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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
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
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C. BREWER HOMES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 99-0145055
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
</TABLE>
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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Class B Common Stock
outstanding on February 6, 1998 excludes 4,335 shares held in treasury.
<TABLE>
<CAPTION>
OUTSTANDING AT
FEBRUARY 6, 1998
------------------
<S> <C>
Class A Common Stock (par value $.01 per share)........................... 3,532,986 shares
Class B Common Stock (par value $.01 per share)........................... 4,798,679 shares
</TABLE>
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C. BREWER HOMES, INC.
INDEX
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<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income (Loss)--Quarters and Nine Months Ended
December 31, 1997 and December 31, 1996..................................... 3
Balance Sheets--December 31, 1997 and March 31, 1997................................. 4
Statements of Cash Flow--Nine Months Ended December 31, 1997 and
December 31, 1996........................................................... 5
Notes to Financial Statements........................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................. 19
Signature............................................................................ 20
</TABLE>
2
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C. BREWER HOMES, INC.
STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER COMMON SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Property sales......................................... $ 4,531 $ 5,321 $ 11,266 $ 13,065
Cost of property sales................................. 4,312 4,643 10,577 11,496
------------ ------------ ------------ ------------
Gross profit......................................... 219 678 689 1,569
General and administrative expenses.................... 544 536 1,548 1,916
------------ ------------ ------------ ------------
Operating income (loss).............................. (325) 142 (859) (347)
Merger transaction costs............................... (510) -- (510) --
Iao Partners
Equity in earnings................................... 30 48 77 114
Asset impairment loss................................ (641) -- (641) --
Interest income (expense)--net......................... (77) 2 (211) (19)
Other income (expense)--net............................ (27) (63) 47 (162)
------------ ------------ ------------ ------------
Income (loss) before income taxes (benefit).......... (1,550) 129 (2,097) (414)
Income taxes (benefit)................................. (605) 47 (818) (149)
------------ ------------ ------------ ------------
Net income (loss)...................................... $ (945) $ 82 $ (1,279) $ (265)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings (loss) per common share....................... $ (.11) $ .01 $ (.15) $ (.03)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common shares outstanding... 8,332 8,332 8,332 8,332
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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>
DECEMBER MARCH 31,
31, 1997 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 602 $ 147
Mortgage notes receivable........................................... 764 794
Real estate developments............................................ 33,650 34,230
Investment in Iao Partners, net of deferred land gain............... 2,943 3,347
Property and equipment--net......................................... 119 172
Income taxes receivable............................................. 869 856
Other assets........................................................ 381 379
----------- -----------
Total assets.................................................... $ 39,328 $ 39,925
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to banks.............................................. $ 24,806 $ 24,939
Accounts payable.................................................... 1,166 469
Accrued expenses.................................................... 3,906 3,821
Deferred income taxes............................................... 1,761 1,761
Other liabilities................................................... 253 220
----------- -----------
Total liabilities............................................... 31,892 31,210
----------- -----------
Commitments and contingencies
Stockholders' equity
Class A Common Stock, $.01 par value, one vote per share,
3,492,847 shares issued and outstanding at December 31, 1997 and
3,087,200 shares issued and outstanding at March 31, 1997....... 35 31
Class B Common Stock, $.01 par value, three votes per share,
4,838,818 shares issued and outstanding at December 31, 1997 and
5,244,465 shares issued and outstanding at March 31, 1997....... 48 52
Additional paid-in capital........................................ 27,370 27,370
Retained deficit.................................................. (19,993) (18,714)
Treasury stock, at cost, 4,335 shares............................. (24) (24)
----------- -----------
Total stockholders' equity........................................ 7,436 8,715
----------- -----------
Total liabilities and stockholders' equity........................ $ 39,328 $ 39,925
----------- -----------
----------- -----------
</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>
NINE MONTHS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Operating activities
Net loss........................................................................... $ (1,279) $ (265)
Adjustments to net loss
Depreciation..................................................................... 57 47
Deferred income taxes............................................................ -- 246
Equity in earnings of Iao Partners............................................... (77) (114)
Asset impairment loss--Iao Partners.............................................. 641 --
Amortization of deferred land gain............................................... (160) (252)
Changes in operating assets and liabilities
Mortgage notes receivable........................................................ 30 1,784
Real estate developments......................................................... 580 (793)
Income taxes receivable.......................................................... (13) --
Other assets..................................................................... (2) 23
Accounts payable................................................................. 697 511
Accrued expenses................................................................. 85 22
Other liabilities................................................................ 33 (22)
------------ ------------
Cash flow provided by operating activities..................................... 592 1,187
------------ ------------
Investing activities
Capital expenditures............................................................. (4) (60)
------------ ------------
Cash flow used in investing activities......................................... (4) (60)
------------ ------------
Financing activities
Loan proceeds.................................................................... 10,373 8,238
Loan payments.................................................................... (10,506) (12,344)
------------ ------------
Cash flow used in financing activities......................................... (133) (4,106)
------------ ------------
Increase (decrease) in cash and cash equivalents..................................... 455 (2,979)
Cash and cash equivalents at beginning of period..................................... 147 3,080
------------ ------------
Cash and cash equivalents at end of period........................................... $ 602 $ 101
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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 December 31, 1997, and its results
of operations and cash flows for the quarters and nine months ended December 31,
1997 and December 31, 1996. The results of operations for the quarter and nine
months ended December 31, 1997 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 will be merged with and into the
Partnership with the Partnership surviving the merger as a Delaware limited
partnership (the "Merger"). Consummation of the Merger is subject to several
conditions, including requisite approval thereof by the stockholders of the
Company and the unitholders of the Partnership. If the Merger is consummated,
stockholders of record of the Company at the time the Merger becomes effective
will receive for each share of Company stock owned by them, 66.7% of a limited
partnership unit of the Partnership, subject to adjustment only in the event
that the Company issues more than 10,000 shares of its Common Stock upon
exercise by currently outstanding options. During the quarter ended December 31,
1997, the Company incurred transaction costs of approximately $510,000 relating
to the Merger.
3. INVESTMENT IN IAO PARTNERS
During the quarter ended December 31, 1997, the Company recognized an asset
impairment loss of $641,000 related to its investment in Iao Partners. This loss
consisted of 50% of the asset impairment loss taken by the joint venture (shown
below) and the remainder consisted of County fees and assessments which by
agreement were the responsibility of the Company. The joint venture recognized
the asset impairment loss primarily as a result of a continuing slowdown in home
sales.
The following is condensed income statement information that relates to the
Company's Iao Parkside joint venture project (in thousands):
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of residential real estate....................... $ 397 $ 1,539 $ 2,697 $ 4,185
Cost of residential real estate sold................... 391 1,479 2,650 4,024
------------ ------------ ------------ ------------
Gross profit....................................... 6 60 47 161
Asset impairment loss.................................. (984) -- (984) --
Interest income........................................ 62 38 170 75
General and administrative expenses.................... (3) (2) (11) (7)
------------ ------------ ------------ ------------
Income (loss) before taxes......................... $ (919) $ 96 $ (778) $ 229
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
6
<PAGE>
4. 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. The Company
believes that entering into the Master Facility Agreement and amending the terms
and conditions of its existing revolving loan facilities was necessary to enable
the Company to meet its working capital requirements through the end of fiscal
year 1998.
As of December 31, 1997 the Company was indebted to its Lenders in the
principal amount of approximately $24.8 million. All indebtedness under this
credit facility matures on May 31, 1998. The Company anticipates that it will
not be in a position to repay the full indebtedness on that date in the absence
of a refinancing and one of the conditions to consummation of the Merger with
the Partnership is that the Company obtain an extension of the maturity of this
credit facility on terms substantially equivalent to those currently in force.
Accordingly, Homes has requested from its Lenders an extension of the maturity
of its indebtedness to November 30, 1998 and has presented information requested
by the Lenders in connection with its request.
If the request for extension is denied, or if the proposed Merger is delayed
or the related merger agreement is terminated, the Company will be required to
refinance this indebtedness. If the Merger fails to close on a timely basis, or
if the Company is unable to accomplish such refinancing, 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
7
<PAGE>
condition. There can be no assurance that the loan extension the Company is
seeking, or a refinancing of the Company's indebtedness on satisfactory terms,
will be achieved.
5. EARNINGS (LOSS) PER COMMON SHARE
The Company computed its earnings (loss) per share for all periods presented
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share, which was required to be implemented for financial
statements for periods ending after December 15, 1997. The adoption of this
statement had no impact on the Company's reported earnings (loss) per share.
Earnings (loss) per common share was computed using the net income (loss)
and weighted average number of common shares, as reported on the statement of
income (loss). Options to purchase 204,000 common shares at prices ranging from
$2.0625 to $12.00 at December 31, 1997 were not dilutive to earnings (loss) per
common share.
6. CASH DIVIDENDS
The Company did not pay cash dividends on its common stock during the
quarters ended December 31, 1997 and December 31, 1996.
7. RECLASSIFICATIONS
Certain prior year's amounts have been reclassified to conform to the
December 31, 1997 presentation.
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 Merger; (ii) risks associated with the Company's refinancing of its
existing indebtedness; (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, volcanos, 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) reduced
availability of homeowners' 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 thereto.
OVERVIEW
The Company (or "Homes"), which was a subsidiary of C. Brewer and Company,
Limited ("CBCL") until December 1993, had historically performed the land
entitlement, development and marketing functions for CBCL. From late 1993
through early 1997, Homes' business strategy was focused primarily on the
construction and sale of homes. In early 1997, Homes expanded its business
strategy to include the development and sale of lots and parcels of land, which
had been Homes' 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. Homes 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,
Homes has no current plans to build homes on its other lands and has now shifted
its focus to selling its entitled lands to other builders and developers. The
lands being offered for sale to other builders and developers include 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 December 1997, Homes entered into an agreement for the
sale of Nanea for $2.2 million, and the Makai Residential and Makai Commercial
projects are currently being offered for sale to other builders and developers.
In September 1997, the Company entered an agreement to sell the unentitled land
holdings comprising its Iao II project for a sales price of $2.0 million
Homes is presently building and selling homes on the island of Maui at its
Kaimana development and at its joint venture Iao Parkside development, and
during 1997 completed the sale of the last of the 30
9
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homes built at its Halemalu project. The single-family and multi-family homes
included in these developments range in size from 657 square feet to 1,927
square feet, and in price from $104,000 to $280,000.
Kaimana is a 179-unit single-family residential project, which is part of
Homes' 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, Homes began selling
single-family homes at Kaimana and delivered the first homes in March 1995.
Through December 31, 1997, 113 home sales had closed at Kaimana. Homes currently
plans to complete construction and sale of the remaining 66 homes at the Kaimana
project, 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. As a result, the Company
deferred 50% of the revenue and costs relating to the sale. Through December 31,
1997, the Company has recognized approximately $6.7 million of the deferred
income from this sale. At December 31, 1997, the Company had deferred income of
approximately $0.9 million 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 a 50% joint venture partnership with SHI.
This project is targeted at first-time buyers under Hawaii's affordable housing
policy. The joint venture partnership began accepting reservations at this
project in March 1993 and executing sales contracts in July 1993. Through
December 31, 1997, 369 home sales had closed. Sales of homes at this project
have continued to slow and the joint venture partnership has reduced sales
prices in an effort to stimulate home sales. As a result, during the quarter
ended December 31, 1997, Homes recognized an asset impairment loss of $641,000
related to this project (See Note 3 to Financial Statements).
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 of up to 20% of the selling price for certain homes at its Kehalani
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 $1,550,000
in the third quarter of fiscal year 1998, and $2,097,000 for the nine months
ended December 31, 1997, of which approximately $1,151,000 related to costs in
connection with the Merger and an asset impairment loss related to the Company's
Iao Parkside joint venture. Without these Merger costs and asset impairment
loss, the Company's after-tax loss for these periods would have been $243,000
and $577,000 respectively.
PROPERTY SALES. The Company's revenue from property sales for the quarter
ended December 31, 1997 was $4.5 million compared to $5.3 million for the third
quarter ended December 31, 1996. At Kehalani, the Company closed 19 home sales
at an average price of $214,000 during the third quarter of fiscal year 1998,
compared to 23 home sales closed at an average price of $226,000 during the
third quarter of fiscal year 1997. In addition, the Company sold one lot in the
third quarter of fiscal year 1998 at its Kalihiwai Ridge II Project on the
island of Kauai compared to no such sales in the third quarter of fiscal year
1997.
10
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Property sales for the nine months ended December 31, 1997 decreased to
$11.3 million from $13.1 million for the nine months ended December 31, 1996.
During the first nine months of fiscal year 1998, the Company closed 49
single-family home sales at Kehalani at an average price of $212,000 compared to
57 home sales closings at an average price of $224,000 in the first nine months
of fiscal 1997. In the first nine months of fiscal year 1998, the Company
recognized $200,000 in revenue related to the deferred gain on the Iao land sale
to SHI compared to $300,000 during the same period in fiscal year 1997.
COST OF PROPERTY SALES. Cost of property sales for the third quarter of
fiscal year 1998 was $4.3 million compared to $4.6 million in the third quarter
of fiscal year 1997. The decrease in cost of property sales in the third quarter
of fiscal year 1998 compared to the third quarter of fiscal year 1997 was
attributable to decreased home sales closings.
Cost of property sales for the nine months ended December 31, 1997 was $10.6
million compared to $11.5 million for the nine months ended December 31, 1996.
This decrease was primarily the result of reduced property sales in the first
nine months of fiscal year 1998 compared to the same period of last fiscal year.
In addition, cost of property sales as a percentage of property sales was 94%
for the first nine months of fiscal year 1998 compared to 87% for the first nine
months of fiscal year 1997. This increase was principally due to the decrease in
the average sales price of homes closed in the first nine months of fiscal year
1998 compared to the first nine months of fiscal year 1997.
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 third quarter of fiscal year 1998 were $544,000
compared to $536,000 in the third quarter of fiscal year 1997.
General and administrative expenses for the first nine months of fiscal year
1998 were $1.5 million, as compared to $1.9 million incurred in the similar
period of fiscal year 1997. This decrease was primarily due to the continuing
impact of the Company's cost reduction program which resulted in lower salary
and related costs in the first nine months of fiscal year 1998 as compared to
the prior year's first nine months.
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. During the third quarter of fiscal
1998, the Company recognized an asset impairment loss of $641,000 related to
this joint venture primarily as a result of a continuing slowdown in home sales.
Equity in earnings from the Iao Parkside joint venture, before asset
impairment loss, was $30,000 in the third quarter of fiscal year 1998 as
compared to $48,000 in the third quarter of fiscal year 1997. This represents
the Company's share of income from the closing of three unit sales at the Iao
Parkside project in the third quarter of fiscal year 1998 compared to 13 unit
sales closed in the third quarter of fiscal year 1997.
Equity in earnings of Iao Partners for the nine months ended December 31,
1997 was $77,000, before the asset impairment loss, compared to $114,000
recorded in the same period of the prior year. The decrease in equity in
earnings was primarily attributable to the decrease in the number of homes
closed in the first nine months of fiscal year 1998 compared to the first nine
months of fiscal year 1997.
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
11
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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 third quarter of fiscal year 1998 was $77,000 compared to
interest income-net $2,000 in the previous fiscal year's third quarter. Interest
expense--net was higher in the third quarter of fiscal year 1998 as compared to
the third quarter of fiscal year 1997 primarily due to less interest being
capitalized to real estate developments.
Interest expense--net for the first nine months of fiscal year 1998 was
$211,000 compared to $19,000 for the first nine months of fiscal year 1997.
Interest expense--net was higher for the first nine months of fiscal year 1998
compared to the first nine months of fiscal year 1997 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 third quarter of fiscal year
1998 was $27,000 compared to other expense--net of $63,000 in the third quarter
of fiscal year 1997. The decrease in other expense--net in the third quarter of
fiscal year 1998 compared to the third quarter of fiscal year 1997 was primarily
the result of reduced sales and marketing costs and lower miscellaneous project
expenses.
Other income--net for the first nine months of fiscal year 1998 was $47,000
compared to other expense--net of $162,000 for the first nine months of fiscal
year 1997. This increase was primarily attributable to the sales commission
earned from a certain land sale made by a CBCL subsidiary.
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 December 31, 1997, the Company had a
total of $1.0 million in deferred revenue that will be recognized as the homes
in this project are sold.
At December 31, 1997 the Company's backlog consisted of 42 homes with an
aggregate sales value of $8.5 million. At Kehalani, 40 homes were in backlog
with a total sales value of $8.2 million. At Iao Parkside, two homes with an
aggregate sales value of $300,000 were in backlog. The backlog at Iao Parkside
represents 100% of the joint venture's sales contracts. In addition, the Company
had 48 acres of land parcels with a total sales value of $4.4 million in backlog
at December 31, 1997. The financial results of the Iao Parkside joint venture
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
at its Kehalani project on the island of Maui continue to be adversely affected
by various factors, including uncertainty of prospective home buyers resulting
from a continuing weakness in the Hawaii economy.
LIQUIDITY AND FINANCIAL CONDITION
The Company generally requires capital to plan projects, obtain
entitlements, acquire and develop land, construct homes, and for working
capital. Prior to the Company's restructuring and initial public offering, 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 consummated its Initial Public Offering of Class A Common Stock,
which resulted in net proceeds to the Company of $27.4 million.
12
<PAGE>
The Company currently 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 fund, and
bank and other financing. The Company further intends to primarily rely on bank
financing for its home construction requirements. The Company also plans to seek
addition financing, a portion of the proceeds from which will be used to fund
necessary development work at its Kehalani master-planned community. As a
result, the Company's business and earnings are substantially dependent on its
ability to obtain financing 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 and developers, thus
permitting it to realize the value of its properties on a more timely basis.
However, virtually all such funds are required to be applied to reduce the
Company's debt to the Lenders.
One of the principal reasons that the Company has entered into the Merger
Agreement is that the Partnership has substantial working capital and assets,
relatively steady income and no long-term debt. If the Merger is consummated,
management of the Company believes that the combined company will be in a much
stronger position to secure longer-term financing or satisfactory terms, and
thereby allow the combined company after the Merger to better realize the
long-term value of the Company's lands.
As of December 31, 1997 the Company was indebted to its Lenders in the
principal amount of approximately $24.8 million. All indebtedness under this
credit facility matures on May 31, 1998. The Company anticipates that it will
not be in a position to repay the full indebtedness on that date in the absence
of a refinancing and one of the conditions to consummation of the Merger with
the Partnership is that the Company obtain an extension of the maturity of this
credit facility on terms substantially equivalent to those currently in force.
Accordingly, Homes has requested from its Lenders an extension of the maturity
of its indebtedness to November 30, 1998 and has presented information requested
by the Lenders in connection with its request.
If the request for extension is denied, or if the proposed Merger is delayed
or the related merger agreement is terminated, the Company will be required to
refinance this indebtedness. If the Merger fails to close on a timely basis, or
if the Company is unable to accomplish such refinancing, 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 the loan extension the Company is seeking, or a refinancing of
the Company's indebtedness on satisfactory terms will be achieved.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
the Statement of Financial Accounting Standards (the "SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, the provisions of which are effective for fiscal years
beginning after December 15, 1997. This Statement requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The future adoption of this
pronouncement is not expected to have a material effect on the Company's
presentation of its results of operation.
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>
YEAR 2000 ISSUE
Although the Company believes that its products and systems are Year 2000
compliant, the Company utilizes third-party equipment and software that may not
be Year 2000 compliant. Failure of such third-party equipment or software to
operate properly with regard to the Year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could have
a material adverse effect on the Company's business, operating results and
financial conditions.
CERTAIN FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
In addition to other information in this Quarterly Report on Form 10-Q, the
following are important factors that should be considered in evaluating the
Company and its business.
On December 18, 1997, C. Brewer Homes, Inc. (the "Company" or "Homes")
entered into an agreement and plan of merger between it and Mauna Loa Macadamia
Partners, L.P. ("Mauna Loa" or the "Partnership"), subject to approval of the
transaction by the Company's stockholders and the unitholders of Mauna Loa, and
other closing conditions (the "Merger"). If the Merger is consummated, the
Company will merge with and into the Partnership, with the Partnership surviving
the Merger, and each outstanding share of the Company's common stock will be
converted into a 66.7% limited partnership unit of the Partnership (subject to
adjustment in the unlikely event that the more than 10,000 shares of the
Company's common stock are issued upon the exercise of currently outstanding
options). There can be no assurance that the Merger will be consummated on a
timely basis, or at all. The failure to consummate the Merger would likely have
a material adverse effect on the Company's business, financial condition and
results of operations.
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 and developers. The
Company has no current plans to build homes on the remainder of these lands, but
may offer these lands for sale to other builders and developers, 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 consummation of the Merger, the
availability of financing on satisfactory terms for the combined company (or for
Homes if the Merger is not consummated) and market conditions.
Homes 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 Homes' 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 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 1.2% 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. In addition, 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
Homes' operations.
Although Homes 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 628 home sales through December 31, 1997. As a result of
establishing its homebuilding line of business, Homes' cost of property sales as
a percentage of property sales increased
14
<PAGE>
substantially over that period and therefore its gross margin declined as
compared to periods prior to the commencement of home building activities. Two
changes in Homes' operations implemented in 1997 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 affect on its
future results. As a result of these changes, and as a result of the effects of
required accounting adjustments, Homes' historical financial performance is not
likely to be a meaningful indicator of future results.
During the fourth quarter of fiscal year 1996, business, Homes 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 $640,000 during the third quarter of fiscal year 1998,
and 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 may be required to be recorded in future periods, with a concomitant
adverse effect Homes' results of operations.
Although Hawaii was one of the fastest growing economies in the United
States in the late 1980's, it has experienced a slowdown in the 1990's. Homes
has observed a reduction in the rate of new home sales since 1993, which Homes
believes to be the result of recent increases in Hawaii unemployment rates and
the general lack of confidence in the Hawaii economy by prospective home buyers.
These conditions have increased competition for homebuyers among Hawaii's
hombuilders. In response to prevailing market conditions, Homes has provided,
and may provide in the future, certain price reductions and other sales
incentives to encourage buyer interest. As a result, Homes' 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, could continue to have a
material adverse effect on Homes' business.
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, Homes 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 to 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
and drainage 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 Homes' location in Hawaii, it is
particularly susceptible to delays caused by strikes affecting the shipping and
transportation of building materials necessary for Homes' home building
business.
Homes 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 Homes' 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.
Homes in the past entered into fixed-price contracts with experienced
general contractors for the construction of infrastructure and homes for its
residential developments. Homes began operating in 1997 as its own general
contractor for the remaining homes being developed in its Kaimana project and
currently anticipates that it may operate as its own general contractor for the
construction of homes at future residential developments. Accordingly, to the
extent it engages in home building activity, Homes is and will be subject to the
risks that formerly were assumed by the general contractors with whom Homes
contracted. These risks include the risk of cost overruns and warranty claims
(including long-term claims
15
<PAGE>
arising out of latent defects) that otherwise would be the responsibility of a
third-party general contractor, the risk that Homes' 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 bonding and the risk
inherent in the need to retain a licensed managing employee in order to retain
the Corporation'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, including lumber,
insulation, drywall, cement and carpenters. 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, Homes'
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
Homes' 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 Homes' customers due to general economic conditions,
the restrictions on 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 rates. In addition, increases in interest rates will increase Homes
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 prospective
buyers' ability to finance home purchases and Homes' borrowing costs, Homes'
financial results and financial conditions 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 and drainage 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 Homes will be sufficient to result in a profit, or even to recover the
investment made in such infrastructure and related carrying costs.
Homes' 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 first home or lot 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
16
<PAGE>
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.
Homes is subject to local, state and federal statutes, ordinances, rules and
regulations affecting land use and building design. As of December 31, 1997,
approximately 590 acres of Homes' existing supply of land and all of the
approximately 1,957 remaining acres subject to the option granted to Homes by
CBCL are not fully entitled for their intended purposes. Before developing any
of its unentitled land, Homes 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 is lengthy, complex and costly, involving
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 Homes 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, Homes results of operations and
financial conditions 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 Homes' projects, it caused a delay in the construction of roads and
utilities at Homes' Kalihiwai Ridge project on the island of Kauai as
construction resources were directed to civil recovery projects for the
community. In addition, certain of Homes' projects are located on the island of
Hawaii, where there is active volcanic activity. To the extent that hurricanes,
severe storms, volcanic eruptions, drought, or other natural disasters occur,
Homes' results of operations and financial conditions may be adversely affected.
Mortgage financing for a new home is conditioned, among other things, on the
availability of adequate homeowners' (including hurricane) insurance and the
cost of such insurance is considered by financial institutions in determining
whether applicants qualify for a mortgage loan. Subsequent to Hurricane Iniki in
1992, many of the insurance companies doing business in Hawaii restricted,
curtailed or suspended the issuance of homeowners' insurance policies on
single-family and multi-family homes, or issued such insurance without hurricane
coverage. This had the effect of both reducing the availability of hurricane
insurance and, in general, increasing the cost of such insurance. Although
hurricane insurance is currently available, the average overall cost of all
homeowners and hurricane insurance remains substantially above pre-Hurricane
Iniki levels. There can be no assurance that homeowners' and hurricane insurance
will be available or affordable to prospective purchasers of homes. The
unavailability or high cost of homeowners' insurance could have a material
adverse effect on Homes' business.
Homes 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 Homes 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 Homes'
projects. Some of the properties held for development by Homes were formerly
sites of large agricultural operations, which involved the use of pesticides and
other
17
<PAGE>
agricultural chemicals. Although management is not currently aware of any
environmental compliance issues that are expected to have a material adverse
effect on Homes, no assurance can be given that such laws will not have a
material adverse effect on Homes' operations in the future.
The land development and home building industries are highly competitive.
Homes competes for land and residential sales, financing, raw materials and
skilled labor. Homes 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, Homes competes for land and residential sales with numerous large and
small developers, including some developers with greater financial and other
resources than Homes, 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, Homes is sometimes unable to obtain insurance policies, delivery of
which is typically a condition to obtaining financing for a project or selling a
parcel of land. In order to cure title defects and obtain appropriate title
insurance, Homes has initiated, or intends to initiate, legal actions to "quiet
title" to such parcels in its name. The process of prosecuting actions to quiet
title is sometimes lengthy and could have the effect of delaying Homes' planned
development of particular projects and increasing their cost. No assurance can
be given that Homes will prevail in its current or intended title actions or
will otherwise be able to obtain insurable title to such properties.
Homes 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 Homes' pending
development activities. In the event any such obligations are drawn upon because
of Homes' failure to build houses or required infrastructure, Homes would be
obligated to reimburse the issuing surety company or bank, which could have a
material adverse effect on Homes' financial condition and results of operations.
18
<PAGE>
C. BREWER HOMES, INC.
PART II
OTHER INFORMATION
ITEMS 1. THROUGH 5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ ----------------------------------------------------------------------
<S> <C>
*11.1 Statement Regarding Computation of Earnings (Loss) Per Common Share.
*27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
(b) Reports on Form 8-K
On December 31, 1997 the Company filed a report on Form 8-K announcing that
(a) the Company and Mauna Loa Macadamia Partners, L.P. ("Mauna Loa") executed a
definitive merger agreement pursuant to which the Company will be merged into
Mauna Loa and Mauna Loa will survive the Merger as a partnership (the "Merger");
(b) the Company and Edward T. Foley, the Company's Executive Vice President and
Chief Financial Officer had entered into a Release and Separation Agreement and
a Consulting Agreement; (c) the Company began operating as its own general
contractor for the purpose of constructing the remaining homes at its Kaimana
project on the island of Maui and that, as a result, the Company and Fletcher
Pacific Construction Co., Ltd. agreed to terminate their contract dated as of
May 30, 1995. (Filed as Exhibit 10.7 of the Registrant's Quarterly Report on
Form 10-Q dated September 30, 1995); and (d) the Company had entered into
purchase and sale agreements for its Nanea project at Kehalani subdivision and
its Iao II parcel for $2.2 million and $2.0 million, respectively. Both
agreements are subject to various closing conditions.
19
<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.
<TABLE>
<S> <C> <C>
C. BREWER HOMES, INC.
(Registrant)
Date: February 13, 1998 By: /s/ EDWARD T. FOLEY
-----------------------------------------
EDWARD T. FOLEY
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER
AND DULY AUTHORIZED OFFICER)
</TABLE>
20
<PAGE>
C. BREWER HOMES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------
<C> <S> <C>
11.1 Statement Regarding Computation of Earnings (Loss) Per Common
Share.
27.1 Financial Data Schedule
</TABLE>
21
<PAGE>
EXHIBIT 11.1
C. BREWER HOMES, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT FOR EARNINGS (LOSS) PER COMMON SHARE)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Class A Common Stock
Shares issued and outstanding........................ 4,843 3,082 4,843 3,082
Class B Common Stock
Shares issued and outstanding........................ 3,493 5,254 3,493 5,254
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 income (loss)...................................... $ (945) $ 82 $ (1,279) $ (265)
------ ------ ------------ ------
------ ------ ------------ ------
Earnings (loss) per common share....................... $ (.11) $ .01 $ (.15) $ (.03)
------ ------ ------------ ------
------ ------ ------------ ------
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 602
<SECURITIES> 0
<RECEIVABLES> 782
<ALLOWANCES> 0
<INVENTORY> 33,650
<CURRENT-ASSETS> 35,397
<PP&E> 340
<DEPRECIATION> 221
<TOTAL-ASSETS> 39,328
<CURRENT-LIABILITIES> 27,671
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 7,436
<TOTAL-LIABILITY-AND-EQUITY> 39,328
<SALES> 4,531
<TOTAL-REVENUES> 4,531
<CGS> 4,312
<TOTAL-COSTS> 4,312
<OTHER-EXPENSES> 604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> (1,550)
<INCOME-TAX> (605)
<INCOME-CONTINUING> (945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (945)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
