<PAGE>
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 June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from_____________to______________
COMMISSION FILE NUMBER 0-22948
C. BREWER HOMES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 99-0145055
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
24 N. CHURCH ST., SUITE 205
WAILUKU, HAWAII 96793
(Address of principal executive offices) (Zip code)
(808) 242-6833
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes___x_____ No_______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
July 15, 1996
----------------
CLASS A COMMON STOCK (PAR VALUE $.01 PER SHARE) 2,870,423 shares
CLASS B COMMON STOCK (PAR VALUE $.01 PER SHARE) 5,465,577 shares
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C. BREWER HOMES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income (Loss) - Quarters
Ended June 30, 1996 and June 30, 1995 3
Balance Sheets - June 30, 1996 and March 31, 1996 4
Statements of Cash Flow - Quarters
Ended June 30, 1996 and June 30, 1995 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
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C. BREWER HOMES, INC
STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Quarters Ended
--------------------
June 30, June 30,
1996 1995
------ ------
Property sales.......................................... $2,423 $ 195
Cost of property sales.................................. 2,066 46
------ ------
Gross margin.......................................... 357 149
General and administrative expenses..................... 708 1,098
------ ------
Operating loss....................................... (351) (949)
Equity in earnings of Iao Partners...................... 30 306
Interest income (expense) - net......................... (15) 41
Other expense - net..................................... (78) (249)
------ ------
Loss before income tax benefit.......................... (414) (851)
Income tax benefit...................................... (149) (331)
------ ------
Net loss................................................ $ (265) $ (520)
====== ======
Loss per common share................................... $(0.03) $(0.06)
====== ======
Weighted average number of common shares outstanding.... 8,332 8,336
====== ======
The accompanying notes are an integral part of the financial statements.
Page 3
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C. BREWER HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
June 30, March 31,
1996 1996
--------- ----------
(unaudited)
ASSETS
Cash and cash equivalents............................. $ 1,524 $ 3,080
Mortgage notes receivable............................. 2,300 2,636
Real estate developments.............................. 37,600 36,606
Investment in Iao Partners, net of deferred land gain. 3,042 2,936
Property and equipment - net 174 162
Income taxes receivable............................... 75 75
Other assets.......................................... 458 430
-------- --------
Total assets....................................... $ 45,173 $ 45,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to banks............................... $ 26,264 $ 27,395
Accounts payable..................................... 1,410 702
Accrued expenses..................................... 3,949 3,777
Deferred income taxes................................ 2,032 2,181
Other liabilities.................................... 96 183
-------- --------
Total liabilities................................. 33,751 34,238
-------- --------
Commitments and contingencies
Stockholders' equity
Class A Common Stock, $.01 par value, one vote per
share, 2,700,173 shares issued and outstanding.... 27 27
Class B Common Stock, $.01 par value, three votes
per share, 5,635,827 shares issued and outstanding. 57 57
Additional paid-in capital......................... 27,370 27,370
Retained deficit................................... (16,008) (15,743)
Treasury stock, at cost, 4,335 shares.............. (24) (24)
-------- -------
Total stockholders' equity...................... 11,422 11,687
-------- -------
Total liabilities and stockholders' equity...... $ 45,173 $45,925
======== =======
The accompanying notes are an integral part of the financial statements
Page 4
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C. BREWER HOMES, INC.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Quarters Ended
--------------------
June 30, June 30,
1996 1995
--------- ---------
Operating activities
Net loss............................................ $ (265) $ (520)
Adjustments to net loss
Depreciation...................................... 15 11
Deferred income taxes............................. (149) (331)
Equity in earnings of Iao Partners................ (30) (306)
Amortization of deferred land gain................ (76) (185)
Changes in operating assets and liabilities
Mortgage notes receivable......................... 336 (6)
Real estate developments.......................... (994) (4,018)
Other assets...................................... (28) 500
Accounts payable.................................. 708 (4,410)
Income taxes payable.............................. -- (90)
Accrued expenses.................................. 172 (421)
Other liabilities................................. (87) (443)
-------- --------
Cash flow used in operating activities........ (398) (10,219)
-------- --------
Investing activities
Capital expenditures.............................. (27) (4)
Other............................................. -- 4
-------- --------
Cash flow used in investing activities....... (27) --
-------- --------
Financing activities
Loan proceeds..................................... 1,126 --
Loan payments..................................... (2,257) (2,875)
-------- --------
Cash flow used in financing activities........ (1,131) (2,875)
-------- --------
Decrease in cash and cash equivalents................. (1,556) (13,094)
Cash and cash equivalents at beginning of period...... 3,080 16,179
-------- --------
Cash and cash equivalents at end of period............ $ 1,524 $ 3,085
======== ========
The accompanying notes are an integral part of the financial statements.
Page 5
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C. BREWER HOMES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements of C. Brewer Homes, Inc. (the "Company") include all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly its financial position as of June 30, 1996, and its results
of operations and cash flows for the quarters ended June 30, 1996 and
June 30, 1995. The results of operations for the quarter ended June 30,
1996 are not necessarily indicative of the results to be expected for
the full year or for any future period.
2. LOSS PER COMMON SHARE
Loss per common share is computed using the weighted average number of
common shares outstanding during the period.
3. CASH DIVIDENDS
The Company did not pay cash dividends on its common stock during the
quarters ended June 30, 1996 and June 30, 1995.
4. INVESTMENT IN IAO PARTNERS
Condensed financial information relating to the Company's investment in
Iao Partners is as follows (in thousands):
Quarters Ended
-------------------------
June 30, June 30,
1996 1995
--------- ---------
Statements of Income
Sales of residential real estate...... $ 1,353 $ 2,916
Cost of residential real estate sold.. 1,304 2,343
--------- ---------
Gross profit........................ 49 573
Interest income....................... 13 40
General and administrative expenses... (2) --
--------- ---------
Pre-tax income...................... $ 60 $ 613
--------- ---------
5. NOTES PAYABLE
On August 31, 1995, the Company entered into two secured revolving loan
agreements with the Bank of Hawaii and City Bank ("Lenders") that provide for a
maximum outstanding balance of $35 million and which expire in September 1998.
Recently, the Company received a commitment letter from the Lenders pursuant to
which, subject to the terms and conditions set forth therein, the Lenders have
agreed to amend the terms and conditions of the existing revolving loan
facilities to allow advances not
Page 6
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to exceed $5 million for working capital purposes through fiscal year 1997.
In addition to the collateral already held by the Lenders, the Company would
be required to deliver a C. Brewer and Company, Limited ("CBCL") guaranty.
CBCL has indicated to the Company a willingness to provide such guaranty
subject to a first mortgage on certain property owned by the Company. In
addition, such guaranty is subject to approval by CBCL's Board of Directors
and its lenders. CBCL has indicated that it is unaware of any objections to
providing such guaranty from its Board of Directors and lenders based on
preliminary discussions with representatives of both. The Company believes
that such an amendment to the existing loan facilities is necessary for the
Company to meet its working capital requirements through fiscal year 1997.
In addition, the Company is also seeking to generate additional funds through
sales of certain land parcels.
6. STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The standard encourages a fair
value based method of accounting for employee stock options or similar equity
instruments, but allows continued use of the intrinsic value based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company will continue to follow
the provisions set forth in APB No. 25 and will therefore make the pro forma
disclosures that will be required by SFAS No. 123 in its financial statements
for the year ended March 31, 1997.
7. RECLASSIFICATION
Certain prior year's amounts have been reclassified to conform to the June
30, 1996 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the matters
discussed in this report contain forward-looking statements that involve
risks and uncertainties that could cause results to differ materially. The
cautionary statements made should be read as being applicable to all related
forward-looking statements wherever they appear. The Company's actual
results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include those discussed herein
and those incorporated by reference.
OVERVIEW
The Company, which was a subsidiary of C. Brewer and Company, Limited
("CBCL") before December 1993, had historically performed the land entitlement,
development and marketing functions for CBCL. Prior to the quarter ended
December 31, 1993, the Company's revenue was derived from the sale of developed
land, including sales of large parcels and individual lots. In late 1993, the
Company shifted its strategy away from land sales to the construction and sale
of homes to maximize the value inherent in its landholdings.
While the Company's present business strategy does not emphasize land
sales, one of its current projects, Kalihiwai Ridge II on the island of Kauai,
includes the improvement and sale of large parcels suitable for homesites.
Although the Company's current strategy focuses on the construction and
sale of homes, the Company has deferred 50% of the revenue and costs relating to
the land it sold to its joint venture partner at the Iao Parkside project on the
island of Maui. The Company sold this land to Schuler Homes, Inc. ("SHI") in
fiscal 1993, and it was subsequently contributed to a joint venture in which the
Company is a 50% partner. To date, the Company has recognized approximately
$6.4 million of the income from this sale through the quarter ended June 30,
1996. At June 30, 1996 the Company had deferred income of approximately $1.2
million related to this sale that will be recognized as home sales are closed
at the Iao Parkside project.
Except as indicated above, the Company generally records a sale and
recognizes income when a closing occurs and title passes to the purchaser. To
the extent that the Company provides mortgage financing to a purchaser, minimum
down payment and continuing investment criteria required by generally accepted
accounting principles must be met before sales are recorded and income is
recognized. The Company currently offers mortgage financing only to purchasers
of lots at its Kalihiwai Ridge II project and, on a limited basis, a second
mortgage up to 20% of the selling price for certain homes at its Kehalani
project.
The Company has experienced, and expects to continue to experience,
variability in revenue and net income on a quarterly basis. Many factors
contribute to this variability including: (i) the timing of home closings and
land sales; (ii) the condition of the real estate markets and the economy in
general in Hawaii; (iii) the cyclical nature of the homebuilding industry and
changes in prevailing interest rates; (iv) costs of materials and labor; (v) the
availability and cost of capital; and (vi) delays in construction schedules
caused by the timing of inspections and approvals by regulatory agencies
including zoning approvals and receipt of entitlements, the completion of
necessary public infrastructure, the timing of utility hookups, and adverse
weather. This variability may cause the Company's overall results of operations
to fluctuate significantly on a quarter-to-quarter basis, and revenues
anticipated to occur in a fiscal quarter may not be earned until subsequent
fiscal quarters. For example, the Company's home sales in fiscal 1996 continued
to be negatively impacted due to a weakness in the Hawaii economy. Any
increases in home mortgage interest and local unemployment rates may adversely
affect future demand for the Company's homes.
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RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
should be read in conjunction with the Financial Statements and Notes thereto.
PROPERTY SALES. The Company's revenue from property sales for the quarter
ended June 30, 1996 was $2.4 million compared to $195,000 for the quarter ended
June 30, 1995. At Kehalani, the Company closed ten home sales at an average
price of $233,000 during the first quarter of fiscal 1997, while no homes sales
were closed in the first quarter of fiscal 1996. During the first quarter of
fiscal 1997, the Company recognized $.1 million of revenue compared to $.2
million recognized in the prior year's first quarter related to the deferred
gain on the land sale to SHI, which property was subsequently contributed to the
Iao Partners 50%-owned joint venture in fiscal 1993.
COST OF PROPERTY SALES. Cost of property sales for the first quarter of
fiscal 1997 was $2.1 million compared to to $46,000 in the first quarter of
fiscal 1996. The increase in cost of property sales in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996 was attributable to
increased home sales closings.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include charges from CBCL for risk management, employee benefits, human
resources, office maintenance and other services provided to the Company, offset
by the Company's charges to CBCL for certain land entitlement, development
(including planning and engineering) and management services. General and
administrative expenses for the first quarter of fiscal 1997 were $708,000
compared to $1.1 million in the first quarter of fiscal 1996. This decrease was
primarily the result of non-recurring expenses incurred in the first quarter of
fiscal 1996 in connection with seeking additional debt financing.
EQUITY IN EARNINGS OF IAO PARTNERS. The Company and SHI entered into a
joint venture partnership agreement in October 1992 (which was subsequently
amended in October 1993), in connection with acquisition by SHI of the Iao
Parkside property from the Company. SHI contributed the Iao Parkside property
and $25,000 to the joint venture partnership and the Company contributed
$25,000. Each partner has a 50% interest in the joint venture partnership which
is engaged in the development and sale of 480 "affordable" multi-family
condominium homes on approximately 28 acres. The equity in earnings recognized
for this joint venture was $30,000 in the first quarter of fiscal 1997 as
compared to $306,000 in the first quarter of fiscal 1996. This represents the
Company's share of income from the closing of ten units at the Iao Parkside
project in the first quarter of fiscal 1997 compared to 22 units closed in the
first quarter of fiscal 1996. In addition, construction costs incurred for the
first quarter of fiscal 1997 were higher than those incurred in the first
quarter of last year resulting in decreased gross margins for the project.
INTEREST INCOME (EXPENSE) -- NET. Interest income (expense) -- net
consists of interest earned from temporary investment of cash balances in
investment-grade, short-term, interest-bearing securities, and interest
revenue associated with purchase money mortgage notes owned by the Company,
offset by interest expense incurred which is not capitalized. Interest
expense -- net in the first quarter of fiscal 1997 was ($15,000) compared to
interest income -- net of $41,000 in the previous year's first quarter.
Interest expense-net was higher in the first quarter of fiscal 1997 as
compared to the first quarter of fiscal 1996 primarily due to higher cash
balances and, thus, increased interest income in the prior year's first
quarter compared to the current year's first quarter.
OTHER EXPENSE -- NET. Other expense -- net consists of miscellaneous
income and expense items including certain marketing and advertising
expenses. Other expense -- net in the first quarter of fiscal 1997 was
$78,000 compared to $249,000 in the first quarter of fiscal 1996. The
decrease of $171,000 in other expense-net in the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996 was
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principally attributable to a decrease in certain marketing and advertising
for the Company's Kehalani project.
DEFERRED REVENUE AND BACKLOG
The Company deferred 50% of the revenue from the land sold to SHI for its
Iao Parkside joint venture project. As of June 30, 1996, the Company had a
total of $1.5 million in deferred revenue that will be recognized as the homes
in this project are sold.
At June 30, 1996 the Company's backlog consisted of 47 homes with an
aggregate sales value of $9.5 million. At Kehalani, 36 homes were in backlog
with a total sales value of $8.0 million. At Iao Parkside, 11 homes with an
aggregate sales value of $1.5 million were in backlog. The backlog at Iao
Parkside represents 100% of the joint venture's sales contracts. The
financial results of this joint venture partnership are not consolidated into
the Company's results, but rather are accounted for by the equity method.
Accordingly, the Company will not recognize 100% of the revenue from such
contracts, but will recognize 50% of the financial results of this joint
venture partnership. Sales contracts included in backlog are typically
subject to cancellation by the purchaser under specified circumstances such
as failure to obtain financing. As a result, no assurance can be given that
the homes which presently comprise backlog will result in actual closings nor
can assurance be given as to when such closings may occur. In addition, the
Company believes that home sales rates on the island of Maui continue to be
adversely affected by various factors, including uncertainty of prospective
home buyers resulting from a weakness in the Hawaiian economy.
LIQUIDITY AND FINANCIAL CONDITION
The Company requires capital to plan projects, obtain entitlements,
acquire and develop land, and construct homes. Prior to the Company's
restructuring and initial public offering, the Company used internally
generated funds and funds from CBCL for development purposes, including
planning, entitling, engineering, site preparation, construction of roads,
water and sewer lines, as well as the construction and marketing of its lots
and parcels of land. In December 1993, the Company consummated its initial
public offering of Class A Common Stock, which resulted in net proceeds to
the Company of $27.4 million.
The Company has both short-and long-term capital requirements, including
those relating to its Kehalani project. The Company intends to fund its
capital requirements through a combination of internally generated funds,
bank and other financing, and available cash reserves. The Company further
intends to primarily rely on bank financing for its home construction
requirements. As a result, the Company's business and earnings are
substantially dependent on its ability to obtain financing on acceptable
terms. The Company also plans to seek additional financing, a portion of the
proceeds from which will be used to fund necessary development work at its
Kehalani master-planned community. No assurance can be given that the
Company will be able to obtain such financing or that any such financing will
be on terms acceptable to the Company.
In August 1995, the Company entered into two secured revolving loan
agreements with the Bank of Hawaii and City Bank (collectively, the
"Lenders") that provide for a maximum outstanding balance of $35 million and
which expire in September 1998. Recently, the Company received a commitment
letter from the Banks pursuant to which, subject to the terms and conditions
set forth therein, the Banks have agreed to amend the terms and conditions of
the existing revolving loan facilities to allow advances not to exceed $5
million for working capital purposes through fiscal 1997. In addition to the
collateral already held by the Banks, the Company would be required to
deliver a CBCL guaranty. CBCL has indicated to the Company a willingness to
provide such guaranty subject to a first mortgage on certain property owned
by the Company. In addition, such guaranty is subject to approval by CBCL's
Board of Directors and its lenders. CBCL has indicated that it is unaware of
any objections to providing such
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guaranty from its Board of Directors and its lenders based on preliminary
discussions with representatives of both. The Company believes that such an
amendment to the existing loan facilities is necessary for the Company to
meet its working capital requirements through fiscal year 1997. In addition,
the Company is also seeking to generate additional funds through sales of
certain land parcels. Moreover, the Company anticipates that it will require
additional long-term financing to further develop its projects. The Company
is currently continuing its ongoing efforts to obtain such long-term
financing. Failure to obtain such working capital facility and long-term
financing would have a material adverse effect on the Company's business.
Page 11
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C. BREWER HOMES, INC.
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Description
---------- -----------
11.1 Statement regarding computation of loss per common share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1996.
Page 12
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C. BREWER HOMES, INC.
SIGNATURE
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 thereto duly authorized.
C. BREWER HOMES, INC.
(Registrant)
Date: August 14, 1996 By /s/ Edward T. Foley
-------------------------------------------
EDWARD T. FOLEY
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
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C. BREWER HOMES, INC.
EXHIBIT INDEX
Sequentially
Numbered
Page
Exhibit No. Description Number
- ----------- -----------
11.1 Statement regarding computation of
loss per common share 15
27.1 Financial Data Schedule 16
Page 14
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Exhibit 11.1
C. BREWER HOMES, INC.
STATEMENT REGARDING COMPUTATION OF LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT FOR LOSS PER COMMON SHARE INFORMATION)
Quarters Ended
--------------------
June 30, June 30,
1996 1995
-------- --------
Class A Common Stock
Shares issued and outstanding 2,700 2,622
Class B Common Stock
Shares issued and outstanding 5,636 5,714
Treasury stock purchased July 26, 1995 (4) -
-------- --------
Weighted average number of common shares outstanding 8,332 8,336
======== ========
Net loss $ (265) $ (520)
======== ========
Loss per common share $ (0.03) $ (0.06)
======== ========
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,524
<SECURITIES> 0
<RECEIVABLES> 2,300
<ALLOWANCES> 0
<INVENTORY> 37,600
<CURRENT-ASSETS> 1,599
<PP&E> 293
<DEPRECIATION> 119
<TOTAL-ASSETS> 45,173
<CURRENT-LIABILITIES> 5,359
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 11,338
<TOTAL-LIABILITY-AND-EQUITY> 45,173
<SALES> 2,423
<TOTAL-REVENUES> 2,423
<CGS> 2,066
<TOTAL-COSTS> 2,066
<OTHER-EXPENSES> 801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (414)
<INCOME-TAX> (149)
<INCOME-CONTINUING> (265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (265)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
