
in Nevada, 170 in Texas and 233 in Arizona) and controlled an additional 1,308
building sites (414 in California, 193 in Nevada and 701 in Texas) through
options and purchase contracts.
2
<PAGE> 4
DEVELOPMENTS IN PROCESS--CALIFORNIA
The following table below sets forth certain information regarding projects
under development in California as of February 28, 1995.
<TABLE>
<CAPTION>
HOMES AVAILABLE FOR
UNDER CONSTRUCTION FUTURE
NAME AND TOTAL UNITS AT 2/28/95 CONSTRUCTION UNITS
LOCATION OF UNITS REMAINING ------------------------- --------------- CLOSED IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/95 SOLD MODEL SPEC(a) SOLD UNSOLD FY 1995 OF HOMES(b) CONSTRUCTION
- --------------- -------- ---------- ----- ------ -------- ----- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
The Courts
Palmia/Mission
Viejo
Orange
County......... 180 169 9 4 -- 20 136 11 $139,000 FY95
Fullerton
Fullerton
Orange
County....... 143 143 -- -- -- 29 114 -- 418,000 FY96
Newport Coast
Irvine
Orange
County....... 29 29 -- -- -- -- 29 -- N/A(c) FY97
The Villas
Palmia/Mission
Viejo
Orange
County......... 171 171 -- -- -- 33 138 -- 193,000 FY96
Rancho Serrano
Temecula
Riverside
County....... 120 65 13 2 12 1 37 25 223,000 FY94
Cozumel
La Quinta
Riverside
County....... 300(d) 285 5 5 15 -- 260 7 469,000 FY94
Cayman
La Quinta
Riverside
County....... 188(d) 174 3 4 6 1 160 14 356,000 FY94
Antigua
La Quinta
Riverside
County....... 76(d) 56 -- -- -- -- 56 16 178,000 FY94
Mulholland Park
Tarzana
Los Angeles
County....... 173 173 -- -- -- 15 158 -- 838,000 FY96
Lake Hills
Corona
Riverside
County....... 56 56 -- -- -- 18 38 -- 223,000 FY96
HarborRidge
San Clemente
Orange
County....... 124 124 -- -- -- 6 118 -- 308,000 FY96
----- ----- ---- ---- ---- --- ----- ----
SUBTOTAL
WHOLLY-OWNED... 1,560 1,445 30 15 33 123 1,244 73
----- ----- ---- ---- ---- --- ----- ----
JOINT VENTURES:
Harbor View
San Clemente
Orange
County....... 92 89 16 3 20 -- 50 3 321,000 FY95
Canyon Estates
Coto de Caza
Orange
County....... 58 58 -- 4 -- 26 28 -- 448,000 FY95
----- ----- ---- ---- ---- --- ----- ----
SUBTOTAL JOINT
VENTURES..... 150 147 16 7 20 26 78 3
----- ----- ---- ---- ---- --- ----- ----
TOTALS......... 1,710 1,592 46 22 53 149 1,322 76
===== ===== ==== ==== ==== === ===== ====
</TABLE>
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 28, 1995, and estimated average price for other projects.
(c) The design development process for this project is not sufficiently advanced
to identify a specific average. Final approval is subject to master
developer approval.
(d) Includes 214 lots, 148 lots and 3 lots the Company has the right to acquire
under option contracts with the sellers for the Cozumel, Cayman and Antigua
projects, respectively. There can be no assurance that the Company will
actually acquire such lots within the option term.
3
<PAGE> 5
DEVELOPMENTS IN PROCESS -- NEVADA
The following table below sets forth certain information about projects
under development in Nevada as of February 28, 1995.
<TABLE>
<CAPTION>
HOMES UNDER AVAILABLE
CONSTRUCTION FOR FUTURE UNITS
NAME AND TOTAL UNITS AT 2/28/95 CONSTRUCTION CLOSED
LOCATION OF UNITS REMAINING -------------------- ------------ IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/95 SOLD MODEL SPEC(a) SOLD UNSOLD FY 1995 OF HOMES(b) CONSTRUCTION
----------- ------- --------- ---- ----- ------- ---- ------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
Rosewalk
Las Vegas
Clark County.................... 138 45 14 3 12 -- 16 82 $ 93,000 FY94
White Cliffs
Las Vegas
Clark County.................... 307(c) 255 33 4 23 -- 195 52 103,000 FY94
The Falls at Hidden Canyon
North Las Vegas
Clark County.................... 241(d) 206 10 4 8 4 180 35 112,000 FY95
Spinnaker Bay
Laughlin
Clark County.................... 108 21 6 2 13 -- -- 24 127,000 FY93
Las Hadas
Las Vegas
Clark County.................... 94 25 12 3 10 -- -- 65 86,000 FY94
Country Lane
Las Vegas
Clark County.................... 228 228 -- 3 -- -- 225 -- 127,000 FY95
Sequoia
Las Vegas
Clark County.................... 181 169 31 4 10 11 113 12 120,000 FY95
----- ----- --- --- ---- ---- --- ---
SUBTOTAL WHOLLY-OWNED........... 1,297 949 106 23 76 15 729 270
----- ----- --- --- ---- ---- --- ---
JOINT VENTURES:
Taos Estates(e)
Las Vegas
Clark County.................... 91 91 23 4 1 9 54 -- 249,000 FY94
----- ----- --- --- ---- ---- --- ---
SUBTOTAL JOINT VENTURES......... 91 91 23 4 1 9 54 --
----- ----- --- --- ---- ---- --- ---
TOTALS.......................... 1,388 1,040 129 27 77 24 783 270
===== ===== === === ==== ==== === ===
</TABLE>
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 28, 1995, and estimated average price for other projects.
(c) At February 28, 1995, Durable held options anticipated to yield 132 lots.
Fifty-nine of such lots were purchased on May 8, 1995. There can be no
assurance that the Company will actually acquire the remainder of such lots
within the option term.
(d) Durable owns 180 lots in the The Falls project, and holds options for the
remainder of the project anticipated to yield approximately 61 lots. There
can be no assurance that the Company will actually acquire such lots within
the option term.
(e) J.M. Peters Nevada, Inc. and Durable are the general partners.
4
<PAGE> 6
DEVELOPMENTS IN PROCESS -- TEXAS
The following table below sets forth certain information about projects
under development in Texas as of February 28, 1995.
<TABLE>
<CAPTION>
HOMES UNDER AVAILABLE FOR
CONSTRUCTION FUTURE UNITS
NAME AND TOTAL UNITS AT 2/28/95 CONSTRUCTION(a) CLOSED
LOCATION OF UNITS REMAINING -------------------- --------------- IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/95 SOLD MODEL SPEC(b) SOLD UNSOLD FY 1995 OF HOMES(c) CONSTRUCTION
- ----------------------------- ------- --------- ---- ----- ------- ------ ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cat Hollow
Round Rock
Williamson County............ 97 81 12 2 11 10 46 16 $ 148,000 FY94
Circle C Ranch
Austin
Travis County................ 133 48 7 0 5 2 34 71 146,250 FY93
Cypress Creek
Cedar Park
Williamson County............ 45 28 2 1 6 0 19 17 158,000 FY94
McKinney Park(d)
Austin
Travis County................ 57 46 0 0 2 1 43 11 110,000 FY94
Meadows at Chandler
Round Rock
Travis County................ 44 1 1 0 0 0 0 25 97,000 FY93
North Park
Pflugerville
Travis County................ 86 34 6 0 8 8 12 52 135,000 FY93
Ranch at Cypress
Cedar Park
Williamson County............ 102 97 10 1 11 6 69 5 150,000 FY94
Springbrook
Round Rock
Travis County................ 206 95 4 0 4 5 82 49 135,000 FY94
Springfield
Austin
Travis County................ 73 1 0 0 1 0 0 32 105,000 FY94
Lake Pointe
Austin
Travis County................ 89 89 0 0 0 0 89 0 230,000 FY95
The Settlement
Round Rock
Williamson County............ 60 60 2 1 6 2 49 0 115,000 FY94
Windermere Park
Pflugerville
Travis County................ 139 7 3 0 3 1 0 31 120,000 FY93
------- --------- ---- ----- -- -- ------- ------- ----------- -----
TOTALS....................... 1,131 587 47 5 57 35 443 309(e)
======= ========= ==== ===== === == ======= ======= =========== =====
</TABLE>
- ---------------
(a) All Developments listed include lot option contracts executed by Clark
Wilson Homes for future lot takedowns.
(b) Speculative units are unsold homes under construction.
(c) The total Available for Future Construction contains lots under the control
of Clark Wilson and lots actually purchased by Clark Wilson.
(d) Remaining options will not be exercised.
(e) Includes closings prior to the acquisition of Clark Wilson in September
1994.
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DEVELOPMENTS IN PROCESS -- ARIZONA
The following table below sets forth certain information about projects
under development in Arizona as of February 28, 1995.
<TABLE>
<CAPTION>
AVAILABLE FOR
HOMES UNDER FUTURE UNITS
NAME AND TOTAL UNITS CONSTRUCTION AT 2/28/95 CONSTRUCTION CLOSED
LOCATION OF UNITS REMAINING ----------------------- -------------- IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/95 SOLD MODEL SPEC(a) SOLD UNSOLD FY 1995 OF HOMES(b) CONSTRUCTION
----------- -------- ---------- ----- ------ -------- ----- ------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
Wildflower
Chandler
Maricopa County........ 132 132 -- -- -- -- 132 -- $105,000 FY96
Ambrosia at Amberlea
Phoenix
Maricopa County........ 101 101 -- -- -- -- 101 -- 76,000 FY96
--- --- ---- ---- ---- ---- --- ----
TOTALS................. 233 233 -- -- -- -- 233 --
=== === ==== ==== ===== ==== === ====
</TABLE>
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 28, 1995, and estimated average price for projects under
development on February 28, 1995.
JOINT VENTURES
The Company conducts its homebuilding operations as either wholly-owned
projects or through joint ventures in which the joint venture partner typically
provides capital and/or financing required for the project. The Company has
utilized joint ventures in order to increase access to sources of capital,
financing and quality sites. The Company expects to continue to utilize joint
ventures in the future on a selective basis, taking into account other available
sources of financing, project risk and the potential return to the Company.
At February 28, 1995, the Company's joint ventures were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
TOTAL UNITS CUMULATIVE UNITS UNITS REMAINING
PLANNED CLOSED AT 2/28/95 AT 2/28/95
----------- ----------------- ---------------
<S> <C> <C> <C>
J.M. PETERS COMPANY, INC.
JMP Harbor View -- Orange County................... 92 3 89
JMP Canyon Estates -- Orange County................ 58 -- 58
--- --- ---
Sub-total.................................. 150 3 147
--- --- ---
J.M. PETERS NEVADA, INC./DURABLE HOMES, INC.(A)
Taos Estates -- Las Vegas.......................... 91 -- 91
--- --- ---
Sub-total.................................. 91 -- 91
--- --- ---
Total................................................ 241 3 238
=== === ===
</TABLE>
- ---------------
(a) JMPN and Durable are co-general partners in Taos Estates, L.P.
Orange County Joint Ventures. The Company's most significant joint venture
relationship was established effective upon the closing date of the Acquisition
in August 1992. On the closing date, Peters Ranchland Company, Inc., a
wholly-owned subsidiary of the Company ("Ranchland") formed for the purpose of
acting as general partner, entered into four limited partnership agreements with
CalPERS for the purpose of developing four of the Company's residential projects
in Southern California. In each of the CalPERS Partnerships, Ranchland was the
sole general partner and CalPERS was the sole limited partner. These four
original ventures are now completed. Following the success of these original
ventures, the Company entered into two new joint ventures for the development of
150 homes in San Clemente and Coto de Caza, California.
Las Vegas Joint Venture. JMPN and Durable are general partners in Taos
Estates L.P., a California limited partnership formed to develop the Taos
Estates project in Nevada. Pursuant to the terms of the partnership agreement.
JMPN was required to contribute 10% of the estimated capital needs of the
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partnership in an amount anticipated not to exceed $188,800 and the limited
partners were required to contribute 90% of the estimated capital needs of the
partnership up to a maximum amount of $1,700,000. As a result of the Offering,
the Company utilized a portion of the proceeds to finance the construction
activity of the joint venture. As of February 28, 1995, JMPN had made aggregate
contributions to the partnership of $6,075,000 and the limited partners had made
aggregate contributions of $1,245,000. Net proceeds from Taos Estates L.P. are
distributed after payment of third party acquisition and construction financing
as follows: (1) to repay principal and interest on any partner loans, (2) to pay
JMPN a management fee of 3% of the gross sales prices of closed units, (3) to
repay the capital contribution of JMPN and the limited partners on a pro rata
basis, (4) to pay the partners an accrued preferred return of 10% on their
contributed and unreturned capital on a pro rata basis, and (5) any remaining
proceeds are distributed 50% to the limited partners, 45% to JMPN and 5% to
Durable.
LAND ACQUISITION
The Company generally purchases and holds entitled land in California only
in amounts sufficient to support home production and sales over a 24 to 36 month
period. The Company also tries to maintain an additional 18 month supply of
entitled land through options and other means. The Company generally purchases
and holds entitled land in Nevada, Texas and Arizona only in amounts sufficient
to support home production and sales over an 18 month to 24 month period. The
Company also tries to maintain an additional 12 to 18 month supply of entitled
land in these areas through options, purchase agreements, development agreements
and joint ventures. The Company does not acquire and hold land for speculative
investment.
The following table sets forth the estimated number of lots owned, under
option and controlled as of February 28, 1995:
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD BE
CONSTRUCTED ON LAND CONTROLLED AS OF FEBRUARY
28, 1995(a)
------------------------------------------------
UNDER
REGION OWNED OPTION(b) CONTROLLED(c) TOTAL
- -------------------- ----- --------- ------------- ------
<S> <C> <C> <C> <C>
Southern
California........ 1,233 365 49 1,647
Nevada 847 193 -- 1,040
Texas 170 417 284 871
Arizona 233 -- -- 233
----- --- ------ -----
2,483 975 333 3,791
===== ==== ====== =====
</TABLE>
- ---------------
(a) Based upon current management estimates, which are subject to change.
(b) There can be no assurance that the Company will actually acquire any lots
under option.
(c) Controlled home sites include those properties for which the Company has
entered into a variety of contractual relationships including non-binding
letters of intent, binding purchase agreements with customary conditions
precedent and similar arrangements. There can be no assurance that the
Company will actually acquire any such properties.
The Company typically considers numerous factors including the following
when analyzing the suitability of land for acquisition and development:
proximity to existing developed areas; population growth patterns; availability
of existing community services (i.e., utilities, schools and transportation
facilities); employment growth rates; anticipated absorption rates for new
housing; and the estimated cost of development.
The Company tries to avoid speculative building by constraining project
phase sizes, generally avoiding entitlement risks by acquiring entitled
properties and acquiring lots through the use of options, development agreements
and joint ventures with lot owners when appropriate. Additionally, by forming
strategic alliances with equity partners, the Company has been able to obtain
access to additional capital and to spread project
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<PAGE> 9
risk, which has allowed the Company to minimize the risk of holding undeveloped
property and to preserve its capital.
PRODUCT DESIGN
The Company has numerous industry design awards for its homes and
developments. The Company's homes are noted for their innovative design,
attention to detail and quality construction.
Most of the Company's design work is performed by outside architects,
designers and engineers, whose work is overseen by the Company on a
project-by-project basis. While some of the Company's employees are involved in
the design process, the Company believes that the use of third parties reduces
its costs, increases design innovation and quality, and reduces the risks of
liability associated with the design process. The Company takes an active role
in monitoring and directing the work of outside architects, designers and
engineers. The Company believes it is critical to coordinate the design process
with the construction and sales and marketing efforts of the Company to ensure
an appropriate balance between market responsiveness, design innovation and
construction cost effectiveness.
The Company creates architectural variety within its projects by offering
numerous models and exterior styles. By doing so, the Company hopes to enhance
home values by creating diversified neighborhood looks within its projects.
Generally, the Company selects the interior finish of its homes. The
Company also offers home buyers the opportunity to engage interior design
consultants to personalize the interior of their homes. Such services are
offered at an additional cost to buyers through the Company's wholly owned
subsidiary, Newport Design Center, Inc. ("Newport Design").
DEVELOPMENT AND CONSTRUCTION
The Company acts as the general contractor for the construction of its
projects. Virtually all construction work for the Company is performed by
subcontractors. The Company's employees coordinate the construction of each
project and the activities of subcontractors and suppliers, and subject their
work to quality and cost controls and compliance with zoning and building codes.
Subcontractors typically are retained on a phase-by-phase basis to complete
construction at a fixed price. Agreements with the Company's subcontractors are
generally entered into after competitive bidding on a project by project basis.
The Company has established long-term relationships with a large number of
subcontractors. The Company is not dependent to any material degree upon the
services of any one subcontractor and believes that, if necessary, it can
generally retain sufficient qualified subcontractors for each aspect of
construction. The Company believes that conducting its operations in this manner
enables it not only to readily and efficiently adapt to changes in housing
demand, but also to avoid fixed costs associated with retaining construction
personnel.
The Company generally negotiates volume discounts with manufacturers and
suppliers in order to take advantage of its volume of production. The Company
believes that this materials purchasing strategy gives it an advantage in
offering homes at a lower price than some of its smaller competitors.
The Company develops its projects in several phases generally averaging
approximately 10-15 homes per phase. From market studies, the Company determines
the number of homes to be built in the first phase, the appropriate price range
for the market and other factors. The first phase of home sales is typically
small to reduce risk while the Company measures consumer demand. Construction
generally does not begin until some sales have occurred. Subsequent phases are
generally not started until at least 50% of the homes in the previous phase have
been sold. Sales prices in the second phase are then adjusted to reflect market
demand as evidenced by sales experience in the first phase. With each subsequent
phase, the Company continues to accumulate market data which, along with
information such as time of year, the local labor situation and the availability
of materials and supplies, enables the Company to determine the pricing, timing
and size of subsequent phases. Although the time required to complete a phase
varies from development to development depending on the above factors, the
Company typically completes construction of a phase within one of its
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<PAGE> 10
California developments in approximately five to six months and within its
Nevada, Texas and Arizona Division developments within three to four months.
SALES AND MARKETING
The Company normally builds, decorates, furnishes and landscapes model
homes for each project and maintains on-site sales offices, which typically are
open seven days a week. Management believes that model homes play a particularly
important role in the Company's marketing efforts. Consequently, the Company
expends a significant effort in creating an attractive atmosphere at its model
homes. Interior decorations vary among the Company's models and are carefully
selected based upon the lifestyles of targeted buyers. Structural changes in
design from the model homes generally are not permitted, but home buyers may
select various other optional construction and design amenities.
The Company sells virtually all of its homes through Company sales
representatives (except for a project in La Quinta, California where the Company
has contracted with an outside broker to perform onsite sales activities), who
typically work from the sales offices located at the model homes used in each
subdivision or in on-site sales trailers. To a lesser extent, the Company also
uses community, regional and cooperative brokers to sell its homes. Company
representatives are available to assist prospective buyers by providing them
with floor plans, price information and tours of model homes, and by assisting
them with the selection of options. Sales representatives attend periodic
meetings at which they are given information regarding other products in the
area, the variety of financing programs available, construction schedules and
marketing and advertising plans.
The Company generally opens on-site sales offices before the construction
of the model homes is completed. These on-site sales offices are utilized to
begin building a reservation book of potential customers. Potential home buyers
submit a refundable deposit (a "reservation fee") ranging from $500 to $10,000.
The Company does preliminary research into the credit status of the potential
home buyer in order to "pre-qualify" the home buyer. Once the prospective home
buyer has been "pre-qualified" and there is a strong indication that the home
buyer will qualify for a mortgage (although final loan approval is still
pending), the home buyer must then make an "earnest money deposit" ranging from
$500 to $10,000 for the purchase of its home and a sales contract is executed.
The Company attempts to keep its contract cancellation rate low by
pre-qualifying prospective home buyers, allowing home buyers to customize their
homes at an early point in the purchase process, and building homes rapidly in
order to minimize customers' waiting periods. When home purchase contracts are
canceled, damages are usually limited to a percentage of the purchase price of
the home and may be less pursuant to applicable law or the purchase contract.
The Company generally determines whether to seek to obtain such a penalty on a
case by case basis. When home purchase contracts are canceled the Company is
usually able to identify alternate home buyers. As a result, generally only a
small percentage of homes are not sold and closed within a few days after
construction is completed.
The Company makes extensive use of advertising and other promotional
activities, including newspaper and magazine advertisements, brochures, direct
mail and the placement of strategically located sign boards in the immediate
areas of its projects. Because the Company usually offers multiple projects
within a single market area, it is able to utilize regional advertising that
highlights all Company projects within that same market area.
The Company provides flooring and other amenities and upgrades to its
homebuyers in California through its wholly-owned subsidiary, Newport Design.
BACKLOG AND INVENTORY
The Company typically presells homes prior to and during construction
through sales contracts or reservations requiring earnest money deposits ranging
from $500 to $10,000. Generally, these contracts or reservations are cancelable
if the customers are unable to sell their existing homes, qualify for financing
or under certain other circumstances. A home sale is placed in backlog status
upon execution of such a contract or reservation and receipt of a deposit and is
removed when such contracts or reservations are canceled as described above or
the home sale is closed. At February 28, 1995, the Company had a backlog in
California of
9
<PAGE> 11
195 homes sold with an aggregate sales value of $63.2 million, compared to a
backlog of 124 homes sold with an aggregate sales value of $37.4 million at
February 28, 1994. At February 28, 1995, the Company had a total backlog in
Nevada of 155 homes sold with an aggregate sales value of $21.3 million,
compared to a backlog of 181 homes sold with an aggregate sales value of $18.4
million at February 28, 1994. At February 28, 1995, the Company had a total
backlog in Texas of 82 homes with an aggregate sales value of $11.5 million,
compared to Clark Wilson's backlog of 152 homes sold with an aggregate sales
value of $22.0 million at February 28, 1994. The Arizona projects have just
recently opened for sale with no sales recorded at February 28, 1995.
The following table shows net new orders (sales made less cancellation and
credit rejections), homes closed and ending backlog relating to sales of the
Company's homes and homes under contract or reservation for each quarter since
the beginning of fiscal year 1994. Management believes that the Company's
backlog at any given time is a good indicator of the number of units that will
be closed in the four months following such date:
<TABLE>
<CAPTION>
ENDING BACKLOG
NET NEW HOMES -----------------
ORDERS CLOSED UNITS ($000S)
------- ----- ----- -------
<S> <C> <C> <C> <C>
Fiscal Year 1994
1st Quarter.................................... 46 17 121 $36,918
2nd Quarter.................................... 52 15 158 47,893
3rd Quarter.................................... 163 165 295(a) 54,054
4th Quarter.................................... 217 207 305 55,816
------- -----
Total Fiscal Year 1994................. 478 404
====== =====
Fiscal Year 1995
1st Quarter.................................... 167 193 279 $55,073
2nd Quarter.................................... 116 172 223 44,465
3rd Quarter.................................... 217 252 304(b) 54,777
4th Quarter.................................... 335 207 432 95,940
------- -----
Total Fiscal Year 1995................. 835 824
====== =====
</TABLE>
- ---------------
(a) Includes 139 homes in Durable's backlog at August 31, 1993.
(b) Includes 116 homes in Clark Wilson's backlog at August 31, 1994.
HOMEOWNER WARRANTY
The Company provides homeowners with a limited one year warranty wherein
the Company will correct deficiencies due to faulty workmanship, defective
materials, or significant construction flaws in the structural components of the
home or in the lot on which the home is located. The warranty does not, however,
include items that are covered by manufacturer's warranties (such as appliances
and air conditioning) or items that are not installed by employees or
contractors of the Company (such as flooring installed by an outside contractor
employed by the homeowner). The Company also provides most Nevada and Texas
homebuyers with policies issued by third-parties that extend protection beyond
the Company's warranty period. Statutory requirements in the states in which the
Company does business may grant to homebuyers rights in addition to those
provided by the Company. California law establishes a ten-year period during
which a home buyer may seek redress for latent defects in the architectural
design or actual construction of its new home. The Company generally maintains
reserves with respect to each unit sold for the purpose of covering warranty
claim expenses.
10
<PAGE> 12
COMPETITION
The homebuilding industry is highly competitive. In each of the areas in
which it operates, the Company competes in terms of location, design, quality
and price with numerous other residential construction firms, including large
national and regional firms, some of which have greater financial resources than
the Company. As the Company enters and until it develops a reputation in a new
market area, the Company can expect to face even more significant competitive
pressures.
REGULATION
The housing industry is subject to increasing environmental, building,
zoning and real estate sales regulations by various federal, state and local
authorities. Such regulations affect home building by specifying, among other
things, the type and quality of building materials that must be used, certain
aspects of land use and building design, as well as the manner in which the
Company conducts sales activities and otherwise deals with customers.
The Company must increasingly obtain the approval of numerous government
authorities which regulate such matters as land use and level of density, the
installation of utility services, such as water and waste disposal, and the
dedication of acreage for open space, parks, schools and other community
purposes. If such authorities determine that existing utility services will not
adequately support proposed development, building moratoriums may be imposed. As
a result, the Company devotes an increasing amount of time to evaluating the
impact of governmental restrictions imposed upon a new residential development.
Furthermore, as local circumstances or applicable laws change, the Company may
be required to obtain additional approvals or modifications of approvals
previously obtained. Such increasing regulation has resulted in a significant
increase in time between the Company's initial acquisition of land and the
commencement and completion of its developments.
EMPLOYEES
As of April 30, 1995, the Company employed 232 persons full-time, compared
to 112 persons at April 30, 1994. Of these, 17 were in executive positions, 57
were engaged in sales activities, 94 in project management activities and 64 in
administrative and clerical activities. None of the Company's employees are
represented by a union and the Company considers its employee relationships to
be good.
RAW MATERIALS
All of the raw materials and most of the components used in the Company's
business are readily available in the United States. Most are standard items
carried by major suppliers. However, a rapid increase in the number of houses
started could cause shortages in the availability of such materials, thereby
leading to delays in the delivery of homes under construction. In addition,
recent increases in the price of lumber had a negative impact on margins. In
order to maintain its quality standards while providing a product at good
values, the Company has used and is considering the further use of alternative
materials, such as metal studs and framing in some of its projects.
OTHER CONSIDERATIONS
In December 1994, the County of Orange in California filed a petition under
Chapter 9 of the Federal Bankruptcy Code. The Company does not believe that the
bankruptcy filing will have a material adverse impact on the Company's
California operations.
ITEM 2. PROPERTIES
The Company owns one facility and leases other facilities in California,
Nevada, Texas and Arizona. The Company owns its principal offices, which are
located at 4100 MacArthur Blvd., Suite 200, Newport Beach, California 92660,
where the Company occupies approximately 20,000 out of a total 45,000 square
feet of space available. The majority of the remaining office space is leased to
others.
11
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
On September 5, 1990, the Bayridge Park Homeowners Association filed suit
in Orange County Superior Court against Bayridge (a joint venture comprised of
the Company and DSL Service Company) alleging the existence of certain
construction defects with respect to the Bayridge Park Condominiums in Newport
Beach, California. This lawsuit was settled in fiscal 1995.
On December 17 and 22, 1994, in San Diego Superior Court, a jury delivered
a verdict of $2.2 million compensatory and $1.0 million punitive damages against
the Company in connection with certain sales activities occurring in 1989 and
1990, at least two years prior to the Acquisition by current management in 1992.
The plaintiffs, the owners of 39 lots in the Penasquitos Westridge development
in San Diego County, a project which the Company developed starting in 1988,
alleged that sales representatives promised that prices would not be reduced and
that the sales prices were in fact reduced shortly after the owners purchased
their homes. On January 26, 1995, the Company and plaintiffs agreed to settle
the lawsuit for $2.3 million. This amount (net of tax benefits and a previously
established reserve of $350,000) was charged against the Company's third quarter
earnings resulting in a net loss for that quarter.
The Company is also involved in routine litigation arising in the ordinary
course of its business. While the outcome of litigation cannot be predicted with
certainty, and while certain of these matters involve substantial amounts, the
Company believes that none of the pending litigation has a material adverse
effect on the Company's financial condition or the results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock was traded in the over-the-counter market
through the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol "JMPC", and was quoted in the NASDAQ National
Market System from the Company's initial public offering in September 1987,
until April 29, 1988, when the Common Stock began trading on the American Stock
Exchange (AMEX: Peters "JMP"). The following table sets forth the quarterly high
and low sales prices for the Common Stock for the periods indicated.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------- ------ -----
<S> <C> <C>
First Quarter (through May 15, 1995)...................... $ 2.88 $2.00
FISCAL 1995
-----------
Fourth Quarter............................................ 3.00 2.00
Third Quarter............................................. 3.00 1.88
Second Quarter............................................ 4.00 2.63
First Quarter............................................. 3.94 2.63
FISCAL 1994
-----------
Fourth Quarter............................................ 4.00 2.75
Third Quarter............................................. 3.75 2.38
Second Quarter............................................ 3.00 2.50
First Quarter............................................. 3.75 2.69
FISCAL 1993
-----------
Fourth Quarter............................................ 3.50 1.88
Third Quarter............................................. 3.25 2.25
Second Quarter............................................ 4.00 2.00
First Quarter............................................. 4.25 1.25
</TABLE>
Subject to Indenture and loan agreement covenants, payment of dividends is
within the discretion of the Company's Board of Directors and holders of shares
of Common Stock are entitled to receive dividends when and if declared by the
Board of Directors out of funds legally available therefor. The Company's
present intention is not to pay dividends in the foreseeable future, but rather
to retain any earnings. During the last two years, no dividends have been paid.
On April 30, 1995, the Company had approximately 1,800 beneficial holders
of its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information of the Company is
presented for the fiscal years ended February 28, 1995, February 28, 1994,
February 28, 1993, February 29, 1992 and February 28, 1991. The selected
financial information and other data should be read in conjunction with the
Company's audited Consolidated Financial Statements and the notes thereto, and
Management's Discussion and Analysis of
13
<PAGE> 15
Financial Condition and Results of Operations, both of which are included
elsewhere in this report. Certain reclassifications have been made to the prior
years balances to conform to the current year presentation.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND OPERATING DATA)
------------------------------------------------------
LAST DAY OF FEBRUARY
------------------------------------------------------
1991 1992 1993 1994 1995
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......................... $ 215,535 $184,944 $ 75,702 $ 91,066 $143,089
Cost and expenses:
Cost of homes and land............... 184,672 170,329 68,257 73,348 112,152
Adjustments to carrying value of real
estate projects and investments in
partnerships...................... 84,327 56,016 75,476 -- --
Adjustment to costs in excess of net
assets acquired................... 18,951 -- -- -- --
Interest expense..................... 12,006 14,691 8,538 418 --
Selling, general and
administrative.................... 26,213 15,579 9,764 12,322 22,314
--------- -------- --------- -------- --------
Total costs and expenses..... 326,169 256,615 162,035 86,088 134,466
Minority interest...................... -- -- -- 4,332 5,883
--------- -------- --------- -------- --------
Income (loss) before income taxes and
extraordinary items.................. (110,634) (71,671) (86,333) 646 2,740
Income tax (benefit) expense........... (2,653) (13,895) (1,792) -- 873
--------- -------- --------- -------- --------
Income (loss) before extraordinary
items................................ (107,981) (57,776) (84,541) 646 1,867
Extraordinary items:
Extraordinary charge for litigation
judgement, net of tax benefit..... -- -- -- -- (1,293)
Extraordinary gain for debt retired
at less than face value, net of
taxes............................. -- -- -- 4,268 3,075
--------- -------- --------- -------- --------
Net income (loss)...................... $(107,981) $(57,776) $ (84,541) $ 4,914 $ 3,649
========= ======== ========= ======== ========
Net income (loss) per common share:
Before extraordinary items............. $(7.72) $(4.13) $(6.05) $ .04 $ .12
Extraordinary items.................... -- -- -- .30 .12
------ ------ ------ ----- -----
Net income (loss) per share(1)......... $(7.72) $(4.13) $(6.05) $ .34 $ .24
====== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AT THE LAST DAY OF FEBRUARY
------------------------------------------------------
1991 1992 1993 1994 1995
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Residential inventories................ $ 395,484 $224,566 $ 99,636 $105,696 $167,807
Total assets........................... 410,963 250,822 115,551 121,954 215,175
Notes payable.......................... 160,638 59,165 38,433 34,709 29,391
Senior Unsecured Notes Payable......... -- -- -- -- 100,000
Due to parent.......................... 205,121 204,138 1,702 -- --
Stockholders' equity................... 32,169 (25,607) 48,015 55,594 60,744
OPERATING DATA (in units):
Homes closed........................... 541 395 115 404 824(2)
Homes contracted for................... 430 326 126 478 835(3)
Homes in backlog....................... 150 81 92 305 432
</TABLE>
- ------------
(1) The weighted average number of shares outstanding is 14,995,000 for the year
ended February 28, 1995, 14,488,000 for the year ended February 28, 1994
and 13,980,000 for the years ended February 28, 1993, February 29, 1992 and
February 28, 1991.
(2) Excludes homes closed by Clark Wilson for the six month period prior to
acquisition.
(3) Excludes 116 homes in Clark Wilson's backlog at August 31, 1994.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -- GENERAL
The results of operations of the Company for the fiscal year ended February
28, 1995 do not include the full year of Clark Wilson's results of operations
due to the fact that the Clark Wilson Acquisition did not occur until the start
of the third quarter of fiscal year 1995.
FISCAL YEAR 1995 (YEAR ENDED FEBRUARY 28, 1995) COMPARED TO FISCAL YEAR 1994
(YEAR ENDED FEBRUARY 28, 1994)
Net Income. The Company recorded net income after extraordinary items of
$3.6 million in fiscal year 1995 or $0.24 per share, compared to net income of
$4.9 million, or $0.34 per share, for fiscal year 1994. These results were due
to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1995 of $135.9 million increased $54.7 million, or 67%, from fiscal year 1994.
This increase was due to a greater number of home closings during the fiscal
year. Home closings for fiscal year 1995 were 824, compared to 404 homes for
fiscal year 1994, an increase of 420 homes. This increased activity was
primarily due to increased closings in California, including the home closings
from the projects developed by the CalPERS Partnerships, which contributed 192
home closings and approximately $56.5 million in revenues, a full twelve months
of closings for Durable, and the Clark Wilson Acquisition. The Clark Wilson
Acquisition contributed $18.1 million of revenues and 135 home closings during
the period from September 1, 1994, the effective date of the Clark Wilson
Acquisition, through February 28, 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1995 of $22.3 million increased $10.0
million over fiscal year 1994. This increase was primarily due to the increased
closings and number of projects being marketed in California, a full year of
Durable activity (versus a half year in fiscal 1994) and the effect of the Clark
Wilson Acquisition, which was consummated as of September 1, 1994.
Minority Interest. Minority interest expense for fiscal 1995 of $5.9
million increased $1.6 million from fiscal 1994. This increase was due to a
greater number of joint venture home closings in 1995. For fiscal 1995, joint
venture closings totalled 264 units versus the 239 units closed in fiscal 1994.
Extraordinary Charge. During fiscal 1995 a California jury delivered a
verdict of $2.2 million compensatory and $1.0 million punitive damages against
the Company in connection with certain sales activities occurring in 1989 and
1990, at least two years prior to the 1992 Acquisition of the Company by current
management. The Company settled the lawsuit for $2.3 million. The amount of $1.3
million (net of reserves and tax benefits) was charged against the Company's
third quarter results.
Extraordinary Gain. During the fiscal year ended February 28, 1995, the
Company recorded a gain of $3.1 million (net of tax) due to the resolution of
project financing at less than the face amount of the debt.
During the fiscal year ended February 28, 1995, the Company recorded 835
net orders (home sales contracted for less cancellations), which was 357 homes
higher than fiscal year 1994. The Company had 432 homes in its backlog (homes
under contract but not closed) at February 28, 1995, which was an increase of
127 homes over the Company's backlog at February 28, 1994.
FISCAL YEAR 1994 (YEAR ENDED FEBRUARY 28, 1994) COMPARED TO FISCAL YEAR 1993
(YEAR ENDED FEBRUARY 28, 1993)
Net Income. The Company returned to profitability in fiscal year 1994
having net income of $4.9 million, or $0.34 per share, compared to a net loss of
$84.5 million, or $6.05 per share, for fiscal year 1993. These results were due
to the factors discussed below.
15
<PAGE> 17
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1994 of $81.2 million increased $42.8 million, or 112%, from fiscal year 1993.
This increase was due to a greater number of home closings during the fiscal
year. Home closings for fiscal year 1994 were 404, compared to 115 homes for
fiscal year 1993, an increase of 289 homes. This increased activity was
primarily due to the Durable Acquisition, which contributed $21.1 million of
revenues and 199 home closings during the period from September 1, 1993, the
effective date of the Durable Acquisition, through February 28, 1994, and the
home closings from the projects developed by the four CalPERS Partnerships,
which contributed 155 home closings and approximately $46.8 million in revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1994 of $12.3 million increased $2.6
million over fiscal year 1993. This increase was primarily due to the effect of
the Durable Acquisition, which was consummated as of September 1, 1993.
Interest Expense. Interest expense of $418,000 for fiscal year 1994 was
approximately $8.1 million less than fiscal year 1993. This decrease was due
primarily to an increase in the amount of interest able to be capitalized as a
result of the increased level of construction activity and the Company's lower
level of debt as a result of the Acquisition and the associated restructuring of
debt.
Extraordinary Gain and Valuation Adjustments. During the fiscal year ended
February 28, 1994, the Company recorded a one-time gain of $4.3 million due to
the resolution of project financing at less than the face amount of the debt.
The Company's pre-tax net loss of $86.3 million for fiscal year 1993 was
primarily due to adjustments to the realizable value of assets of $75.5 million
resulting from the closing of the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements are for the acquisition,
development, construction and marketing of its residential projects. The need to
stage the acquisition and use of raw materials such as land and finished lots
and the need, on certain projects, to construct community facilities ahead of
the start of home construction requires homebuilders such as the Company to
commit working capital for longer periods than many traditional manufacturing
companies. When building inventory, the Company uses substantial amounts of cash
that are generally obtained from borrowings, available cash flow from operations
and partners' contributions to joint ventures.
To date, the Company has principally used secured recourse and non-recourse
bank financing and financing provided by CalPERS for acquisition, development
and construction, with borrowings for individual projects or phases of projects
secured by such projects. CalPERS has committed to providing construction
financing for two projects (with 150 planned units). In addition, CalPERS is
undergoing due diligence on two projects which may result in additional joint
ventures being formed.
In May, 1994 the Company completed the sale of $100,000,000 of 12 3/4%
Senior Notes including 790,000 warrants to purchase common stock. The proceeds
from the offering were used to repay certain debt of the Company, acquire
certain properties and for general working capital and construction purposes.
The proceeds are projected to provide sufficient available liquidity, when
combined with additional financing permitted under the Indenture and cash flow
from operations, to fund the Company's current and projected acquisition,
development and construction activities for a period of at least two years.
In May, 1994 the Company also obtained a $25 million recourse secured line
of credit facility with a bank. The initial term of the commitment under this
facility reduces commencing October 1, 1996, and expires on March 31, 1998.
Borrowings under this facility will bear interest at prime plus one percent. In
September, 1994 the Company obtained an additional $25 million non-recourse
secured line of credit facility with the same bank. The initial term of the
commitment under this facility will expire on October 1, 1995. Borrowings under
the non-recourse facility will bear interest at prime plus one and one-quarter
percent. The facilities will be secured by liens on various completed or under
construction homes and lots held by the Company. The credit agreements contain
certain covenants, including covenants that require the Company to comply with
certain operating and reporting requirements and maintain certain financial
levels and ratios. The
16
<PAGE> 18
credit agreements also define certain events that constitute events of default.
The bank is entitled to payment out of the proceeds of its collateral prior to
any holders of unsecured indebtedness, including the Notes.
Durable and Clark Wilson also have non-recourse lines of credit to
facilitate construction activity. Durable has secured a $13.0 million
non-recourse line of credit. The initial term of the commitment under this
facility will expire July 1, 1995. Borrowings under this facility will bear
interest at prime plus one and one-quarter percent. Clark Wilson has secured a
$6.0 million non-recourse line of credit. The initial term of the commitment
under this facility will expire February 15, 1996. Borrowings under this
facility will bear interest at prime plus one percent.
The Indenture contains restrictions on the incurring of indebtedness which
affect the availability of these bank facilities based on various measures of
the financial performance of the Company. Subject to such restrictions, the bank
facilities will be available to augment cash flow from operations and the
proceeds of the Offering to fund the Company's operations.
INTEREST RATES AND INFLATION
The long-term impact of inflation on the Company is manifested in increased
land, land development, construction and overhead costs balanced by increased
sales prices. For several years prior to fiscal year 1989, the Company was able
to raise sales prices by amounts at least equal to its cost increases. Since
fiscal year 1989, however, both overall sales prices and the Company's costs,
and in some instances land acquisition costs, have generally decreased.
The Company generally contracts for land significantly before development
and sales efforts begin and, accordingly, to the extent land acquisition costs
are fixed, increases or decreases in the sales prices of homes may affect the
Company's profits. Since the sales prices of homes are fixed at the time of sale
and the Company generally sells its homes prior to commencement of construction,
any inflation of costs in excess of those anticipated may result in lower gross
margins. The Company generally attempts to minimize that effect by entering into
fixed-price contracts with its subcontractors and material suppliers for
specified periods of time, which generally do not exceed one year.
Housing demand, in general, is adversely affected by increases in interest
costs, as well as materials and other costs. Interest rates, the length of time
that land remains in inventory and the proportion of inventory that is financed
affect the Company's interest costs. If the Company is unable to duplicate its
past ability to raise sales prices enough to compensate for higher costs, or if
mortgage interest rates increase significantly, affecting prospective buyers'
ability to adequately finance a home purchase, the Company's revenues, gross
margins and net income would be adversely affected. Increases in sales prices,
whether the result of inflation or demand, may affect the ability of prospective
buyers to afford a new home.
TAXES
The Company was from the time of the Acquisition until the end of calendar
year 1994 part of the CPH consolidated tax group. No written tax sharing
agreement with respect to taxes existed between the member companies of the CPH
consolidated tax group. The CPH consolidated tax group filed on a calendar year
basis, whereas the Company's financial statements reflect a fiscal year ending
on the last day of February. As of December 31, 1994, the Company had a federal
and California tax liability and a net operating loss carryforward to 1995,
which the Company can utilize to offset regular taxable income that may be
generated after the 1994 tax year. The Indenture required the merger of the
Company with CPH (which merger was completed as of December 31, 1994), as a
result of which the Company will no longer be part of a consolidated group and
will file its own tax returns on a calendar year basis effective with the 1995
tax year.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
J.M. PETERS COMPANY, INC.
Reports of Independent Public Accountants
Consolidated Balance Sheets as of February 28, 1994 and 1995
Consolidated Statements of Operations for the years ended February 28, 1993,
February 28, 1994 and February 28, 1995
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1993, February 28, 1994 and February 28, 1995
Consolidated Statements of Cash Flows for the years ended February 28, 1993,
February 28, 1994 and February 28, 1995
Notes to Consolidated Financial Statements
18
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of J.M. Peters Company, Inc.:
We have audited the accompanying consolidated balance sheets of J.M. PETERS
COMPANY, INC. (a Delaware corporation) and subsidiaries as of February 28, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
28, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of the
Joint Ventures (Note 1), which statements reflect total assets and total
revenues of 15 and 33 percent at February 28, 1994, and 4 and 38 percent at
February 28, 1995, respectively, of the consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of J.M. Peters Company, Inc. and subsidiaries as of
February 28, 1994 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended February 28, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
April 28, 1995
19
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Alicante Development, L.P.
We have audited the accompanying balance sheets of Ranchland Alicante
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1994 and 1993, and the related statements of operations, partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ranchland Alicante Development,
L.P. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 24, 1995
20
<PAGE> 22
INDEPENDENT AUDITOR'S REPORT
To the Partners
Ranchland Fairway Development, L.P.
We have audited the accompanying balance sheets of Ranchland Fairway
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1994 and 1993, and the related statements of operations, partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ranchland Fairway Development,
L.P. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 24, 1995
21
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Montilla Development, L.P.
We have audited the accompanying balance sheets of Ranchland Montilla
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1994 and 1993, and the related statements of operations, partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ranchland Montilla Development,
L.P. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 24, 1995
22
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Portola Development, L.P.
We have audited the accompanying balance sheets of Ranchland Portola
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1994 and 1993, and the related statements of operations, partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ranchland Portola Development,
L.P. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 24, 1995
23
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Partners
JMP Canyon Estates, L.P.
We have audited the accompanying balance sheet of JMP Canyon Estates, L.P. (the
"Partnership"), a California limited partnership, as of December 31, 1994, and
the related statements of operations, partners' capital and cash flows for the
period July 27, 1994 (inception) through December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JMP Canyon Estates, L.P. as of
December 31, 1994, and the results of its operations and its cash flows for the
period July 27, 1994 (inception) through December 31, 1994, in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 24, 1995
24
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Partners
JMP Harbor View, L.P.
We have audited the accompanying balance sheet of JMP Harbor View, L.P. (the
"Partnership"), a California limited partnership, as of December 31, 1994, and
the related statements of partners' capital and cash flows for the period
December 13, 1994 (inception) through December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JMP Harbor View, L.P. as of
December 31, 1994, and the results of its cash flows for the period December 13,
1994 (inception) through December 31, 1994, in conformity with generally
accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 24, 1995
25
<PAGE> 27
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1994 1995
------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS........................................... $ 10,001 $ 22,401
RESTRICTED CASH..................................................... 1,483 1,421
ACCOUNTS AND NOTES RECEIVABLE....................................... 1,650 3,818
REAL ESTATE PROJECTS................................................ 105,696 167,807
PREPAID EXPENSES AND OTHER ASSETS................................... 3,124 19,728
------------ ------------
TOTAL ASSETS......................................... $ 121,954 $ 215,175
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES............................ $ 17,692 $ 21,516
NOTES PAYABLE....................................................... 34,709 29,391
SENIOR UNSECURED NOTES PAYABLE...................................... -- 100,000
------------ ------------
Total liabilities......................................... 52,401 150,907
------------ ------------
COMMITMENTS AND CONTINGENCIES.......................................
MINORITY INTEREST IN JOINT VENTURES................................. 13,959 3,524
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share;
15,000,000 and 30,000,000 shares authorized in 1994 and 1995,
respectively; 14,995,000 issued and outstanding................ 1,500 1,500
Additional paid-in capital........................................ 210,387 211,888
Accumulated deficit............................................... (156,293) (152,644)
------------ ------------
Total stockholders' equity................................ 55,594 60,744
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $ 121,954 $ 215,175
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales of homes and land............................. $ 72,148 $ 88,140 $139,123
Interest and other income, net...................... 3,554 2,926 3,966
-------- -------- --------
75,702 91,066 143,089
-------- -------- --------
COSTS AND EXPENSES:
Cost of homes and land.............................. 68,257 73,348 112,152
Adjustments to carrying value of real estate
projects and investments in partnerships......... 75,476 -- --
Selling, general and administrative................. 9,764 12,322 22,314
Minority interest................................... -- 4,332 5,883
Interest............................................ 8,538 418 --
-------- -------- --------
162,035 90,420 140,349
-------- -------- --------
Income (loss) before provision (benefit) for income
taxes and extraordinary items....................... (86,333) 646 2,740
PROVISION (BENEFIT) FOR INCOME TAXES.................. (1,792) -- 873
-------- -------- --------
Income (loss) before extraordinary items.............. (84,541) 646 1,867
EXTRAORDINARY ITEMS:
Extraordinary charge for litigation judgement, net
of tax benefit................................... -- -- (1,293)
Extraordinary gain for debt retired at less than
face value, net of taxes......................... -- 4,268 3,075
-------- -------- --------
Net income (loss)..................................... $(84,541) $ 4,914 $ 3,649
======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Before extraordinary items.......................... $ (6.05) $ .04 $ .12
Extraordinary items................................. -- .30 .12
-------- -------- --------
Net income (loss)................................... $ (6.05) $ .34 $ .24
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES..................... 13,980 14,488 14,995
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------ ---------- ------------ --------
<S> <C> <C> <C> <C>
BALANCE, February 29, 1992..................... $1,398 $ 49,661 $ (76,666) $(25,607)
Capital contribution related to purchase debt
restructuring............................. -- 97,510 -- 97,510
Capital contribution related to tax sharing
claims.................................... -- 60,653 -- 60,653
Net loss..................................... -- -- (84,541) (84,541)
------ --------- ---------- --------
BALANCE, February 28, 1993..................... 1,398 207,824 (161,207) 48,015
Shares issued in connection with acquisition
of Durable Homes, Inc..................... 102 2,563 -- 2,665
Net income................................... -- -- 4,914 4,914
------ --------- ---------- --------
BALANCE, February 28, 1994..................... 1,500 210,387 (156,293) 55,594
Issuance of warrants in connection with
offering of senior unsecured notes
payable................................... -- 1,501 -- 1,501
Net income................................... -- -- 3,649 3,649
------ --------- ---------- --------
BALANCE, February 28, 1995..................... $1,500 $ 211,888 $ (152,644) $ 60,744
====== ========= ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................ $ (84,541) $ 4,914 $ 3,649
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Extraordinary items, net................................... -- (4,268) (1,782)
Depreciation and amortization.............................. 195 131 794
Adjustments to carrying value of real estate projects and
investments in partnerships.............................. 75,476 -- --
Changes in Assets and Liabilities
Net of the Effects of the Purchase of Clark Wilson, Inc.
and Durable Homes, Inc.:
(Increase) decrease in accounts and notes receivable..... 1,562 259 (2,168)
(Increase) decrease in real estate projects.............. 49,454 226 (60,547)
(Increase) decrease in prepaid expenses and other
assets................................................ (459) 393 (470)
(Decrease) increase in accounts payable and accrued
liabilities........................................... (2,478) 6,209 3,106
Gain related to debt restructuring....................... (1,225) -- --
---------- -------- --------
Net cash provided by (used in) operating activities... 37,984 7,864 (57,418)
---------- -------- --------
INVESTING ACTIVITIES:
Acquisition of Clark Wilson Homes, Inc....................... -- -- (3,631)
Acquisition of Durable Homes, Inc............................ -- (1,500) --
Purchases of property and equipment, net..................... (56) (68) (5,982)
Increase in investments in partnerships...................... (139) (45) (1,949)
---------- -------- --------
Net cash used in investing activities................. (195) (1,613) (11,562)
---------- -------- --------
FINANCING ACTIVITIES:
Proceeds from senior unsecured notes payable, net............ -- -- 95,834
Proceeds from notes payable.................................. 6,241 39,374 59,406
Principal payments of notes payable.......................... (28,642) (35,574) (63,425)
Advances from San Jacinto.................................... 3,025 -- --
Principal payments to Capital Pacific Homes, Inc............. (47,298) (1,702) --
Minority interest in joint ventures.......................... 19,647 (7,802) (10,435)
---------- -------- --------
Net cash provided by (used in) financing activities... (47,027) (5,704) 81,380
---------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (9,238) 547 12,400
CASH AND CASH EQUIVALENTS, beginning of period................. 18,692 9,454 10,001
---------- -------- --------
CASH AND CASH EQUIVALENTS, end of period....................... $ 9,454 $ 10,001 $ 22,401
========== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH AND NONCASH ACTIVITIES:
Amount paid during the year for interest, net of amount
capitalized................................................ $ 878 $ 1,101 $ --
Income tax refund and related interest....................... 3,150 -- --
San Jacinto contribution of capital.......................... 158,163 -- --
Decrease in due to San Jacinto (tax-sharing claims).......... 60,653 -- --
Decrease in due to San Jacinto advances...................... 145,499 -- --
Increase in due to Capital Pacific Homes..................... 49,000 -- --
Residential inventory surrendered in exchange for debt
forgiveness................................................ -- 9,980 1,048
Note payable and accrued interest reduced by debt
forgiveness................................................ -- 14,248 4,713
Common stock issued in connection with the acquisition of
Durable Homes, Inc......................................... -- 2,665 --
Promissory note payable issued to seller in connection with
the acquisition of Clark Wilson Homes, Inc................. -- -- 2,500
Issuance of warrants in connection with offering of senior
unsecured notes payable.................................... -- -- 1,501
Land acquisition financed by purchase money trust deeds...... -- -- 2,249
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On July 1, 1992, Capital Pacific Homes, Inc. ("CPH"), a Delaware
corporation, entered into a definitive purchase agreement (the "Purchase
Agreement"), pursuant to which CPH acquired from San Jacinto F.A. ("San
Jacinto") (i) 12,000,000 shares of J.M. Peters, Inc. and subsidiaries (the
"Company") common stock (the "Purchased Shares") representing 85.8 percent of
the total outstanding shares of common stock of the Company and (ii) all debt of
the Company owed to San Jacinto which, at the time of the closing and after
giving effect to debt restructuring, equaled $49,000,000. Utilizing the proceeds
from the sale of real estate projects to third parties, cash received from the
joint ventures discussed below and cash on hand, the Company had repaid this
debt to CPH at February 28, 1994. The closing of the purchase transaction
occurred on August 12, 1992. The indebtedness of the Company to San Jacinto
equaled approximately $146,000,000 prior to the purchase transaction. Pursuant
to a debt restructuring agreement, and prior to the closing, San Jacinto
contributed to the capital of the Company $97,510,000 of the indebtedness.
Effective December 31, 1994, CPH merged with and into the Company (the
"Merger") pursuant to an Agreement and Plan of Merger, dated November 21, 1994
(the "Merger Agreement") with the Company surviving the Merger. The Company's
Board of Directors and a majority of the stockholders approved the Merger.
Accordingly, the separate legal existence of CPH was terminated. The Merger did
not change the capitalization, corporate structure or Board of Directors of the
Company. In addition, there was no modification of or amendment to the
Certificate of Incorporation and Bylaws, as amended, of the Company as a result
of the Merger. The Merger Agreement provided for the cancellation of each share
of Common Stock of the Company held by CPH and the issuance of an equal amount
of new shares of Common Stock of the Company to the shareholders of CPH. No
assets or recorded liabilities were acquired.
Acquisition of Clark Wilson Homes, Inc.
Effective September 1, 1994, the Company acquired all of the common stock
of Clark Wilson Homes, Inc. ("Clark Wilson") and Fairway Financial Corporation
("Fairway") for a total purchase price, including direct costs of the
acquisition, of $6.1 million. The Company paid $3.5 million cash and issued a
$2.5 million promissory note to the seller payable based on performance of Clark
Wilson. The transaction was accounted for as a purchase. The results of
operations for Clark Wilson and Fairway have been included in the consolidated
financial statements of the Company from the effective date of the acquisition
through February 28, 1995. Clark Wilson builds single family homes in Texas.
Fairway assists Clark Wilson homebuyers with obtaining financing for new home
purchases.
The allocation of purchase price at September 1, 1994, was as follows (in
thousands):
<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 95
Real estate inventories............................................ 11,055
Other assets....................................................... 1,362
Goodwill........................................................... 3,803
Accounts payable and other liabilities............................. (2,759)
Notes payable...................................................... (7,425)
------
Total............................................................ $ 6,131
======
</TABLE>
Goodwill is being amortized on a straight line basis over a five year
period.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Clark Wilson and Fairway had been
acquired as of the beginning of the fiscal years presented, after including the
impact of certain adjustments, including the reduction of interest income
attributable to the cash
30
<PAGE> 32
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
paid, tax provision of Clark Wilson which was an S corporation and the tax
benefit attributable to filing a consolidated tax return with the Company,
including the utilization of certain net operating losses. The information set
forth below includes Clark Wilson data for the fiscal years ended February 28,
1994 and 1995.
<TABLE>
<CAPTION>
1994 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
(EXPRESSED IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Sales and revenues.................................. $ 110,599 $ 164,427
========= =========
Net income:
Before extraordinary items........................ $ 982 $ 2,222
Net income........................................ $ 5,250 $ 4,004
========= =========
Net income per share:
Before extraordinary items........................ $ 0.07 $ 0.15
Net income per share.............................. $ 0.36 $ 0.27
========= =========
</TABLE>
The proforma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented, nor are they intended to be a reflection of future results.
Principles of Consolidation and Minority Interest
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and investments for which it has control. All
other investments (See Note 4) are accounted for on the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Effective upon the closing date of the purchase transaction with San
Jacinto, Peters Ranchland Company, Inc., a wholly owned subsidiary of the
Company, as general partner, entered into four limited partnership agreements
with IHP Investment Fund I, L.P. (a CalPERS advisor), as limited partner ("Joint
Ventures") to pursue the development of various real properties of the Company,
with such properties transferred to the Joint Ventures concurrently with the
closing. Peters Ranchland Company, Inc. and IHP Investment Fund I, L.P. ("IHP")
each have a 50% interest in each Joint Venture. The financial statements of the
Joint Ventures have been consolidated herein. As of February 28, 1995,
homebuilding operations of these Joint Ventures have been completed and
substantially all homes sold.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method. Total property,
plant and equipment were $159,000 and $5,891,000 (net of accumulated
depreciation of $2,152,000 and $2,683,000, respectively) as of February 28, 1994
and 1995, respectively, and is included in prepaid expenses and other assets on
the consolidated balance sheets.
Real Estate Projects
Real estate projects are carried at the lower of cost or estimated net
realizable value. Estimated net realizable value represents management's
estimates, based on management's present plans and intentions, of sale prices
less development and disposition costs, assuming that the development and
disposition occurs in the normal course of business. It is the Company's policy
to exclude postcompletion carrying costs in the calculation of net realizable
value. Net realizable values for real estate projects under or held for
development are generally based on an assumption of the completion of housing
units within a project and the sale of such units to home buyers or, to a lesser
extent, sale of lots to other home builders.
31
<PAGE> 33
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All direct and indirect land costs, offsite and onsite improvements and
applicable interest and carrying charges are capitalized to real estate projects
under development. Capitalized costs are included in cost and expenses as real
estate is sold; marketing costs are expensed in the period incurred. Land and
land development costs are accumulated by project and are allocated to
individual phases using the relative sales value method.
Revenue Recognition
The Company's accounting policies follow specific provisions of the
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," which specifies minimum down payment requirements, financing terms
and other certain requirements for sales of real estate.
Income from sales is recognized when title has passed, the buyer has met
minimum down payment requirements and the terms of any notes received by the
Company satisfy continuing investment requirements. At the time of sale,
accumulated costs are relieved from real estate projects and charged to cost of
sales on a relative sales value basis.
Income Taxes
Effective March 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109. Accordingly, for the fiscal years
ended February 28, 1994 and 1995, all disclosures are in accordance with SFAS
No. 109. Under the provisions of SFAS No. 109, the Company elected not to
restate prior years' consolidated financial statements.
The Company was from the time of the CPH acquisition until the end of
calendar year 1994 part of the CPH consolidated tax group. Effective December
31, 1994, CPH merged with and into the Company. Beginning with the tax year
ended December 31, 1995, the Company will file its own consolidated tax returns.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, short-term
investments which have a maturity of 90 days or less from the date of purchase
are considered cash equivalents.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 121, "Accounting for Long Lived
Assets," in March 1995. This SFAS is effective for fiscal years beginning after
December 15, 1995 and is not expected to have a material effect on the Company's
financial statements.
Reclassifications
Certain reclassifications have been made to certain prior year balances in
order to conform with the current year presentation.
2. RESTRICTED CASH
The Company has restricted cash totaling $1,483,000 and $1,421,000 as of
February 28, 1994 and 1995, respectively. Included in these amounts is $750,000
and $500,000 as of February 28, 1994 and 1995, respectively, which is held as
collateral for the Company's bonding obligations. The balance of restricted cash
are deposits to various municipalities, banks, and utilities to guarantee future
performance of development obligations.
32
<PAGE> 34
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REAL ESTATE PROJECTS
Real estate projects consist of the following at February 28, 1994 and 1995
(in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land and improvements under construction............... $ 91,763 $141,910
Completed residential homes............................ 6,472 18,820
Completed model homes.................................. 7,461 7,077
-------- --------
$105,696 $167,807
======== ========
</TABLE>
Total interest cost incurred during the years ended February 28, 1993, 1994
and 1995 was $8,871,000, $2,532,000 and $11,810,000, respectively, of which
$333,000, $2,114,000 and $11,810,000, respectively, was capitalized.
4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company is a general partner and has a 50 percent ownership in three
unconsolidated entities at February 28, 1995. The Company's investments are as
follows at February 28, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ------
<S> <C> <C>
P.B. Partners............................................... $ 65 $ --
Bay Hill Escrow............................................. 147 213
JMP Canyon Estates L.P...................................... -- 557
JMP Harbor View L.P......................................... -- 1,062
---- ------
$212 $1,832
==== ======
</TABLE>
The Company uses the equity method of accounting for its investments in
these unconsolidated 50 percent-owned entities. The accounting policies of the
entities are substantially the same as those of the Company. Investments in
these entities are included in prepaid expenses and other assets in the
consolidated balance sheets.
Following is summarized, unaudited combined financial information for the
unconsolidated entities at February 28, 1994 and 1995 (in thousands):
ASSETS
<TABLE>
<CAPTION>
1994 1995
---- -------
<S> <C> <C>
Cash.................................................... $345 $ 1,178
Real estate projects.................................... -- 21,601
Other assets............................................ 68 191
---- -------
$413 $22,970
==== =======
LIABILITIES AND EQUITY
Accounts payable and other liabilities.................. $ 5 $ 4,353
---- -------
Equity
The Company........................................... 212 1,832
Others................................................ 196 16,785
---- -------
408 18,617
---- -------
$413 $22,970
==== =======
</TABLE>
33
<PAGE> 35
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME STATEMENT
<TABLE>
<CAPTION>
1994 1995
---- ------
<S> <C> <C>
Sales of homes and land................................... $ -- $ 936
Interest and other income, net............................ 155 134
---- ------
155 1,070
---- ------
Costs and expenses........................................ -- 1,084
---- ------
Net income (loss)......................................... $155 $ (14)
==== ======
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
February 28, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Accounts payable..................................... $10,809 $ 9,986
Compensation......................................... 345 497
Litigation........................................... 536 1,467
Warranty............................................. 450 829
Interest............................................. 2,137 4,510
Property taxes....................................... 1,618 221
Income taxes payable................................. -- 1,833
Other................................................ 1,797 2,173
------- -------
$17,692 $21,516
======= =======
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following at February 28, 1994 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Notes payable matured.................................. $10,402 $ --
Notes payable maturing in one to two years............. 9,229 --
Promissory notes collateralized by deeds of trust,
including interest at prime plus one percent due
quarterly............................................ 11,123 --
Promissory notes collateralized by deeds of trust,
including interest varying from 8 percent to prime
plus 1.5 percent..................................... 2,015 4,878
Model loans collateralized by deeds of trust including
interest at prime plus 3.0 percent................... 1,940 --
Notes payable to banks, including interest varying from
prime plus one percent to prime plus one and
one-quarter percent, maturing before October 1, 1996
secured by certain real estate inventories on a
non-recourse basis................................... -- 17,011
Notes payable to banks, including interest at prime
plus one percent maturing March 31, 1998 secured by
certain real estate inventories on a recourse
basis................................................ -- 5,002
Promissory note payable to previous owner of Clark
Wilson secured by Stock Pledge Agreement on a
non-recourse basis, interest at 8 percent payable
based on performance of the entity acquired.......... -- 2,500
------- -------
$34,709 $29,391
======= =======
</TABLE>
34
<PAGE> 36
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At February 28, 1994 and 1995, the aggregate carrying value of assets
collateralizing the above notes was $61,379,000 and $97,237,000, respectively.
In May 1994, the Company obtained a $25 million recourse secured revolving
credit facility (the "Recourse Facility"). Interest on amounts outstanding under
the Recourse Facility accrues at the lender's prime rate then in effect (9% as
of February 28, 1995) plus 1.00%. The initial term of the commitment under this
facility reduces commencing October 1, 1996 and expires on March 31, 1998. In
September, 1994, the Company obtained a $25 million non-recourse secured
revolving credit facility (the "Non-Recourse Facility"). Interest on amounts
outstanding under the Non-Recourse Facility accrues at the lender's prime rate
then in effect (9% as of February 28, 1995) plus 1.25%. The initial term of the
commitment under this facility expires on October 1, 1995. A commitment fee of
1% is payable annually on the Recourse Facility. A commitment fee of one-half
percent is payable annually as well as a one-half percent fee for each project
loan under the Non-Recourse Facility. Availability of funds under the Facilities
are subject to, among other things, the Indenture, specific loan-to-value
factors, appraisal reports and the satisfactory underwriting by the lender on a
project phase basis. At February 28, 1995, the Company had aggregate borrowings
outstanding of $15.3 million under these revolving credit facilities.
The Facilities are secured by liens on various completed or under
construction homes and lots held by the Company. Pursuant to the Facilities, the
Company is subject to certain covenants, including covenants that require the
Company to comply with certain operating and reporting requirements and to
maintain certain financial levels and ratios. The major financial covenants are
a maximum 2.50 to 1.00 (net of non-recourse debt) consolidated liabilities (as
defined) to consolidated tangible net worth ratio, a maximum 3.00 to 1.00
consolidated liabilities (including non-recourse debt) to consolidated tangible
net worth ratio, minimum consolidated tangible net worth of the Company equal to
$37,072,860, minimum cash on hand in an amount of not less than the greater of
$5,000,000 or 5% of consolidated liabilities and maximum cash investment in land
held for future development of 50% of consolidated net tangible assets. The
Company has also agreed that it will not suffer a net loss in any fiscal quarter
in excess of $1,000,000 or any net loss in any two consecutive fiscal quarters
and not to make distributions from earnings and profits to the shareholders in
an amount greater than 50% of such earnings and profits. At February 28, 1995
the Company was in compliance with these covenants. The Facilities also define
certain events that constitute events of default.
Durable and Clark Wilson also have secured non-recourse lines of credit to
facilitate construction activity. Durable's $13.0 million facility has a term of
one year with advances bearing interest at prime (9% as of February 28, 1995)
plus one and one-quarter percent. Clark Wilson has a non-recourse secured line
of credit for $6.0 million with a repayment term of one year and interest of
prime (9% as of February 28, 1995) plus one percent.
Included in the notes payable matured at February 28, 1994 were two loans,
one of which was an acquisition and development loan with an outstanding
principal balance of $9.5 million. The loan was originated on March 14, 1989.
West Coast Land Fund L.P. ("West Coast"), the lender that held the loan,
commenced an action in Orange County Superior Court on October 22, 1993 against
the Company with respect to the loan (the "Action"). The Action sought to
collect the $9.5 million loan balance, plus $2.2 million of accrued interest and
costs of collection, owed by the Company to West Coast. In April 1994 the
Company and West Coast executed a Loan Pay-Off Agreement (the "Settlement
Agreement") pursuant to which they agreed to settle the Action for $7 million.
Pursuant to the Settlement Agreement, the Company made an initial payment of
$350,000 towards the settlement amount and paid the balance of $6,650,000 on May
16, 1994 in exchange for dismissal with prejudice of the Action, termination of
nonjudicial foreclosure proceedings and a reconveyance of the property to the
Company pursuant to West Coast's deed of trust. The Company recorded an
extraordinary gain in fiscal 1995 of approximately $4.7 million ($3.1 million
net of income taxes) in connection with this transaction.
The second loan which had also matured was a construction loan with an
outstanding principal balance of approximately $900,000, held by The Bank of
California. The loan originated on December 18, 1991. The
35
<PAGE> 37
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Bank of California foreclosed on the property on April 5, 1994, an action that
the Company chose not to dispute. No gain or loss was recognized as a result of
this foreclosure because the property had previously been written down to the
approximate carrying amount of the loan.
During fiscal 1994, the Company surrendered certain real estate collateral
in settlement of approximately $14 million of debt in default at February 28,
1993. The Company recorded an extraordinary gain of approximately $4.3 million
in connection with this transaction.
Prior to February 28, 1993, the Company entered into an agreement with its
lender which modified the terms of two promissory notes. As a result of the
agreement, the maturity date of the notes was extended from December 26, 1993
and August 14, 1994, respectively to January 8, 1995 for both notes. All
remaining unpaid principal was due January 8, 1995 for both notes which payment
was made on that date. Additionally, accrued interest totaling $2,949,000 was
forgiven by the lender, resulting in a gain of $1,225,000. This transaction has
been accounted for as a troubled debt restructuring. Accordingly, the obligation
as shown as of February 28, 1994, reflects the total cash to be paid to the
lender under the agreement. Under the accounting for a troubled debt
restructuring, no interest expense was recorded by the Company on this
obligation through maturity. The gain of $1,225,000, which is immaterial to 1993
operations, is included in interest and other income in the accompanying 1993
consolidated financial statements.
During the years ended February 28, 1993, February 28, 1994 and 1995, the
highest month-end balance on notes payable was $46,709,000, $38,030,000 and
$34,364,000, respectively, and the weighted average outstanding balance was
$33,027,000, $23,804,000 and $19,880,000, respectively. The weighted average
interest rates on notes payable during the years ended February 28, 1993,
February 28, 1994 and 1995, were 8.8 percent, 10.6 percent and 10.9 percent,
respectively. The weighted average interest rates on notes payable at February
28, 1993, February 28, 1994 and 1995, were 8.8 percent, 10.9 percent and 9.8
percent, respectively.
The aggregate scheduled principal maturities of notes payable are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
FEBRUARY 28, 1994 FEBRUARY 28, 1995
------------------ ------------------
<S> <C> <C>
Years ending February 28:
Notes matured............................... $ 10,402 $ --
1996........................................ 19,582 9,348
1997........................................ 2,795 12,541
1998........................................ 1,930 --
1999........................................ -- 7,502
-------- --------
$ 34,709 $ 29,391
======== ========
</TABLE>
7. SENIOR UNSECURED NOTES PAYABLE
In May, 1994, the Company issued $100 million principal amount of its
12 3/4 percent Senior Notes due May 1, 2002 (the "Notes") including 790,000
warrants to purchase the Company's common stock at a price of $3.30 per share.
Interest is due and payable on May 1 and November 1 of each year. The Notes are
fully and unconditionally guaranteed by certain of the Company's subsidiaries
(See Note 14). Prior to May 1, 1997, the Company may use proceeds of one or more
public equity offerings to redeem up to 35% of the aggregate principal amount of
the Notes at 112.75% of their principal amount, plus accrued interest. The Notes
will not otherwise be redeemable at the option of the Company prior to May 1,
1999. Thereafter, the Notes will be redeemable at 106.375% of their principal
amount, declining ratably to par on and after May 1, 2001, plus accrued
interest.
36
<PAGE> 38
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company will be obligated to make an offer to purchase 10% of the
outstanding principal balance of the Notes at a purchase price equal to 100% of
the principal amount, plus accrued interest, in the event there are two
consecutive fiscal quarters that the Company's Consolidated Tangible Net Worth
(as defined) is less than $37 million. In addition, the Notes contain other
restrictive covenants, which, among other things, limit the incurrence of
additional indebtedness; the payment of dividends; the ability to create liens;
make restricted payments (as defined); and the ability to enter into certain
transactions with affiliates. As of February 28, 1995 the Company was in
compliance with these covenants.
At February 28, 1995, the Company's unamortized bond issuance cost was $5.1
million, net of accumulated amortization of $527,000, which is being amortized
over the term of the notes utilizing the interest method. Unamortized bond
issuance cost is included in prepaid and other assets.
8. INCOME TAXES
The expense (benefit) for income taxes consists of the following for the
years ended February 28, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ----- ------
<S> <C> <C> <C>
Current
Federal........................................ $ -- $ 100 $1,026
State.......................................... (1,792) 210 230
------- ----- ------
(1,792) 310 1,256
------- ----- ------
Deferred
Federal........................................ -- (100) (350)
State.......................................... -- (210) (33)
------- ----- ------
-- (310) (383)
------- ----- ------
Provision for income taxes on income before
extraordinary items............................ $(1,792) $ 0 $ 873
======= ===== ======
</TABLE>
The deferred income tax benefit at February 28, 1994 and 1995 results from
the following temporary differences between financial and tax reporting (in
thousands):
<TABLE>
<CAPTION>
1994 1995
----- -------
<S> <C> <C>
Accrued expenses.......................................... $ (3) $ 143
Construction period expenses.............................. 9 576
Utilization of NOL carryforward........................... (265) (1,037)
Decrease in valuation allowance........................... (53) --
State taxes (net of federal effect)....................... 2 (2)
Depreciation.............................................. -- (63)
----- -------
$(310) $ (383)
===== =======
</TABLE>
37
<PAGE> 39
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the deferred income taxes are:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Depreciation............................................. $ 140 $ 77
Accrued expenses......................................... 1,234 1,377
Construction period expenses............................. 1,009 1,585
NOL carryforward......................................... 1,037 --
State taxes (net of federal offset)...................... 2 --
Valuation allowance...................................... (3,422) (3,039)
------- -------
$ 0 $ 0
======= =======
</TABLE>
The income tax benefit for the year ended February 28, 1993, represents a
refund received during the year for state income taxes paid in a previous year.
Associated interest income of $1,358,000 was also received in connection with
this refund and is included in interest and other income in the 1993
consolidated statement of operations.
A reconciliation of income taxes (benefit) computed at the federal
statutory rate and the income tax benefit for financial reporting purposes for
the years ended February 28, 1993, 1994 and 1995, is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--- --- ---
<S> <C> <C> <C>
Income taxes at statutory rate......................... (34)% 34% 34%
State income taxes, net of federal tax benefit......... (2) 6 3
Loss for which no benefit is allowed................... 34 -- --
Utilization of deferred tax assets..................... -- (39) (5)
Increase in valuation allowance........................ -- (1)
--- --- ---
(2)% 0% 32%
=== === ===
</TABLE>
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), effective for fiscal years beginning after December 15, 1992. The
Company adopted SFAS No. 109 on March 1, 1993. Under SFAS No. 109, deferred
taxes are based on a balance sheet approach whereby the ending deferred
liability and/or asset is determined by applying the enacted tax rates to the
difference between the tax basis of assets and liabilities and their basis for
financial reporting purposes.
9. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based upon the weighted average
number of common shares outstanding of 13,980,000, 14,488,000 and 14,995,000 at
February 28, 1993, 1994 and 1995, respectively. The effect of stock options and
warrants were antidilutive in all years presented, and has not been included in
the computation of net income (loss) per common share.
10. STOCK OPTION PLAN
In April 1987, the Company adopted its 1987 Stock Option Plan (the "1987
Plan"), covering options to purchase a maximum of 1,350,000 shares of its common
stock. On October 5, 1993, the 1987 Plan was amended to provide that the maximum
number of shares that may be issued under the 1987 Plan be reduced to 5,000
shares. Effective February 28, 1995, the Board of the Corporation approved the
1995 Stock Incentive Plan (the "1995 Plan"), which supersedes the 1987 Stock
Option Plan in its entirety. The 1995 Plan permits a committee designated by the
Board of the Corporation to make awards to present and former key employees and
directors of the Company and its subsidiaries. Subject to various restrictions,
awards could be in the form
38
<PAGE> 40
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of stock options, restricted or unrestricted stock, stock appreciation rights or
a combination of the above. The maximum number of shares or share equivalents
that may be awarded under the 1995 Plan is 1,500,000. No awards have been made
under the 1995 Plan.
Stock option activity under the 1987 plan is as follows for the years ended
February 28, 1993, 1994 and 1995, respectively.
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Exercised........................................ -- -- --
Expired or forfeited............................. 109,060 488,925 --
Outstanding at end of year....................... 488,925 -- --
Exercisable at end of year....................... 488,925 -- --
Available for grant at end of year............... 254,300 5,000 5,000
Exercise price of options outstanding............ $ 6.00 $ -- $ --
</TABLE>
11. RELATED PARTY TRANSACTIONS
During fiscal 1995, the Company reimbursed CHH II, Inc., a corporation
controlled by the chairman of the board of the Company, for $43,000 in expenses
incurred in connection with the acquisition by the Company of an aircraft.
During fiscal 1994, the Company reimbursed CPH for expenses aggregating
$150,000 in connection with the acquisition of Durable.
During fiscal 1993, the Company acquired an unimproved lot from CPH. The
acquisition cost of the lot was $1,550,000 and the Company issued a note payable
to CPH in the amount of $1,050,000. This note was subsequently assigned by CPH
to the chairman of the board of the Company. All principal and accrued interest
were paid by the Company in full at February 28, 1993. During fiscal 1994, this
lot was sold for $1,710,000.
A key employee of the Company purchased a home from the Company for
$368,000 in fiscal 1993. The Company carried back a second trust deed in the
amount of $36,800. The note, which the Company believes is on market terms, is
due and payable in November 1997.
An officer of the Company purchased a home from the Company in fiscal year
1994 for $425,000 (the market price at that time).
Commitment fees totaling $1,033,000 and $667,000 were paid to joint venture
partners and capitalized to the real estate being developed during the period
August 12, 1992 (inception) through February 28, 1994 and during fiscal 1995,
respectively. These capitalized fees are included in cost of sales as the units
are sold.
The Company has made advances to unconsolidated joint ventures for
construction. The balance of advances at February 28, 1995 was $970,000. This
amount is included in accounts and notes receivable on the consolidated balance
sheet.
The Company contributed land and improvements valued at $9,351,000 to an
unconsolidated joint venture with IHP and received a distribution of cash in the
amount of $8,226,000.
12. COMMITMENTS AND CONTINGENCIES
General
Approximately $23,185,000 and $37,470,000 of performance bonds were
outstanding at February 28, 1994 and 1995, respectively. The beneficiaries of
these bonds are certain municipalities. The Company has
39
<PAGE> 41
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
outstanding letters of credit totaling $552,000 and $472,000 to ensure
performance on various agreements at February 28, 1994 and 1995, respectively.
The Company has pledged a certificate of deposit in a like amount as collateral
for the obligation under the letter of credit which is included in restricted
cash.
The Company has entered into agreements to lease certain office equipment
and facilities under operating leases which expire at various dates through
fiscal year 1999. The facility leases generally provide that the Company shall
pay property taxes, insurance and other items. Minimum payments under
noncancelable leases at February 28, 1995, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING FEBRUARY 28 (IN THOUSANDS):
----------------------------------------------
<S> <C>
1996........................... $240
1997........................... 97
1998........................... 82
1999........................... 17
----
$436
====
</TABLE>
Total rent expense was $599,000, $629,000 and $864,000 for the years ended
February 28, 1993, 1994 and 1995, respectively.
As discussed in Notes 1 and 4, the Company is a general partner in several
joint venture partnerships. As a general partner, the Company is liable for all
debts of the partnerships without limitation to the respective partnership
interest.
Dividends
No dividends were declared or paid for the years ended February 28, 1993,
1994, or 1995.
Legal Proceedings
On September 5, 1990, the Bayridge Park Homeowners Association filed suit
in Orange County Superior Court against Bayridge (a joint venture comprised of
the Company and DSL Service Company) alleging the existence of certain
construction defects with respect to the Bayridge Park Condominiums in Newport
Beach, California. This lawsuit was settled in fiscal 1995.
On December 17 and 22, 1994, in San Diego Superior Court, a jury delivered
a verdict of $2.2 million compensatory and $1.0 million punitive damages against
the Company in connection with certain sales activities occurring in 1989 and
1990, at least two years prior to the Acquisition by current management in 1992.
The plaintiffs, the owners of 39 lots in the Penasquitos Westridge development
in San Diego County, a project which the Company developed starting in 1988,
alleged that sales representatives promised that prices would not be reduced and
that the sales prices were in fact reduced shortly after the owners purchased
their homes. On January 26, 1995, the company and plaintiffs agreed to settle
the lawsuit for $2.3 million. This amount (net of tax benefits and a previously
established reserve of $350,000) was charged against the Company's third quarter
earnings resulting in a net loss for that quarter.
The Company is also involved in routine litigation arising in the ordinary
course of its business. While the outcome of litigation cannot be predicted with
certainty, and while certain of these matters involve substantial amounts, the
Company believes that none of the pending litigation has a material adverse
effect on the Company's financial position or the results of operations.
40
<PAGE> 42
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents -- The carrying amount is a reasonable estimate
of fair value. These assets primarily consist of short term investments and
demand deposits.
Notes Payable to Banks -- These notes payable mature in two to three
years. The rates of interest paid on the notes approximate the current
rates available for secured real estate financing with similar terms and
maturities.
Promissory Note Payable -- This note is payable based on performance
of the entity acquired.
Trust Deed Notes Payable -- These notes are primarily for purchase
money deeds of trust on land acquired. These notes generally have
maturities ranging from one to two years. The rates of interest paid on
these notes approximate the current rates available for secured real estate
financing with similar terms and maturities.
Senior Unsecured Notes Payable Due 2002 -- This issue is not publicly
traded on a major exchange. Consequently, the fair value of this issue is
based on a trade closest to the year ended February 28, 1995.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT FEBRUARY 28,
--------------------------------------------
1994 1995
-------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents..................... $ 11,484 $11,484 $23,822 $23,822
Financial Liabilities:
Notes payable to banks................... $ 21,571 $19,071 $22,013 $22,013
Trust deed notes payable................. 13,138 13,138 4,878 4,878
Senior unsecured notes payable........... -- -- 100,000 82,000
Promissory note payable.................. -- -- 2,500 2,500
</TABLE>
41
<PAGE> 43
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the offering in fiscal 1995 of the Senior Unsecured
Notes (the "Offering"), the Company and certain of its wholly-owned subsidiaries
(Guarantors) jointly, severally, fully and unconditionally guaranteed such
notes. Supplemental condensed combined financial information of the Company,
Guarantors and non-guarantors is presented as follows. As discussed in Note 3 in
Notes To Supplemental Guarantor Information, these financial statements are
prepared using the equity method of accounting for the Company's and the
Guarantors' investments in subsidiaries and partnerships. This supplemental
financial information should be read in conjunction with the Consolidated
Financial Statements.
AS OF AND FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
J.M. PETERS NON- TOTAL
COMPANY, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash............................ $ 5,112 $ 3,412 $13,877 $ -- $ 22,401
Inventories..................... 119,283 26,084 22,440 167,807
Investment in Partnerships and
subsidiaries(3)............... 22,199 2,672 -- (22,922) 1,949
Intercompany advances........... 25,678 -- -- (25,678) --
Other........................... 15,954 692 6,696 (324) 23,018
--------- ------- ------- --------- --------
Total Assets............... $ 188,226 $32,860 $43,013 $ (48,924) $215,175
========= ======= ======= ========= ========
Accounts payable and accrued
liabilities................... $ 9,689 $ 7,619 $ 4,532 $ (324) $ 21,516
Intercompany advances........... -- 8,167 17,511 (25,678) --
Notes payable................... 117,793 3,609 7,989 -- 129,391
Minority interest............... -- -- -- 3,524 3,524
Shareholders' equity............ 60,744 13,465 12,981 (26,446) 60,744
--------- ------- ------- --------- --------
Total Liabilities and
Equity................... $ 188,226 $32,860 $43,013 $ (48,924) $215,175
========= ======= ======= ========= ========
STATEMENT OF OPERATIONS
Revenues:
Sales of homes and land....... $ 18,722 $35,375 $85,026 $ -- $139,123
Interest and other income,
net........................ 1,036 2,282 1,104 (449) 3,973
Equity in income of
partnerships and
subsidiaries(3)............ 6,735 4,499 -- (11,241) (7)
--------- ------- ------- --------- --------
Total Revenues............. 26,493 42,156 86,130 (11,690) 143,089
--------- ------- ------- --------- --------
Cost of homes and land.......... 15,474 29,628 67,050 112,152
Selling, general and
administrative................ 8,279 6,050 8,434 (449) 22,314
Interest........................ -- -- -- -- --
Minority interest............... -- -- -- 5,883 5,883
--------- ------- ------- --------- --------
Income (loss) before provision
(benefit) for income taxes and
extraordinary gain............ 2,740 6,478 10,646 (17,124) 2,740
Provision (benefit) for income
taxes......................... 873 2,182 89 (2,271) 873
--------- ------- ------- --------- --------
Income (loss) before
extraordinary gain............ 1,867 4,296 10,557 (14,853) 1,867
Extraordinary gain, Net......... 1,782 -- -- -- 1,782
--------- ------- ------- --------- --------
Net Income (loss)..... $ 3,649 $ 4,296 $10,557 $ (14,853) $ 3,649
========= ======= ======= ========= ========
</TABLE>
42
<PAGE> 44
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
J.M. PETERS NON- TOTAL
COMPANY, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
Net cash from (used in)
operating activities.......... $ (81,810) $ 1,692 $12,265 $ 10,435 $(57,418)
Net cash from (used in)
investing activities.......... (11,569) 7 -- -- (11,562)
Net cash from (used in)
financing activities..........
Net borrowings (payments)
from notes payable....... (2,623) (1,306) (90) -- (4,019)
Senior unsecured notes
payable.................. 95,834 -- -- -- 95,834
Minority interest in joint
ventures................. -- -- -- (10,435) (10,435)
--------- ------- ------- --------- --------
Net cash from (used
in) financing
activities.......... 93,211 (1,306) (90) (10,435) 81,380
--------- ------- ------- --------- --------
Net increase (decrease) in
cash.......................... (168) 393 12,175 -- 12,400
Cash -- beginning of period..... 5,280 3,019 1,702 -- 10,001
--------- ------- ------- --------- --------
Cash -- end of period........... $ 5,112 $ 3,412 $13,877 $ -- $ 22,401
========= ======= ======= ========= ========
</TABLE>
43
<PAGE> 45
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEAR ENDED FEBRUARY 28, 1994 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
J.M. PETERS NON- TOTAL
COMPANY, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash............................ $ 5,280 $ 3,019 $ 1,702 $ -- $ 10,001
Inventories..................... 64,086 13,097 28,517 (4) 105,696
Investment in Partnerships and
subsidiaries(3)............... 9,798 2,782 -- (12,580) --
Other........................... 4,753 1,795 1,345 (1,636) 6,257
------- ------- ------- --------- --------
Total Assets.......... $83,917 $20,693 $31,564 $ (14,220) $121,954
======= ======= ======= ========= ========
Accounts Payable and Accrued
Liabilities................... $ 4,359 $ 6,428 $ 7,738 (833) $ 17,692
Notes Payable................... 23,964 4,915 5,830 34,709
Minority Interest............... -- -- -- 13,959 13,959
Shareholders' Equity............ 55,594 9,350 17,996 (27,346) 55,594
------- ------- ------- --------- --------
Total Liabilities &
Equity.............. $83,917 $20,693 $31,564 $ (14,220) $121,954
======= ======= ======= ========= ========
STATEMENT OF OPERATIONS
Revenues:
Sales of homes and land....... $20,166 $10,964 $57,010 $ -- $ 88,140
Interest and other income,
net........................ 897 1,451 578 -- 2,926
Equity in income of
partnerships and
subsidiaries(3)............ 5,121 2,669 -- (7,790) --
------- ------- ------- --------- --------
Total Revenues........ 26,184 15,084 57,588 (7,790) 91,066
------- ------- ------- --------- --------
Cost of homes and land.......... 16,462 6,990 49,896 -- 73,348
Selling, general and
administrative................ 8,658 3,274 390 -- 12,322
Interest........................ 418 -- -- -- 418
Minority Interest............... -- -- 4,332 -- 4,332
------- ------- ------- --------- --------
Income (loss) before
provision (benefit) for
income taxes and
extraordinary gain....... 646 4,820 2,970 (7,790) 646
Provision (benefit) for income
taxes......................... -- -- -- -- --
------- ------- ------- --------- --------
Income (loss) before
extraordinary gain............ 646 4,820 2,970 (7,790) 646
Extraordinary Gain.............. 4,268 -- -- -- 4,268
------- ------- ------- --------- --------
Net Income (loss)..... $ 4,914 $ 4,820 $ 2,970 $ (7,790) $ 4,914
======= ======= ======= ========= ========
</TABLE>
44
<PAGE> 46
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
J.M. PETERS NON- TOTAL
COMPANY, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
Net cash from (used in)
Operating activities.......... $(1,650) $ 4,262 $(2,550) $ 7,802 $ 7,864
Net cash from (used in)
Investing activities
Acquisition of Durable........ (1,500) -- -- -- (1,500)
Other......................... (111) -- (2) -- (113)
------- ------- ------- --------- --------
Net cash from (used
in) Investment
activities.......... (1,611) -- (2) -- (1,613)
------- ------- ------- --------- --------
Net cash from (used in)
Financing activities
Net borrowings (payments) from
construction loans......... 1,593 (1,608) 3,815 -- 3,800
Payments to parent company.... (1,702) -- -- -- (1,702)
Minority interest in joint
ventures................... -- -- -- (7,802) (7,802)
------- ------- ------- --------- --------
Net cash from (used
in) Financing
activities.......... (109) (1,608) 3,815 (7,802) (5,704)
------- ------- ------- --------- --------
Net increase (decrease) in
cash.......................... (3,370) 2,654 1,263 -- 547
Cash--beginning of period....... 8,650 365 439 -- 9,454
------- ------- ------- --------- --------
Cash--end of period............. $ 5,280 $ 3,019 $ 1,702 $ -- $ 10,001
======= ======= ======= ========= ========
</TABLE>
See notes to supplemental guarantor information.
45
<PAGE> 47
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEAR ENDED FEBRUARY 28, 1993 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
J.M. PETERS
COMPANY, NON- TOTAL
INC.(5) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
-------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET
Cash...................................... $ 9,015 $ 439 $ -- $ 9,454
Inventories............................... 79,583 20,053 -- 99,636
Investments in partnerships and
subsidiaries............................ 443 -- (443) --
Other..................................... 6,100 361 -- 6,461
-------- -------- -------- ---------
Total Assets.................... $ 95,141 $ 20,853 $ (443) $ 115,551
======== ======== ======== =========
Accounts Payable and Accrued
Liabilities............................. $ 6,991 $ 763 $ -- $ 7,754
Notes Payable............................. 40,135 -- -- 40,135
Minority Interest......................... -- -- 19,647 19,647
Shareholders' Equity...................... 48,015 20,090 (20,090) 48,015
-------- -------- -------- ---------
Total Liabilities & Equity...... $ 95,141 $ 20,853 $ (443) $ 115,551
======== ======== ======== =========
STATEMENT OF OPERATIONS
Revenues:
Sales of homes and land................. $ 72,148 $ -- $ -- $ 72,148
Interest and other income, net.......... 3,470 84 -- 3,554
Equity in income of partnerships and
subsidiaries(3)...................... (185) -- 185 --
-------- -------- -------- ---------
Total Revenues.................. 75,433 84 185 75,702
-------- -------- -------- ---------
Cost of homes and land.................... 68,257 -- -- 68,257
Adjustments to carrying value of real
estate projects and investments in
partnerships............................ 75,476 -- -- 75,476
Selling, general and administrative....... 9,495 269 -- 9,764
Interest.................................. 8,538 -- -- 8,538
-------- -------- -------- ---------
Income (loss) before provision for
(benefit from) income taxes............. (86,333) (185) 185 (86,333)
Provision (benefit) for income taxes...... (1,792) -- -- (1,792)
-------- -------- -------- ---------
Net income (loss)............... $(84,541) $ (185) $ 185 $ (84,541)
======== ======== ======== =========
STATEMENT OF CASH FLOWS
Net cash from Operating activities........ $ 57,666 $ (35) $(19,647) $ 37,984
Net cash from Investing activities........ (195) -- -- (195)
Net cash from (used in) Financing
activities
Net payments on construction loans...... (22,401) -- -- (22,401)
Net payments to parent company.......... (44,273) -- -- (44,273)
Proceeds from partners.................. -- -- 19,647 19,647
-------- -------- -------- ---------
Net cash from (used in)
Financing activities.......... (66,674) (35) 19,647 (47,027)
-------- -------- -------- ---------
Net (decrease) in cash.................... (9,203) (35) -- (9,238)
Cash--beginning of period................. 18,218 474 -- 18,692
-------- -------- -------- ---------
Cash--end of period....................... $ 9,015 $ 439 $ -- $ 9,454
======== ======== ======== =========
</TABLE>
46
<PAGE> 48
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO SUPPLEMENTAL GUARANTOR INFORMATION.
(1) Guarantors include Durable Homes, Inc., J.M. Peters Nevada, Inc., and
Peters Ranchland Company, Inc., all wholly-owned subsidiaries of J.M.
Peters Company, Inc.
(2) The non-guarantors include:
(a) The limited partnerships in which Peters Ranchland Company, Inc.,
is general partner:
- Ranchland Alicante Development, L.P.
- Ranchland Montilla Development, L.P.
- Ranchland Fairway Estates Development, L.P.
- Ranchland Portola Development, L.P.
(b) The limited partnerships in which J.M. Peters Company, Inc., is a
general partner:
- J.M.P. Canyon Estates, L.P.
- J.M.P. Harbor View, L.P.
(c) The limited partnerships in which Durable Homes, Inc., is general
partner:
- Las Hadas, L.P.
- Plateau Venture, L.P.
- Portraits Venture, L.P.
- Taos Estates, L.P.
(d) The wholly owned subsidiaries of J.M. Peters Company, Inc.:
- Newport Design Center, Inc.
- Capital Pacific Communities, Inc.
- Durable Homes of California, Inc.
- J.M. Peters, Arizona, Inc.
- Capital Pacific Mortgage, Inc.
- Clark Wilson Homes, Inc. (will become a guarantor in fiscal year
1996)
- Fairway Financial Corporation
(e) Fifty percent owned entities of J.M. Peters Company, Inc.:
- Bayhill Escrow, Inc.
(3) Investments in partnerships and subsidiaries are accounted for by the
Company and the Guarantors on the equity method for purposes of the
supplemental combining presentation.
(4) The elimination entries eliminate investments in subsidiaries,
partnerships and intercompany balances.
(5) Includes immaterial accounts of Peters Ranchland Company, a
wholly-owned subsidiary, as follows (in thousands):
<TABLE>
<S> <C>
Total assets.................................................. $508
====
Total shareholder's equity.................................... $ 21
====
Net income.................................................... $ 21
====
</TABLE>
47
<PAGE> 49
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended February 28, 1994
and 1995 is as follows (in thousands except for per share data):
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1995:
Total revenues............................... $32,770 $ 33,252 $45,907 $31,160 $143,089
Gross profit on sales of homes and land...... 6,375 6,042 8,374 6,180 26,971
Extraordinary items, net..................... 3,075 -- (1,293) -- 1,782
Net income (loss)............................ $ 3,942 $ 356 $ (771) $ 122 $ 3,649
======= ======== ======= ======= ========
Net income (loss) per common share
Before extraordinary items.............. $ .06 $ .02 $ (.05) $ .09 $ .12
Extraordinary items..................... .20 -- -- (.08) .12
------- -------- ------- ------- --------
Net income (loss)....................... $ .26 $ .02 $ (.05) $ .01 $ .24
======= ======== ======= ======= ========
1994:
Total revenues............................... $ 4,004 $ 8,250 $37,343 $41,469 $ 91,066
Gross profit on sales of homes and land...... (157) (26) 6,750 8,225 14,792
Extraordinary gain........................... -- -- 4,268 -- 4,268
Net income (loss)............................ $(1,951) $ (1,557) $ 6,123 $ 2,299 $ 4,914
======= ======== ======= ======= ========
Net income (loss) per common share
Before extraordinary gain............... $ (0.14) $ (.11) $ 0.12 $ .15 $ .04
Extraordinary gain...................... -- -- .29 -- .30
------- -------- ------- ------- --------
Net income (loss)....................... $ (0.14) $ (.11) $ 0.41 $ .15 $ .34
======= ======== ======= ======= ========
</TABLE>
48
<PAGE> 50
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to the
Company's definitive proxy statement filed with the Commission on June 16, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement filed with the Commission on June 16, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement filed with the Commission on June 16, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
Company's definitive proxy statement filed with the Commission on June 16, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements. The following Consolidated Financial
Statements, together with the Notes thereto and Independent
Auditors' Report thereon, are included in Part II, Item 8 of this
report.
<TABLE>
<S> <C>
J.M. PETERS COMPANY, INC.
Reports of Independent Public Accountants................................
Consolidated Balance Sheets as of February 28, 1994 and 1995.............
Consolidated Statements of Operations for the years ended February 28,
1993, February 28, 1994 and February 28, 1995.........................
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1993, February 28, 1994 and February 28, 1995............
Consolidated Statements of Cash Flows for the years ended February 28,
1993, February 28, 1994 and February 28, 1995.........................
Notes to Consolidated Financial Statements...............................
</TABLE>
2. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
3.1 Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit
3.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994).
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1994).
4.1 See the Articles of Incorporation and Bylaws of the Registrant (Exhibits 3.1 and
3.2) and the Indenture and related agreements (Exhibits 10.1-10.4).
10.1 Indenture agreement by and between J.M. Peters Company, Inc., as Issuer; Durable
Homes, Inc., J.M. Peters Nevada, Inc., and Peters Ranchland, Inc., as Guarantors,
and United States Trust Company of New York, as Trustee, dated as of May 13, 1994
(incorporated by reference to Exhibit 10.15 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1994).
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.2 Warrant Agreement by and between J.M. Peters Company, Inc., and United States
Trust Company of New York, Warrant Agent, dated as of May 13, 1994 (Incorporated
by reference to Exhibit 10.16 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1994).
10.3 Warrant Registration Rights Agreement by and between J.M. Peters Company, Inc.,
and Morgan Stanley & Co. Incorporated dated as of May 13, 1994 (Incorporated by
reference to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1994).
10.4 Notes Registration Rights Agreement by and between J.M. Peters Company, Inc., and
Morgan Stanley & Co. Incorporated dated as of May 13, 1994 (Incorporated by
reference to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1994).
*21.1 Subsidiaries of the Registrant.
*23 Consent of Kenneth Leventhal & Company.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
(b) Reports on Form 8-K.
On December 1, 1994, Registrant filed a report on Form 8-K dated November
30, 1994. Items reported on this Form 8-K were:
-- Item 2. Acquisition or Disposition of Assets.
-- Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
50
<PAGE> 52
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, in the City of Newport
Beach, State of California, on December 29, 1995.
CAPITAL PACIFIC HOLDINGS, INC.
(formerly known as
J.M. PETERS COMPANY, INC.)
By /s/ HADI MAKARECHIAN*
-----------------------------------
Hadi Makarechian
Chairman of the Board and
Chief Executive Officer
Date: December 29, 1995
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Dale Dowers and Anthony M. Laughlin, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for each person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments to
this report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully and to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue of the powers herein granted.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- --------------------------- --------------------
<C> <S> <C>
/s/ HADI MAKARECHIAN* Chairman of the Board December 29, 1995
------------------------------------- and Chief Executive
Hadi Makarechian Officer
(Principal Executive
Officer)
/s/ DALE DOWERS Director, President and December 29, 1995
------------------------------------- Chief Operating Officer
Dale Dowers
/s/ ANTHONY M. LAUGHLIN Vice President, Chief December 29, 1995
------------------------------------- Financial
Anthony M. Laughlin Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ WILLIAM FUNK* Director December 29, 1995
-------------------------------------
William Funk
Director December 29, 1995
-------------------------------------
Allan L. Acree
/s/ KARL KAISER* Director December 29, 1995
-------------------------------------
Karl Kaiser
</TABLE>
- ---------------
* Executed by Dale Dowers as substitute attorney-in-fact.
51
