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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-09911
------------------------
CAPITAL PACIFIC HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2956559
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OR ORGANIZATION)
4100 MACARTHUR BLVD., SUITE 200, NEWPORT BEACH, CA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(949) 622-8400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS AND TITLE OF SHARES OUTSTANDING AS OF
CAPITAL STOCK JUNE 30, 2001
------------------ ------------------------
Common Stock, $.10 Par Value 14,932,111
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2
CAPITAL PACIFIC HOLDINGS, INC.
INDEX TO FORM 10-Q
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 1
Consolidated Balance Sheets -- May 31, 2001 and February 28,
2001...................................................... 1
Consolidated Statements of Income for the Three Months Ended
May 31, 2001
and 2000.................................................. 2
Consolidated Statements of Cash Flows for the Three Months
Ended May 31, 2001
and 2000.................................................. 3
Notes to Consolidated Financial Statements.................. 4
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial
Condition................................................. 8
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 12
i
3
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
MAY 31, FEBRUARY 28,
2001 2001
--------- ------------
(UNAUDITED)
Cash and cash equivalents................................... $ 6,494 $ 7,552
Restricted cash............................................. 757 781
Accounts and notes receivable............................... 12,297 25,082
Real estate projects........................................ 262,599 259,873
Property, plant and equipment............................... -- --
Investment in and advances to unconsolidated joint
ventures.................................................. 3,824 5,273
Prepaid expenses and other assets........................... 11,129 10,851
--------- ---------
Total assets...................................... $ 297,100 $ 309,412
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 41,779 $ 43,150
Notes payable............................................... 100,848 110,223
Senior unsecured notes payable.............................. 55,592 55,592
--------- ---------
Total liabilities................................. 198,219 208,965
--------- ---------
Negative goodwill........................................... 9,821 9,924
--------- ---------
Minority interest........................................... -- 7,743
--------- ---------
Stockholders' equity:
Common stock, par value $.10 per share, 30,000,000 shares
authorized; 16,230,000 and 14,995,000 shares issued;
14,932,111 and 13,767,311 shares outstanding,
respectively........................................... 1,623 1,500
Additional paid-in capital................................ 216,853 211,888
Accumulated deficit....................................... (125,624) (127,054)
Treasury stock............................................ (3,792) (3,554)
--------- ---------
Total stockholders' equity........................ 89,060 82,780
--------- ---------
Total liabilities and stockholders' equity........ $ 297,100 $ 309,412
========= =========
See accompanying notes to financial statements.
1
4
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
------------------
2001 2000
------- -------
Sales of homes and land..................................... $77,494 $65,034
Cost of sales............................................... 57,882 50,560
------- -------
Gross margin.............................................. 19,612 14,474
Income from unconsolidated joint ventures................... 4 11
Selling, general and administrative expenses................ (9,963) (7,743)
Interest expense............................................ (7,668) (4,783)
Interest and other income, net.............................. 619 445
------- -------
Income from operations................................. 2,604 2,404
Minority interest........................................... (159) (724)
------- -------
Income before income taxes and extraordinary item...... 2,445 1,680
Provision for income taxes.................................. 1,015 336
------- -------
Income before extraordinary item....................... 1,430 1,344
Extraordinary gain for debt retired at less than face value,
net of minority interest and taxes........................ -- 945
------- -------
Net income........................................... $ 1,430 $ 2,289
======= =======
Net income per share -- basic and diluted:
Income per share before extraordinary item................ $ 0.10 $ 0.10
Extraordinary gain for debt retired at less than face
value, net of minority interest and taxes.............. -- 0.07
------- -------
Net income per share...................................... $ 0.10 $ 0.17
======= =======
Weighted average number of common shares -- basic......... 13,735 13,787
======= =======
Weighted average number of common shares -- diluted....... 13,917 13,884
======= =======
See accompanying notes to financial statements.
2
5
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MAY 31,
--------------------
2001 2000
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $1,430 $ 2,289
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Gain on retirement of senior unsecured notes payable...... -- (945)
Depreciation and amortization............................. 12 366
Accretion of negative goodwill............................ (496) --
Change in restricted cash................................. 24 384
Increase in real estate projects.......................... (2,726) (238)
(Increase) decrease in receivables, prepaid expenses and
other assets........................................... 12,507 3,870
(Increase) decrease in accounts payable and accrued
liabilities............................................ (3,432) (10,896)
Minority interest......................................... 159 724
------ --------
Net cash provided by (used in) operating
activities....................................... 7,478 (4,446)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (372) (303)
Distributions to minority interest........................ -- (32)
Decrease (increase) in investment in and advances to
unconsolidated joint ventures.......................... 1,449 (781)
------ --------
Net cash provided by (used in) investing
activities....................................... 1,077 (1,116)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on notes payable, net............... (9,375) 8,482
Retirement of senior unsecured notes payable.............. -- (15,676)
Repurchase of common stock................................ (238) (120)
------ --------
Net cash provided by (used in) financing
activities....................................... (9,613) (7,314)
------ --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (1,058) (12,876)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 7,552 19,389
------ --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $6,494 $ 6,513
====== ========
NON-CASH ACTIVITIES:
During the three month period ended May 31, 2001, the Company issued
1,235,000 shares of non-voting common stock to CHF in return for CHF's remaining
7% interest in CPH LLC in connection with the Exchange Transaction described in
Note 3 to the financial statements. Below is a summary of amounts recorded as a
result of this transaction:
Minority interest acquired.................................. $ 7,902
Issuance of non-voting common stock......................... (5,088)
Deferred income taxes and accrued expenses recorded......... (2,061)
Adjustment of remaining property and equipment to zero...... (360)
Negative goodwill recorded.................................. (393)
-------
$ --
=======
See accompanying notes to financial statements.
3
6
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the consolidated
financial statements, and notes thereto, included in the Form 10-K for the
fiscal year ended February 28, 2001, of Capital Pacific Holdings, Inc. (the
"Company"). In the opinion of management, the financial statements presented
herein include all adjustments (which are solely of a normal recurring nature)
necessary to present fairly the Company's financial position and results of
operations. The results of operations for the three month period ended May 31,
2001, are not necessarily indicative of the results that may be expected for the
year ending February 28, 2002. The consolidated financial statements include the
accounts of the Company, wholly owned subsidiaries and certain majority owned
joint ventures, as well as the accounts of Capital Pacific Holdings, LLC ("CPH
LLC"). All other investments are accounted for on the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
2. RECLASSIFICATIONS
Certain items in prior period financial statements have been reclassified
in order to conform with current year presentation.
3. COMPANY ORGANIZATION AND OPERATIONS
The Company is a regional builder and developer with operations throughout
selected metropolitan areas of Southern California, Nevada, Texas, Arizona and
Colorado. The Company's principal business activities are to build and sell
single-family homes and to develop and build commercial and mixed-use projects.
The Company's single-family homes are targeted to entry-level, move-up and
luxury buyers.
In fiscal year 1998, the Company consummated an equity and restructuring
transaction whereby the Company and certain of its subsidiaries transferred to
Capital Pacific Holdings, LLC ("CPH LLC") substantially all of their respective
assets and CPH LLC assumed all the liabilities of the Company and its
subsidiaries. An unaffiliated investment company, California Housing Finance,
L.P. ("CHF") then acquired a 32.07% minority interest in CPH LLC as a result of
a cash investment in CPH LLC. From fiscal 1998 through fiscal 2001, the Company
expanded its operating strategy to encompass the acquisition and development of
commercial and mixed-use projects, as well as ownership of existing commercial
properties, primarily through non-majority investments in limited liability
companies, with approximately 99% of the capital for these projects being
provided by CHF.
Effective February 23, 2001, the Company and CHF consummated an interest
exchange transaction (the "Exchange Transaction"), whereby the Company exchanged
its interests in the majority of the joint ventures capitalized by CHF,
including certain entities which were previously consolidated, (the "Divested
Joint Ventures") for approximately 78% of CHF's interest in CPH LLC and all of
CHF's interests in certain residential joint ventures. At February 28, 2001, and
during the three month period ended May 31, 2001, the Company had a 93% interest
in CPH LLC and CHF held a 7% minority interest. The Company and CHF both had an
option to convert CHF's remaining 7% interest in CPH LLC into 1,235,000 shares
of non-voting Common Stock of the Company for the period extending from 90 to
180 days following the closing of the Exchange Transaction. This option was
exercised by the Company on May 31, 2001, thus, as of this date, the Company
owned 100% of CPH LLC. In addition, Capital Pacific Homes, Inc., a subsidiary of
the Company, has entered or expects to enter into construction, management and
marketing agreements relating to certain of the Divested Joint Ventures with
residential components, (the "Managed Projects"), whereby the Company is
compensated for performing such services through a management fee arrangement.
4
7
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Exchange Transaction has been accounted for as the simultaneous
acquisition of CHF's minority interest in CPH LLC and certain other residential
joint ventures and the disposition of the Company's interest in the Divested
Joint Ventures. As a result, no gain has been recognized, the remaining balance
of the Company's property and equipment was adjusted to zero at February 28,
2001, and again at May 31, 2001, and the balance of the transaction was recorded
as negative goodwill. Negative goodwill is being accreted over five years, which
accretion is included in selling, general and administrative expenses.
Assets under management, including assets owned by unconsolidated joint
ventures and Managed Projects, totaled $465 million at May 31, 2001 in 52
residential properties. At May 31, 2001, CPH LLC had $240 million in assets and
a net worth of $109 million. The Company maintains certain licenses and other
assets as is necessary to fulfill its obligations as managing member and under
management agreements. The Company and its subsidiaries perform their respective
management functions for CPH LLC and the Managed Projects, pursuant to
management agreements, which include provisions for the reimbursement of Company
and subsidiary costs and a management fee. CPH LLC, the Managed Projects and
certain other project-specific entities indemnify the Company against
liabilities arising from the projects owned by such entities.
References to the Company are, unless the context indicates otherwise, also
references to CPH LLC and the project-specific entities in which the Company has
an equity ownership interest. At the current time, all material financing
transactions and arrangements are incurred either by CPH LLC or by the
project-specific entities.
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED ENTITIES
The Company is a general partner or a direct or indirect managing member
and has a 50 percent or less ownership in 6 unconsolidated entities at May 31,
2001. The Company's net investment in and advances to unconsolidated entities
are as follows at May 31, 2001 and February 28, 2001 (in thousands):
MAY 31, FEBRUARY 28,
2001 2001
------- ------------
Unconsolidated Joint Ventures:
JMP Canyon Estates, L.P............................... $ 161 $ 162
JMP Harbor View, L.P.................................. 611 609
Grand Coto Estates, L.P............................... 344 231
M.P.E. Partners, L.P.................................. 982 983
LB/L -- CPH Providence, LLC........................... 785 715
LB/L -- CPH Longmont, LLC............................. 896 1,087
------ ------
3,779 3,787
------ ------
Divested Joint Ventures................................. 45 1,486
------ ------
$3,824 $5,273
====== ======
The Company's ownership interest in the unconsolidated joint ventures
varies. Generally, the Company receives a portion of any earnings, although a
preferred return on invested capital is provided. Typically, the majority of
capital is provided by capital partners. The Company is typically a general
partner or managing member in each of the above entities and is the managing
entity pursuant to terms in each venture's agreement. In the case of Divested
Joint Ventures which are also Managed Projects, the Company or its subsidiaries
manage the development of the project under a management contract. The Company's
carrying amount in each of the unconsolidated joint ventures (and the Divested
Joint Ventures prior to the Exchange Transaction) equals the underlying equity
in the joint venture, and there are generally no significant amounts of
undistributed earnings. The Company provides for income taxes currently on its
share of distributed and undistributed earnings and losses from the investments.
5
8
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company uses the equity method of accounting for its investments in the
unconsolidated 50 percent or less owned entities. The accounting policies of the
entities are substantially the same as those of the Company.
Following is summarized, combined financial information for the
unconsolidated entities at May 31, 2001 and February 28, 2001 and for the three
month periods ended May 31, 2001 and May 31, 2000 (in thousands). The balance
sheet information at both dates and the income statement information for the
period ended May 31, 2001 does not include the Divested Joint Ventures, but the
income statement information for the period ended May 31, 2000 does reflect the
results of the Divested Joint Ventures because the Company held an ownership
interest in those entities during that period:
ASSETS
MAY 31, FEBRUARY 28,
2001 2001
------- ------------
Cash................................................... $ 321 $ 512
Real estate projects................................... 15,234 14,620
Other assets........................................... 622 611
------- -------
$16,177 $15,743
======= =======
LIABILITIES AND EQUITY
MAY 31, FEBRUARY 28,
2001 2001
------- ------------
Accounts payable and other liabilities................. $ 4,068 $ 4,167
Notes payable.......................................... 2,286 1,878
------- -------
6,354 6,045
------- -------
Equity................................................. 9,823 9,698
------- -------
$16,177 $15,743
======= =======
INCOME STATEMENT
THREE MONTHS ENDED
-----------------------
MAY 31, MAY 31,
2001 2000
------- ------------
Sales of homes and land................................ $ 1,109 $20,095
Interest and other income, net......................... 3 2,835
------- -------
1,112 22,930
Costs and expenses..................................... 1,049 21,786
------- -------
Net income............................................. $ 63 $ 1,144
======= =======
6
9
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. NOTES PAYABLE
Notes payable at May 31, 2001 and February 28, 2001, are summarized as
follows (in thousands):
MAY 31, FEBRUARY 28,
2001 2001
-------- ------------
Notes payable to banks, including interest varying
from LIBOR plus two percent to thirteen percent,
maturing between July 31, 2001 and February 3, 2003,
secured by certain real estate projects on a
non-recourse basis.................................. $ 83,928 $ 88,272
Notes payable to banks, including interest at prime
with the terms of the commitment reducing commencing
August 1, 2001, secured by certain real estate
projects on a recourse basis........................ 14,269 16,158
Other................................................. 2,651 5,793
-------- --------
$100,848 $110,223
======== ========
6. NET INCOME PER COMMON SHARE
The Company follows SFAS No. 128. This statement requires the presentation
of both basic and diluted net income per share for financial statement purposes.
Basic net income per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted net income per share includes the effect of the potential shares
outstanding, including dilutive securities using the treasury stock method. The
table below reconciles the components of the basic net income per share
calculation to diluted net income per share (in thousands, except per share
data):
THREE MONTHS ENDED
------------------------------------------------------
MAY 31, 2001 MAY 31, 2000
------------------------- -------------------------
INCOME SHARES EPS INCOME SHARES EPS
------ ------ ----- ------ ------ -----
Basic net income per share:
Income available to common
stockholders before
extraordinary item........ $1,430 13,735 $0.10 $1,344 13,787 $0.10
Effect of dilutive securities:
Warrants..................... -- 8 -- -- -- --
Stock options................ -- 174 -- -- 97 --
------ ------ ----- ------ ------ -----
Diluted net income per share
before extraordinary item.... $1,430 13,917 $0.10 $1,344 13,884 $0.10
====== ====== ===== ====== ====== =====
7. COMMON STOCK REPURCHASE PROGRAM
The Company has announced a stock repurchase program whereby up to
1,000,000 shares of the Company's outstanding common stock may be repurchased by
CPH LLC. As of May 31, 2001, 608,400 shares have been repurchased under this
program. In addition, the Company has repurchased 244,363 of the warrants
originally issued in connection with the issuance of the Senior Notes.
7
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995 and within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended) that involves risk and uncertainty, including projections and
assumptions regarding the business environment in which the Company operates.
Actual future results and trends may differ materially depending on a variety of
factors, including the Company's successful execution of internal performance
strategies; changes in general national and regional economic conditions, such
as levels of employment, consumer confidence and income, availability to
homebuilders of financing for acquisitions, development and construction,
availability to homebuyers of permanent mortgages, interest rate levels, the
demand for housing and office space and commercial lease rates; supply levels of
land, labor and materials; difficulties in obtaining permits or approvals from
governmental authorities; difficulties in marketing homes; regulatory changes
and weather and other environmental uncertainties; competitive influences; and
the outcome of pending and future legal claims and proceedings.
RESULTS OF OPERATIONS -- GENERAL
As is noted in footnote 1 to the financial statements presented herein, the
Company is reporting its results on a consolidated basis with the results of CPH
LLC. References to the Company in this Item 2 are, unless the context indicates
otherwise, also references to CPH LLC. At the current time, all material
financing transactions and arrangements are incurred either by CPH LLC or by
project-specific entities.
The following table illustrates the actual and pro forma results of the
Company's operations for the three months ended May 31, 2001 and 2000. The pro
forma results reflect the inclusion of the operating results of the Company's
unconsolidated joint ventures, including the portion attributable to the
Company's joint venture partners, and are used throughout this discussion for
comparative purposes wherever the phrase "pro forma" is utilized.
RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
----------------------------------------------------------------
MAY 31, 2001 MAY 31, 2000
------------------------------ ------------------------------
PRO FORMA WITH PRO FORMA WITH
CONSOLIDATED JOINT VENTURES CONSOLIDATED JOINT VENTURES
------------ -------------- ------------ --------------
Sales of homes and land....... $77,494 $78,603 $65,034 $85,129
Cost of sales................. 57,882 58,830 50,560 68,700
------- ------- ------- -------
Gross margin........ $19,612 $19,773 $14,474 $16,429
======= ======= ======= =======
8
11
OPERATING DATA
Both of the tables shown below include data for the Divested Joint Ventures
at May 31, 2000 and exclude such data as of May 31, 2001, due to the change in
the Company's ownership in such entities.
The following table shows new home deliveries, lot deliveries, net new
orders and average sales prices for each of the Company's operations, including
unconsolidated joint ventures:
THREE MONTHS ENDED
------------------------
MAY 31, MAY 31,
2001 2000
---------- ----------
New homes delivered:
California................................................ 24 4
Texas..................................................... 87 127
Nevada.................................................... 46 63
Arizona................................................... 48 64
Colorado.................................................. 44 50
---------- ----------
Subtotal............................................... 249 308
Unconsolidated Joint Ventures (California)................ 4 18
---------- ----------
Total homes delivered............................. 253 326
Lot deliveries.............................................. 11 29
---------- ----------
Total homes and lots delivered.................... 264 355
========== ==========
Net new orders.............................................. 209 375
========== ==========
Average home sales price:
California................................................ $1,061,000 $1,309,000
Texas..................................................... 244,000 182,000
Nevada.................................................... 203,000 200,000
Arizona................................................... 153,000 147,000
Colorado.................................................. 224,000 190,000
Combined.................................................. $ 306,000 $ 256,000
The following table shows backlog in units and dollars at May 31, 2001 and
2000 for each of the Company's operations, including unconsolidated joint
ventures:
ENDING BACKLOG
--------------------------------------
MAY 31, 2001 MAY 31, 2000
----------------- -----------------
UNITS ($000S) UNITS ($000S)
----- -------- ----- --------
California..................................... 71 $ 62,499 74 $118,800
Texas.......................................... 234 60,094 280 61,300
Nevada......................................... 23 6,924 85 17,400
Arizona........................................ 48 7,319 85 14,100
Colorado....................................... 63 9,684 123 23,700
--- -------- --- --------
Total................................ 439 $146,520 647 $235,300
=== ======== === ========
FIRST THREE MONTHS OF FISCAL 2002 (ENDED MAY 31, 2001) COMPARED TO FIRST THREE
MONTHS OF FISCAL 2001 (ENDED MAY 31, 2000)
The Company reported net income of $1.4 million or $0.10 per share, in the
first quarter of fiscal 2002, as compared to net income of $2.3 million or $0.17
per share, in the first quarter of fiscal 2001. Income for the quarter ended May
31, 2000 included an extraordinary gain of $945,000, or $0.07 per share, as a
result of the retirement of debt at less than face value. Excluding the
extraordinary gain, operating net income increased from $1.3 million in the
first quarter of fiscal 2001 to $1.4 million in the corresponding quarter of
fiscal 2002.
9
12
On a consolidated basis, sales of homes and land increased to $77.5 million
from $65.0 million for the respective quarters. This increase is due to an
increase in Company's average sales price per home to $306,000 in the first
quarter of fiscal 2002 (which, in turn, is due primarily to a higher number of
home closings in the California market) from $256,000 in the first quarter of
fiscal 2001, offset by a decrease in total home closings. Sales of homes and
land including unconsolidated joint ventures were $78.6 million for the first
quarter of fiscal 2002 compared to $85.1 million for the first quarter of fiscal
2001. Total home closings decreased from 326 in the first quarter of fiscal 2001
to 253 in the first quarter of fiscal 2002, including 18 and 4 homes,
respectively, closed in unconsolidated joint ventures. The decrease in the
Company's backlog is primarily due to the exclusion of backlog in the Divested
Joint Ventures at May 31, 2001, as well as the reduction in backlog units in
Nevada in connection with the buildout of that market and a decrease in demand
in certain of the Company's other markets. In addition, the number of actively
selling projects has decreased from 37 at May 31, 2001 to 24 at May 31, 2002,
which affected both backlog and net new orders.
The Company's actual gross margin on home and lot closings increased to
25.3% for the first quarter of fiscal 2002 as compared to 22.3% for the first
quarter of fiscal 2001. The Company's pro forma gross margin on home and lot
closings also increased to 25.2% during the first quarter of fiscal 2002 as
compared to 19.3% for the first quarter of fiscal 2001. These substantial
increases are due in part to stronger demand experienced in the Company's
markets for homes which closed in the current year.
As a percentage of revenue, selling, general and administrative expense
increased from 11.9% for the first quarter of fiscal 2001 to 12.9% for the first
quarter of fiscal 2002. Selling, general and administrative expense of $10.0
million for the first quarter of fiscal 2002 increased $2.2 million or 28.7% as
compared to the first quarter of fiscal 2001, primarily due to a higher level of
sales activity and certain additional compensation expense recorded in
connection with the Exchange Transaction.
Income from unconsolidated joint ventures decreased from $11,000 in the
first quarter of fiscal 2001 to $4,000 in the first quarter of fiscal 2002, due
to a minimal level of profit participation in the active joint ventures in both
periods.
Interest and other income increased from $445,000 in the first quarter of
fiscal 2001 to $619,000 in the first quarter of fiscal 2002.
Minority interest of $159,000 for the first quarter of fiscal 2002 and
$724,000 for the first quarter of fiscal 2001 primarily represents the share of
CPH LLC's income attributable to CHF. The decrease between years is due to the
lower percentage ownership in CPH LLC held by CHF during fiscal 2002 as compared
to fiscal 2001.
Interest incurred was $5.1 million in the first quarter of fiscal 2002, as
compared to $6.2 million in the first quarter of fiscal 2001, while interest
expensed was $7.7 million during the first quarter of fiscal 2002, as compared
to $4.8 million in the first quarter of fiscal 2001.
The Company recorded a provision for income taxes of $1.0 million in the
first quarter of fiscal 2002, utilizing an effective tax rate of 41.5 percent,
as compared to $336,000 in the first quarter of fiscal 2001, with an effective
tax rate of 20 percent. The increase in the effective tax rate was due primarily
to the utilization of the remaining net operating loss carryforwards during
fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
At the current time, all material financing transactions and arrangements
are incurred either by CPH LLC or by certain project specific entities. As of
May 31, 2001, the Company has in place several credit facilities totaling $255
million (the "Facilities") with various bank lenders (the "Banks"), of which $98
million was outstanding. The Facilities are secured by liens on various
completed or under construction homes and lots held by CPH LLC, CPH Newport
Coast, LLC and CPH Yucaipa I, LLC, which are consolidated subsidiaries. Pursuant
to the Facilities, the Company is subject to certain covenants, which require,
among other things, the maintenance of a consolidated liabilities to net worth
ratio, minimum liquidity, minimum net worth and loss limitations, all as defined
in the documents that evidence the Facilities. At May 31, 2001, the Company was
in compliance with these covenants. The Facilities also define certain
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events that constitute events of default. As of May 31, 2001, no such event had
occurred. Commitment fees are payable annually on some of the Facilities.
Homebuilding activity is being financed out of CPH LLC cash, bank
financing, and the existing joint ventures, including joint ventures with
institutional investors. In addition, development work undertaken in certain of
the Company's joint ventures is financed through various non-recourse lending
arrangements. The Company anticipates that it will continue to utilize both
third party financing and joint ventures to cover financing needs in excess of
internally generated cash flow.
In May, 1994 the Company completed the sale of $100 million of 12 3/4%
Senior Notes ("Senior Notes") including 790,000 warrants to purchase common
stock. The proceeds from the offering were used to repay certain debt of the
Company, acquire certain properties and for general working capital and
construction purposes. The obligations associated with the Senior Notes have
been transferred from the Company to CPH LLC. The Senior Notes mature in May,
2002 and are callable at the option of CPH LLC at par. As of May 31, 2001,
Senior Notes with a face value of $44.4 million have been repurchased by the
Company.
The indenture to which the Senior Notes are subject (the "Indenture")
contains restrictions on CPH LLC on the incurring of indebtedness, which affect
the availability of the Facilities based on various measures of the financial
performance of CPH LLC. Subject to such restrictions, the Facilities are
available to augment cash flow from operations and joint venture financing to
fund CPH LLC's operations.
Management expects that cash flow generated from operations and from
additional financing permitted by the terms of the Indenture will be sufficient
to cover the debt service and to fund CPH LLC's current development and
homebuilding activities for the reasonably foreseeable future, and expects that
capital commitments from its joint venture partners and other bank facilities
will provide sufficient financing for the operation of its joint ventures.
MARKET RISK EXPOSURE
The "Market Risk Exposure" paragraphs are presented to provide an update
about material changes to the "Quantitative and Qualitative Disclosures about
Market Risk" paragraphs included in the Company's 2001 Annual Report on Form
10-K filed with the Securities and Exchange Commission and should be read in
conjunction with those paragraphs.
The Company is exposed to market risks related to fluctuations in interest
rates on its debt. The Company does not use interest rate swaps, forward or
option contracts on foreign currencies or commodities, or other types of
derivative financial instruments.
The Company uses debt financing primarily for the purpose of acquiring and
developing land and constructing and selling homes. Historically, the Company
has made short-term borrowings under its revolving credit facilities to fund
those expenditures. In addition, the Company has previously issued $100 million
in fixed-rate Senior Notes to provide longer-term financing. At May 31, 2001,
$55.6 million of the Senior Notes remain outstanding.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not the Company's earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not impact fair
market value, but do affect the Company's future earnings and cash flows. The
Company does not have an obligation to prepay fixed rate debt prior to maturity,
and as a result, interest rate risk and changes in fair market value should not
have a significant impact on such debt until the Company would be required to
refinance such debt. Based upon the amount of variable rate debt outstanding at
the end of the first quarter, and holding the variable rate debt balance
constant, each one percentage point increase in interest rates occurring on the
first day of an annual period would result in an increase in interest incurred
for the coming year of approximately $950,000.
The Company does not believe that future market interest rate risks related
to its debt obligations will have a material impact on the Company's financial
position, results of operations or liquidity.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None Filed
(b) Reports on Form 8-K
A report on Form 8-K was filed on March 9, 2001, regarding the Interest
Exchange Agreement between the Company and California Housing Finance, L.P.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: July 16, 2001
By: /s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
Date: July 16, 2001
By: /s/ STEVEN O. SPELMAN, JR.
------------------------------------
Steven O. Spelman, Jr.
Chief Financial Officer and
Corporate Secretary
(Principal Financial Officer)
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