<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-09911
------------------------
CAPITAL PACIFIC HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-2956559
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4100 MACARTHUR BLVD., SUITE 200, NEWPORT 92660
BEACH, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
------------------------
(949) 622-8400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS AND TITLE OF SHARES OUTSTANDING AS OF
CAPITAL STOCK JULY 1, 1999
------------------ ------------------------
<S> <C>
Common Stock, $.10 Par Value................................ 13,947,511
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CAPITAL PACIFIC HOLDINGS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
Part I -- Financial Information:
Item 1 -- Financial Statements
Consolidated Balance Sheets -- May 31, 1999 and February 28,
1999........................................................ 3
Consolidated Statements of Income for the Three Months Ended
May 31, 1999 and 1998....................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended May 31, 1999 and 1998................................. 5
Notes to Consolidated Financial Statements.................. 6 - 9
Item 2 -- Management's Discussion and Analysis of Results of
Operations and Financial Condition......................... 10 - 14
Part II -- Other Information:
Item 6 -- Exhibits and Reports on Form 8-K........................... 15
</TABLE>
2
<PAGE> 3
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 2,470 $ 5,782
Restricted cash............................................. 1,113 1,029
Accounts and notes receivable............................... 15,364 12,533
Real estate projects........................................ 261,484 261,333
Property, plant and equipment............................... 8,833 9,014
Investment in and advances to unconsolidated joint
ventures.................................................. 17,448 23,301
Prepaid expenses and other assets........................... 10,608 11,771
--------- ---------
Total assets...................................... $ 317,320 $ 324,763
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 20,828 $ 37,888
Notes payable............................................... 99,719 91,489
Senior unsecured notes payable.............................. 100,000 100,000
--------- ---------
Total liabilities................................. 220,547 229,377
--------- ---------
Minority Interest........................................... 30,771 30,032
--------- ---------
Stockholders' equity:
Common stock, par value $.10 per share, 30,000,000 shares
authorized; 13,947,511 and 14,027,911 shares issued and
outstanding, respectively.............................. 1,500 1,500
Additional paid-in capital................................ 211,888 211,888
Accumulated deficit....................................... (144,605) (145,425)
Treasury stock............................................ (2,781) (2,609)
--------- ---------
Total stockholders' equity........................ 66,002 65,354
--------- ---------
Total liabilities and stockholders' equity........ $ 317,320 $ 324,763
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Sales of homes and land..................................... $61,974 $28,292
Cost of sales............................................... 50,670 22,766
------- -------
Gross margin................................................ 11,304 5,526
Income from unconsolidated joint ventures................... 1,036 1,393
Selling, general and administrative expenses................ (6,220) (4,546)
Interest expense............................................ (4,501) (2,087)
------- -------
Income from operations.................................... 1,619 286
Interest and other income, net.............................. 13 322
Minority Interest........................................... (486) (166)
------- -------
Income before income taxes................................ 1,146 442
Provision for income taxes.................................. 326 102
------- -------
Net income................................................ $ 820 $ 340
======= =======
Net income per common share -- basic and diluted.......... $ 0.06 $ 0.02
======= =======
Weighted average number of common shares -- basic......... 13,999 14,306
======= =======
Weighted average number of common shares -- diluted....... 14,016 14,447
======= =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MAY 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 820 $ 340
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in restricted cash......................... (84) (279)
Depreciation and amortization..................... 562 428
Increase in real estate projects.................. (151) (14,862)
(Increase) decrease in receivables, prepaid
expenses and other assets....................... (1,605) 13,735
Decrease in accounts payable and accrued
liabilities..................................... (17,060) (1,816)
Minority interest................................. 486 166
-------- --------
Net cash provided by (used in) operating
activities...................................... (17,032) (2,288)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (191) (112)
Distributions to minority interest........................ -- (410)
Decrease (increase) in investment in and advances to
unconsolidated joint ventures.......................... 5,853 (865)
-------- --------
Net cash provided by (used in) investing
activities...................................... 5,662 (1,387)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on notes payable, net............... 8,230 4,807
Repurchase of common stock................................ (172) --
-------- --------
Net cash provided by (used in) financing
activities...................................... 8,058 4,807
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,312) 1,132
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 5,782 4,328
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,470 $ 5,460
======== ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements, and notes thereto, included in the Form 10-K for the fiscal year
ended February 28, 1999, of Capital Pacific Holdings, Inc. (the "Company"). In
the opinion of management, the financial statements presented herein include all
adjustments (which are solely of a normal recurring nature) necessary to present
fairly the Company's financial position and results of operations. The results
of operations for the three month period ended May 31, 1999, are not necessarily
indicative of the results that may be expected for the year ending February 29,
2000. The consolidated financial statements include the accounts of the Company,
wholly owned subsidiaries and certain majority owned joint ventures, as well as
the accounts of Capital Pacific Holdings, LLC ("CPH LLC") of which the Company
owns a majority interest. The accompanying consolidated balance sheets (See Note
3), include the capital accounts of CPH LLC totaling $93 million, $30 million of
which is required to be presented as minority interest. All other investments
are accounted for on the equity method. All significant intercompany balances
and transactions have been eliminated in consolidation.
2. RECLASSIFICATIONS
Certain items in prior period financial statements have been reclassified
in order to conform with current year presentation.
3. COMPANY ORGANIZATION AND OPERATIONS
The Company is a regional builder and developer with operations in selected
metropolitan areas of Southern California, Nevada, Texas, Arizona and Colorado.
The Company's principal business activity is to develop and build projects
including the sale of single-family homes targeted to entry-level, move-up and
luxury buyers. The Company has recently expanded its operations to include the
acquisition and development of commercial and mixed-use projects, as well as
ownership of existing commercial properties through non-majority investments in
limited liability companies.
Effective as of October 1, 1997, the Company consummated an equity and
restructuring transaction whereby the Company and certain of its subsidiaries
transferred to a newly formed limited liability company known as Capital Pacific
Holdings, LLC ("CPH LLC") substantially all of their respective assets and CPH
LLC assumed all the liabilities of the Company and its subsidiaries. Immediately
thereafter, a newly formed unaffiliated investment company, California Housing
Finance, L.P. ("CHF"), contributed to the capital of CPH LLC the sum of $30
million in cash and acquired a 32.07% interest in CPH LLC. The Company, together
with its subsidiaries, has a 67.93% interest in CPH LLC. Subject to adjustment
and exceptions under certain circumstances, CHF has the same interest in all
future business of the Company, all of which will be conducted either within CPH
LLC or through project-specific entities. At May 31, 1999, CPH LLC had $272
million in assets and a net worth of $93 million. In addition, the Company has
interests in unconsolidated joint ventures which have total assets of $288
million and a combined net worth of $248 million at May 31, 1999. The Company is
the sole managing member of CPH LLC. The Company maintains certain licenses and
other assets as is necessary to fulfill its obligations as managing member. The
Company and its subsidiaries perform its management functions for CPH LLC
pursuant to management agreements, which include provisions for the
reimbursement of Company and subsidiary costs, a management fee and
indemnification by CPH LLC. In addition, the Company is a managing member of
certain project-specific entities.
References to the Company are, unless the context indicates otherwise, also
references to CPH LLC. At the current time, all material financing transactions
and arrangements are incurred either by CPH LLC or by project specific entities.
6
<PAGE> 7
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company is a general partner or a direct or indirect managing member
and has a 50 percent or less ownership in 13 unconsolidated entities at May 31,
1999. The Company's investments in and advances to unconsolidated entities are
as follows at May 31, 1999 and February 28, 1999 (in thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
------- ------------
<S> <C> <C>
JMP Canyon Estates, L.P................................ $ 194 $ 207
JMP Harbor View, L.P................................... 627 677
Grand Coto Estates, L.P................................ 710 3,753
M.P.E. Partners, L.P................................... 1,765 2,370
RPV Associates, LLC.................................... 1,996 1,644
CPH Dana Point, LLC.................................... 361 793
CPH Monarch Beach, LLC................................. 1,227 1,205
CPH Resorts I, LLC..................................... 2,905 4,268
CPH Vista Palisades, LLC............................... 255 637
Atlanta Huntington Beach, LLC.......................... 4,724 5,195
CPH Dos Pueblos, LLC................................... 2,445 2,086
CPH Airport Office Building, LLC....................... 29 55
CPH Redhill Office Building, LLC....................... 210 411
------- -------
$17,448 $23,301
======= =======
</TABLE>
The Company's ownership interests in the above entities vary. Generally,
the Company receives a percentage of earnings after a preferred return on
invested capital is provided. Typically, the majority of capital is provided by
capital partners. The Company is typically a general partner or managing member
in each of the above entities and is the managing entity pursuant to the terms
of each venture's agreement. The Company's carrying amount in each of the
entities equals the underlying equity, and there are generally no significant
amounts of undistributed earnings. The Company provides for income taxes
currently on its share of distributed and undistributed earnings and losses from
the investments.
The Company uses the equity method of accounting for its investments in
these unconsolidated 50 or less percent-owned entities. The accounting policies
of the entities are substantially the same as those of the Company.
Following is summarized, combined financial information for the
unconsolidated entities at May 31, 1999 and February 28, 1999 and for the three
month periods ended May 31, 1999 and May 31, 1998 (in thousands):
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
-------- ------------
<S> <C> <C>
Cash.................................................. $ 4,573 $ 4,373
Real estate projects.................................. 227,816 215,620
Commercial buildings.................................. 21,092 21,094
Other assets.......................................... 34,633 57,998
-------- --------
$288,114 $299,085
======== ========
</TABLE>
7
<PAGE> 8
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
-------- ------------
<S> <C> <C>
Accounts payable and other liabilities................ $ 25,923 $ 37,113
Notes payable......................................... 13,747 12,100
-------- --------
Equity................................................ 39,670 49,213
-------- --------
The Company......................................... 15,803 10,680
Others.............................................. 232,641 239,192
-------- --------
248,444 249,872
-------- --------
$288,114 $299,085
======== ========
</TABLE>
INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MAY 31, MAY 31,
1999 1998
------- -------
<S> <C> <C>
Sales of homes and land................................... $10,903 $9,640
Interest and other income, net............................ 2,302 12
------- ------
13,205 9,652
Costs and expenses........................................ 11,869 7,232
------- ------
Net income................................................ $ 1,336 $2,420
======= ======
</TABLE>
5. NOTES PAYABLE
Notes payable at May 31, 1999 and February 28, 1999, are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
------- ------------
<S> <C> <C>
Notes payable to banks, including interest varying from
prime to thirteen percent, maturing between July 31,
1999 and July 31, 2001 secured by certain real estate
projects on a non-recourse basis..................... $75,619 $72,602
Notes payable to bank, including interest at prime with
the terms of the commitment reducing commencing
December 1, 1999, secured by certain real estate
projects on a recourse basis......................... 23,310 17,386
Other.................................................. 790 1,501
------- -------
$99,719 $91,489
======= =======
</TABLE>
8
<PAGE> 9
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. NET INCOME PER COMMON SHARE
Effective February 28, 1998, the Company adopted SFAS No. 128. This
statement requires the presentation of both basic and diluted net income per
share for financial statement purposes. Basic net income per share is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share includes the
effect of the potential shares outstanding, including dilutive securities using
the treasury stock method. The table below reconciles the components of the
basic net income per share calculation to diluted net income per share (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
MAY 31, 1999 MAY 31, 1998
----------------------- -----------------------
INCOME SHARES EPS INCOME SHARES EPS
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per Share:
Income available to common stockholders......... $820 13,999 $0.06 $340 14,306 $0.02
Effect of Dilutive Securities:
Warrants........................................ -- -- -- -- 141 --
Stock options................................... -- 17 -- -- -- --
---- ------ ----- ---- ------ -----
Diluted Net Income Per Share:..................... $820 14,016 $0.06 $340 14,447 $0.02
==== ====== ===== ==== ====== =====
</TABLE>
7. COMMON STOCK REPURCHASE PROGRAM
The Company has announced a stock repurchase program whereby up to
1,000,000 additional shares of the Company's outstanding common stock may be
repurchased by CPH LLC. As of May 31, 1999, approximately 358,000 shares have
been repurchased and held by CPH LLC under this program.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Forward-Looking Information is Subject to Risk and Uncertainty
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995 and within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended) that involves risk and uncertainty, including projections and
assumptions regarding the business environment in which the Company operates.
Actual future results and trends may differ materially depending on a variety of
factors, including the Company's successful execution of internal performance
strategies; changes in general national and regional economic conditions, such
as levels of employment, consumer confidence and income, availability to
homebuilders of financing for acquisitions, development and construction,
availability to homebuyers of permanent mortgages, interest rate levels, the
demand for housing and office space; commercial lease rates; supply levels of
land, labor and materials; difficulties in obtaining permits or approvals from
governmental authorities; difficulties in marketing homes; regulatory changes
and weather and other environmental uncertainties; competitive influences; and
the outcome of pending and future legal claims and proceedings.
Results of Operations -- General
As is noted in footnote 1 to the financial statements presented herein, the
Company is reporting its results on a consolidated basis with the results of CPH
LLC. References to the Company in this Item 2 are, unless the context indicates
otherwise, also references to CPH LLC. At the current time, all material
financing transactions and arrangements are incurred either by CPH LLC or by
project-specific entities.
The following table illustrates the actual and pro forma results of the
Company's operations for the three months ended May 31, 1998 and 1999. The pro
forma results reflect the inclusion of the operating results of the Company's
unconsolidated joint ventures, including the portion attributable to the
Company's joint venture partners, and are used throughout this discussion for
comparative purposes wherever the phrase "pro forma" is utilized.
RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MAY 31, 1998 MAY 31, 1999
-------------------- --------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Sales of homes and land........................... $28,292 $37,679 $61,974 $72,877
Cost of sales..................................... 22,766 29,336 50,670 59,778
------- ------- ------- -------
Gross margin.................................... $ 5,526 $ 8,343 $11,304 $13,099
======= ======= ======= =======
</TABLE>
Since the financial restructuring in October 1997, the Company, together
with its financial partners, has invested over $278 million in nine new joint
ventures. The Company typically is required to fund a small percentage of the
capital requirements of each joint venture, which amount is included in
investments in and advances to unconsolidated joint ventures in the Company's
consolidated balance sheets.
10
<PAGE> 11
The following table summarizes the joint ventures established since the
financial restructuring:
<TABLE>
<CAPTION>
DESCRIPTION DATE CLOSED LOCATION TOTAL INVESTED
----------- ----------- -------- --------------
<S> <C> <C> <C>
Residential Development.............. December, 1997 Dana Point, CA $ 13 Million
Residential Development.............. March, 1998 Vista, CA $ 2 Million
Mixed Use............................ April, 1998 Huntington Beach, CA $ 30 Million
Commercial Office Bldg............... April, 1998 Newport Beach, CA $ 4 Million
Commercial Office Bldg(1)............ May, 1998 Costa Mesa, CA $ 9 Million
Commercial Office Bldg(1)............ June, 1998 Laguna Hills, CA $ 8 Million
Residential Development.............. June, 1998 Monarch Beach, CA $ 28 Million
Hotel, Residential and Golf July, 1998 Monarch Beach, CA $129 Million
Operations.........................
Residential Development.............. July, 1998 Newport Beach, CA $ 27 Million
Golf Course Development.............. December, 1998 Santa Barbara, CA $ 13 Million
</TABLE>
- ---------------
(1) Included in a single joint venture.
First Three Months of Fiscal 2000 Compared to First Three Months of Fiscal
1999:
The Company reported net income of $820,000, or $0.06 per share, in the
first quarter of fiscal 2000, as compared to net income of $340,000, or $0.02
per share, in the first quarter of fiscal 1999.
Sales of homes and land including unconsolidated joint ventures were $72.9
million for the first quarter of fiscal 2000 compared to $37.7 million for the
first quarter of fiscal 1999, due to a significant increase in home closings,
offset by a slight decrease in the average sales prices. Total home closings
nearly doubled from 152 in the first quarter of fiscal 1999 to 303 in the first
quarter of fiscal 2000, including 9 and 11 homes, respectively, closed in
unconsolidated joint ventures. The Company's average sales price per unit has
decreased slightly to $238,000 in the first quarter of fiscal 2000 from $245,000
in the first quarter of fiscal 1999 due to a shift in mix between markets.
The Company's actual gross margin on home and lot closings decreased
slightly to 18.2% for the first quarter of fiscal 2000 as compared to 19.5% for
the first quarter of fiscal 1999. The Company's pro forma gross margin of home
and lot closings was 18.0% during the first quarter of fiscal 2000 as compared
to 22.1% for the first quarter of fiscal 1999. The decrease in gross margin was
primarily due to a shift in the mix of home closings between quarters, primarily
along geographical lines
Selling, general and administrative expense of $6.2 million for the first
quarter of fiscal 2000 increased $1.7 million or 36.8% as compared to the first
quarter of fiscal 1999. As a percentage of revenue, selling, general and
administrative expense decreased from 16.1% to 10.0% between quarters. Both
changes were driven primarily by the significantly higher revenues between
quarters.
Income from unconsolidated joint ventures decreased from $1.4 million in
the first quarter of fiscal 1999 to $1.0 million in the first quarter of fiscal
2000, due to lower margins on the homes closed in the current quarter in the
Company's current joint ventures.
Interest and other income decreased from $322,000 to $13,000 primarily as a
result of significantly lower activity in the Company's mortgage broker
operations.
Minority interest of $486,000 for the first quarter of fiscal 2000 and
$166,000 for the first quarter of fiscal 1999 represents the share of CPH LLC's
income attributable to CHF.
Interest incurred was $4.4 million in the first quarter of fiscal 2000, as
compared to $4.5 million in the first quarter of fiscal 1999, while interest
expensed was $4.5 million during the first quarter of fiscal 2000, as compared
to $2.1 million in the first quarter of fiscal 1999, primarily as a result of
significantly higher revenues in the current quarter. Substantially all interest
costs are initially capitalized and are recognized as homes and land are sold.
11
<PAGE> 12
Operating Data
The following table shows new home deliveries, net new orders and average
sales prices for each of the Company's operations, including unconsolidated
joint ventures:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAY 31, MAY 31,
1998 1999
-------- --------
<S> <C> <C>
New homes delivered:
California........................................... 17 21
Texas................................................ 68 112
Nevada............................................... 48 83
Arizona.............................................. 10 76
-------- --------
Subtotal........................................ 143 292
Unconsolidated Joint Ventures (California)........... 9 11
-------- --------
Total........................................ 152 303
======== ========
Net new orders......................................... 196 349
======== ========
Average sales price:
California........................................... $646,000 $716,000
Texas................................................ 160,000 188,000
Nevada............................................... 163,000 207,000
Arizona.............................................. 166,000 142,000
Combined............................................. 245,000 238,000
</TABLE>
The following table shows backlog in units and dollars at May 31, 1999 and
1998 for each of the Company's operations, including unconsolidated joint
ventures:
<TABLE>
<CAPTION>
ENDING BACKLOG
--------------------------------------
MAY 31, 1998 MAY 31, 1999
----------------- -----------------
UNITS ($000S) UNITS ($000S)
----- -------- ----- --------
<S> <C> <C> <C> <C>
California............................. 122 $ 72,300 37 $ 34,100
Texas.................................. 233 39,400 274 52,000
Nevada................................. 43 8,700 87 17,900
Arizona................................ 22 4,100 144 20,700
Colorado............................... -- -- 1 200
--- -------- --- --------
Total........................ 420 $124,500 543 $124,900
=== ======== === ========
</TABLE>
Liquidity and Capital Resources
At the current time, all material financing transactions and arrangements
are incurred either by CPH LLC or by certain project specific entities. As of
May 31, 1999, the Company has in place several credit facilities with contingent
availabilities totaling $220 million (the "Facilities") with various bank
lenders (the "Banks"), of which $95 million was outstanding. The Facilities are
secured by liens on various completed or under construction homes and lots held
by CPH LLC and CPH Newport Coast, LLC, a consolidated joint venture. Pursuant to
the Facilities, CPH LLC is subject to certain covenants, which require, among
other things, the maintenance of a consolidated liabilities to net worth ratio,
minimum liquidity, minimum net worth and loss limitations, all as defined in the
documents that evidence the Facilities. At May 31, 1999, CPH LLC was in
compliance with these covenants. The Facilities also define certain events that
constitute events of default. As of May 31, 1999, no such event had occurred.
Commitment fees are payable annually on some of the Facilities.
Homebuilding activity is being financed out of CPH LLC cash, bank
financing, and the existing joint ventures, including joint ventures with
institutional investors, including CHF, the investor in CPH LLC. In
12
<PAGE> 13
addition, development work undertaken in certain of the Company's joint ventures
is financed through various non-recourse lending arrangements. The Company
anticipates that it will continue to utilize both third party financing and
joint ventures to cover financing needs in excess of internally generated cash
flow.
In May, 1994 the Company completed the sale of $100 million 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 obligations associated with the Senior Notes have been transferred from the
Company to CPH LLC.
The Indenture to which the Senior Notes are subject contains restrictions
on CPH LLC on the incurring of indebtedness, which affect the availability of
the Facilities based on various measures of the financial performance of CPH
LLC. Subject to such restrictions, the Facilities are available to augment cash
flow from operations and joint venture financing to fund the CPH LLC's
operations.
Management expects that cash flow generated from operations and from
additional financing permitted by the terms of the Indenture will be sufficient
to cover the debt service and to fund CPH LLC's current development and
homebuilding activities for the reasonably foreseeable future, and expects that
capital commitments from its joint venture partners and other bank facilities
will provide sufficient financing for the operation of its joint ventures.
YEAR 2000 COMPLIANCE
The Company began assessing its Year 2000 ("Y2K") compliance issues during
fiscal 1998 and at that time determined that its primary internal computer
hardware and computer software were not Y2K compliant. Subsequently, the Company
determined that it would be more cost efficient to install a new Y2K compliant
software package than to modify the existing software package. In late 1998, the
Company contracted to purchase a new software package and upgraded its existing
primary computer hardware system to support the new computer software package,
as well as more fully integrate the Company's operations. The Company's goal is
full implementation of the new software package by August 31, 1999.
As part of a program of continuous technology updates, for the past several
years, the Company has upgraded personal computers in its locations and this
process will continue. As this occurs during 1999, personal computers at each
company location will be tested for Y2K compliance. These personal computer
upgrades are considered to be ongoing and are not considered to be specifically
Y2K related. The Company expects to incur some costs to replace or repair such
equipment, but has not presently determined the amount of these costs, which are
not expected to be material.
The Company also is investigating the Y2K compliance status of its vendors,
subcontractors and suppliers through the Company's own vendor compliance
program. For example, the Company has determined that its voicemail and security
systems at its Newport Beach headquarters are not Y2K compliant, and upgrades to
both systems were required. The Company's goal is to complete this investigation
and any corrective efforts by July 31, 1999. Since the Company does not rely on
any individual vendor, subcontractor or supplier for a significant portion of
its operations, the potential impact of Y2K noncompliance risks arising from
such entities is not expected to have any material effect on the Company. The
Company does not believe that it is reasonably likely that Y2K non-compliance
will result in disruptions to its business that will have a material adverse
effect on the Company.
To date, the Company has incurred approximately $900,000 in connection with
Y2K readiness, including hardware, software, consulting fees, and other
expenses. The Company expects to incur additional expenditures of less than
$100,000 in fiscal 2000 in the course of becoming Y2K compliant. These consist
primarily of costs of hardware and software which would otherwise be incurred by
the Company in the normal course of its business. The additional costs incurred
by the Company may vary from these estimates but are not expected to be
material.
The Company's estimates of costs and completion dates for its Y2K readiness
program represent management's best estimates. These estimates are based upon
many assumptions, including the availability of external resources to assist
with systems remediation and replacement efforts, and key third party suppliers,
13
<PAGE> 14
vendors and customers being Y2K compliant. If any of the assumptions ultimately
proves to have been incorrect, the cost estimates and completion dates set forth
above could be substantially and adversely affected.
While the Company believes it is taking all appropriate steps to achieve
internal Y2K compliance, any potential future business interruptions, costs,
damages or losses related thereto, also are dependent upon the Y2K compliance of
third parties. In the event that the Company or any of the Company's vendors,
subcontractors or suppliers experience disruptions due to the Y2K issue, the
Company's operations could be adversely affected. The Y2K issue is universal and
complex, as virtually every computer operation will be affected in some way.
Consequently, no assurance can be given that complete Y2K compliance can be
achieved without significant additional costs. Also, the Company could be
materially impacted by widespread economic or financial market disruptions or by
Y2K computer system failures at financial institutions or government agencies on
which the Company is dependent for financing, utilities, zoning, building
permits and related matters. There can be no assurance that Y2K will not
adversely affect the Company and its operations.
A formal Y2K internal contingency plan has not been prepared because the
Company does not anticipate a material disruption to its business and because
the Company is able to rely on a variety of systems, vendors, subcontractors and
suppliers in the event of Y2K disruptions that are likely to occur.
14
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<C> <S> <C>
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
None Filed
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAPITAL PACIFIC HOLDINGS, INC.
Date: July 14, 1999 By: /s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian, Chairman of the
Board, Chief Executive Officer and
President
(Principal Executive Officer)
Date: July 14, 1999 By: /s/ STEVEN O. SPELMAN, JR.
------------------------------------
Steven O. Spelman, Jr., Senior Vice
President, Chief Financial Officer
and Corporate Secretary
(Principal Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<C> <S> <C>
27 Financial Data Schedule Filed with this document
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 2,470
<SECURITIES> 0
<RECEIVABLES> 15,364
<ALLOWANCES> 0
<INVENTORY> 261,484
<CURRENT-ASSETS> 0
<PP&E> 8,833
<DEPRECIATION> 0
<TOTAL-ASSETS> 317,320
<CURRENT-LIABILITIES> 0
<BONDS> 100,000
0
0
<COMMON> 1,500
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 317,320
<SALES> 61,974
<TOTAL-REVENUES> 61,974
<CGS> 50,670
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,501
<INCOME-PRETAX> 1,146
<INCOME-TAX> 326
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 820
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
