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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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)
255-A EAST WAIKO ROAD
WAILUKU, HAWAII 96793
(Address of principal executive offices) (Zip code)
(808) 242-6833
(Registrant's telephone number, including area code)
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
--- ---
The number of shares outstanding of each of the registrant's classes of common
stock on November 6, 1998, excluding 4,335 shares of Class B Common Stock held
in treasury and not deemed outstanding, was as follows:
Class A Common Stock (par value $.01 per share) 4,084,597 shares
Class B Common Stock (par value $.01 per share) 4,247,068 shares
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C. BREWER HOMES, INC.
INDEX
<TABLE>
<CAPTION> Page
Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Loss - Quarters and Half Years
Ended September 30, 1998 and September 30, 1997................. 3
Balance Sheets - September 30, 1998 and March 31, 1998.......... 4
Statements of Cash Flow - Half Years
Ended September 30, 1998 and September 30, 1997................. 5
Notes to Financial Statements................................... 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 9 - 17
Item 3 Quantitative and Qualitative Disclosure About Market Risk....... 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............. 18
Item 5. Other Information................................................ 19
Item 6. Exhibits and Reports on Form 8-K................................. 20
Signature................................................................. 21
</TABLE>
2
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C. BREWER HOMES, INC.
STATEMENTS OF LOSS
(IN THOUSANDS, EXCEPT LOSS PER COMMON SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Half Years Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Property sales ........................................... $ 2,612 $ 6,111 $ 8,717 $ 6,735
Cost of property sales ................................... 2,357 5,652 8,581 6,265
------------- ------------- ------------- -------------
Gross profit ......................................... 255 459 136 470
General and administrative expenses ...................... 479 531 1,085 1,004
Asset impairment loss .................................... 600 -- 600 --
------------- ------------- ------------- -------------
Operating loss ....................................... (824) (72) (1,549) (534)
Merger transaction costs ................................. -- -- (300) --
Equity in earnings of Iao Partners ....................... 61 26 78 47
Interest expense - net ................................... (81) (74) (191) (134)
Other income (expense) - net ............................. (30) (34) 3 74
------------- ------------- ------------- -------------
Loss before income tax benefit ....................... (874) (154) (1,959) (547)
Income tax benefit ....................................... (341) (60) (764) (213)
------------- ------------- ------------- -------------
Net loss ............................................. $ (533) $ (94) $(1,195) $ (334)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Loss per common share .................................... $ (0.06) $ (0.01) $ (0.14) $ (0.04)
------------- ------------- ------------- -------------
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Weighted average number of common shares outstanding ..... 8,332 8,332 8,332 8,332
------------- ------------- ------------- -------------
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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C. BREWER HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
September 30, March 31, 1998
1998 1998
------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ..................................................... $ 555 $ 219
Restricted cash ............................................................... 809 800
Mortgage notes receivable ..................................................... 641 887
Real estate developments ...................................................... 26,919 31,209
Investment in Iao Partners, net of deferred land gain ......................... 3,172 2,995
Property and equipment - net .................................................. 94 116
Income taxes receivable ....................................................... 79 436
Other assets .................................................................. 335 549
-------- --------
Total assets ............................................................. $ 32,604 $ 37,211
-------- --------
-------- --------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Notes payable to banks ........................................................ $ 20,585 $ 21,889
Accounts payable .............................................................. 949 2,387
Accrued expenses .............................................................. 3,967 3,873
Deferred income taxes ......................................................... 775 1,524
Other liabilities ............................................................. 30 45
-------- --------
Total liabilities ........................................................ 26,306 29,718
-------- --------
Commitments and contingencies
Stockholders' equity
Class A Common Stock, $.01 par value, one vote per share, 4,084,597 shares
issued and outstanding at September 30, 1998 and 3,668,344 shares issued
and outstanding at March 31, 1998 ........................................ 41 37
Class B Common Stock, $.01 par value, three votes per share, 4,251,403
shares issued and outstanding at September 30, 1998 and 4,667,656 shares
issued and outstanding at March 31, 1998 ................................. 43 47
Additional paid-in capital ............................................... 27,370 27,370
Retained deficit ......................................................... (21,132) (19,937)
Treasury stock, at cost, 4,335 shares .................................... (24) (24)
-------- --------
Total stockholders' equity ............................................... 6,298 7,493
-------- --------
Total liabilities and stockholders' equity ............................... $ 32,604 $ 37,211
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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C. BREWER HOMES, INC.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Half Years Ended
--------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Operating activities
Net loss ................................................. $(1,195) $ (334)
Adjustments to net loss
Depreciation ......................................... 21 38
Deferred income taxes ................................ (749) --
Equity in earnings of Iao Partners ................... (78) (47)
Amortization of deferred land gain ................... (99) (137)
Changes in operating assets and liabilities
Restricted cash ...................................... (9) --
Mortgage notes receivable ............................ 246 122
Real estate developments ............................. 4,290 (997)
Income taxes receivable .............................. 357 (214)
Other assets ......................................... 214 (175)
Accounts payable ..................................... (1,438) 749
Accrued expenses ..................................... 94 (31)
Other liabilities .................................... (15) (4)
------- -------
Cash flow from (used in) operating activities .... 1,639 (1,030)
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Investing activities
Capital expenditures ................................. (2) (4)
Other ................................................ 3 --
------- -------
Cash flow from (used in) investing activities .... 1 (4)
------- -------
Financing activities
Loan proceeds ........................................ 6,547 7,312
Loan payments ........................................ (7,851) (6,241)
------- -------
Cash flow from (used in) financing activities .... (1,304) 1,071
------- -------
Increase in cash and cash equivalents ........................ 336 37
Cash and cash equivalents at beginning of period ............. 219 147
------- -------
Cash and cash equivalents at end of period ................... $ 555 $ 184
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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C. BREWER HOMES, INC.
NOTES OF 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 September 30, 1998, and its results
of operations and cash flows for the periods ended September 30, 1998 and
September 30, 1997. The results of operations for the quarter and half year
ended September 30, 1998 are not necessarily indicative of the results to be
expected for the full year or for any future period.
2. PROPOSED MERGER
On December 18, 1997, the Company and Mauna Loa Macadamia Partners,
L.P. (the "Partnership") entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which the Company would have been merged with
and into the Partnership with the Partnership surviving the merger as a Delaware
limited partnership (the "Merger"). Consummation of the Merger was subject to
several conditions, including obtaining the requisite approval thereof by the
stockholders of the Company and the unitholders of the Partnership. By reason of
the failure of the unitholders of the Partnership to approve the Merger, the
Merger Agreement was terminated by the Company on June 26, 1998. During fiscal
year 1998, the Company recognized $644,000 in merger transaction costs. The
Company recognized an additional $300,000 in merger related costs in the first
quarter of fiscal year 1999, primarily consisting of professional fees and the
Company's share of certain proxy printing and mailing costs.
3. RESTRICTED CASH
Restricted cash includes funds held in escrow for infrastructure
improvements at the Company's Kehalani master-planned community on the island of
Maui in conjunction with the sale of the Nanea subdivision during fiscal year
1998.
4. ASSET IMPAIRMENT
During the quarter ended September 30, 1998, the Company determined
that certain costs related to the Kaimana subdivision of the Kehalani
master-planned community would not be recovered, and accordingly recognized an
asset impairment loss of $600,000. The fair value of the subdivision was based
on the estimated revenue of the remaining units.
5. INVESTMENT IN IAO PARTNERS
Condensed financial information relating to the Company's investment in
Iao Partners is as follows (in thousands):
<TABLE>
<CAPTION>
Quarters Ended Half Years Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of residential real estate $ 859 $ 1,697 $ 1,670 $ 2,300
Cost of residential real estate sold 782 1,661 1,545 2,259
------------- -------------- ------------- -------------
Gross profit 77 36 125 41
Interest income 48 54 95 108
General and administrative expenses (4) (4) (64) (8)
------------- -------------- ------------- -------------
Income before taxes $ 121 $ 86 $ 156 $ 141
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
6
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6. NOTES PAYABLE
On August 31, 1995, the Company entered into two secured revolving loan
agreements (an infrastructure loan agreement and a building loan agreement,
collectively referred to as the "Revolving Loan Agreements") with the Bank of
Hawaii and City Bank (the "Lenders") which provided for a maximum outstanding
balance of $35 million and which were scheduled to expire in September 1998. On
September 5, 1996, the Company entered into two modification agreements (the
"First Loan Modification Agreements") with the Lenders which amended the terms
and conditions of the Revolving Loan Agreements to allow advances not to exceed
an aggregate of $4 million for working capital purposes. All advances made under
the First Loan Modification Agreements for working capital purposes together
with all accrued and unpaid interest were due and payable in full on April 30,
1997. The First Loan Modification Agreements also required the Company to remit
to the Lenders 100% of the net proceeds from the sale of each home at the
Company's Kehalani project. Pursuant to the First Loan Modification Agreements,
and in addition to the collateral already held by the Lenders, C. Brewer and
Company, Limited ("CBCL") delivered a guaranty of payment for the Company's
indebtedness related to the working capital advances. The Company's obligation
to repay any amounts paid by CBCL under such guaranty was secured by a first
mortgage lien in favor of CBCL on the Company's Kalihiwai Ridge III property
located on the island of Kauai.
On July 25, 1997, the Company and the Lenders entered into an agreement
to consolidate and restructure the Revolving Loan Agreements, as modified by the
First Loan Modification Agreements (the "Master Facility Agreement"). The Master
Facility Agreement provides for a maximum outstanding principal balance of
approximately $31.4 million and includes: (i) four individual commercial
mortgage loans in the aggregate amount of approximately $21.4 million with per
annum interest rates ranging from the Bank of Hawaii's base rate (the "Base
Rate") plus 1% to the Base Rate plus 2%, (ii) a revolving line of credit for
borrowing up to $6 million for working capital purposes with a per annum
interest rate at the Base Rate plus .5% (the "Working Capital Line of Credit"),
and (iii) a revolving line of credit for borrowing of up to $4 million for home
construction at the Company's Kaimana and Halemalu projects with a per annum
interest rate at the Base Rate plus 1%. Pursuant to the terms of the Master
Facility Agreement, and in addition to a first mortgage lien already held by the
Lenders on the Company's Kehalani property on the island of Maui, the Company
executed in favor of the Lenders a first mortgage on its Puueo I and Puueo II
properties on the island of Hawaii. In addition, CBCL delivered a guaranty for
payment of the Working Capital Line of Credit. The Company's obligations to
repay any amounts paid by CBCL under such guaranty is secured by a first
mortgage lien on the Company's Kalihiwai Ridge III property.
On March 25, 1998, the Company executed a First Amendment to the Master
Facility Agreement (the "First Loan Amendment") with its Lenders. The First Loan
Amendment extended the maturity of the existing Master Facility Agreement from
May 31, 1998 to December 1, 1998. In addition, the First Loan Amendment amended,
among other things, provisions in the Master Facility Agreement relating to the
allocation of the net sales proceeds from the sale of the homes at the Company's
Kaimana subdivision between the commercial mortgage loans and the Working
Capital Line of Credit portions of the Master Facility Agreement. The Loan
Amendment also specified the manner in which the net sales proceeds from the
sales of the Nanea subdivision of the Kehalani master-planned community and the
Iao II parcel will be applied, including amounts to be set aside for certain
infrastructure improvements at Kehalani. See Note 3.
On July 17, 1998, the Company executed a Second Amendment to the Master
Facility Agreement (the "Second Loan Amendment") with its Lenders. The Second
Loan Amendment extended the maturity date of the existing Master Facility
Agreement from December 1, 1998 to June 30, 1999. The Second Loan Amendment also
amended, among other things, provisions in the Master Facility Agreement
relating to the allocation of the net sales proceeds from the sale of the
Company's unencumbered properties between the commercial mortgage loans and the
Working Capital Line of Credit portions of the Master Facility Agreement. In
addition, the Second Loan Amendment adjusted the interest rate charged on the
commercial mortgage loans of the Master Facility Agreement to a floating rate
equal to the Base Rate plus 1.5%.
7. LOSS PER COMMON SHARE
Loss per common share is computed using the weighted average number of
common shares outstanding during the period.
7
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8. CASH DIVIDENDS
The Company did not pay cash dividends on its common stock during the
quarters ended September 30, 1998 and September 30, 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical financial information contained herein, the
following discussion and analysis may contain "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include declarations regarding the intent, belief or current expectations of the
Company and its management. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties. The Company's actual results could differ
materially from those indicated by such forward-looking statements. Among the
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are: (i) risks associated
with the Company's working capital position and the repayment or refinancing of
its existing indebtedness; (ii) risks associated with the stagnant economy and
slow real estate market in Hawaii; (iii) risks associated with asset
impairments; (iv) variability in quarterly operating results; (v) risks
associated with the concentration of the Company's business in Hawaii; (vi)
risks associated with the lack of adequate public infrastructure in Hawaii;
(vii) risks associated with the long-term nature of planned residential
projects, high capital investment and carrying costs; (viii) risks associated
with the entitlement process for development of property in Hawaii; (ix) risk of
natural disasters, including hurricanes, volcanic eruptions, and drought (and
the impact of drought on the availability of water for domestic consumption and
irrigation); (x) risks associated with the recent commencement of general
contractor activities; (xi) risks associated with the homebuilding industry;
(xii) the rate of new home sales; (xiii) effects of interest rate increases and
the availability of mortgage financing; (xiv) risks associated with
environmental and conservation matters; (xv) increased land acquisition costs;
(xvi) risks associated with competition; (xvii) restrictions on land use and
development; (xviii) risks associated with the availability of homeowner's
insurance in Hawaii; (xix) risks associated with the inability to obtain
policies of insurance assuring the Company of good and marketable title to
certain parcels of land; (xx) risks associated with obtaining performance,
maintenance and other bonds; (xxi) effects of increases in unemployment in
Hawaii; and (xxii) other risks identified from time to time in the Company's
reports and registration statements filed with the Securities and Exchange
Commission.
The following discussion of results of operations and financial
condition should be read in conjunction with the Financial Statements and Notes
contained in Item I. - Financial Statements.
OVERVIEW
The Company, which was a subsidiary of CBCL until December 1993, had
historically performed the land entitlement, development and marketing functions
for CBCL. From late 1993 through early 1997, the Company's business strategy was
focused primarily on the construction and sale of homes. In early 1997, the
Company expanded its business strategy to include the development and sale of
lots and parcels of land, which had been the Company's primary business strategy
prior to late 1993, and to act as its own general contractor for the
construction of homes for its residential development at Kaimana. The Company is
presently selling homes in two developments on the island of Maui and offering
homesites in one development on the island of Kauai. In view of current market
conditions and its capital condition, however, the Company has no immediate
plans to build homes on its other lands and has now shifted its focus to selling
its lands to other builders, developers, and investors. The lands offered for
sale to other builders and developers beginning in the Company's 1998 fiscal
year included the Nanea and Makai Residential projects, comprised of 47 acres on
which could be constructed a total of 406 residential units, and the Makai
Commercial project, comprised of 20 acres. In fiscal year 1998, the Company sold
Nanea to an unrelated third-party for $2.2 million, of which approximately $1.4
million of the proceeds were paid to the Lenders under the Company's Master
Credit Facility and $800,000 of the proceeds were held by the Lenders in a
restricted escrow account for infrastructure improvements at the Company's
Kehalani master-planned community on the island of Maui. The Makai Residential
and Makai Commercial projects on the island of Maui, along with the Kalihiwai
Ridge III project on the island of Kauai, continue to be offered for sale to
other builders and developers. In the first quarter of fiscal year 1999, the
Company sold the unentitled land holdings comprising its Iao II project to an
unrelated third party for $2.0 million with approximately $1.9 million of the
proceeds paid to the Lenders as required under the Company's Master Credit
Facility.
The Company is presently building and selling homes on the island of
Maui at its Kaimana subdivision and at its 50% joint venture Iao Parkside
development. During fiscal year 1998, the Company completed the sale of the last
of the 30 homes built at its Halemalu subdivision.
9
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Kaimana is a 179-unit single-family residential project, which is part
of the Company's Kehalani master-planned community on the island of Maui. The
Kehalani development is expected to consist of a total of approximately 2,100
homes, including the homes that had been planned for Nanea and the Makai
Residential Parcels, ranging from affordably priced multi-family condominiums to
executive-quality single-family homes. In November 1994, the Company began
selling single-family homes at Kaimana and delivered the first homes in March
1995. Through September 30, 1998, 159 home sales had closed at Kaimana. The
Company currently plans to complete construction and sale of the remaining 20
homes at the Kaimana project in fiscal year 1999, acting as its own general
contractor.
In fiscal year 1993, the Company sold approximately 28 acres of land to
its 50% joint venture partner, Schuler Homes, Inc. ("SHI"), who subsequently
contributed this land to the Iao Parkside partnership ("Iao Partners"). As a
result, the Company deferred 50% of the revenue and costs relating to the sale.
Through September 30, 1998, the Company has recognized approximately $6.9
million of the deferred income from this sale. At September 30, 1998, the
Company had deferred income of approximately $746,000 related to this sale that
will be recognized as home sales at the Iao Parkside project are closed.
Iao Parkside is a 28-acre, 480-unit low-rise garden condominium project
being constructed and sold through Iao Partners, the 50% joint venture
partnership with SHI. This project is targeted at first-time buyers under
Hawaii's affordable housing policy. Iao Partners began accepting reservations at
this project in March 1993 and executing sales contracts in July 1993. Through
September 30, 1998, 386 home sales had closed. The joint venture partnership has
reduced sales prices in an effort to stimulate home sales. As a result, during
fiscal year 1998, Iao Partners recognized an asset impairment loss of $984,000
related to this project.
Except as indicated above with respect to the recognition of deferred
income relating to the Iao Parkside land sold to SHI, 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. The Company may
continue to provide customer mortgage financing for future land and home sales.
RESULTS OF OPERATIONS
GENERAL. The Company had a loss before income taxes benefit of $874,000
for the second quarter of fiscal year 1999 of which $600,000 was related to the
recognition of an asset impairment loss at the Company's Kaimana subdivision. In
the second quarter of fiscal year 1998 the Company had no asset impairment
losses.
PROPERTY SALES. The Company's revenue from property sales for the
quarter ended September 30, 1998 was $2.6 million compared to $6.1 million for
the quarter ended September 30, 1997. This decrease in revenue in comparison to
the same period in the prior fiscal year was due to lower sales at the Company's
Kehalani project. At Kehalani, the Company closed 11 home sales at an average
price of $203,000 during the second quarter of fiscal year 1999, compared to 27
home sales closed at an average price of $208,000 during the second quarter of
fiscal year 1998. During the second quarter of fiscal year 1999 the Company sold
one parcel on the island of Hawaii compared to no such sales in the second
quarter of fiscal year 1998. In addition, the Company had no sales at its
Kalihiwai Ridge II project on the island of Kauai in the second quarter of
fiscal year 1999 compared to two lots in the second quarter of fiscal year 1998.
Property sales for the half-year ended September 30, 1998 increased to
$8.7 million from $6.7 million for the half-year ended September 30, 1997. This
increase in revenue in first half of fiscal year 1999 in comparison to the same
period in the prior fiscal year was primarily attributable to the sale of the
Company's Iao II project for $2.0 million. The sale of Iao II reflects the
Company's change in its business strategy to sell land to other developers and
builders. During the first half of fiscal year 1999, the Company closed 28
single-family home sales at Kehalani at an average price of $206,000 compared to
30 home sales closings at an average price of $208,000 in the first half of
fiscal year 1998. Also in the first half of fiscal year 1999, the Company
recognized $100,000 in revenue related to the deferred gain on the Iao land sale
to SHI compared to $200,000 in fiscal year 1998.
10
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COST OF PROPERTY SALES. Cost of property sales for the second quarter
of fiscal year 1999 was $2.3 million compared to $5.7 million in the second
quarter of fiscal year 1998. The decrease in cost of property sales in the
second quarter of fiscal year 1999 compared to the second quarter of fiscal year
1998 was primarily attributable to fewer home sales closings.
Cost of property sales for the half year ended September 30, 1998 was
$8.6 million compared to $6.3 million for the half-year ended September 30,
1997. This increase was primarily the result of increased home and land sale
closings in the first half of fiscal year 1999 compared to the same period of
last fiscal year. In addition, cost of property sales as a percentage of
property sales was 98% for the first half of fiscal year 1999 compared to 93%
for the first half of fiscal year 1998. Cost of sales was negatively impacted by
higher than expected costs associated with the Company's Iao II project and
increased costs at its Kalihiwai Ridge II project during the first quarter of
fiscal year 1999.
ASSET IMPAIRMENT LOSS. During the fourth quarter of fiscal year 1996,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This accounting pronouncement requires that long-lived assets,
including homebuilding inventories, be reviewed for impairment, and if
circumstances indicate that the carrying amount of the asset may not be
recoverable, an impairment loss should be recognized.
During the quarter ended September 30, 1998, the Company determined
that certain costs related to the Kaimana subdivision of the Kehalani
master-planned community would not be recovered, and accordingly recognized an
asset impairment loss of $600,000. The fair value of the subdivision was based
on the estimated revenue of the remaining units.
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.
General and administrative expenses for the second quarter of fiscal year 1999
were $479,000 compared to $531,000 in the second quarter of fiscal year 1998.
This decrease was primarily the result of reduced payroll and operating
expenses.
General and administrative expenses for the first half of fiscal year
1999 were $1.1 million, as compared to $1.0 million incurred in the similar
period of fiscal year 1998. This increase was primarily the result of costs
associated with a Release and Separation Agreement and a Consultant Agreement
made in conjunction with the resignation of the Company's Executive
Vice-President and Chief Financial Officer during the first quarter of fiscal
year 1999.
MERGER TRANSACTION COSTS. On December 18, 1997, the Company and Mauna
Loa Macadamia Partners, L.P. entered into an Agreement and Plan of Merger,
pursuant to which the Company would have been merged with and into the
Partnership with the Partnership surviving the merger as a Delaware limited
partnership. Consummation of the Merger was subject to several conditions,
including obtaining the requisite approval thereof by the stockholders of the
Company and the unitholders of the Partnership. By reason of the failure of the
unitholders of the Partnership to approve the Merger, the Merger Agreement was
terminated by the Company on June 26, 1998.
During fiscal year 1998, the Company recognized $644,000 in
merger-related transaction costs. The Company recognized an additional $300,000
in merger-related transaction costs in the first quarter of fiscal year 1999,
primarily consisting of professional fees and the Company's share of certain
proxy printing and mailing costs.
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 $61,000 in the second quarter of fiscal year 1999 as
compared to $26,000 in the second quarter of fiscal year 1998. This represents
the Company's share of income from the closing of 7 unit sales at the Iao
Parkside project in the second quarter of
11
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fiscal year 1999 compared to 13 unit sales closed in the second quarter of
fiscal year 1998.
Equity in earnings of Iao Partners for the six months ended September
30, 1998 was $78,000 compared to $47,000 recorded in the same period of the
prior year. The increase in equity in earnings was primarily attributable to the
decrease in the average cost of homes closed in the first half of fiscal year
1999 compared to the first half of fiscal year 1998.
INTEREST EXPENSE - NET. Interest 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 second quarter
of fiscal year 1999 was $81,000 compared to $74,000 in the previous fiscal
year's second quarter. Interest expense - net was higher in the second quarter
of fiscal year 1999 as compared to the second quarter of fiscal year 1998
primarily due to less interest being capitalized to real estate developments.
The Company anticipates that interest capitalized to real estate developments
will continue to decrease as the construction of homes and active development of
lands is reduced.
Interest expense - net for the first half of fiscal year 1999 was
$191,000 compared to $134,000 for the first half of fiscal year 1998. Interest
expense-net was higher for the first half of fiscal year 1999 compared to the
first half of fiscal year 1998 principally because of a lower percentage of
interest incurred being capitalized to active real estate projects.
OTHER INCOME (EXPENSE) - NET. Other income (expense) - net consists of
miscellaneous income and expense items including certain marketing and
advertising expenses. Other expense - net in the second quarter of fiscal year
1999 was $30,000 compared to $34,000 in the second quarter of fiscal year 1998.
The decrease in other expense - net in the second quarter of fiscal year 1999
compared to the first quarter of fiscal year 1998 was primarily the result of an
increase in miscellaneous income.
Other income - net for the first half of fiscal year 1999 was $3,000
compared to $74,000 for the first half of fiscal year 1998. This decrease was
primarily attributable to a sales commission earned by the Company in connection
with a land parcel sale made by a CBCL subsidiary in the first quarter of fiscal
year 1998.
DEFERRED REVENUE AND BACKLOG
The Company deferred 50% of the revenue from the land sold to SHI at
its Iao Parkside project. As of September 30, 1998, the Company had a total of
$864,000 in deferred revenue that will be recognized as the homes in this
project are sold to unrelated third parties.
At September 30, 1998, the Company's sales backlog totaled $2.3
million. At Kaimana, 10 homes were in backlog with an aggregate sales value of
$2.0 million. At Iao Parkside, two homes were in backlog with an aggregate sales
value of $250,000. The backlog at Iao Parkside represents 100% of the joint
venture's pending sales. The financial results of this joint venture partnership
are not consolidated into the Company's results, but instead are accounted for
by the equity method. Accordingly, the Company will not recognize the revenue
from such contracts, but will recognize 50% of the financial results of this
joint venture partnership.
It is the Company's practice to include a sale in backlog at the
contract price upon execution of a pre-construction sales contract and receipt
of money on deposit. The Company's sales contracts are typically subject to
cancellation by the purchaser under specified circumstances such as the 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 assurances be
given as to when such closings may occur. In addition, the Company believes that
home sales rates at its projects continue to be adversely affected by various
factors, including uncertainty of prospective home buyers resulting from the
stagnation of the Hawaii economy and the slow market for new homes.
LIQUIDITY AND FINANCIAL CONDITION
The Company generally requires capital to plan projects, obtain
entitlements, acquire and develop land, construct homes, and for working capital
purposes. Prior to the Company's restructuring and initial public offering
12
<PAGE>
in 1993, the Company used internally generated funds and funds from CBCL for
working capital and 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 completed the restructuring, in connection with
which it issued an unsecured $25 million term note payable to CBCL, and
consummated its initial public offering of Class A Common Stock, which
resulted in net proceeds to the Company of $27.4 million. The note to CBCL
was paid off from the proceeds of new bank facilities in 1995. The Company
has not issued any additional shares of Class A Common Stock, except upon
conversion of shares of Class B Common Stock, since the initial public
offering.
The Company has both short and long-term capital requirements,
including those relating to its working capital needs and its Kehalani
master-planned community. The Company is funding its short-term capital
requirements through a combination of internally generated funds and bank
financing. The Company intends to rely on its existing bank financing to
complete the construction of the remaining homes at Kaimana and for its working
capital needs. Further development of the Company's Kehalani master-planned
community and/or its other projects would require the Company to obtain
additional funding. The Company currently believes that its ability to obtain
additional funding through bank and other financing is dependent on its ability
to reduce the amount of its current indebtedness, which the Company is
attempting to accomplish through pursuit of its strategy of land and land parcel
sales. No assurance can be given that such land or land parcel sales will be
consummated or that the Company will be able to arrange additional funding on
acceptable terms.
At the present time, the Company's ability to generate funds internally
is limited by the slow down in the sale of its new homes and decline in its sale
prices. The Company is addressing this issue, in part, by a shift in the focus
of its business to sell land parcels to other builders, developers, and
investors, thus permitting it to realize the value of its properties at an
earlier time and with less capital investment. However, virtually all funds
generated by such sales are required to be applied to reduce the Company's debt
to the Lenders.
The Company's proposed merger with Mauna Loa Macadamia Partners, L.P.
was terminated on June 26, 1998 after the limited partners of the Partnership
failed to approve the merger at a special meeting called for that purpose. The
Board of Directors of the Company had supported the proposed merger because,
among other reasons, it would have addressed the Company's capital and liquidity
requirements and resulted in expense reductions through the combination of
certain administrative and financial reporting functions. With the termination
of the merger, these requirements must again be addressed and the Board of
Directors of the Company has directed management to evaluate the Company's
strategic alternatives, including but not limited to refinancing the Company's
indebtedness, negotiating a transaction for the sale of the Company or
substantially all of its assets and/or entering into joint venture arrangements
for the development of its major projects.
As of September 30, 1998, the Company was indebted to the Lenders in
the principal amount of approximately $20.6 million. This indebtedness currently
matures on June 30, 1999. Although management intends to conduct its operations
in a manner that will permit the Company to reduce the principal amount of such
indebtedness by June 30, 1999, it is probable that a substantial portion of such
indebtedness will remain outstanding at that time. If the Company by that time
is unable to obtain a further extension of the maturity of such indebtedness, or
a refinancing thereof, it may be required to further reduce its work force,
curtail operations, sell properties at less than optimum prices, or take other
measures which would likely have material adverse effects on its operating
results and financial condition. There can be no assurance that an extension of
the Master Facility Agreement past June 30, 1999, or refinancing of the
Company's indebtedness on satisfactory terms, will be achieved.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, the provisions of which are effective
for fiscal years beginning after December 15, 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company has not determined the impact that the adoption of this
new accounting standard will have on its financial statement disclosures.
13
<PAGE>
CERTAIN FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
In addition to other information contained in this Quarterly Report on
Form 10-Q, the following are important factors that should be considered in
evaluating the Company and its business.
The Company has landholdings which are entitled for residential and
commercial development. In light of the stagnant economy in Hawaii, the
generally unfavorable market for new housing in the State, and the high capital
costs associated with homebuilding, the Company's current strategy is to offer
certain of its entitled lands for sale to other builders, developers, and
investors. There can be no assurance that such sales will be made at favorable
prices or at all. The Company has no immediate plans to build homes on the
remainder of these lands, but may offer these lands for sale to other builders,
developers, and investors with or without installing additional infrastructure,
or hold these lands for future development, which could include selected
homebuilding activities as well as joint ventures with other developers. The
decision to further develop these lands will depend on numerous factors,
including the Company's working capital position, the availability of financing
on satisfactory terms, and market conditions.
The Company presently conducts all of its business in the State of
Hawaii, primarily on the island of Maui and also on the islands of Kauai and
Hawaii. In addition, all of the Company's operations on Maui are concentrated in
central Maui. Although the State of Hawaii was one of the country's fastest
growing economies in the late 1980's, Hawaii has experienced a dramatic slowdown
in the 1990's. After adjusting for inflation, Hawaii's gross state product grew
0.9% in 1992, 0.4% in 1993, 0.0% in 1994, 0.5% in 1995 and 0.9% in 1996, and is
estimated to have grown 1.1% in 1997, after having grown by a total of 18.9%
between 1986 and 1990 and at an average annual rate of 4.1% between 1959
(Statehood) and 1995, in each case according to the State of Hawaii Department
of Business, Economic Development and Tourism. Hawaii's economy and many of its
major industries, such as tourism, are affected by the economies of Asia.
Recently, several Asian countries have experienced economic problems such as
currency devaluation and slow growth, and these problems may lead to adverse
effects on Hawaii's tourism industry. The stagnant condition of the Hawaii
economy has adversely affected the Hawaii real estate market, and in turn the
results of the Company's operations.
Although the Company has been holding, entitling, developing, marketing
and selling land for over 25 years, its homebuilding operations began only in
late 1993, after which time it became the principal focus of its activities with
total closings of 691 home sales (includes home sales by the Iao Partners joint
venture with SHI) through September 30, 1998. As a result of establishing its
homebuilding line of business, the Company's cost of property sales as a
percentage of property sales increased substantially over that period and
therefore its gross profit declined as compared to periods prior to the
commencement of home building activities. With further increases in costs and
declines in sales prices in the first quarter of fiscal year 1999, the Company's
gross profit was negative. Two changes in the Company's operations implemented
in fiscal year 1998--a change in focus to parcel and lot sales rather than home
sales, and a change to act as its own general contractor in building homes--are
expected to have a significant effect on its future results. As a result of
these changes, and as a result of the effects of required accounting
adjustments, the Company's historical financial performance is not likely to be
a meaningful indicator of future results.
During the fourth quarter of fiscal year 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Application of SFAS No.121 required the recording of asset impairment
losses of approximately $600,000 in fiscal year 1999, approximately $3.5 million
in fiscal year 1997, and approximately $1.3 million in fiscal year 1996. There
can be no assurance that asset impairment losses will not be required to be
recorded in future periods, with a concomitant adverse effect on the Company's
results of operations.
The Company has observed a reduction in the price and rate of new home
sales since 1993, which the Company believes to be the result of increases in
Hawaii unemployment rates and a general lack of confidence in the Hawaii economy
by prospective home buyers. These conditions have increased competition for
homebuyers among Hawaii's homebuilders. In response to prevailing market
conditions, the Company has provided, and may provide in the future, certain
price reductions and other sales incentives to encourage buyer interest. As a
result, the Company's gross margin as a percentage of sales on residential homes
has declined, and may decline in the future. A continuation of the economic
stagnation that Hawaii has experienced in the last few years, or an economic
downturn in Hawaii, would likely continue to have a material adverse effect on
the Company's business.
14
<PAGE>
Historically, most sectors of the land development and homebuilding
industry have been cyclical and have been significantly affected by changes in
general economic conditions, levels of consumer confidence and income, housing
demand, interest rates, and the availability of financing. In addition, the
Company is subject to various risks relating to overbuilding, the cost and
availability of materials and labor, competition, environmental risks, delays in
schedules for the construction of infrastructure and homes caused by strikes,
adverse weather, including drought and related impacts on the availability of
water (for domestic consumption and irrigation), the availability and cost of
capital, cost overruns, lack of public infrastructure (such as roads, water,
utilities, sewage, drainage, and other facilities), changes in government
regulation and increases in real estate taxes and other government fees, and
other factors not within a developer's control. In addition, due to the
Company's location in Hawaii, it is particularly susceptible to delays caused by
strikes affecting the shipping and transportation of building materials
necessary for the Company's homebuilding business.
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income on a quarterly basis. Factors
that may contribute to the variability of the Company's results include: (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; and (v) 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.
The Company in the past entered into fixed-price contracts with
experienced general contractors for the construction of infrastructure and homes
for its residential developments. In fiscal year 1998, the Company began
operating as its own general contractor for the remaining homes being built at
Kaimana. To the extent it engages in homebuilding activity, the Company is and
will be subject to the risks that formerly were assumed by the general
contractors with whom the Company contracted. These risks include the risk of
cost overruns and warranty claims (including long-term claims arising out of
latent defects) that otherwise would be the responsibility of a third-party
general contractor, the risk that the Company's ability to act as its own
general contractor may be subject to limitations and restrictions arising out of
the terms of its credit facilities, the risks associated with utilizing
subcontractors without recourse for their failures to perform against a
third-party general contractor, the difficulty of securing bondings and the risk
inherent in the need to retain a licensed managing employee in order to retain
the Company's general contractor's license.
The Company is also subject to certain risks associated with the
availability and cost of materials and labor, delays in construction schedules,
and cost overruns. For example, homebuilders nationwide have experienced
significant volatility in the cost of lumber, with lumber prices varying by as
much as 50% over a several month period. The Hawaii residential construction
industry has experienced serious labor and material shortages in the past.
Delays in construction of homes due to these shortages or to inclement weather
conditions could have an adverse effect upon the Company's homebuilding
operations. The Company's developments are also susceptible to delays caused by
strikes or other events involving construction trade unions. Environmental
regulations can also have an adverse impact on the availability and price of
certain raw materials such as lumber. In addition, the Company's operations are
susceptible to delays caused by weather disturbances, international events
affecting the shipping industry and the transportation of building materials
necessary for the Company's business, and other factors not within a developer's
control.
Substantially all home buyers utilize long-term mortgage financing to
purchase their homes and lenders generally make loans only to borrowers who
satisfy the lenders' income and other requirements. Accordingly, the Company's
homebuilding activities are dependent upon the availability of mortgage
financing for first-time homebuyers as well as move-up homebuyers who need to
sell existing homes. In addition, changes in law relating to the deductibility
of mortgage interest for federal income tax purposes could adversely affect the
Company's business by reducing the advantages of home ownership.
Although mortgage financing for qualified home buyers is currently
available at low interest rates, there can be no assurance that mortgage
financing will remain readily available to the Company's customers due to
general economic conditions, the restrictions on the ability of banks and
savings and loan institutions to finance the purchase of homes by home buyers,
and other factors. In the event of increases in interest rates, it will
generally be more difficult for people to qualify for mortgage loans due to the
higher payments associated with higher interest
15
<PAGE>
rates. In addition, increases in interest rates will increase the Company
costs because it has substantial borrowings on which the interest rate is
variable. If the availability of mortgage loans becomes restricted, or if
mortgage interest rates increase significantly, thereby affecting the ability
of prospective buyers to finance home purchases and the Company's borrowing
costs, the Company's results of operations and financial condition will be
adversely affected.
Much of the land in the State of Hawaii, particularly on the islands of
Maui, Kauai, and Hawaii, has historically not been supported by adequate public
infrastructure (E.G., roads, water utilities, sewage, drainage, and other
facilities) necessary for residential development. The total investment in
infrastructure for a large residential community in Hawaii can be substantial
and there can be no assurance that the prices at which parcels, lots or homes
may eventually be sold by the Company will be sufficient to result in a profit,
or even to recover the investment made in such infrastructure and related
carrying costs.
The Company's planned residential projects and commercial/industrial
developments are long-term in duration. In Hawaii it can take in excess of ten
years from the decision to develop unentitled land until the property is sold or
commercial space is leased, depending on the nature of the governmental approval
process, the project's size, the state of the economy and the physical
characteristics of the site. In addition, before planned residential projects
and other developed properties can generate any revenue, significant development
expenditures and carrying costs are required for, among other things, compliance
with governmental land use and environmental requirements, land development, and
installation of infrastructure. Because of changing economic and market
conditions, competition, and other factors, there can be no assurance that the
price that may eventually be obtained when a parcel, lot or home is sold will be
adequate to cover the capital investments that have been made in entitling and
improving the property and related carrying costs, and to generate a
satisfactory return on the investment.
The Company is subject to local, state and federal statutes,
ordinances, rules and regulations affecting land use and building design. As of
September 30, 1998, approximately 487 acres of the Company's existing supply of
land and all of the approximately 1,957 remaining acres subject to the option
granted to the Company by CBCL are not fully entitled for their intended
purposes. Before developing any of its unentitled land, the Company will be
required to obtain a variety of regulatory approvals from state and local
governmental authorities. The entitlement process for development of property in
Hawaii involves numerous state and county discretionary regulatory approvals.
Conversion of an unentitled parcel of land to residential zoning usually
requires the following approvals: adoption of or amendment to the County
Community Plan to reflect the desired general land use; approval by the State
Land Use Commission to reclassify the parcel to an urban designation; County
Council approval to rezone the property to the specific use desired; and, if the
parcel is located in the Coastal Zone Management area, the granting of a Special
Management Area Permit by the County Planning Commission. In obtaining the
necessary land entitlements at the state and county levels, the Company obtains
approvals from these authorities for related matters, including density,
provisions for affordable housing, roads, utilities, and the dedication of
acreage for schools, parks, and other purposes. County approval is typically
obtained after state approval. Subsequent to county approval of entitlements,
subdivision approvals and building permits must be obtained. The entitlement
process is complicated by the conditions, restrictions, and exactions that are
placed on these approvals, such as requirements for construction of
infrastructure improvements, payment of impact fees, restrictions on the
permitted uses of the land, and provisions for affordable housing. If the
Company is unable to obtain necessary entitlements or if the cost of obtaining
such entitlements is excessive relative to the prices at which it may sell
parcels, lots or homes, the Company's results of operations and financial
condition will be adversely affected.
The climate and geology of Hawaii present certain risks of natural
disasters. In September 1992, for example, even though Hurricane Iniki did not
damage the Company's projects, it caused a delay in the construction of roads
and utilities at the Company's Kalihiwai Ridge project on the island of Kauai as
construction resources were directed to civil recovery projects for the
community. In addition, certain of the Company's projects are located on the
island of Hawaii, where there is volcanic activity. To the extent that
hurricanes, severe storms, volcanic eruptions, drought, or other natural
disasters occur in Hawaii, the Company's results of operations and financial
condition may be adversely affected.
Mortgage financing for a new home is conditioned, among other things,
on the availability of adequate homeowner's (including hurricane) insurance and
the cost of such insurance is considered by financial institutions in
determining whether applicants qualify for a mortgage loan. There can be no
assurance that homeowner's and hurricane insurance will be available or
affordable to prospective purchasers of homes. The unavailability or high
16
<PAGE>
cost of homeowners' insurance could have a material adverse effect on the
Company's business.
The Company is subject to local, state and federal statutes,
ordinances, rules and regulations protecting health and safety, archeological
preservation laws, and environmental laws, including laws protecting endangered
species. Environmental laws (i) may cause the Company to incur substantial
compliance, mitigation and other costs, (ii) may prohibit or severely restrict
development in certain environmentally sensitive areas, and (iii) may delay
completion of the Company's projects. Some of the properties held for
development by the Company were formerly sites of large agricultural operations,
which involved the use of pesticides and other agricultural chemicals. Although
management is not currently aware of any environmental compliance issues that
are expected to have a material adverse effect on the Company, no assurance can
be given that such laws will not have a material adverse effect on the Company's
operations in the future.
The land development and home building industries are highly
competitive. The Company competes for land and residential sales, financing, raw
materials, and skilled labor. The Company competes for home sales, as well as
for sales of parcels and lots entitled for residential use, on the basis of a
number of interrelated factors, including location, reputation, amenities,
design, quality, and price. Moreover, the Company competes for land and
residential sales with numerous large and small developers (including some
developers with greater financial and other resources than the Company),
government-built or subsidized housing units, individual resales of existing
homes and condominiums, and available rental housing.
As a result of title uncertainties with respect to certain of its
properties, the Company is sometimes unable to obtain a title insurance policy,
delivery of which is typically a condition to obtaining financing for a project
or selling a parcel of land. The Company believes that this condition exists
with respect to approximately one acre of its 79 acres of land at its Piihana
project. In order to cure title defects and obtain appropriate title insurance,
the Company has initiated, or intends to initiate, "quiet title" actions to
obtain clear title to such parcels in its name. The process of prosecuting
actions to the quiet title process can be lengthy and could have the effect of
delaying the Company's planned development of particular projects and increasing
their cost. No assurance can be given that the Company will prevail in its
current or intended title actions or will otherwise be able to obtain insurable
title to such properties.
The Company is frequently required, in connection with the development
of its projects, to obtain performance, maintenance, and other bonds. The amount
of these bonds outstanding at any time varies in accordance with the Company's
pending development activities. In the event any such obligations are drawn upon
because of the Company's failure to install required infrastructure, the Company
would be obligated to reimburse the issuing surety or bank, which could have a
material adverse effect on the Company's financial condition and results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
17
<PAGE>
C. BREWER HOMES, INC.
PART II. OTHER INFORMATION
ITEMS 1, 2, AND 3. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on October 14, 1998
at which the Company's stockholders voted: 1) to elect the following six
directors: John W.A. Buyers, Seth A. Bakes, Clinton R. Churchill, David A.
Heenan, Paul C.T. Loo and Kent T. Lucien; 2) to ratify the selection of
PricewaterhouseCoopers LLP as independent public accountants for the Company for
the fiscal year ending March 31, 1999; 3) to amend the Company's Certificate of
Incorporation to change the name of the Company to Hawaii Land & Farming
Company, Inc.
Holders of record of the Company's Class A Common Stock and Class B
Common Stock as of the close of business on August 21, 1998 were entitled to
vote at the Annual Meeting. As of that date, there were 4,028,158 shares of
Class A Common Stock, one vote per share, and 4,303,507 shares of Class B Common
Stock, three votes per share, (collectively, "Voting Stock") outstanding and
entitled to vote at the meeting. There were present at the Annual Meeting,
either in person or by proxy, holders of an aggregate of 6,338,970 shares of
Voting Stock of the Company entitled to vote at the meeting, which constituted a
quorum.
Each nominated director was elected for a term of one year by over
70% of the Voting Stock present at the Annual Meeting. The following number of
votes were cast for each nominee for director (there were no abstentions or
broker non-votes):
<TABLE>
<CAPTION>
For Against Withheld
----------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1. John W.A. Buyers 11,991,031 0 0
2. Seth A. Bakes 11,896,887 0 0
3. Clinton R. Churchill 11,994,531 0 0
4. David A. Heenan 11,994,831 0 0
5. Paul C.T. Loo 11,893,537 0 0
6. Kent T. Lucien 11,990,731 0 0
</TABLE>
In addition, over 70% of the Voting Stock present at the Annual
Meeting elected to ratify the selection of PricewaterhouseCoopers LLP as
independent public accountants for the Company for the fiscal year ending
March 31, 1999, with the number of votes cast as follows (there were 19,230
abstentions and no broker non-votes):
<TABLE>
<CAPTION>
For Against Withheld
------------------ ---------------- -----------------
<S> <C> <C>
12,031,400 11,001 0
</TABLE>
Also, over 64% of the Voting Stock elected to amend the Company's
Certificate of Incorporation to change the name of the Company to Hawaii Land &
Farming Company, Inc., with the number of votes cast as follows (there were no
abstentions and no broker non-votes):
<TABLE>
<CAPTION>
For Against Withheld
------------------ ---------------- -----------------
<S> <C> <C>
10,949,737 1,104,794 0
</TABLE>
18
<PAGE>
ITEM 5. OTHER INFORMATION
QUOTATION OF THE COMPANY'S CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET
The Company's Class A Common Stock has been quoted on the Nasdaq
National Market under the symbol "CBHI" since December 14, 1993. The closing
sale price of the Company's Class A Common Stock as reported on the Nasdaq
National Market on November 6, 1998 was $.375 per share. There is no established
public trading market for the Company's Class B Common Stock.
Certain requirements must be met for the Company's Class A Common Stock
to continue to qualify for quotation on the Nasdaq National Market. Meeting some
of these requirements, such as the minimum bid price of the Company's shares and
the aggregate market value of its "public float", is beyond the control of the
Company and there can be no assurances that such requirements will continue to
be met. SEE ITEM 6.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
*11.1 Statement Regarding Computation of Loss Per Common Share.
*27.1 Financial Data Schedule
</TABLE>
* Filed herewith
+ Management contract or compensatory plan or arrangement
(b) On September 18, 1998 the Company filed a report on Form 8-K
announcing that (a) on August 26, 1998, C. Brewer Homes, Inc. (the "Company")
was informed by the Nasdaq Stock Market, Inc., that the Company did not meet
the Nasdaq National Market maintenance standards for the market value of the
public float of the Company's Class A Common Stock. The Company has been
provided until November 24, 1998 to regain compliance with this maintenance
standard; otherwise, the Company's Class A Common Stock will be delisted from
the Nasdaq National Market effective November 27, 1998; (b) the Company is
considering certain procedural remedies which could serve to temporarily stay
any delisting action. However, there can be no assurance that the Company
will regain compliance with this maintenance standard, or that any procedural
remedies or other actions the Company may take will result in continued
listing of the Class A Common Stock on the Nasdaq National Market. Delisting
of the Class A Common Stock could have a material adverse effect on the
market price of, and the efficiency of the trading market for, the Company's
Class A Common Stock.
20
<PAGE>
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: November 16, 1998 By /s/ Scott K. Okada
---------------------------------------
SCOTT K. OKADA
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
<PAGE>
Exhibit 11.1
C. BREWER HOMES, INC.
Computation of Loss Per Common Share
(in thousands, except for loss per common share)
<TABLE>
<CAPTION>
Quarters Ended Half Years Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Class A Common Stock
Shares issued and outstanding ........................ 4,085 3,404 4,085 3,404
Class B Common Stock
Shares issued and outstanding ........................ 4,251 4,932 4,251 4,932
Treasury stock purchased in July 1995 ................ (4) (4) (4) (4)
------- ------- ------- -------
Weighted average number of common shares outstanding.... 8,332 8,332 8,332 8,332
------- ------- ------- -------
------- ------- ------- -------
Net loss ............................................... $ (533) $ (94) $(1,195) $ (334)
------- ------- ------- -------
------- ------- ------- -------
Loss per common share .................................. $ (0.06) $ (0.01) $ (0.14) $ (0.04)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
22
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0
0
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</TABLE>
