<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 NOVEMBER 30, 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)
</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 JANUARY 3, 2000
------------------ ------------------------
<S> <C>
Common Stock, $.10 Par Value 13,829,011
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
Consolidated Balance Sheets -- November 30, 1999 and
February 28, 1999........................................... 3
Consolidated Statements of Income for the Three and Nine
Months Ended
November 30, 1999 and 1998.................................. 4
Consolidated Statements of Cash Flows for the Nine Months
Ended November 30, 1999 and 1998............................ 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 11
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 17
</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>
NOVEMBER 30, FEBRUARY 28,
1999 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,686 $ 5,782
Restricted cash............................................. 1,251 1,029
Accounts and notes receivable............................... 8,037 12,533
Real estate projects........................................ 291,036 261,333
Property, plant and equipment............................... 8,596 9,014
Investment in and advances to unconsolidated joint
ventures.................................................. 15,309 23,301
Prepaid expenses and other assets........................... 9,390 11,771
--------- ---------
Total assets...................................... $ 335,305 $ 324,763
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 21,730 $ 37,888
Notes payable............................................... 116,456 91,489
Senior unsecured notes payable.............................. 97,800 100,000
--------- ---------
Total liabilities................................. 235,986 229,377
--------- ---------
Minority Interest........................................... 31,765 30,032
--------- ---------
Stockholders' equity:
Common stock, par value $ .10 per share, 30,000,000 shares
authorized; 13,877,411 and 14,027,911 shares issued and
outstanding, respectively.............................. 1,500 1,500
Additional paid-in capital................................ 211,888 211,888
Accumulated deficit....................................... (142,693) (145,425)
Treasury stock............................................ (3,141) (2,609)
--------- ---------
Total stockholders' equity........................ 67,554 65,354
--------- ---------
Total liabilities and stockholders' equity........ $ 335,305 $ 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 NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------ --------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales of homes and land........................... $63,430 $47,717 $192,787 $123,420
Cost of sales..................................... 49,293 38,157 154,853 100,607
------- ------- -------- --------
Gross margin................................. 14,137 9,560 37,934 22,813
Income from unconsolidated joint ventures......... 315 2,327 1,867 6,182
Selling, general and administrative expenses...... (7,077) (5,607) (20,684) (15,852)
Interest expense.................................. (5,950) (5,704) (14,836) (11,385)
------- ------- -------- --------
Income from operations..................... 1,425 576 4,281 1,758
Interest and other income, net.................... 207 234 498 724
Minority Interest................................. (508) (163) (1,401) (615)
------- ------- -------- --------
Income before income taxes and
extraordinary item...................... 1,124 647 3,378 1,867
Provision for income taxes........................ 312 162 846 467
------- ------- -------- --------
Income before extraordinary item........... 812 485 2,532 1,400
Extraordinary gain for debt retired at less than
face value, net of minority interest and
taxes........................................... -- -- 200 --
------- ------- -------- --------
Net income................................. $ 812 $ 485 $ 2,732 $ 1,400
======= ======= ======== ========
Net income per share-basic and diluted:
Income per share before extraordinary item...... $ 0.06 $ 0.03 $ 0.18 $ 0.10
Extraordinary gain for debt retired at less than
face value, net of minority interest and
taxes........................................ -- -- 0.02 --
------- ------- -------- --------
Net income per share............................ $ 0.06 $ 0.03 $ 0.20 $ 0.10
======= ======= ======== ========
Weighted average number of common
shares-basic................................. 13,884 14,306 13,940 14,306
======= ======= ======== ========
Weighted average number of common
shares-diluted............................... 13,884 14,306 13,957 14,384
======= ======= ======== ========
</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 NINE
MONTHS ENDED
NOVEMBER 30,
-------------------
1999 1998
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,732 $ 1,400
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on retirement of senior unsecured notes
payable.......................................... (200) --
Depreciation and amortization..................... 1,472 1,298
Change in restricted cash......................... (222) (94)
Increase in real estate projects.................. (29,703) (57,847)
Decrease in receivables, prepaid expenses and
other assets..................................... 6,446 11,322
(Increase) decrease in accounts payable and
accrued liabilities.............................. (16,224) 1,282
Minority interest................................. 1,514 615
------- --------
Net cash provided by (used in) operating
activities.................................... (34,185) (42,024)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.......... (674) (1,309)
Contributions (distributions) to minority
interest......................................... 106 (593)
Decrease (increase) in investment in and advances
to unconsolidated joint ventures................. 7,992 (7,008)
------- --------
Net cash provided by (used in) investing
activities.................................... 7,424 (8,910)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on notes payable, net....... 24,967 50,471
Retirement of senior unsecured notes payable...... (1,770) --
Repurchase of common stock........................ (532) --
------- --------
Net cash provided by (used in) financing
activities.................................... 22,665 50,471
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (4,096) (463)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 5,782 4,328
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 1,686 $ 3,865
======= ========
</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 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 and nine month periods ended
November 30, 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, $31 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 activity is to build and sell
single-family homes and 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 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 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. At November 30, 1999, CPH LLC had $270 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 $319 million and a combined net worth
of $259 million at November 30, 1999. Assets under management, including
unconsolidated joint ventures, totaled $654 million at November 30, 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 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 November
30, 1999. The Company's net investment in and advances to unconsolidated
entities are as follows at November 30, 1999 and February 28, 1999 (in
thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1999 1999
------------ ------------
<S> <C> <C>
JMP Canyon Estates, L.P. ................................... $ 193 $ 207
JMP Harbor View, L.P. ...................................... 626 677
Grand Coto Estates, L.P. ................................... (15) 3,753
M.P.E. Partners, L.P. ...................................... 1,897 2,370
RPV Associates, LLC......................................... 3,270 1,644
CPH Dana Point, LLC......................................... 402 793
CPH Monarch Beach, LLC...................................... 416 1,205
CPH Resorts I, LLC.......................................... 3,971 4,268
CPH Vista Palisades, LLC.................................... 454 637
Atlanta Huntington Beach, LLC............................... 770 5,195
CPH Dos Pueblos, LLC........................................ 3,279 2,086
CPH Airport Office Building, LLC............................ 7 55
CPH Redhill Office Building, LLC............................ 39 411
------- -------
$15,309 $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 paid. 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 November 30, 1999 and February 28, 1999 and for the
three and nine month periods ended November 30, 1999 and November 30, 1998 (in
thousands):
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1999 1999
------------ ------------
<S> <C> <C>
Cash........................................................ $ 5,656 $ 4,373
Real estate projects........................................ 260,802 215,620
Commercial buildings........................................ 21,122 21,094
Other assets................................................ 31,294 57,998
-------- --------
$318,874 $299,085
======== ========
</TABLE>
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1999 1999
------------ ------------
<S> <C> <C>
Accounts payable and other liabilities...................... $ 25,466 $ 37,113
Notes payable............................................... 34,884 12,100
-------- --------
60,350 49,213
-------- --------
Equity...................................................... 258,524 249,872
-------- --------
$318,874 $299,085
======== ========
</TABLE>
INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of homes and land......... $2,272 $ 9,091 $22,143 $35,417
Interest and other income,
net........................... 3,258 3,535 8,196 3,644
------ ------- ------- -------
5,530 12,626 30,339 39,061
Costs and expenses.............. 3,860 11,469 25,791 33,404
------ ------- ------- -------
Net income...................... $1,670 $ 1,157 $ 4,548 $ 5,657
====== ======= ======= =======
</TABLE>
8
<PAGE> 9
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. NOTES PAYABLE
Notes payable at November 30, 1999 and February 28, 1999, are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1999 1999
------------ ------------
<S> <C> <C>
Notes payable to banks, including interest varying from
prime to thirteen percent, maturing between June 15, 2000,
1999 and July 31, 2001 secured by certain real estate
projects on a non-recourse basis............................ $ 99,141 $72,602
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............................................ 16,790 17,386
Other....................................................... 525 1,501
-------- -------
$116,456 $91,489
======== =======
</TABLE>
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
-------------------------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
-------------------------- -------------------------
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....... $ 812 13,884 $0.06 $ 485 14,306 $0.03
Effect of dilutive securities:
Warrants.................... -- -- -- -- -- --
Stock options............... -- -- -- -- -- --
------ ------- ----- ------ ------ -----
Diluted net income per share
before extraordinary item... $ 812 13,884 $0.06 $ 485 14,306 $0.03
====== ======= ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
-------------------------- -------------------------
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....... $2,532 13,940 $0.18 $1,400 14,306 $0.10
Effect of dilutive securities:
Warrants.................... -- -- -- -- 78 --
Stock options............... -- 17 -- -- -- --
------ ------- ----- ------ ------ -----
Diluted net income per share
before extraordinary item... $2,532 13,957 $0.18 $1,400 14,384 $0.10
====== ======= ===== ====== ====== =====
</TABLE>
9
<PAGE> 10
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 November 30, 1999, approximately 428,000 shares have been
repurchased under this program.
10
<PAGE> 11
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 and nine months ended November 30, 1999 and
1998. 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
----------------------------------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
------------------------------ ------------------------------
PRO FORMA WITH PRO FORMA WITH
CONSOLIDATED JOINT VENTURES CONSOLIDATED JOINT VENTURES
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales of homes and land....... $ 63,430 $ 65,702 $ 47,717 $ 56,561
Cost of sales................. 49,293 49,785 38,157 45,772
-------- -------- -------- --------
Gross margin................ $ 14,137 $ 15,917 $ 9,560 $ 10,789
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
------------------------------ ------------------------------
PRO FORMA WITH PRO FORMA WITH
CONSOLIDATED JOINT VENTURES CONSOLIDATED JOINT VENTURES
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales of homes and land....... $192,787 $214,930 $123,420 $157,979
Cost of sales................. 154,853 171,216 100,607 127,434
-------- -------- -------- --------
Gross margin................ $ 37,934 $ 43,714 $ 22,813 $ 30,545
======== ======== ======== ========
</TABLE>
Since the financial restructuring in October 1997, the Company, together
with its financial partners, has invested over $336 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.
11
<PAGE> 12
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 3 Million
Mixed Use April, 1998 Huntington Beach, CA 35 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 36 Million
Hotel, Residential and Golf July, 1998 Monarch Beach, CA 140 Million
Operations
Residential Development(2) July, 1998 Newport Beach, CA 65 Million
Golf Course Development December, 1998 Santa Barbara, CA 14 Million
Industrial Building(2) August, 1999 Ontario, CA 3 Million
Residential Development(2) September,1999 Yucaipa, CA 6 Million
------------
$336 Million
============
</TABLE>
- ---------------
(1) Included in a single joint venture.
(2) Consolidated joint ventures.
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 NINE MONTHS ENDED
---------------------------- ----------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
New homes delivered:
California.................... 12 35 41 89
Texas......................... 113 119 341 297
Nevada........................ 87 34 250 132
Arizona....................... 67 9 240 33
Colorado...................... 9 -- 9 --
---------- -------- -------- --------
Subtotal................... 288 197 881 551
Unconsolidated Joint Ventures
(California)............... 3 8 21 41
---------- -------- -------- --------
Total................. 291 205 902 592
========== ======== ======== ========
Lot deliveries.................. -- 2 347 4
========== ======== ======== ========
Net new orders.................. 380 249 1,093 706
========== ======== ======== ========
Average home sales price:
California.................... $1,087,000 $660,000 $886,000 $608,000
Texas......................... 186,000 168,000 187,000 162,000
Nevada........................ 191,000 194,000 203,000 182,000
Arizona....................... 148,000 155,000 145,000 156,000
Colorado...................... 211,000 -- 211,000 --
Combined...................... 226,000 273,000 229,000 264,000
</TABLE>
12
<PAGE> 13
The following table shows backlog in units and dollars at November 30, 1999
and 1998 for each of the Company's operations, including unconsolidated joint
ventures:
<TABLE>
<CAPTION>
ENDING BACKLOG
--------------------------------------
NOVEMBER 30, 1999 NOVEMBER 30, 1998
----------------- -----------------
UNITS ($000S) UNITS ($000S)
----- -------- ----- --------
<S> <C> <C> <C> <C>
California..................................... 58 $ 61,200 83 $ 73,200
Texas.......................................... 280 55,300 246 44,600
Nevada......................................... 124 25,700 76 14,800
Arizona........................................ 137 19,200 85 12,700
Colorado....................................... 89 15,400 -- --
--- -------- --- --------
Total................................ 688 $176,800 490 $145,300
=== ======== === ========
</TABLE>
THIRD QUARTER OF FISCAL 2000 (ENDED NOVEMBER 30, 1999) COMPARED TO THIRD
QUARTER OF FISCAL 1999 (ENDED NOVEMBER 30, 1998)
The Company reported net income of $812,000 or $0.06 per share, in the
third quarter of fiscal 2000, as compared to net income of $485,000, or $0.03
per share, in the third quarter of fiscal 1999.
Sales of homes and land including unconsolidated joint ventures were $65.7
million for the third quarter of fiscal 2000 compared to $56.6 million for the
third quarter of fiscal 1999. On a consolidated basis, sales of homes and land
increased to $63.4 million from $47.7 million for the respective quarters. These
increases are due to the significant increase in home closings, offset by a
decrease in Company's average sales price per home to $226,000 in the third
quarter of fiscal 2000 from $273,000 in the third quarter of fiscal 1999. The
decrease in the average sales price per home reflects a proportionate decrease
in unit sales in California. Total home closings increased from 205 in the third
quarter of fiscal 1999 to 291 in the third quarter of fiscal 2000, including 8
and 3 homes, respectively, closed in unconsolidated joint ventures.
The Company's actual gross margin on home and lot closings increased to
22.3% for the third quarter of fiscal 2000 as compared to 20.0% for the third
quarter of fiscal 1999. The Company's pro forma gross margin on home and lot
closings also increased to 24.2% during the third quarter of fiscal 2000 as
compared to 19.1% for the third quarter of fiscal 1999. These increases are due
to stronger demand experienced in the Company's markets in the current year.
Selling, general and administrative expense of $7.1 million for the third
quarter of fiscal 2000 increased $1.5 million or 26.2% as compared to the third
quarter of fiscal 1999. As a percentage of revenue, selling, general and
administrative expense decreased from 11.8% to 11.2% between quarters, primarily
as a function of the 32.9% increase in sales of homes and land in Company-owned
projects in the current quarter.
Income from unconsolidated joint ventures decreased from $2.3 million in
the third quarter of fiscal 1999 to $315,000 in the third quarter of fiscal
2000, due primarily to fewer unit closings as inventory is reduced.
Interest and other income decreased slightly from $234,000 in the third
quarter of fiscal 1999 to $207,000 in the third quarter of fiscal 2000.
Minority interest of $508,000 for the third quarter of fiscal 2000 and
$163,000 for the third quarter of fiscal 1999 primarily represents the share of
CPH LLC's income attributable to CHF.
Interest incurred was $6.6 million in the third quarter of fiscal 2000, as
compared to $6.7 million in the third quarter of fiscal 1999, while interest
expensed was $6.0 million during the third quarter of fiscal 2000, as compared
to $5.7 million in the third quarter of fiscal 1999.
FIRST NINE MONTHS OF FISCAL 2000 (ENDED NOVEMBER 30, 1999) COMPARED TO
FIRST NINE MONTHS OF FISCAL 1999 (ENDED NOVEMBER 30, 1998)
The Company reported net income of $2.7 million, or $0.20 per share, for
the first nine months of fiscal 2000, as compared to $1.4 million, or $0.10 per
share, for the nine months ended November 30, 1998. The
13
<PAGE> 14
current period's income included an extraordinary gain of $200,000, or $0.02 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 $214.9
million for the first nine months of fiscal 2000 compared to $158.0 million for
the first nine months of fiscal 1999. On a consolidated basis, sales of homes
and land increased to $192.8 million from $123.4 million for the respective nine
month periods. These increases are due to an increase in home closings from 592
units to 902 units between periods offset by a decrease in average sales price
per home from $264,000 to $229,000. The decrease in the average sales price per
home reflects a proportionate decrease in unit sales in California.
The Company's actual gross margin increased from 18.5% for the first nine
months of fiscal 1999 to 19.7% for the first nine months of fiscal 2000. The
Company's pro forma gross margin was 20.3% for the first nine months of fiscal
2000 as compared to 19.3% for the first nine months of fiscal 1999. The Company
closed a total of 21 homes in unconsolidated joint ventures in the nine months
ended November 30, 1999, as compared to 41 homes during the first nine months of
fiscal 1999.
Selling, general and administrative expense of $20.7 million for the first
nine months of fiscal 2000 increased $4.8 million, or 30.5% as compared to the
first nine months of fiscal 1999. As a percentage of revenue, selling, general
and administrative expense decreased from 12.8% for the first nine months of
fiscal 1999 to 10.7% for the first nine months of fiscal 2000, again, due to the
significant increase in sales of homes and land in company-owned projects in the
current year.
Income from unconsolidated joint ventures decreased from $6.2 million in
the first nine months of fiscal 1999 to $1.9 million for the nine months ended
November 30, 1999, due primarily to the smaller number of unit closings as
inventory is reduced.
Interest and other income decreased from $724,000 in the first nine months
of fiscal 1999 to $498,000 in the first nine months of fiscal 2000, primarily as
a result of decreased activity in the Company's mortgage broker operations.
Minority interest of $1.4 million and $615,000 for the nine months ended
November 30, 1999 and 1998, respectively, represents the share of CPH LLC's
income attributable to CHF.
Interest incurred for the first nine months of fiscal 2000 was $16.8
million, as compared to $15.3 million for the first nine months of fiscal 1999.
Interest expensed was $14.8 million for the first nine months of fiscal 2000
compared to $11.4 million in the first nine months of fiscal 1999.
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
November 30, 1999, the Company has in place several credit facilities totaling
$225 million (the "Facilities") with various bank lenders (the "Banks"), of
which $116 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 November 30, 1999, CPH LLC was in compliance with
these covenants. The Facilities also define certain events that constitute
events of default. As of November 30, 1999, no such event had occurred.
Commitment fees are payable annually on some of the Facilities.
Homebuilding activity and other development 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.
14
<PAGE> 15
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. As of November 30, 1999, Senior Notes with a face value of
$2.2 million have been repurchased by the Company. The Senior Notes mature in
May, 2002.
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 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 software, as well as more
fully integrate the Company's operations. The new software package was
substantially implemented by November 30, 1999.
The Company also investigated the Y2K compliance status of its vendors,
subcontractors and suppliers through the Company's own vendor compliance
program. 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 was not expected to have a
material effect on the Company.
To date, the Company has incurred approximately $1.0 million 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 during the remainder of fiscal 2000 in the course of completing its Y2K
compliance program. These costs 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 any such variance is not expected to be material.
As of January 14, 2000, the Company is not aware of any significant Y2K
issues which have impacted its operations.
MARKET RISK EXPENSE
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 1999 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
15
<PAGE> 16
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 November 30, 1999, $97.8 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 third 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 $1.2 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.
16
<PAGE> 17
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
17
<PAGE> 18
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: January 14, 2000 By: /s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
Date: January 14, 2000 By: /s/ STEVEN O. SPELMAN, JR.
------------------------------------
Steven O. Spelman, Jr.
Senior Vice President,
Chief Financial Officer and
Corporate Secretary
(Principal Financial Officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 1,686
<SECURITIES> 0
<RECEIVABLES> 8,037
<ALLOWANCES> 0
<INVENTORY> 291,036
<CURRENT-ASSETS> 0
<PP&E> 8,596
<DEPRECIATION> 0
<TOTAL-ASSETS> 335,305
<CURRENT-LIABILITIES> 0
<BONDS> 97,800
0
0
<COMMON> 1,500
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 335,305
<SALES> 192,787
<TOTAL-REVENUES> 192,787
<CGS> 154,853
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,836
<INCOME-PRETAX> 3,378
<INCOME-TAX> 846
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 200
<CHANGES> 0
<NET-INCOME> 2,732
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
