<PAGE> 1
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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, 2000
[ ] 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)
</TABLE>
4100 MACARTHUR BLVD., SUITE 200, NEWPORT BEACH, CA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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 JUNE 30, 2000
------------------ ------------------------
<S> <C>
Common Stock, $.10 Par Value 13,769,111
</TABLE>
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<PAGE> 2
CAPITAL PACIFIC HOLDINGS, INC.
INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements........................................ 3
Consolidated Balance Sheets -- May 31, 2000 and February 29,
2000........................................................ 3
Consolidated Statements of Income for the Three Months Ended
May 31, 2000
and 1999.................................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended May 31, 2000
and 1999.................................................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 13
</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 29,
2000 2000
--------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 6,513 $ 19,389
Restricted cash............................................. 989 1,373
Accounts and notes receivable............................... 19,195 22,862
Real estate projects........................................ 282,735 282,497
Property, plant and equipment............................... 8,473 8,536
Investment in and advances to unconsolidated joint
ventures.................................................. 16,160 15,379
Prepaid expenses and other assets........................... 7,757 8,245
--------- ---------
Total assets...................................... $ 341,822 $ 358,281
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 28,940 $ 39,600
Notes payable............................................... 134,291 125,809
Senior unsecured notes payable.............................. 70,692 88,392
--------- ---------
Total liabilities................................. 233,923 253,801
--------- ---------
Minority Interest........................................... 34,844 33,594
--------- ---------
Stockholders' equity:
Common stock, par value $.10 per share, 30,000,000 shares
authorized; 13,769,111 and 13,815,911 shares issued and
outstanding, respectively.............................. $ 1,500 $ 1,500
Additional paid-in capital................................ 211,888 211,888
Accumulated deficit....................................... (136,954) (139,243)
Treasury stock............................................ (3,379) (3,259)
--------- ---------
Total stockholders' equity........................ 73,055 70,886
--------- ---------
Total liabilities and stockholders' equity........ $ 341,822 $ 358,281
========= =========
</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,
------------------
2000 1999
------- -------
<S> <C> <C>
Sales of homes and land..................................... $65,034 $61,974
Cost of sales............................................... 50,646 50,670
------- -------
Gross margin........................................... 14,388 11,304
Income from unconsolidated joint ventures................... 11 1,036
Selling, general and administrative expenses................ (7,657) (6,220)
Interest expense............................................ (4,783) (4,501)
------- -------
Income from operations................................. 1,959 1,619
Interest and other income, net.............................. 445 13
Minority Interest........................................... (724) (486)
------- -------
Income before income taxes and extraordinary item...... 1,680 1,146
Provision for income taxes.................................. 336 326
------- -------
Income before extraordinary item....................... 1,344 820
Extraordinary gain for debt retired at less than face value,
net of minority interest and taxes........................ 945 --
------- -------
Net income........................................ $ 2,289 $ 820
======= =======
Net income per share -- basic and diluted:
Income per share before extraordinary item................ $ 0.10 $ 0.06
Extraordinary gain for debt retired at less than face
value, net of minority interest and taxes.............. 0.07 --
------- -------
Net income per share...................................... $ 0.17 $ 0.06
======= =======
Weighted average number of common shares -- basic......... 13,787 13,999
======= =======
Weighted average number of common shares -- diluted....... 13,884 14,016
======= =======
</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,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,289 $ 820
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Gain on retirement of senior unsecured notes payable... (945) --
Depreciation and amortization.......................... 366 562
Change in restricted cash.............................. 384 (84)
Increase in real estate projects....................... (238) (151)
(Increase) decrease in receivables, prepaid expenses
and other assets...................................... 3,870 (1,605)
(Increase) decrease in accounts payable and accrued
liabilities........................................... (10,896) (17,060)
Minority interest...................................... 724 486
-------- --------
Net cash provided by (used in) operating
activities...................................... (4,446) (17,032)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (303) (191)
Distributions to minority interest........................ (32) --
Decrease (increase) in investment in and advances to
unconsolidated joint ventures.......................... (781) 5,853
-------- --------
Net cash provided by (used in) investing
activities...................................... (1,116) 5,662
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on notes payable, net............... 8,482 8,230
Retirement of senior unsecured notes payable.............. (15,676) --
Repurchase of common stock................................ (120) (172)
-------- --------
Net cash provided by (used in) financing
activities...................................... (7,314) 8,058
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (12,876) (3,312)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 19,389 5,782
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 6,513 $ 2,470
======== ========
</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 consolidated
financial statements, and notes thereto, included in the Form 10-K for the
fiscal year ended February 29, 2000, 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,
2000, are not necessarily indicative of the results that may be expected for the
year ending February 28, 2001. 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 $103 million, $33 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 throughout
selected metropolitan areas of Southern California, Nevada, Texas, Arizona and
Colorado. The Company's principal business activities are to build and sell
single-family homes and to develop and build commercial and mixed-use projects.
The Company's single-family homes are targeted to entry-level, move-up and
luxury buyers. The acquisition and development of commercial and mixed-use
projects, as well as ownership of existing commercial properties is accomplished
primarily through non-majority investments in limited liability companies.
In fiscal year 1998, the Company consummated an equity and restructuring
transaction whereby the Company and certain of its subsidiaries transferred to
CPH LLC substantially all of their respective assets and CPH LLC assumed all the
liabilities of the Company and its subsidiaries. At the current time, the
Company, together with its subsidiaries, has a 67.93% interest in CPH LLC. An
unaffiliated investment company, California Housing Finance, L.P. ("CHF") holds
a 32.07% minority interest in CPH LLC as a result of a cash investment 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. Assets
under management, including unconsolidated joint ventures, totaled $699 million
at May 31, 2000 in 60 residential and commercial properties. At May 31, 2000,
CPH LLC had $260 million in assets and a net worth of $103 million. In addition,
the Company has interests in unconsolidated joint ventures which have total
assets of $357 million and a combined net worth of $295 million at May 31, 2000.
The Company is the sole managing member of CPH LLC. The Company maintains
certain licenses and other assets as are necessary to fulfill its obligations as
managing member. The Company and its subsidiaries perform their respective
management functions for CPH LLC as well as other project-specific entities of
which the Company is the managing member pursuant to management agreements,
which include provisions for the reimbursement of Company and subsidiary costs,
a management fee and indemnification by CPH LLC and the project-specific
entities.
6
<PAGE> 7
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
References to the Company are, unless the context indicates otherwise, also
references to CPH LLC and the project-specific entities. At the current time,
all material financing transactions and arrangements are incurred either by CPH
LLC or by the project-specific entities.
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,
2000. The Company's net investment in and advances to unconsolidated entities
are as follows at May 31, 2000 and February 29, 2000 (in thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
------- ------------
<S> <C> <C>
JMP Canyon Estates, L.P................................ $ 159 $ 159
JMP Harbor View, L.P................................... 621 621
Grand Coto Estates, L.P................................ (369) (633)
M.P.E. Partners, L.P................................... 1,726 1,710
RPV Associates, LLC.................................... 2,463 2,759
CPH Dana Point, LLC.................................... 255 266
CPH Monarch Beach, LLC................................. 771 445
CPH Resorts I, LLC..................................... 5,426 4,700
CPH Vista Palisades, LLC............................... 452 435
Atlanta Huntington Beach, LLC.......................... 599 1,259
CPH Dos Pueblos, LLC................................... 4,010 3,595
CPH Airport Office Building, LLC....................... 10 7
CPH Redhill Office Building, LLC....................... 37 56
------- -------
$16,160 $15,379
======= =======
</TABLE>
The Company's ownership interests in the above entities vary. Generally,
the Company receives a percentage of earnings although 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 reimbursable advances, 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.
7
<PAGE> 8
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Following is summarized, combined financial information for the
unconsolidated entities at May 31, 2000 and February 29, 2000 and for the three
month periods ended May 31, 2000 and May 31, 1999 (in thousands):
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
-------- ------------
<S> <C> <C>
Cash.................................................. $ 8,047 $ 11,225
Real estate projects.................................. 297,124 281,402
Commercial buildings.................................. 20,900 21,071
Other assets.......................................... 30,974 31,281
-------- --------
$357,045 $344,979
======== ========
</TABLE>
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
-------- ------------
<S> <C> <C>
Accounts payable and other liabilities................ $ 26,683 $ 25,724
Notes payable......................................... 35,318 37,722
-------- --------
62,001 63,446
-------- --------
Equity................................................ 295,044 281,533
-------- --------
$357,045 $344,979
======== ========
</TABLE>
INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MAY 31, MAY 31,
2000 1999
------- -------
<S> <C> <C>
Sales of homes and land.................................. $20,095 $10,903
Interest and other income, net........................... 2,835 2,302
------- -------
22,930 13,205
Costs and expenses....................................... 21,786 11,869
------- -------
Net income............................................... $ 1,144 $ 1,336
======= =======
</TABLE>
5. NOTES PAYABLE
Notes payable at May 31, 2000 and February 29, 2000, are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
-------- ------------
<S> <C> <C>
Notes payable to banks, including interest varying from
LIBOR plus two to thirteen percent, maturing between
August 29, 2000 and February 1, 2002, secured by certain
real estate projects on a non-recourse basis.............. $119,279 $105,951
Notes payable to banks, including interest at prime with the
terms of the commitment reducing commencing August 1,
2001, secured by certain real estate projects on a
recourse basis............................................ 14,579 19,281
Other....................................................... 433 577
-------- --------
$134,291 $125,809
======== ========
</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, 2000 MAY 31, 1999
----------------------- -----------------------
INCOME SHARES EPS INCOME SHARES EPS
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic net income per share:
Income available to common stockholders
before extraordinary item........... $1,344 13,787 $0.10 $820 13,999 $0.06
Effect of dilutive securities:
Warrants............................... -- -- -- -- -- --
Stock options.......................... -- 97 -- -- 17 --
------ ------ ----- ---- ------ -----
Diluted net income per share before
extraordinary item..................... $1,344 13,884 $0.10 $820 14,016 $0.06
====== ====== ===== ==== ====== =====
</TABLE>
7. COMMON STOCK REPURCHASE PROGRAM
The Company has announced a stock repurchase program whereby up to
1,000,000 shares of the Company's outstanding common stock may be repurchased by
CPH LLC. As of May 31, 2000, approximately 536,400 shares have been repurchased
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 and 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, 2000 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, 2000 MAY 31, 1999
----------------------------- -----------------------------
PRO FORMA WITH PRO FORMA WITH
CONSOLIDATED JOINT VENTURES CONSOLIDATED JOINT VENTURES
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales of homes and land..... $65,034 $85,129 $61,974 $72,877
Cost of sales............... 50,646 68,786 50,670 59,778
------- ------- ------- -------
Gross margin...... $14,388 $16,343 $11,304 $13,099
======= ======= ======= =======
</TABLE>
Since the financial restructuring in October 1997, the Company, together
with its financial partners, has invested over $400 million in 11 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
OPERATING DATA
The following table shows new home deliveries, lot 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,
2000 1999
---------- --------
<S> <C> <C>
New homes delivered:
California......................................... 4 21
Texas.............................................. 127 112
Nevada............................................. 63 83
Arizona............................................ 64 76
Colorado........................................... 50 --
---------- --------
Subtotal........................................ 308 292
Unconsolidated Joint Ventures (California)......... 18 11
---------- --------
Total homes delivered...................... 326 303
Lot deliveries....................................... 29 6
---------- --------
Total homes and lots delivered....................... 355 309
========== ========
Net new orders....................................... 375 349
========== ========
Average home sales price:
California......................................... $1,309,000 $716,000
Texas.............................................. 182,000 188,000
Nevada............................................. 200,000 207,000
Arizona............................................ 147,000 142,000
Colorado........................................... 190,000 --
Combined........................................... $ 256,000 $238,000
</TABLE>
The following table shows backlog in units and dollars at May 31, 2000 and
1999 for each of the Company's operations, including unconsolidated joint
ventures:
<TABLE>
<CAPTION>
ENDING BACKLOG
------------------------------------
MAY 31, 2000 MAY 31, 1999
---------------- ----------------
UNITS ($000S) UNITS ($000S)
----- -------- ----- --------
<S> <C> <C> <C> <C>
California................................. 74 $118,800 37 $ 34,100
Texas...................................... 280 61,300 274 52,000
Nevada..................................... 85 17,400 87 17,900
Arizona.................................... 85 14,100 144 20,700
Colorado................................... 123 23,700 1 200
--- -------- --- --------
Total............................ 647 $235,300 543 $124,900
=== ======== === ========
</TABLE>
FIRST THREE MONTHS OF FISCAL 2001 (ENDED MAY 31, 2000) COMPARED TO FIRST THREE
MONTHS OF FISCAL 2000 (ENDED MAY 31, 1999)
The Company reported net income of $2.3 million or $0.17 per share, in the
first quarter of fiscal 2001, as compared to net income of $820,000, or $0.06
per share, in the first quarter of fiscal 2000. The current quarter's income
included an extraordinary gain of $945,000, or $0.07 per share, as a result of
the retirement of debt at less than face value.
Sales of homes and land including unconsolidated joint ventures were $85.1
million for the first quarter of fiscal 2001 compared to $72.9 million for the
first quarter of fiscal 2000. On a consolidated basis, sales of homes and land
increased to $65.0 million from $62.0 million for the respective quarters. These
increases are due to an increase in home closings, as well as an increase in
Company's average sales price per home to
11
<PAGE> 12
$256,000 in the first quarter of fiscal 2001 from $238,000 in the first quarter
of fiscal 2000. Total home closings increased from 303 in the first quarter of
fiscal 2000 to 326 in the first quarter of fiscal 2001, including 11 and 18
homes, respectively, closed in unconsolidated joint ventures.
The Company's actual gross margin on home and lot closings increased to
22.1% for the first quarter of fiscal 2001 as compared to 18.2% for the first
quarter of fiscal 2000. The Company's pro forma gross margin on home and lot
closings also increased to 19.2% during the first quarter of fiscal 2001 as
compared to 18.0% for the first quarter of fiscal 2000. These increases are due
in part to stronger demand experienced in the Company's markets in the current
year.
Selling, general and administrative expense of $7.6 million for the first
quarter of fiscal 2001 increased $1.4 million or 22.9% as compared to the first
quarter of fiscal 2000. As a percentage of revenue, selling, general and
administrative expense increased from 10.0% to 11.8% between quarters, primarily
due to development and other activities undertaken in certain projects prior to
the generation of revenues.
Income from unconsolidated joint ventures decreased from $1.0 million in
the first quarter of fiscal 2000 to $11,000 in the first quarter of fiscal 2001.
The Company was recording profit participation on the joint ventures which
reported closings in fiscal 2000, while the profits on the joint ventures with
closings in fiscal 2001 is primarily allocated to cover preferred return on the
partners' invested capital.
Interest and other income increased from $13,000 in the first quarter of
fiscal 2000 to $445,000 in the first quarter of fiscal 2001.
Minority interest of $724,000 for the first quarter of fiscal 2001 and
$486,000 for the first quarter of fiscal 2000 primarily represents the share of
CPH LLC's income attributable to CHF.
Interest incurred was $6.2 million in the first quarter of fiscal 2001, as
compared to $4.4 million in the first quarter of fiscal 2000, while interest
expensed was $4.8 million during the first quarter of fiscal 2001, as compared
to $4.5 million in the first quarter of fiscal 2000.
The Company recorded a provision for income taxes of $336,000 in the first
quarter of fiscal 2001, utilizing an effective tax rate of 20 percent, as
compared to $326,000 in the first quarter of fiscal 2000, with an effective tax
rate of 25 percent.
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, 2000, the Company has in place several credit facilities totaling $225
million (the "Facilities") with various bank lenders (the "Banks"), of which
$134 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, 2000, CPH LLC was in compliance with these covenants. The
Facilities also define certain events that constitute events of default. As of
May 31, 2000, 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 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 ("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 Senior Notes mature in May,
2002. As of May 31, 2000, Senior Notes with a face value of $29.3 million have
been repurchased by the Company.
12
<PAGE> 13
The indenture to which the Senior Notes are subject (the "Indenture")
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 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.
MARKET RISK EXPOSURE
The "Market Risk Exposure" paragraphs are presented to provide an update
about material changes to the "Quantitative and Qualitative Disclosures about
Market Risk" paragraphs included in the Company's 2000 Annual Report on Form
10-K filed with the Securities and Exchange Commission and should be read in
conjunction with those paragraphs.
The Company is exposed to market risks related to fluctuations in interest
rates on its debt. The Company does not use interest rate swaps, forward or
option contracts on foreign currencies or commodities, or other types of
derivative financial instruments.
The Company uses debt financing primarily for the purpose of acquiring and
developing land and constructing and selling homes. Historically, the Company
has made short-term borrowings under its revolving credit facilities to fund
those expenditures. In addition, the Company has previously issued $100 million
in fixed-rate Senior Notes to provide longer-term financing. At May 31, 2000,
$70.7 million of the Senior Notes remain outstanding.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not the Company's earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not impact fair
market value, but do affect the Company's future earnings and cash flows. The
Company does not have an obligation to prepay fixed rate debt prior to maturity,
and as a result, interest rate risk and changes in fair market value should not
have a significant impact on such debt until the Company would be required to
refinance such debt. Based upon the amount of variable rate debt outstanding at
the end of the first quarter, and holding the variable rate debt balance
constant, each one percentage point increase in interest rates occurring on the
first day of an annual period would result in an increase in interest incurred
for the coming year of approximately $1.3 million.
The Company does not believe that future market interest rate risks related
to its debt obligations will have a material impact on the Company's financial
position, results of operations or liquidity.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
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
13
<PAGE> 14
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.
Date: July 14, 2000 By: /s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
Date: July 14, 2000 By: /s/ STEVEN O. SPELMAN, JR.
------------------------------------
Steven O. Spelman, Jr.
Senior Vice President,
Chief Financial Officer and
Corporate Secretary
(Principal Financial Officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
15
