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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1994 COMMISSION FILE NUMBER: 0-15925
J.M. PETERS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
3501 JAMBOREE ROAD, SUITE 200
NEWPORT BEACH, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
95-2956559
(IRS EMPLOYER
IDENTIFICATION NUMBER)
92660
(ZIP CODE)
(714) 854-2500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK $.10 PAR VALUE
(TITLE OF EACH CLASS)
THE AMERICAN STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At May 16, 1994, the aggregate market value of the voting stock held by
persons other than Capital Pacific Homes, Inc. and the directors and executive
officers of the Registrant was $6,648,075 as determined by the closing price on
the American Stock Exchange. The basis of this calculation does not constitute a
determination by the Registrant that all of its directors and executive officers
are affiliates as defined in Rule 405 under the Securities Act of 1933.
At May 16, 1994, there were 14,995,000 shares of Common Stock outstanding.
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PART 1
ITEM 1. BUSINESS
GENERAL
J.M. Peters Company, Inc. ("the Company") is one of the leading
single-family homebuilders in Orange County, California and Las Vegas, Nevada,
where it builds and sells homes targeted to entry level and move-up buyers.
Since 1975, the Company has built and sold nearly 8,000 homes, principally in
Orange County, but also in the adjacent counties of Riverside, San Diego and Los
Angeles. Since 1969, Durable Homes, Inc. ("Durable"), a wholly owned subsidiary
that was acquired by the Company in 1993 (the "Durable Acquisition"), has built
and sold nearly 7,000 homes, principally in Las Vegas. According to The Meyers
Group, a real estate consulting firm, in 1993 the Company was the 10th largest
homebuilder in Orange County and Durable was the 8th largest homebuilder in Las
Vegas (in each case, based on unit sales). During the fiscal year ended February
28, 1994, the Company (including Durable's results on a pro forma basis for the
full fiscal year) closed 644 home sales at an average sales price of $159,000
(including 205 homes closed in California at an average sales price of $293,000
and 439 homes closed in Nevada at an average sales price of $96,000).
Recent market information indicates that the Orange County housing market
is improving and that the Las Vegas housing market remains quite strong.
According to statistics compiled by The Meyers Group, the number of sales of new
homes in Orange County was 15% higher during 1993 than during 1992, and the
overall inventory of unsold completed new homes in Orange County decreased from
a 40 week supply in September 1990 to a 13 week supply in December 1993. A
recent study by Kenneth Leventhal & Company determined that the percentage of
households in the Orange County area that can afford a median priced home
increased from 14% in December 1989 to 47% in December 1993. According to The
Meyers Group, Las Vegas, with an expanding job base and relatively low median
housing prices, was one of the fastest growing markets in the United States for
new home sales in 1993, with annual unit sales of 15,800, 40% greater than the
1992 level. The U.S. Census Bureau ranked Las Vegas as the number one
metropolitan area in percentage population growth between 1990 and 1992, with a
14% gain to 971,200 people. During the same period, Orange County gained 106,000
new residents, an increase of over 4%.
In August 1992, Capital Pacific Homes, Inc., a Delaware corporation
("CPH"), acquired control of the Company in a $47.25 million purchase (the
"Acquisition") from the Resolution Trust Corporation ("RTC"). At the time of the
Acquisition, the Company had an experienced management team in place and almost
2,000 entitled lots in California (a majority of which were still held by the
Company as of February 28, 1994). The Acquisition (and the Company's results of
operations for the first six months of fiscal 1993) allowed the Company to
improve significantly its balance sheet, as debt was reduced by $215 million
(from $263 million to $48 million), stockholders' equity increased by $76
million to $51 million and the book value of residential real estate inventories
was written down 51% from $225 million to $111 million. Prior to the
Acquisition, the Company had already taken significant writedowns to its land
inventory. Such write-downs aggregated approximately $140.3 million during
fiscal years 1991 and 1992. The Company believes that one of its competitive
advantages is that the carrying value of its land inventory is at or below
current market values.
During much of the period of RTC control, new construction and acquisition
activity was halted in California as the RTC followed a strategy essentially
limited to liquidating inventory. Closings in California decreased from a peak
of 775 homes in fiscal year 1990 (the year prior to RTC control) to 115 homes in
fiscal year 1993 (the last year that included any period of RTC control). At the
time of the Acquisition, California construction activity had virtually ceased
and there were only 13 completed and 15 partially completed homes remaining at
the Company. Because of the time required to recommence active building
operations after the Acquisition, the Company did not begin closing a
significant number of homes in California until the third and fourth quarters of
fiscal year 1994. Because of the 22 months of RTC control, the period required
to recommence California operations and the acquisition of Durable in mid fiscal
year 1994, management of the Company does not believe that its historical
operating results prior to the third and fourth quarters of fiscal year 1994 are
meaningful indicators of its future performance.
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Since the Acquisition, the Company has focused on: (i) recommencing
California building operations; (ii) diversifying its geographic markets to
include areas outside of Southern California; (iii) diversifying its product
offerings to include both entry level and move-up homes in order to appeal to a
broad customer base; (iv) improving and broadening its capital base and sources
of financial liquidity; (v) controlling costs while increasing operational
efficiency; and (vi) reducing land and inventory risk by avoiding speculative
building, constraining project sizes, avoiding entitlement risks and acquiring
land through the use of options, purchase contracts, development agreements and
joint ventures.
The Company has made substantial progress in implementing these strategic
goals. Since the Acquisition, the Company has: (i) recommenced active building
operations in Southern California; (ii) become a significant participant in the
Las Vegas, Nevada residential housing market through its acquisition of Durable;
(iii) reduced prices, largely as a result of its reduced land basis, on its
California products without adversely affecting its product design or quality;
(iv) obtained approximately $120 million of construction financing commitments,
which included approximately $66 million from the "CalPERS LP", which amounts
the Company has utilized in the past but are presently not available to the
Company as a result of the private placement of $100 million of senior notes;
(v) established new management control systems and reduced overhead, and (vi)
completed a private placement of $100 million of senior notes.
At February 28, 1994, the Company was in various stages of development with
respect to 21 active projects, including 11 projects located in the Orange and
Riverside Counties of Southern California and in 10 projects located in Las
Vegas and Laughlin, Nevada. The Company is actively selling homes in 15 of these
projects. At February 28, 1994, the Company owned approximately 1,673 building
sites (1,027 in California and 646 in Nevada) and controlled an additional 1,439
building sites (423 in California and 1,016 in Nevada) through options and
purchase contracts.
The Company expects to start construction on approximately 14 new projects
during fiscal year 1995 and also expects that substantially all of the projects
that generated closings during the third and fourth quarters of fiscal year 1994
will be generating closings throughout fiscal year 1995. At February 28, 1994,
the Company had a total backlog of 305 homes sold with an aggregate sales value
of $55.8 million, which is moderately higher than the backlog at the start of
the third and fourth quarters of fiscal year 1994. The backlog at February 28,
1994 included 124 homes sold with an aggregate sales value of $37.4 million in
California and 181 homes sold with an aggregate sales value of $18.4 million in
Nevada.
STRATEGY
The Company's long-term strategy includes the following key elements:
(1) Diversifying its geographic markets. The Company believes that
geographic market diversification is a key element in achieving long-term
stability and growth. By acquiring Durable, the Company has expanded its
geographic reach beyond its Southern California markets to include Las
Vegas and Laughlin, Nevada. While the Company has no current plans to
expand outside the Nevada and Southern California markets, it may consider
expansion to other markets in the future.
(2) Diversifying its product. The Company builds homes targeted for
entry level buyers as well as move-up buyers so that it is able to deliver
cost-effective and quality homes to a broad segment of its potential
customer base. Within Nevada, Durable historically focused on entry level
and first time move-up buyers. Through its formation of J.M. Peters Nevada,
Inc. ("JMPN") in September 1993, the Company positioned itself to deliver
higher-end products in Nevada. Within Southern California, the Company
historically focused on second and third time move-up buyers. Since the
Acquisition in August 1992, the Company has lowered its overall price point
in Southern California (from $347,000 average price in fiscal year 1992 to
$334,000 and $293,000 in fiscal years 1993 and 1994, respectively),
enabling the Company to sell to first-time move-up buyers in Southern
California as well as the higher-end segments of that market. The Company
may also expand to the entry level market in Southern California by
expanding its Durable operations to Southern California.
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4
During fiscal year 1993, the Company formed a new wholly-owned
subsidiary, Capital Pacific Communities, Inc. ("CPC"), to specialize in
acquiring and developing multi-family projects. The activities of CPC are
part of the Company's overall diversification strategy. Rental housing is a
significant component of the market for housing alternatives, representing
entry-level housing prior to, or as an alternative to, home ownership. The
Company currently anticipates that it will develop and hold its multi-
family projects, rather than pursuing a strategy of developing multi-family
projects that are sold to other parties or are packaged as part of a real
estate investment trust.
The Company currently expects to acquire or build one or two
multi-family housing projects (typically consisting of 150 to 200 units per
project) per fiscal year. The Company intends to finance these projects
through the use of non-recourse indebtedness.
(3) Enhancing the Company's capital base and sources of financial
liquidity. The Company is seeking to diversify its sources of financing. As
conventional real estate lending has decreased, the Company has expanded
its focus from traditional project specific financing to Company-wide
financing through public capital markets. Consistent therewith, in May,
1994 the Company successfully completed the sale of $100,000,000 of 12 3/4%
Senior Notes ("Notes") including 790,000 warrants to purchase common stock
(the "Offering"). The proceeds from the offering will be used to repay
certain debt of the Company, acquire certain properties and for general
working capital purposes. The Company has also obtained a $25 million
secured line of credit facility (the "Facility") with Bank One, Arizona, NA
("BOAZ") to provide additional flexibility. The Company intends to maintain
its traditional lending relationships as an additional source of liquidity
to the extent permitted by the indenture to which the Notes are subject
(the "Indenture"). The Company believes this financing strategy will allow
orderly growth and greater flexibility to react quickly to changing market
conditions.
(4) Controlling costs and maintaining operational efficiency. The
Company has implemented job cost, warranty tracking and construction
scheduling systems and other quality controls to control costs and to
reduce the effect of certain risks inherent in the homebuilding industry.
These systems and controls enable the Company to improve and monitor its
efficiencies.
(5) Minimizing land and inventory risk. The Company carefully manages
its land and inventory risk in a variety of ways. The Company monitors its
supply of owned, optioned and controlled land to ensure an adequate
pipeline of building lots in each of its markets while avoiding excess land
holdings. The Company purchases only entitled land, typically in parcels of
only 50 to 150 lots and makes use of options, seller financing and joint
ventures to reduce its capital commitment and exposure to risks. "Entitled"
land is generally defined as land that has received all necessary land use
approvals for residential development from the appropriate state, county
and local governments, including any required tract maps, subdivision
approvals, and grading and building permits. The Company generally tries to
limit its speculative building by commencing construction only after some
sales have been made and by limiting its construction to 10-15 units at a
time. The Company generally purchases and holds land in amounts sufficient
to support home production and sales over a 24 to 36 month period in
California, and in amounts sufficient to support home production and sales
over an 18 to 24 month period in Nevada. See "-- Joint Ventures."
GEOGRAPHIC MARKETS
At February 28, 1994, the Company was in various stages of development with
respect to 21 active projects, including 11 projects located in the Orange and
Riverside Counties of Southern California and ten projects located in Las Vegas
and Laughlin, Nevada. The Company is actively selling homes in 15 of these
projects. The Company's homes currently range in size from 1,443 to 3,710 square
feet in Southern California and from 867 to 2,287 square feet in Nevada. The
Company's homes are currently priced from $175,000 to $530,000 in Southern
California and from $77,000 to $147,000 in Nevada. At February 28, 1994, the
Company owned approximately 1,673 building sites (1,027 in California and 646 in
Nevada) and controlled an additional 1,439 building sites (423 in California and
1,016 in Nevada) through options and purchase contracts.
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CALIFORNIA
The Company believes that favorable supply and demand characteristics for
homes in California offer an attractive opportunity for experienced homebuilders
having access to sources of financing. California is both the most populous
state and the largest housing market (measured by permits issued for housing
starts) in the United States.
According to the U.S. Census Bureau, the population of California increased
from 23.8 million in 1980 to an estimated 31.2 million in 1993, an annual
compound growth rate of 2.1%, which was more than double the nationwide compound
annual growth rate of 1.0%. During the period from 1990 to 1992, the U.S. Census
Bureau determined that the Los Angeles/Riverside/Orange County consolidated area
gained over 516,000 residents, rising 4% to approximately 15 million residents.
The California unemployment rate increased from 5.5% in January 1990 to
8.3% in December 1993, compared to the national average which was relatively
stable, increasing slightly from 5.9% to 6.0% during the same period. The
recession has been particularly acute in Southern California where the
unemployment rate has increased more dramatically. For example, the unemployment
rate in Los Angeles County has risen from 5.9% in January 1990 to 8.9% in
December 1993, while in San Bernardino County the unemployment rate has
increased from 4.8% in January 1990 to 9.2% in November 1993. Currently, the
Company has no active projects in Los Angeles County or San Bernardino County.
However, the unemployment rate in Orange County, where the Company has
substantial operations, was 6.3% for 1993.
Single-family building permits for the decade 1980-1989 averaged 863,000
annual units for the United States compared to 113,000 annual units for
California during the same period, or 13.1% of the national total. California
accounted for approximately one in seven new homes sold in the United States
during the 1980s. Since 1989, California has experienced weakened economic
conditions which have adversely affected the California housing market.
Nonetheless, California has remained the state with the largest housing market
in the United States. California's single family building permits represented
8.4% of the national total for 1992 and 7.3% for the first nine months of 1993.
Nevertheless, the pace of sales in California is showing signs of improvement.
According to the California Association of Realtors, the seasonally adjusted
rate of sales of homes (which would include existing homes) has accelerated by
36%, from 399,000 units in December 1990 to 543,000 units in December 1993,
which exceeds the prior peak reached in 1989.
The Company believes that the supply of home sites in the California market
is constrained by (i) a substantial reduction in the availability of development
capital from savings and loan institutions and banks; (ii) a regulatory approval
process that is among the most burdensome in the nation; (iii) infrastructure
limitations; and (iv) a scarcity of available land near employment centers.
The depressed economic conditions in California have had the effect of
reducing the state's median home sales price and making homes more affordable in
California. According to the California Association of Realtors, the median
sales price of homes in California has decreased from $195,000 in January 1990
to $184,000 in December 1993, which, together with low mortgage rates, has
increased the percentage of California households able to afford a median-priced
single family detached home from 20% in December 1990 to 43% in November 1993.
The affordability index, defined as the percent of households that can afford
the median priced home, has risen in the combined Orange County/Riverside
County/San Bernardino County area from 24.6% in 1989 to 48.6% in 1993.
Orange County. Seven of the Company's eleven active Southern California
projects are located in Orange County. According to the California Department of
Finance, Orange County is the third most populous county in California.
According to the U.S. Census Bureau, between 1990 and 1992, the county's
population grew by 106,000 new residents to approximately 2.5 million. While the
population increased, the number of residential building permits issued declined
substantially from a high of 24,672 in 1987 to 5,946 in 1992, according to the
Construction Industry Research Board. The unemployment rate in Orange County was
only 6.1% in 1992, compared to 9.0% and 7.2% for California and the United
States, respectively, according to the California Employment Development
Department. The historically low interest rates and the reduction in real estate
prices since 1990 have led to a substantial increase in the affordability index
(a measure of the
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percentage of households that, based upon median household incomes, can afford
to purchase the median priced home). According to the California Association of
Realtors, the affordability index in Orange County was 47% in December 1993,
compared with 14% in 1989. As of February 28, 1994, the Company owned land in
sufficient quantities to construct and sell 731 homes in Orange County and had
options or contracts to purchase land in sufficient quantities to construct and
sell an additional 274 homes in Orange County.
Riverside County. The Company currently has four projects in cities located
in Riverside County. Riverside County's proximity to job markets in Los Angeles,
Orange, San Bernardino and San Diego counties, and its comparatively low housing
costs, make it a significant affordable housing market for the local workforce.
As of February 28, 1994, the Company owned land in sufficient quantities to
construct and sell 208 homes in Riverside County and had contracts to purchase
land in sufficient quantities to construct and sell an additional 365 homes in
Riverside County.
The population of Riverside County, which includes among other communities
the communities of Palm Springs, Palm Desert, La Quinta, Rancho Mirage and
Temecula, increased from 663,199 to 1,1709,413, or 76.5%, from 1980 to 1990,
making it California's seventh largest county. The San Bernardino and Riverside
Metropolitan Statistical Area was the second fastest growing Metropolitan
Statistical Area ("MSA") in the United States between 1990 and 1992, during
which period Riverside County's population grew 13.5% to 1,328,320 and San
Bernardino County's population grew 9.7% to 1,556,251; by comparison, the total
population of California grew only 6.0% during the same period. The State of
California Department of Finance projects that the population of Riverside
County will grow approximately 48.5% during the decade from 1990 to 2000, which
will make it among the fastest growing California counties during that period.
The average number of jobs in Riverside County increased from 230,400 in 1980 to
428,500 in 1990 and approximately 457,900 in 1993.
NEVADA
Las Vegas. The Company currently has 10 active projects in Las Vegas. The
Company believes that Nevada's favorable demand characteristics offer
substantial long-term prospects for homebuilders. Las Vegas is currently the
site of nine of the ten largest hotels in the world, including five hotels that
have opened within the last four years, of which three have opened within the
last year. According to the City of Las Vegas Center for Economic Development,
this increase of more than 17,000 hotel rooms translates into approximately
51,000 new jobs, which the Company expects will increase the demand for
affordable, entry-level homes. The University of Nevada at Las Vegas currently
estimates that the employment growth rate estimated percent change from 1990 to
2000 for the City of Las Vegas will be approximately 36%. In addition to the
growing population base, Las Vegas typically has a large number of visitors each
year. Over 22 million people visited Las Vegas during 1993 and the Las Vegas
Convention and Visitors Authority is currently estimating that the number will
increase to 25 million visitors during calendar year 1994. Total population in
the Las Vegas metropolitan area increased by 14% to 971,200, during the period
from 1990 through 1992. The Meyers Group estimates that there were approximately
15,800 new homes sold in the Las Vegas residential housing market during 1993,
compared to approximately 11,300 new homes sold during 1992. During 1993, the
median sales price of a single family detached home was $114,000. As of February
28, 1994, the Company owned land in sufficient quantities to construct and sell
646 homes in Nevada and had options or contracts to purchase land in sufficient
quantities to construct and sell an additional 1,016 homes in Nevada.
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DEVELOPMENTS IN PROCESS--CALIFORNIA
The following table below sets forth certain information regarding projects
under development in California as of February 28, 1994. Each of the projects is
described in greater detail below the table.
HOMES AVAILABLE FOR
UNDER CONSTRUCTION FUTURE
NAME AND TOTAL UNITS AT 2/28/94 CONSTRUCTION UNITS
LOCATION OF UNITS REMAINING ------------------------- --------------- CLOSED IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/94 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1994 OF HOMES(B) CONSTRUCTION
- - --------------- -------- ---------- ----- ------ -------- ----- ------- ---------- ------------ -------------
WHOLLY-OWNED:
The Courts
Palmia/Mission
Viejo
Orange
County......... 183 183 -- -- -- -- 183 -- $150,000(est.) FY95
Fullerton
Fullerton
Orange
County....... 143 143 -- -- -- -- 143 -- 380,000(est.) FY95
Newport Coast
Irvine
Orange
County....... 44 44 -- -- -- -- 44 -- N/A(c) FY95
The Villas
Palmia/Mission
Viejo
Orange
County......... 171 171 -- -- -- -- 171 -- 163,000(est.) FY95
Rancho Serrano
Temecula
Riverside
County....... 120 90 10 4 1 9 66 30 221,000 FY94
Cozumel
La Quinta
Riverside
County....... 300(d) 292 3 5 1 6 277 8 482,000 FY94
Cayman
La Quinta
Riverside
County....... 188(d) 188 6 4 6 4 168 -- 348,000(est.) FY94
Antigua
La Quinta
Riverside
County....... 76(d) 72 -- -- -- 10 62 -- 179,000(est.) FY94
Others(e)...... -- -- -- -- -- -- -- 12 226,000
-- --
-------- ----- ----- ----- ------- ---
SUBTOTAL
WHOLLY-
OWNED........ 1,225 1,183 19 13 8 29 1,114 50
-- --
-------- ----- ----- ----- ------- ---
JOINT VENTURES:
Crestmont(f)
Portola Hills
Orange
County....... 128 67 20 -- 10 -- 37 61 $293,000 FY94
Alicante
Rancho Santa
Margarita
Orange
County....... 62 36 13 4 16 1 2 26 202,000 FY94
Paragon
Rancho Santa
Margarita
Orange
County....... 94 65 15 4 2 11 33 28 312,000 FY94
Fairway Estates
Coto de Caza
Orange
County....... 62 22 15 -- 6 1 -- 40 375,000 FY94
-- --
-------- ----- ----- ----- ------- ---
SUBTOTAL JOINT
VENTURES..... 346 190 63 8 34 13 72 155
-- --
-------- ----- ----- ----- ------- ---
TOTALS......... 1,571 1,373 82 21 42 42 1,186 205
-- --
-- --
-------- ----- ----- ----- ------- ---
-------- ----- ----- ----- ------- ---
- - ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 28, 1994, and estimated average price for projects under
development on February 28, 1994.
(c) It is too early in the design development process for this project to
identify a specific average. Final approval is subject to master developer
approval.
(d) Includes 214 lots, 148 lots and 3 lots the Company has the right to acquire
under option contracts with the sellers for the Cozumel, Cayman and Antigua
projects, respectively. There can be no assurance that the Company will be
in a position to acquire or will choose to acquire such lots within the
option term.
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(e) Includes closings at the following: Portola Hills (2 closings); Palmia
Terraces (7 closings); Foothill Ranch (2 closings); Palmia Courts (1
closing). These closings are in projects in which all remaining units were
sold in 1994.
(f) Delivery of 34 units in this project requires that water service
commitments be obtained from a local water district (the "District"). While
there is currently a dispute between the master developer (which sold the
site to the Company) and the District that may affect the Company's ability
to obtain such water service commitments, the Company believes that an
arrangement will be reached in the near future for construction of certain
additional water facilities required by the district for such commitments
to be issued, but there can be no assurance that such an arrangement can be
reached or that the lack of a current commitment will not adversely delay
sales or closings or increase the Company's costs on this project.
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DEVELOPMENTS IN PROCESS -- NEVADA
The following table below sets forth certain information about projects
under development in Nevada as of February 28, 1994. Each of the projects is
described in greater detail below the table.
AVAILABLE FOR
HOMES UNDER FUTURE UNITS
NAME AND TOTAL UNITS CONSTRUCTION AT 2/28/94 CONSTRUCTION CLOSED
LOCATION OF UNITS REMAINING ----------------------- -------------- IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/94 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1994 OF HOMES(B) CONSTRUCTION
- - -------------------------- -------- ---------- ----- ------ -------- ----- ------- -------- ------------ --------------
WHOLLY-OWNED:
Windchime
Las Vegas
Clark County.............. 167 40 22 2 5 10 1 103 $ 82,000 FY93
Echoes at Hidden Canyon
North Las Vegas
Clark County.............. 194 43 18 3 6 4 12 113 101,000 FY93
Rosewalk
Las Vegas
Clark County.............. 138 127 12 3 1 19 92 11 88,000 FY94
White Cliffs
Las Vegas
Clark County.............. 287(c) 287 5 3 9 270 -- 99,000(est.) FY94
The Falls at Hidden Canyon
North Las Vegas
Clark County.............. 241(d) 241 -- -- -- -- 241 -- 110,000(est.) FY95
Impressions
Las Vegas
Clark County.............. 202 --(e) -- -- -- -- -- 14 114,000 FY91
Tapestry
Las Vegas
Clark County.............. 73 --(e) -- -- -- -- -- 1 108,000 FY92
Spinnaker Bay
Laughlin
Clark County.............. 108 45 8 2 5 3 27 43 121,000 FY93
Tiara
Henderson
Clark County.............. 56 --(e) -- -- -- -- -- 31 131,000 FY93
-- --
-------- ----- ----- ----- ------- ---
SUBTOTAL WHOLLY-OWNED..... 1,466 783 65 13 26 36 643 316
-- --
-------- ----- ----- ----- ------- ---
JOINT VENTURES:
Taos Estates(f)
Las Vegas
Clark County.............. 91 91 -- -- -- -- 91 -- 238,000(est.) FY94
Portraits
Las Vegas
Clark County.............. 54 30 9 3 4 3 11 24 145,000 FY94
Plateau
Las Vegas
Clark County.............. 156 61 36 1 8 8 8 95 111,000 FY94
Las Hadas
Las Vegas
Clark County.............. 94 90 24 2 12 -- 52 4 85,000 FY94
-- --
-------- ----- ----- ----- ------- ---
SUBTOTAL JOINT VENTURES... 395 272 69 6 24 11 162 123
-- --
-------- ----- ----- ----- ------- ---
TOTALS.................... 1,861 1,055 134 19 50 47 805 439
-- --
-- --
-------- ----- ----- ----- ------- ---
-------- ----- ----- ----- ------- ---
- - ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 28, 1994, and estimated average price for projects under
development on February 28, 1994.
(c) Durable owns 119 lots in the White Cliffs project, and holds options for the
remainder of the project anticipated to yield approximately 168 lots. There
can be no assurance that the Company will be in a position to acquire or
will choose to acquire such lots within the option term.
(d) At February 28, 1994, Durable held options anticipated to yield 241 lots.
Sixty of such lots were purchased on March 1, 1994. There can be no
assurance that the Company will be in a position to acquire or will choose
to acquire the remainder of such lots within the option term.
(e) Projects completed during fiscal year 1994 for which no units remain to be
sold.
(f) J.M. Peters Nevada, Inc. and Durable are general partners.
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JOINT VENTURES
The Company conducts its homebuilding operations as either wholly-owned
projects or through joint ventures in which the joint venture partner typically
provides capital financing and/or land required for the project. The Company has
utilized joint ventures in order to improve the financial condition of the
Company, to increase access to quality sites and to obtain construction
financing. Currently, the financial results of operations of all of the
Company's joint ventures are consolidated in the Company's financial statements.
The Company expects to utilize joint ventures in the future on a selective
basis, taking into account other available sources of financing, project risk
and the potential return to the Company.
At February 28, 1994, the Company's joint ventures were as follows:
-------------------------------------------------
TOTAL UNITS CUMULATIVE UNITS UNITS REMAINING
PLANNED CLOSED AT 2/28/94 AT 2/28/94
----------- ----------------- ---------------
PETERS RANCHLAND, INC.
Crestmont -- Orange County......................... 128 61 67
Alicante -- Orange County.......................... 62 26 36
Paragon -- Orange County........................... 94 29 65
Fairway Estates -- Orange County................... 62 40 22
--- --- ---
Sub-total.................................. 346 156 190
--- --- ---
DURABLE HOMES, INC.
Portraits -- Las Vegas............................. 54 24 30
Plateau -- Las Vegas............................... 156 95 61
Las Hadas -- Las Vegas............................. 94 4 90
--- --- ---
Sub-total.................................. 304 123 181
--- --- ---
J.M. PETERS NEVADA, INC.(A)
Taos Estates -- Las Vegas.......................... 91 -- 91
--- --- ---
Sub-total.................................. 91 -- 91
--- --- ---
Total................................................ 741 279 462
--- --- ---
--- --- ---
- - ---------------
(a) Durable is also a general partner in Taos Estates, L.P.
Southern California Joint Ventures. The Company's most significant joint
venture relationship was established effective upon the closing date of the
Acquisition in August 1992. On the closing date, Peters Ranchland Company, Inc.,
a wholly-owned subsidiary of the Company ("Ranchland") formed for the purpose of
acting as general partner, entered into four limited partnership agreements with
the CalPERS LP for the purpose of developing four of the Company's residential
projects in Southern California. In each of the CalPERS Partnerships, Ranchland
is the sole general partner and the CalPERS LP is the sole limited partner. Upon
formation of the CalPERS Partnerships, the CalPERS LP invested an aggregate of
$16.6 million to initially capitalize the CalPERS Partnerships, which initial
capital was used by the CalPERS Partnerships to acquire the four properties from
the Company. In addition to its initial capital contribution, the CalPERS LP
also subsequently agreed to fund the projected construction financing for each
of the CalPERS Partnerships through additional contributions or construction
loans in an aggregate amount of up to $66 million for the four projects, subject
to phase budget approvals. The Company has prepaid CalPERS LP ($11.8 million)
with the proceeds of the Offering and under the terms of the Indenture the
Company is prohibited from obtaining any further construction financing from the
CalPERS LP with respect to the four CalPERS Partnerships. It is the Company's
intention to construct the balance of the units in the CalPERS Partnerships with
the proceeds from the offering.
Net proceeds from the sale of completed homes by the CalPERS Partnerships
are distributed on a project by project basis as follows: (1) first, to pay
outstanding interest and principal on any construction loans or advances by the
Company, (2) second, to pay a preferred return to the partners (on a pro rata
basis) on the capital contributed to the applicable CalPERS Partnership, (3)
third, to pay back the capital contributions made by the partners to the
applicable CalPERS Partnership on a pro rata basis, (4) fourth, to pay fees to
the CalPERS LP for the ongoing financing of certain model units for the CalPERS
Projects which have not been
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sold and leased-back by the CalPERS Partnership, which fees are approximately
$280,000 in the aggregate for the three CalPERS Projects that did not meet the
sale-leaseback deadline, and (5) fifth, any remaining proceeds to the partners
50% each, provided that the percentage payable to the CalPERS LP will be
increased to a maximum not to exceed 75% of such remaining proceeds of each
CalPERS Project to the extent necessary to maintain an internal rate of return
of 15% on all loans and capital contributions made by the CalPERS LP to the
CalPERS Partnerships on an aggregate basis (the "Minimum IRR Requirement").
Based upon current sales and projections, the Company anticipates that
Ranchland's share of proceeds from the CalPERS Partnerships will not be subject
to any reduction due to the CalPERS Minimum IRR Requirement. In connection with
each CalPERS Partnership, Ranchland and the Company have each guaranteed the
costs set forth in the approved project budgets.
Pursuant to the terms of each of the CalPERS Partnerships, Ranchland's
obligations under the four partnerships are cross-collateralized and
cross-defaulted. Under the applicable provisions, the default by Ranchland under
any one of the CalPERS Partnerships will constitute a default under all of the
CalPERS Partnerships. Under certain circumstances the CalPERS LP has the right
to use proceeds otherwise payable to Ranchland under any one of the CalPERS
Partnerships to (1) provide a reserve for anticipated project cost overruns for
any of the CalPERS Partnerships, (2) to pay anticipated shortfalls of interest
on construction loans to any of the CalPERS Partnerships, (3) to provide a
reserve as necessary to assure the return of CalPERS capital contributions and
preferred returns under any of the CalPERS Partnerships, (4) to provide a
reserve for the Minimum IRR Requirement (but only to the extent set forth in the
immediately preceding paragraph) or (5) to remedy any damages caused by any
default of Ranchland under any of the CalPERS Partnerships.
Under the current limited partnership agreement governing each of the
CalPERS Partnerships, provided that Ranchland is not in default, Ranchland is
entitled to a general partner overhead fee equal to 3% of the gross unit sales
prices for the CalPERS Projects. The overhead fees are pro rated by phases for
each CalPERS Project and paid in equal monthly installments throughout such
phase. The Company currently anticipates that the cash flows from each of the
CalPERS Projects will be sufficient to allow for distributions to Ranchland.
Nevada Joint Ventures. Durable is a party to four joint ventures, including
one in which JMPN also is a party, in the Las Vegas area.
Durable is the general partner of Las Hadas, L.P., a limited partnership
formed for the purpose of developing the Las Hadas project. In May 1993, the
limited partner contributed land valued at $564,000 to the partnership and is
entitled to be repaid for such contribution at the rate of $8,000 per unit from
the proceeds of each unit closed until all the capital and preferred return are
paid in full plus interest on the amount of such contribution which has not been
repaid at 8% per annum for six months following the first closing. The aggregate
balance of outstanding preferred return and unreturned capital to the limited
partner was $532,000 at February 28, 1994. All profit goes to Durable after the
limited partner's capital contribution and preferred return are paid. Durable is
responsible for acquiring third party financing and for any cash flow shortages.
Durable is also the general partner in Plateau Venture, L.P., a limited
partnership formed for the purpose of developing the Plateau project. In
February 1993, the limited partner contributed $1,000,000 and Durable
contributed land at an agreed-upon value of $200,000 to the joint venture. The
partners have been repaid their original capital contributions. Durable is
responsible for securing third party financing and for any cash flow shortages.
Any loans by Durable to the joint venture are entitled to repayment prior to
distributions to the limited partner. The limited partner is entitled to 45% and
Durable is entitled to 55% of net cash flow when it becomes available.
Durable is the general partner and two other persons (including Dean E.
Cederquist, son of an officer of Durable) are the limited partners of Portraits
Venture, L.P., a limited partnership formed for the purpose of developing the
Portraits project. The limited partners contributed $500,000 and Durable
contributed land at a deemed value of $500 to the joint venture in June 1993. At
February 28, 1994, the balance of the limited partners' original capital
contributions was $88,880 and the balance of Durable's original capital
contribution was $500. Durable is responsible for securing third party financing
for the project and for any cash flow
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shortages related to the joint venture. The limited partners are entitled to 31%
and Durable is entitled to 69% of net cash flow when it becomes available. See
"Certain Relationships and Related Party Transactions."
JMPN and Durable are general partners in Taos Estates L.P., a California
limited partnership formed to develop the Taos Estates project. Pursuant to the
terms of the partnership agreement for Taos Estates L.P., JMPN is required to
contribute 10% of the estimated capital needs of the partnership in an amount
anticipated not to exceed $188,800 and the limited partners are required to
contribute 90% of the estimated capital needs of the partnership up to a maximum
amount of $1,700,000. As of February 28, 1993, JMPN had made aggregate
contributions to the partnership of $100,000 and the limited partners had made
aggregate contributions of $500,000. In the event of capital needs in excess of
the foregoing amounts, the partners may make a loan to the partnership at a rate
of 2% over the Bank of America prime rate. Net proceeds from Taos Estates LP are
distributed after payment of third party acquisition and construction financing
as follows: (1) first, to repay principal and interest on any partner loans, (2)
second, to pay JMPN a management fee of 3% of the gross sales prices of closed
units, (3) third, to repay the capital contribution of JMPN and the limited
partners on a pro rata basis, (4) fourth, to pay the partners an accrued
preferred return of 10% on their contributed and unreturned capital on a pro
rata basis, and (5) fifth, any remaining proceeds are distributed 50% to the
limited partners, 45% to JMPN and 5% to Durable.
LAND ACQUISITION
The Company generally purchases and holds entitled land in California only
in amounts sufficient to support home production and sales over a 24 to 36 month
period. The Company also tries to maintain an additional 18 month supply of
entitled land through options and other means. The Company generally purchases
and holds entitled land in Nevada only in amounts sufficient to support home
production and sales over an 18 month to 24 month period. The Company also tries
to maintain an additional 12 to 18 month supply of entitled land in Nevada
through options, purchase agreements, development agreements and joint ventures.
The Company does not acquire and hold land for speculative investment.
The following table sets forth the estimated number of lots owned, under
option and controlled as of February 28, 1994 and the number of housing units
delivered during fiscal year 1994:
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD
BE
CONSTRUCTED ON LAND CONTROLLED AS OF FEBRUARY
28, 1994(A)
---------------------------------------------
UNDER
REGION OWNED OPTION CONTROLLED(B) TOTAL
- - -------------------- ----- ------ ------------- ------
Southern
California........ 1,027 365 58 1,450
Nevada 646 409 607 1,662
----- ------ ------ ------
1,673 774 665 3,112
----- ------ ------ ------
----- ------ ------ ------
- - ---------------
(a) Based upon current management estimates, which are subject to change.
Includes 171 owned lots subject to litigation. See "-- Default on Senior
Indebtedness."
(b) Controlled home sites include those properties for which the Company has
entered into a variety of contractual relationships including non-binding
letters of intent, binding purchase agreements with customary conditions
precedent and similar arrangements. There can be no assurance that the
Company will choose to acquire such properties.
The Company typically considers numerous factors including the following
when analyzing the suitability of land for acquisition and development:
proximity to existing developed areas; population growth patterns; availability
of existing community services (i.e., utilities, schools and transportation
facilities); employment growth rates; anticipated absorption rates for new
housing; and the estimated cost of development.
The Company currently does not have any unentitled land and does not expect
to purchase any unentitled land in the near future. The Company has agreed in
each of the limited partnership agreements with the CalPERS LP that it will not
acquire unentitled land without the prior written consent of the CalPERS LP,
which consent cannot be unreasonably withheld. The Company generally purchases
entitled land in order to reduce the risks associated with developing land for
which appropriate land use approval has not been
11
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obtained. Historically, the Company has purchased unfinished lots on entitled
land for which tentative or final maps have been approved. When favorable terms
are available, however, the Company will purchase finished lots. The Company
generally tries to negotiate into the purchase contract the right to enter upon
the land and commence development, marketing and sales before the close of
escrow in order to minimize the time between the closing of the land purchase
and the delivery of finished homes on the property.
The Company's profitability is affected by changing land prices, although
the Company attempts to minimize the risks caused by fluctuating land values by
acquiring a limited inventory of land. Owned land inventories generally are
limited to a level capable of providing a 24 to 36 month supply of lots in
California and an 18 to 24 month supply of lots in Nevada. However, there can be
no assurance that the Company's land inventories will not exceed a 36 month
supply as the Company is unable to accurately predict its future home sales.
Furthermore, the Company may, within the general parameters of its larger
operating strategy, choose to acquire parcels of land that might not be
developed within 36 months in certain special situations, for example when
management perceives land prices to be temporarily depressed. The Company also
has utilized rolling options and phased land purchases in order to control
larger amounts of land without the attendant financing and carrying costs. As a
result, the Company may from time to time "control" more than a 36 month supply
of land and thus may benefit from increasing land values.
The Company tries to avoid speculative building by constraining project
phase sizes to approximately 10-15 units, generally avoiding entitlement risks
by acquiring entitled properties and acquiring lots and land through the use of
options, development agreements and joint ventures with landowners when
appropriate. Additionally, by forming strategic alliances with equity partners,
the Company has been able to obtain access to additional capital and to spread
project risk, which has allowed the Company to minimize the risk of holding
undeveloped property and to preserve its capital.
In the past few years, land prices in the Company's Southern California
market have decreased because of economic recession, reduced availability of
credit caused by changing regulatory policies of financial institutions and the
demise of a number of savings and loan institutions. As a result, companies with
access to capital are in a position to take advantage of the availability of
lower priced land in attractive locations. Management believes that this will
allow the Company to achieve higher profit margins and more rapid inventory
turnover. Management believes that the proceeds of the Offering completed in May
1994 will permit the Company to capitalize on the opportunities created by the
current restrictive credit environment.
PRODUCT DESIGN
The Company, having received numerous industry design awards for its homes
and developments, is recognized as one of the premier homebuilders in Southern
California and Nevada. The Company's homes are noted for their innovative
design, attention to detail and quality construction.
Most of the Company's design work is performed by outside architects,
designers and engineers, whose work is overseen by the Company on a
project-by-project basis. While approximately ten of the Company's employees are
involved in the design process, the Company believes that the use of third
parties reduces its costs, increases design innovation and quality, and reduces
the risks of liability associated with the design process. The Company takes an
active role in monitoring and directing the work of outside architects,
designers and engineers. The Company believes it is critical to coordinate the
design process with the construction and sales and marketing efforts of the
Company to ensure an appropriate balance between market responsiveness, design
innovation and construction cost effectiveness.
The Company strives to create a variety of architectural styles within its
projects by offering numerous models and exterior styles. By doing so, the
Company hopes to enhance home values by creating diversified neighborhood looks
within its projects.
Generally, the Company designs the interior finish of homes sold. The
Company also offers home buyers the opportunity to engage interior design
consultants to personalize the interior of their homes. Such services are
offered at an additional cost to buyers through the Company's wholly owned
subsidiary, Newport Design
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Center, Inc. ("Newport Design"). During fiscal year 1994, Newport Design had
total revenues of $2.8 million and a net profit of $323,000.
DEVELOPMENT AND CONSTRUCTION
The Company acts as the general contractor for the construction of its
projects. Virtually all construction work for the Company is performed by
subcontractors. The Company's employees supervise the construction of each
project, coordinate the activities of subcontractors and suppliers, subject
their work to quality and cost controls and assure compliance with zoning and
building codes. Subcontractors typically are retained on a phase-by-phase basis
to complete construction at a fixed price. Agreements with the Company's
subcontractors are generally entered into after competitive bidding on an
individual basis. The Company has established long-term relationships with a
large number of subcontractors. The Company is not dependent to any material
extent upon the services of any one subcontractor and believes that, if
necessary, it can generally retain sufficient qualified subcontractors for each
aspect of construction. The Company believes that conducting its operations in
this manner enables it not only to readily and efficiently adapt to changes in
housing demand, but also to avoid fixed costs associated with retaining
construction personnel.
The Company generally negotiates volume discounts with manufacturers and
suppliers in order to take advantage of its volume of production. The Company
believes that this materials purchasing strategy gives it an advantage in
offering homes at a lower price than some of its smaller competitors.
The Company develops its projects in several phases averaging approximately
15 homes per phase. From market studies, the Company determines the number of
homes to be built in the first phase, the appropriate price range for the market
and other factors. The first phase of home sales is typically small to reduce
risk while the Company measures consumer demand. Construction generally does not
begin until some sales have occurred. Subsequent phases are generally not
started until at least 50% of the homes in the previous phase have been sold.
Sales prices in the second phase are then adjusted to reflect market demand as
evidenced by sales experience in the first phase. With each subsequent phase,
the Company continues to accumulate market data which, along with information
such as time of year, the local labor situation and the availability of
materials and supplies, enables the Company to determine the pricing, timing and
size of subsequent phases. Although the time required to complete a phase varies
from development to development depending on the above factors, the Company
typically completes construction of a phase within one of its California
developments in approximately five to six months and within its Nevada Division
developments within three to four months.
SALES AND MARKETING
The Company normally builds, decorates, furnishes and landscapes model
homes for each project and maintains on-site sales offices, which typically are
open seven days a week. Management believes that model homes play a particularly
important role in the Company's marketing efforts. Consequently, the Company
expends a significant effort in creating an attractive atmosphere at its model
homes. Interior decorations vary among the Company's models and are carefully
selected based upon the lifestyles of targeted buyers. Structural changes in
design from the model homes generally are not permitted, but home buyers may
select various other optional construction and design amenities.
The Company sells virtually all of its homes through sales representatives,
who typically work from the sales offices located at the model homes used in
each subdivision or in on-site sales trailers. To a lesser extent, the Company
also uses community, regional and cooperative brokers to sell its homes. Company
representatives are available to assist prospective buyers by providing them
with floor plans, price information and tours of model homes, and by assisting
them with the selection of options. Sales representatives attend periodic
meetings at which they are given information regarding other products in the
area, the variety of financing programs available, construction schedules and
marketing and advertising plans. Sales representatives at Southern California
projects are employed by the Company. Sales representatives at Nevada projects
are employed by a real estate brokerage firm retained by the Company for the
specific purpose of providing such sales representatives.
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15
The Company generally opens on-site sales offices before the construction
of the model homes is completed. These on-site sales offices are utilized to
begin building a reservation book of potential customers. Potential home buyers
submit a refundable deposit (a "reservation fee") ranging from $500 to $10,000.
The Company does preliminary research into the credit status of the potential
home buyer in order to "pre-qualify" the home buyer. Once the prospective home
buyer has been "pre-qualified" and there is a strong indication that the home
buyer will qualify for a mortgage (although final loan approval is still
pending), the home buyer must then make an "earnest money deposit" ranging from
$1,000 to $10,000 for the purchase of its home and a sales contract is executed.
The Company attempts to keep its contract cancellation rate low by
pre-qualifying prospective home buyers, allowing home buyers to customize their
homes at an early point in the purchase process, and building homes rapidly in
order to minimize customers' waiting periods. When home purchase contracts are
canceled, damages are usually limited to a percentage of the purchase price of
the home and may be less pursuant to applicable law or the purchase contract.
The Company generally determines whether to seek to obtain such a penalty on a
case by case basis. When home purchase contracts are canceled the Company is
usually able to identify alternate home buyers. As a result, only a small
percentage of homes are not sold and closed within a few days after construction
is completed.
A majority of the Company's current Nevada communities meet applicable
Federal Housing Administration ("FHA") or Veterans Administration ("VA")
requirements. FHA and VA financing generally enables homebuyers to purchase
homes with lower down payments than the down payments required by conventional
mortgage lenders. The FHA generally permits loans for up to 90-95% of the value
of a home and the VA generally permits loans up to 100% of the value of a home.
The Company believes that the availability of FHA and VA financing broadens the
group of potential purchasers for the Company's homes. In fiscal year 1994, a
majority of the homes the Company delivered in Nevada were financed with
VA-backed or FHA-backed mortgages. None of the Company's California projects
qualifies for FHA or VA financing.
The Company makes extensive use of advertising and other promotional
activities, including newspaper and magazine advertisements, brochures, direct
mail and the placement of strategically located sign boards in the immediate
areas of its projects. Because the Company usually offers multiple projects
within a single market area, it is able to utilize regional advertising that
highlights all Company projects within that same market area.
The Company provides flooring and other amenities and upgrades to its
homebuyers in California through its wholly-owned subsidiary, Newport Design.
BACKLOG AND INVENTORY
The Company typically presells homes prior to and during construction
through sales contracts requiring cash deposits ranging from $1,000 to $10,000.
Generally, these contracts are cancelable if the customers are unable to sell
their existing homes, qualify for financing or under certain other
circumstances. A home sale is placed in backlog status upon execution of the
above described contract and receipt of a deposit and is removed when such
contracts are canceled as described above or the home sale is closed. At
February 28, 1994, the Company had a backlog in California of 124 homes sold
with an aggregate sales value of $37.4 million, compared to a backlog of 92
homes sold with an aggregate sales value of $25.9 million at February 28, 1993.
At February 28, 1994, the Company had a total backlog in Nevada of 181 homes
sold with an aggregate sales value of $18.4 million, compared to Durable's
backlog of 162 homes sold with an aggregate sales value of $16.1 million at
February 28, 1993.
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16
The following table shows net orders (sales made less cancellation and
credit rejections), homes closed and ending backlog relating to sales of the
Company's homes and homes under contract for each quarter since the beginning of
fiscal year 1993. Management believes that the Company's backlog at any given
time is a good indicator of the number of units that will be closed in the four
months following such date:
ENDING BACKLOG
NET NEW HOMES -----------------
ORDERS CLOSED UNITS ($000'S)
------- ----- ----- -------
Fiscal Year 1993
1st Quarter.................................... 26 45 62 $23,520
2nd Quarter.................................... 5 45 22 5,980
3rd Quarter.................................... 22 16 28 6,474
4th Quarter.................................... 73 9 92 25,853
------- -----
Total Fiscal Year 1993................. 126 115
------- -----
------- -----
Fiscal Year 1994 (Actual)
1st Quarter.................................... 46 17 121 $36,918
2nd Quarter.................................... 52 15 158 47,893
3rd Quarter.................................... 163 165 295(a) 54,054(a)
4th Quarter.................................... 217 207 305 55,816
------- -----
Total Fiscal Year 1994................. 478 404
------- -----
------- -----
Fiscal Year 1994 (Pro forma)(b)
1st Quarter.................................... 150 138 266 $51,236
2nd Quarter.................................... 165 134 297 61,618
3rd Quarter.................................... 163 165 295 54,054
4th Quarter.................................... 217 207 305 55,816
------- -----
Total Fiscal Year 1994 (Pro forma)..... 695 644
------- -----
------- -----
- - ---------------
(a) Includes 139 homes in Durable's backlog at August 31, 1993.
(b) Includes 12 months of Durable's operations on a pro forma basis.
HOMEOWNER WARRANTY
The Company provides homeowners with a limited one year warranty wherein
the Company will correct deficiencies due to faulty workmanship, defective
materials, or significant construction flaws in the structural components of the
home or in the lot on which the home is located. The warranty does not, however,
include items that are covered by manufacturer's warranties (such as appliances
and air conditioning) or items that are not installed by employees or
contractors of the Company (such as flooring installed by an outside contractor
employed by the homeowner). The Company also provides most Nevada homebuyers
with policies issued by Homeowner's Warranty (HOW), a national program provided
by a third-party that extends protection beyond the Company's warranty period
through the national HOW underwriters. Statutory requirements in the states in
which the Company does business may grant to homebuyers rights in addition to
those provided by the Company. California law establishes a ten-year period
during which a home buyer may seek redress for latent defects resulting from the
architectural design or actual construction of its new home. Historically, the
Company has not incurred any material expenses relating to warranty claims or
defects in construction. The Company maintains appropriate reserves with respect
to each unit sold for the purpose of covering warranty claim expenses.
BONDS AND OTHER OBLIGATIONS
The Company frequently is required to obtain performance or maintenance
bonds for the construction and maintenance of public improvements that are to be
located within its projects. The amount of such obligations outstanding at any
time varies in accordance with the Company's pending development activities.
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17
Generally, the bonds are issued by insurance companies and backed by
certificates of deposit or other cash equivalents, guarantees or letters of
credit obtained from the Company's lenders. Once issued, the bonds are released
to the Company at the time the public improvements they are insuring are
completed in each community. If any such obligations were to be drawn upon, the
Company would be obligated to reimburse the issuing surety company. To date, the
Company has not had a performance or maintenance bond drawn upon by any
governmental agency.
ESCROW SERVICES
In addition to the various new entities formed or acquired in 1993, the
Company owns 50% of Bayhill Escrow, Inc. ("Bayhill"). Bayhill is the escrow
company through which the Company conducts most of its California escrow closing
activities.
COMPETITION
The homebuilding industry is highly competitive. In each of the areas in
which it operates, the Company competes in terms of location, design, quality
and price with numerous other residential construction firms, including large
national and regional firms, some of which have greater financial resources than
the Company. As the Company enters and until it develops a reputation in a new
market area, the Company can expect to face even more significant competitive
pressures.
REGULATION
The housing industry is subject to increasing environmental, building,
zoning and real estate sales regulations by various federal, state and local
authorities. Such regulations affect home building by specifying, among other
things, the type and quality of building materials that must be used, certain
aspects of land use and building design, as well as the manner in which the
Company conducts sales activities and otherwise deals with customers.
The Company must increasingly obtain the approval of numerous government
authorities which regulate such matters as land use and level of density, the
installation of utility services, such as water and waste disposal, and the
dedication of acreage for open space, parks, schools and other community
purposes. If such authorities determine that existing utility services will not
adequately support proposed development, building moratoriums may be imposed. As
a result, the Company devotes an increasing amount of time to evaluating the
impact of governmental restrictions imposed upon a new residential development.
Furthermore, as local circumstances or applicable laws change, the Company may
be required to obtain additional approvals or modifications of approvals
previously obtained. Such increasing regulation has resulted in a significant
increase in time between the Company's initial acquisition of land and the
commencement and completion of its developments.
EMPLOYEES
As of April 30, 1994, the Company employed 112 persons full-time, compared
to 62 persons at April 30, 1993. Of these, 10 were in executive positions, 15
were engaged in sales activities, 43 in project management activities and 44 in
administrative and clerical activities. None of the Company's employees are
represented by a union and the Company considers its employee relationships to
be good.
RAW MATERIALS
All of the raw materials and most of the components used in the Company's
business are readily available in the United States. Most are standard items
carried by major suppliers. However, a rapid increase in the number of houses
started could cause shortages in the availability of such materials, thereby
leading to delays in the delivery of homes under construction. In addition,
recent increases in the price of lumber have negatively impacted margins. In
order to maintain its quality standards while providing a product at good
values, the Company has used and is considering the further use of alternative
materials, such as metal studs and framing in some of its projects.
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DEFAULT ON SENIOR INDEBTEDNESS
During the period that the RTC controlled the Company, the Company
defaulted on most of its loans. Immediately prior to the Acquisition, the
Company had approximately $185.5 million in defaulted loans. Of these, only two
loans with a total principal balance of $10.4 million remained to be resolved at
February 28, 1994, which two loans were resolved as of May 16, 1994. All other
loans have been resolved since the Acquisition.
Of the two loans remaining at February 28, 1994, one is an acquisition and
development loan with an outstanding principal balance of $9.5 million that is
secured by 171 lots in Mission Viejo, California. The loan was originated on
March 14, 1989. West Coast Land Fund L.P. ("West Coast"), the lender that held
the loan, commenced an action in Orange County Superior Court on October 22,
1993 against the Company with respect to the loan (the "Action"). The Action
sought to collect the $9.5 million loan balance, plus interest and costs of
collection, owed by the Company to West Coast. The Company and West Coast have
executed a Loan Pay-Off Agreement (the "Settlement Agreement") pursuant to which
they agreed to settle the Action for $7 million. Pursuant to the Settlement
Agreement, the Company made an initial payment of $350,000 towards the
settlement amount and paid the balance of $6,650,000 on May 16, 1994 in exchange
for dismissal with prejudice of the Action, termination of nonjudicial
foreclosure proceedings and a reconveyance of the property to the Company
pursuant to West Coast's deed of trust.
The second loan, a construction loan with an outstanding principal balance
of approximately $900,000, was held by The Bank of California and secured by 15
lots with foundations in place and one completed home. The loan originated on
December 18, 1991. The Bank of California foreclosed on the property on April 5,
1994, an action that the Company chose not to dispute. Although the Company
believed that it would not be economical to develop the property, the Company
believed that the value of the property exceeds the loan amount and the Company
thus does not anticipate any adverse financial impact from the foreclosure.
REINCORPORATION MERGER
The Company reincorporated under Delaware law on April 7, 1993.
ITEM 2. PROPERTIES
The Company leases two facilities in California. Its principal offices
currently are located at 3501 Jamboree Road, Suite 200, Newport Beach,
California 92660, where the Company occupies approximately 22,313 square feet of
space. The Company's lease expires February 28, 1995. The Company also maintains
a 2,600 square foot design center in Newport Beach.
On May 25, 1994, the Company closed on the acquisition of a 45,389 square
foot headquarters building for a total purchase price of $3.2 million. The
Company will occupy approximately 20,000 square feet and approximately 22,800 of
the remaining 25,389 square feet are currently leased to tenants.
The Company leases one facility in Nevada where it occupies approximately
6,819 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
The Company settled, on May 16, 1994, litigation with West Coast regarding
a defaulted loan. See "Business -- Default on Senior Indebtedness" above.
On September 19, 1990, the Bay Ridge Park Homeowners Association filed suit
in Orange County Superior Court against the Bayridge Partnership (comprised of
the Company and Downey Savings (LOGO) Loan Service Company) alleging the
existence of certain construction defects with respect to the Bay Ridge Park
Condominiums in Newport Beach, California. The suit seeks an unspecified amount
of damages. Construction on this project was completed in 1987, several years
before the Acquisition. While discovery is ongoing with respect to the alleged
defects and while the outcome of litigation is always uncertain, Company
management is of the opinion that the suit will not have a material adverse
impact on the Company's financial condition or results of operations.
17
19
The Company is also involved in routine litigation arising in the ordinary
course of its business. While the outcome of litigation cannot be predicted with
certainty, in the opinion of management, none of the pending litigation will
have a material adverse effect on the Company's financial condition or the
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock was traded in the over-the-counter market
through the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol "JMPC", and was quoted in the NASDAQ National
Market System from the Company's initial public offering in September 1987,
until April 29, 1988, when the Common Stock began trading on the American Stock
Exchange (AMEX: Peters "JMP"). The following table sets forth the quarterly high
and low sales prices for the Common Stock for the periods indicated.
FISCAL 1995 HIGH LOW
------ -----
First Quarter (through May 16, 1994)...................... $ 3.94 $2.63
FISCAL 1994
Fourth Quarter............................................ 4.00 2.75
Third Quarter............................................. 3.75 2.38
Second Quarter............................................ 3.00 2.50
First Quarter............................................. 3.75 2.69
FISCAL 1993
Fourth Quarter............................................ 3.50 1.88
Third Quarter............................................. 3.25 2.25
Second Quarter............................................ 4.00 2.00
First Quarter............................................. 4.25 1.25
FISCAL 1992
Fourth Quarter............................................ 4.00 2.00
Third Quarter............................................. 3.00 2.13
Second Quarter............................................ 3.00 1.88
First Quarter............................................. 4.50 1.88
Payment of dividends is within the discretion of the Company's Board of
Directors and holders of shares of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. The Company's present intention is not to pay dividends in
the foreseeable future, but rather to retain any earnings. During the last two
years, no dividends have been paid.
On April 30, 1994, the Company had approximately 1,800 beneficial holders
of its Common Stock.
19
21
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information of the Company is
presented for the fiscal years ended February 28, 1994, February 28, 1993,
February 29, 1992, February 28, 1991 and February 28, 1990. The selected
financial information and other data should be read in conjunction with the
Company's audited Consolidated Financial Statements and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both of which are included elsewhere in this report. Certain
reclassifications have been made to the prior years balances to conform to the
current year presentation.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND OPERATING DATA)
------------------------------------------------------
LAST DAY OF FEBRUARY
------------------------------------------------------
1990 1991 1992 1993 1994
-------- --------- -------- --------- --------
INCOME STATEMENT DATA:
Total revenues............................. $315,726 $ 215,535 $184,944 $ 75,702 $ 91,066
Cost and expenses:
Cost of homes and land................... 241,037 184,672 170,329 68,257 73,348
Adjustments to carrying value of real
estate projects and investments in
partnerships.......................... 1,055 84,327 56,016 75,476 --
Adjustment to costs in excess of net
assets acquired....................... -- 18,951 -- -- --
Interest expense......................... 353 12,006 14,691 8,538 418
Selling, general and administrative...... 29,010 26,213 15,579 9,764 12,322
-------- --------- -------- --------- --------
Total costs and expenses......... 271,455 326,169 256,615 162,035 86,088
Minority interest.......................... -- -- -- -- 4,332
-------- --------- -------- --------- --------
Income (loss) before income taxes and
extraordinay gain........................ 44,271 (110,634) (71,671) (86,333) 646
Income tax (benefit) expense............... 18,937 (2,653) (13,895) (1,792) --
-------- --------- -------- --------- --------
Income (loss) before extraordinary gain.... 25,334 (107,981) (57,776) (84,541) 646
Extraordinary gain....................... -- -- -- -- 4,268
-------- --------- -------- --------- --------
Net income (loss)........................ $ 25,334 $(107,981) $(57,776) $(84,541) $ 4,914
-------- --------- -------- --------- --------
-------- --------- -------- --------- --------
Net income (loss) per common share:
Before extraordinary gain................ $(1.81) $(7.72) $(4.13) $(6.05) $ .04
Extraordinary gain....................... -- -- -- -- .30
------ ------ ------ ------ -----
Net income (loss) per share(1)............. $(1.81) $(7.72) $(4.13) $(6.05) $ .34
------ ------ ------ ------ -----
------ ------ ------ ------ -----
AT THE LAST DAY OF FEBRUARY
-----------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- --------- --------
BALANCE SHEET DATA:
Residential inventories.................. $474,687 $395,484 $224,566 $ 99,636 $105,696
Total assets............................. 594,759 410,963 250,822 115,551 121,954
Notes payable............................ 232,549 160,638 59,165 38,433 34,709
Due to parent............................ 193,840 205,121 204,138 1,702 --
Stockholders' equity..................... 140,150 32,169 (25,607) 48,015 55,594
OPERATING DATA (in units):
Homes closed............................. 775 541 395 115 404
Homes contracted for..................... 759 430 326 126 478
Homes in backlog......................... 261 150 81 92 305
- - ------------
(1) The weighted average number of shares outstanding is 14,488,000 for the year
ended February 28, 1994 and 13,980,000 for the years ended February 28,
1993, February 29, 1992, February 28, 1991 and February 28, 1990.
20
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Management of the Company believes that its historical operating results
prior to the third and fourth quarters of fiscal year 1994 are not meaningful
indicators of its future performance primarily because of (i) RTC's control
during fiscal year 1992 and most of fiscal year 1993, (ii) the period of time
needed to recommence California building operations in late fiscal year 1993 and
early fiscal year 1994 following the acquisition of the Company from the RTC
during fiscal year 1993 and (iii) the Durable Acquisition which occurred in the
middle of fiscal year 1994.
Throughout the 22-month period of the RTC's control of the Company (from
November 1990 to August 1992), the Company's operations were essentially limited
to liquidating inventory and the Company's construction and acquisition activity
was virtually halted. Immediately following the Acquisition, the Company began
the process of reactivating California operations stalled by the RTC. While the
RTC's liquidation strategy left the Company with only 13 completed homes and 15
homes under construction at the time of the Acquisition, the Company did have
substantial assets including almost 2,000 owned and entitled lots, 365 lots
under option, an experienced staff of 68 persons and operating and information
systems to support ongoing homebuilding operations. The Company was able to
commence meaningful construction on reactivated projects during the first two
quarters of fiscal year 1994, marketing the homes in advance of completion of
construction. The process of recommencing construction can be seen in the low
number of deliveries (completion of construction of a home as evidenced by the
receipt of a certificate of occupancy) in the three fiscal quarters immediately
after the Acquisition when there were only 13 home deliveries in California. The
Company's sales efforts were impaired during this period as a result of the lack
of completed inventory and the significant amount of time that buyers were
required to wait for construction to be started and completed.
The Company's current average construction period for a California home is
approximately six months. As a result, most of the home sales made during the
first and second quarters of fiscal year 1994 were not closed until the third
and fourth quarters of fiscal year 1994, when construction was completed and
closings occurred. The impact of this construction cycle is seen in the very low
number of units closed in California in the first two quarters of fiscal year
1994 (32 units) compared to the third and fourth quarters of fiscal year 1994
(173 units). The Company's revenues from home sales, which are recognized at
closing, increased significantly in the third and fourth quarters of fiscal year
1994 as construction was completed on projects recommenced during the first half
of the fiscal year.
Importantly, the Company's current backlog is at a level consistent with
the level of third and fourth quarter closings in fiscal year 1994. See
"Business -- Backlog and Inventory." Additionally, the same projects that
generated substantially all of the closings in fiscal year 1994 are still
actively selling homes at the start of fiscal year 1995. The Company expects to
start construction on approximately 14 new projects in fiscal year 1995 that
were not under construction during fiscal year 1994, 11 of which are currently
owned or in escrow. See "Business -- Developments in Process -- California" and
"Business -- Developments in Process -- Nevada."
21
23
Although Durable, which was acquired by the Company as of September 1, 1993
(the start of the third quarter of fiscal year 1994), was a significant
contributing factor to the Company's performance during the last two quarters of
fiscal year 1994, the Company's California results of operations showed
significant improvements and a return to profitability on a stand-alone basis
during these two quarters, as shown below:
CALIFORNIA DIVISION
FISCAL QUARTER ENDED FISCAL YEAR
----------------------------------------------------- ENDED
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1993 1993 1993 1994 1994
-------- ---------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
Total revenues.......................... $ 4,004 $ 8,250 $29,122 $28,498 $ 69,874
-------- ---------- ------------- ------------- ------------
-------- ---------- ------------- ------------- ------------
Gross profit............................ $ (157) $ (26) $ 4,864 $ 5,205 $ 9,886
Interest and other income, net.......... 400 597 900 976 2,873
Selling, general and administrative
expenses.............................. 1,918 1,986 2,287 2,740 8,931
Minority interest....................... -- -- 2,095 1,838 3,933
-------- ---------- ------------- ------------- ------------
Operating income (loss)................. (1,675) (1,415) 1,382 1,603 (105)
Interest expense........................ 276 142 -- -- 418
-------- ---------- ------------- ------------- ------------
Income (loss) before provision (benefit)
for income taxes and extraordinary
gains................................. (1,951) (1,557) 1,382 1,603 (523)
Provision (benefit) for income taxes.... -- -- -- -- --
-------- ---------- ------------- ------------- ------------
Income before extraordinary gain........ (1,951) (1,557) 1,382 1,603 (523)
Extraordinary gain...................... -- -- 4,268 -- 4,268
-------- ---------- ------------- ------------- ------------
Net income (loss)....................... $ (1,951) $ (1,557) $ 5,650 $ 1,603 $ 3,745
-------- ---------- ------------- ------------- ------------
-------- ---------- ------------- ------------- ------------
In addition to the Company's California operations, Durable had 199 home
closings and $21.1 million in revenue in the last two quarters of fiscal year
1994 (following the Durable Acquisition) compared to 240 home closings and $21.2
million in revenues during the first two quarters of fiscal year 1994, (prior to
the Durable Acquisition). The actual results of the Company's operations for
fiscal year 1994, including Durable's results of operations for only the third
and fourth quarters of fiscal year 1994, are set forth in the table below:
THE COMPANY(A)
FISCAL QUARTER ENDED FISCAL YEAR
----------------------------------------------------- ENDED
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1993 1993 1993 1994 1994
-------- ---------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
Total revenues.......................... $ 4,004 $ 8,250 $37,343 $41,469 $ 91,066
-------- ---------- ------------- ------------- ------------
-------- ---------- ------------- ------------- ------------
Gross profit............................ $ (157) $ (26) $ 6,750 $ 8,225 $ 14,792
Interest and other income, net.......... 400 597 918 1,011 2,926
Selling, general and administrative
expenses.............................. 1,918 1,986 3,505 4,913 12,322
Minority interest....................... -- -- 2,308 2,024 4,332
-------- ---------- ------------- ------------- ------------
Operating income (loss)................. (1,675) (1,415) 1,855 2,299 1,064
Interest expense........................ 276 142 -- -- 418
-------- ---------- ------------- ------------- ------------
Income (loss) before provision (benefit)
for income taxes and extraordinary
gain.................................. (1,951) (1,557) 1,855 2,299 646
Provision (benefit) for income taxes.... -- -- -- -- --
-------- ---------- ------------- ------------- ------------
Income before extraordinary gain........ (1,951) (1,557) 1,855 2,299 646
Extraordinary gain...................... -- -- 4,268 -- 4,268
-------- ---------- ------------- ------------- ------------
Net income (loss)....................... $ (1,951) $ (1,557) $ 6,123 $ 2,299 $ 4,914
-------- ---------- ------------- ------------- ------------
-------- ---------- ------------- ------------- ------------
- - ---------------
(a) Reflects Durable's results of operations for only the third and fourth
quarters of fiscal year 1994.
22
24
BACKLOG AND INVENTORY
The Company typically presells homes prior to and during construction
through sales contracts requiring cash deposits ranging from $1,000 to $10,000.
Generally, these contracts are cancelable if the customers are unable to sell
their existing homes, unable to qualify for financing or under certain other
circumstances. A home sale is placed in backlog status upon execution of the
above described contract and receipt of a deposit, and is removed from backlog
status when such contract is canceled as described above or the home sale is
closed. At February 28, 1994, the Company had a total backlog of 305 homes with
an aggregate sales value of $56 million, which is moderately higher than the
backlog of the Company at the start of the third and fourth quarters of fiscal
year 1994. The Company had a backlog of 297 homes with an aggregate sales value
of $62 million at the end of the second quarter of fiscal year 1994 and 295
homes with an aggregate sales value of $54 million at the end of the third
fiscal quarter of fiscal year 1994.
Management believes that because of the Company's typical construction,
marketing and closing cycle, the Company's backlog is generally a good indicator
of the number of units that will be closed in the four months following a
particular measurement date. The following table shows net new orders (sales
made less cancellations and credit rejections) and the ending backlog relating
to the Company and Durable for each quarter since the middle of fiscal year
1993, including the four fiscal quarters prior to the Durable Acquisition:
PRO FORMA
PRO FORMA FISCAL QUARTER ENDED(A) FISCAL QUARTER ENDED FISCAL YEAR
----------------------------------------------------------------- ------------------------------- ENDED
NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1992 1993 1993 1993 1993 1994 1994(A)
-------------- -------------- -------------- -------------- -------------- -------------- -------------
(UNITS, EXCEPT AS NOTED)
California
Starts(b)... 13 2 101 64 78 65 308
Deliveries(c)... 0 0 13 25 77 111 226
Closings(d)... 16 9 17 15 87 86 205
Net new
orders... 22 73 46 52 46 93 237
Ending
backlog... 28 92 121 158 117 124 124
Ending
backlog
($000)... $ 6,474 $ 25,853 $ 36,918 $ 47,893 $ 36,478 $ 37,450 $37,450
Nevada(a)
Starts(b)... 106 52 127 105 140 120 492
Deliveries(c)... 113 112 109 124 51 127 411
Closings(d)... 100 100 121 119 78 121 439
Net new
orders... 146 72 104 113 117 124 458
Ending
backlog... 190 162 145 139 178 181 181
Ending
backlog
($000)... $ 18,525 $ 16,119 $ 14,318 $ 13,725 $ 17,576 $ 18,366 $18,366
Total Ending
backlog
Units..... 218 254 266 297 295 305 305
Dollars
($000)... $ 24,999 $ 41,972 $ 51,236 $ 61,618 $ 54,054 $ 55,816 $55,816
- - ---------------
(a) Includes information with respect to Durable's backlog on a pro forma basis
for the periods prior to consummation of the Durable Acquisition.
(b) Represents start of construction on a unit.
(c) Represents completion of construction and issuance of a certificate of
occupancy.
(d) Represents the close of escrow and delivery of the deed to the buyer of a
unit.
The same 13 projects that generated substantially all of the closings in
fiscal year 1994 were still actively selling homes at the start of fiscal year
1995. The Company expects to start construction on approximately 14 new projects
in fiscal year 1995 that were not under construction during fiscal year 1994, 11
of which are currently owned or in escrow. See "Business -- Developments in
Process -- California" and "Business -- Developments in Process -- Nevada."
23
25
VARIABILITY OF RESULTS AND SEASONALITY
The Company's results of operations reflect the cyclical nature of the
homebuilding industry and the Company's historical focus on the Southern
California housing market. The most recent peak in the industry cycle occurred
in 1988 and 1989, which was followed by a downturn in 1990 coinciding with the
national recession. California entered the recession later than other portions
of the country and, as a result, the Company's performance in fiscal year 1990
was quite strong. However, economic and real estate conditions in California and
Southern California in particular have been depressed during 1991, 1992 and
1993. The Company commenced a geographic diversification strategy in fiscal year
1993 in order to reduce its dependence on the Southern California real estate
market. Despite the national recession, the Las Vegas metropolitan area has
experienced significant growth in recent years, with unit sales and population
increases from year to year during the period from 1990 to 1992 according to The
Meyers Group.
The Company's results of operations for any period are affected by a number
of factors, including the number of home developments under construction, the
length of the development cycle of its projects, product mix, weather,
availability of financing, costs of materials and economic conditions in the
areas in which the Company operates. Product mix (both product line and size of
home) has a substantial effect on the average sales price of homes and the gross
margin from home sales because smaller homes generally have lower sales prices
and gross margins than larger homes. The average sales price of homes from
period to period fluctuates based on product line, home size, geographic mix and
changes in the market price of housing.
The homebuilding industry in California, and to a lesser extent Nevada, is
seasonal. Generally, new orders are higher in the spring and summer months,
constituting the Company's first and second fiscal quarters, with closings, and
therefore revenues, being higher in the fall and winter months, which represent
the Company's third and fourth fiscal quarters. While the Company's increased
revenue levels during the third and fourth quarters of fiscal year 1994 were
principally related to delivery of completed homes not previously available
rather than seasonality, the Company expects that seasonal variations will
continue in the future.
RESULTS OF OPERATIONS -- GENERAL
The results of operations of the Company for the fiscal year ended February
28, 1994 do not include the full year of Durable's results of operations due to
the fact that the Durable Acquisition did not occur until the start of the third
quarter of fiscal year 1994. Additionally, the results of operations of the
Company for the fiscal years ended February 29, 1992 and February 28, 1993
include the period of RTC control of the Company. Accordingly, Company
management believes that the historical operating results for those periods are
not meaningful indicators of future performance.
A separate discussion and analysis of Durable's results of operations for
its three most recently completed fiscal years prior to its acquisition by the
Company is also included below. For federal and certain state income tax
purposes, prior to the Durable Acquisition, Durable had elected to be treated as
an S Corporation and, therefore, was not generally subject to tax on its
earnings. See Note 1 to the Consolidated Financial Statements of Durable
included elsewhere in this Memorandum. The Company and Durable are generally not
discussed separately in the discussions of liquidity and capital resources,
inflation and taxes included below.
RESULTS OF OPERATIONS -- THE COMPANY
Because revenues from home sales are not recognized until the sales are
closed, the recommencement of building operations by the Company following the
Acquisition did not result in material levels of home closings until the third
quarter of fiscal year 1994. Additionally, the Company's results of operations
for the periods prior to September 1, 1993 do not reflect the Durable
Acquisition. Accordingly, the Company believes that the historical operating
results for the full fiscal year presented herein are not as meaningful as the
quarterly results for the last two quarters of fiscal year 1994. The Company
incurred operating losses of $1.9 million and $1.6 million during the first two
quarters of fiscal year 1994 and returned to profitability in the third quarter
of fiscal year 1994 as home closings began to occur following completion of the
construction recommenced after the Acquisition. The Company's net income
(excluding extraordinary items) for the third and fourth quarters of fiscal year
1994 was $1.8 million and $2.3 million, respectively.
24
26
FISCAL YEAR 1994 (YEAR ENDED FEBRUARY 28, 1994) COMPARED TO FISCAL YEAR 1993
(YEAR ENDED FEBRUARY 28, 1993)
Net Income. The Company returned to profitability in fiscal year 1994
having net income of $4.9 million, or $0.34 per share, compared to a net loss of
$84.5 million, or $6.05 per share, for fiscal year 1993. These results were due
to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1994 of $81.2 million increased $42.8 million, or 112%, from fiscal year 1993.
This increase was due to a greater number of home closings during the fiscal
year. Home closings for fiscal year 1994 were 404, compared to 115 homes for
fiscal year 1993, an increase of 289 homes. This increased activity was
primarily due to the Durable Acquisition, which contributed $21.1 million of
revenues and 199 home closings during the period from September 1, 1993, the
effective date of the Durable Acquisition, through February 28, 1994, and the
home closings from the projects developed by the four CalPERS Partnerships,
which contributed 155 home closings and approximately $46.8 million in revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1994 of $12.3 million increased $2.6
million over fiscal year 1993. This increase was primarily due to the effect of
the Durable Acquisition, which was consummated as of September 1, 1993.
Interest Expense. Interest expense of $418,000 for fiscal year 1994 was
approximately $8.1 million less than fiscal year 1993. This decrease was due
primarily to an increase in the amount of interest able to be capitalized as a
result of the increased level of construction activity and the Company's lower
level of debt as a result of the Acquisition and the associated restructuring of
debt.
Extraordinary Gain and Valuation Adjustments. During the fiscal year ended
February 28, 1994, the Company recorded a one-time gain of $4.3 million due to
the resolution of project financing at less than the face amount of the debt.
The Company's pre-tax net loss of $86.3 million for fiscal year 1993 was
primarily due to adjustments to the realizable value of assets of $75.5 million
resulting from the closing of the Acquisition.
During the fiscal year ended February 28, 1994, the Company recorded 478
net orders (home sales contracted for less cancellations), which was 352 homes
higher than fiscal year 1993. The Company had 305 homes in its backlog (homes
under contract but not closed) at February 28, 1994, which was an increase of
213 homes over the Company's backlog at February 28, 1993.
FISCAL YEAR 1993 (YEAR ENDED FEBRUARY 28, 1993) COMPARED TO FISCAL YEAR 1992
(YEAR ENDED FEBRUARY 29, 1992).
Net Income (Loss)/Valuation Adjustments. The Company had a net loss of
$84.5 million, or $6.05 per share, compared to a net loss of $57.8 million, or a
loss of $4.13 per share, for fiscal year 1992. This net loss was primarily as a
result of downward adjustments to the net realizable value of assets resulting
from the closing of the Acquisition and a $10.9 million operating loss.
Revenues from Sales of Homes. For the first three quarters of fiscal year
1993, the Company liquidated standing inventory and had virtually no
construction activity. Housing starts in the fourth fiscal quarter had not yet
begun to close by the end of the quarter and as a result revenue from housing
sales was down from $137.2 million in fiscal year 1992 to $38.4 million in
fiscal year 1993. There was a 71% reduction in the number of homes closed in
fiscal year 1993 compared to fiscal year 1992, which reduction resulted from the
RTC-controlled Board of Directors' direction that the Company liquidate
inventory and not commence any new construction activity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $9.8 million for fiscal year 1993, down
from $15.6 million for fiscal year 1992. This decrease resulted primarily from
reduced efforts at marketing inventory during the RTC's control of the Company
and from extensive overhead reduction measures taken in order to conserve cash,
including the closure of the Los Angeles and San Diego divisions of the Company
at the direction of the RTC.
25
27
Interest Expense. Interest expense was $8.5 million for the fiscal year
ended February 28, 1993, compared to $14.7 million for the fiscal year ended
February 29, 1992. This reduction stems from debt reduction associated with
sales of land and inventory.
During the fiscal year ended February 28, 1993, the Company had 126 net new
orders (home sales contracted for less cancellations) which was lower than the
comparable period of fiscal year 1992 by 200 homes. However, the Company had 92
homes in its backlog at February 28, 1993 (homes under contract but not closed),
compared to 81 homes in its backlog at February 29, 1992.
RESULTS OF OPERATIONS -- DURABLE
The following table summarizes certain information regarding revenues,
gross margins, average home selling prices, selling, general and administrative
expenses and homes closed for each of the three years ended December 31, 1993
for Durable only. See "Selected Consolidated Financial and Operating
Data -- Durable." For federal and certain state tax purposes, prior to the
Durable Acquisition, Durable had elected to be treated as an S Corporation and,
therefore, was not generally subject to tax on its earnings. See note 1 to the
Consolidated Financial Statements of Durable included elsewhere in this
Memorandum.
FISCAL YEAR ENDED
-------------------------------------------------------------
DECEMBER 31, 1991 DECEMBER 31, 1992 DECEMBER 31, 1993
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
Total revenues........................... $31,495 $36,184 $38,678
Housing revenues......................... 31,461 35,977 38,458
Housing gross profit..................... 7,106 7,407 8,363
Selling, general & administrative
expenses............................... 4,587 5,082 5,924
Net income............................... 2,553 2,532 2,199
Housing gross margin..................... 22.6% 20.6% 21.7%
Selling, general and administrative
expenses as a percent of housing
revenues............................... 14.6% 14.1% 15.4%
Average home selling price............... $ 90 $ 99 $ 94
Homes closed (units)..................... 348 363 410
FISCAL YEAR 1993 (YEAR ENDED DECEMBER 31, 1993) COMPARED TO FISCAL YEAR 1992
(YEAR ENDED DECEMBER 31, 1992)
Net Income. Durable's net income for fiscal year 1993 was $2.2 million,
compared to net income of $2.5 million for fiscal year 1992, a decrease of 13%.
These results were due to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1993 of $38.5 million increased $2.5 million, or 7%, from fiscal year 1992. This
increase was due to a greater number of home closings during the year. Home
closings for fiscal year 1993 were 410 homes compared to 363 homes for fiscal
year 1992, an increase of 47 homes. This increased activity was primarily due to
the formation of three joint ventures during fiscal year 1993, which contributed
89 home closings and approximately $10.4 million in revenue in fiscal year 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1993 of $5.9 million increased by $.8
million over the corresponding period of fiscal year 1992, primarily as a result
of broker participation and increased professional fees. As a percentage of
total revenues, such expenses increased by 1.3%.
Minority Interest. Minority interest in the earnings of joint ventures was
$460,000 for fiscal year 1993; there was no minority interest expense for
1992.
Gross Margins. Gross margins increased from 20.6% in fiscal year 1992 to
21.7% in fiscal year 1993. The gross margin increased due to changes in product
mix and lower developer's fees.
26
28
During the fiscal year ended December 31, 1993, Durable recorded 436 net
new orders (homes contracted for less cancellations), which was three homes
higher than fiscal year 1992. Durable had 164 homes in its backlog (homes under
contract but not closed) at December 31, 1993, which was an increase of 26 homes
over its backlog at December 31, 1992.
FISCAL YEAR 1992 (YEAR ENDED DECEMBER 31, 1992) COMPARED TO FISCAL YEAR 1991
(YEAR ENDED DECEMBER 31, 1991)
Net Income. Durable's net income for fiscal year 1992 was $2.5 million,
compared to net income of $2.6 million for fiscal year 1991. These results were
due to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1992 of $36.0 million increased $4.5 million, or 14%, from 1991. This increase
was due to a higher average selling price of homes closed during the fiscal
year. Home closings for fiscal year 1992 were 363 homes compared to 348 homes
for fiscal year 1991. The increased prices were primarily due to a different mix
of products sold.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1992 of $5.1 million increased by $0.5
million over the corresponding period of fiscal year 1991. The increase in
selling, general and administrative expenses was primarily attributable to
increased broker participation.
Gross Margins. Gross margins decreased from 22.6% in fiscal year 1991 to
20.6% in fiscal year 1992. The decrease in gross margins was attributable to a
1991 project that had a margin of 28% due to a very low land basis.
During the fiscal year ended December 31, 1992, the Company recorded 433
net new orders (home sales contracted for less cancellations), which was 95
homes higher than in fiscal year 1991. The Company had 138 homes in its backlog
(homes under contract) at December 31, 1992, an increase of 70 homes over the
Company's backlog at December 31, 1991.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements are for the acquisition,
development, construction and marketing of its residential projects. The need to
stage the acquisition and use of raw materials such as land and finished lots
and the need, on certain projects, to construct community facilities ahead of
the start of home construction requires homebuilders such as the Company to
commit working capital for longer periods than many traditional manufacturing
companies. When building inventory, the Company uses substantial amounts of cash
that are generally obtained from borrowings, available cash flow from operations
and partners' contributions to joint ventures.
The principal uses of cash resources by the Company since the Acquisition
have been to recommence building operations in California, cure defaulted loans
and undertake land acquisition for future projects. Because there was very
little standing inventory and completed construction activity until the third
quarter of fiscal year 1994, the Company has principally relied upon borrowings
since the Acquisition due to the fact that cash flow from operations only began
to become significant in the third and fourth quarters of fiscal year 1994. The
Company's construction activities since the Acquisition have been constrained to
some extent by the amount of funds available to it for acquisition, development
and construction.
To date, the Company has principally used secured bank financing and
financing provided by the CalPERS LP for acquisition, development and
construction, with borrowings for individual projects or phases of projects
secured by such projects. In connection with the CalPERS Partnerships, the
CalPERS LP provided equity of $16.6 million and agreed to provide construction
financing for the four projects (with 346 originally planned units) owned by the
CalPERS Partnerships in an aggregate amount up to $66 million (the "CalPERS
Construction Financing"). Through February 28, 1994, the CalPERS LP had advanced
an aggregate of $37 million of the CalPERS Construction Financing. Under the
terms of the Indenture relating to the sale of Notes and warrants discussed
below, the Company is prohibited from obtaining any further financing from the
CalPERS LP with respect to the four CalPERS Partnerships.
27
29
In May, 1994 the Company successfully completed the sale of $100,000,000 of
12 3/4% Senior Notes including 790,000 warrants to purchase common stock. The
proceeds from the offering will be used to repay certain debt of the Company,
acquire certain properties and for general working capital purposes. The
proceeds are expected to provide sufficient available liquidity, when combined
with additional financing permitted under the Indenture and cash flow from
operations, to fund the Company's current and projected acquisition, development
and construction activities for a period of at least two years.
The Company has also obtained a $25 million secured line of credit facility
with Bank One, Arizona, NA. The initial term of the Facility will expire on June
30, 1996. Borrowings under the Facility will bear interest at BOAZ prime plus
one percent. The Facility will be secured by liens on various completed or under
construction homes and lots held by the Company (but not on homes or lots held
by Durable or any other Company subsidiary). The credit agreement contains
certain covenants, including covenants that require the Company to comply with
certain operating and reporting requirements and maintain certain financial
levels and ratios. The credit agreement also defines certain events that
constitute events of default. BOAZ is entitled to payment out of the proceeds of
its collateral prior to any holders of unsecured indebtedness, including the
Notes.
Subject to the restrictions contained in the Indenture, the Facility will
be available to augment cash flow from operations and the proceeds of the
Offering to fund the Company's operations.
INTEREST RATES AND INFLATION
The long-term impact of inflation on the Company is manifested in increased
land, land development, construction and overhead costs, as well as in increased
sales prices. For several years prior to fiscal year 1989, the Company was able
to raise sales prices by amounts at least equal to its cost increases. Since
fiscal year 1989, however, overall sales prices have declined and the Company's
costs, including land acquisition costs, have generally decreased.
The Company generally contracts for land significantly before development
and sales efforts begin and, accordingly, to the extent land acquisition costs
are fixed, increases or decreases in the sales prices of homes may affect the
Company's profits. Since the sales prices of homes are fixed at the time of sale
and the Company generally sells its homes prior to commencement of construction,
any inflation of costs in excess of those anticipated may result in lower gross
margins. The Company generally attempts to minimize that effect by entering into
fixed-price contracts with its subcontractors and material suppliers for
specified periods of time, which generally do not exceed one year.
Housing demand, in general, is adversely affected by increases in interest
costs, as well as in housing costs. Interest rates, the length of time that land
remains in inventory and the proportion of inventory that is financed affect the
Company's interest costs. If the Company is unable to raise sales prices enough
to compensate for higher costs, which had generally been the condition during
prior years, or if mortgage interest rates increase significantly, affecting
prospective buyers' ability to adequately finance a home purchase, the Company's
revenues, gross margins and net income would be adversely affected. Increases in
sales prices, whether the result of inflation or demand, may affect the ability
of prospective buyers to afford a new home.
TAXES
The Company is part of the CPH consolidated tax group. No written tax
sharing agreement with respect to taxes existed between the member companies of
the CPH consolidated tax group as of December 31, 1993. The CPH consolidated tax
group files on a calendar year basis, whereas the Company's financial statements
reflect a fiscal year ending on the last day of February. As of December 31,
1993, the Company estimates that it had a small federal and California tax
liability and a net operating loss carryforward to 1994, which the Company can
utilize to offset regular taxable income that may be generated after the 1993
tax year. The Indenture requires the merger of the Company with CPH, as a result
of which the Company will no longer be part of a consolidated group and will
file its own tax returns.
28
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
J.M. PETERS COMPANY, INC.
Reports of Independent Public Accountants
Consolidated Balance Sheets as of February 28, 1993 and 1994
Consolidated Statements of Operations for the years ended February 29, 1992,
February 28, 1993 and February 28, 1994
Consolidated Statements of Stockholders' Equity for the years ended February 29,
1992, February 28, 1993 and February 28, 1994
Consolidated Statements of Cash Flows for the years ended February 29, 1992,
February 28, 1993 and February 28, 1994
Notes to Consolidated Financial Statements
DURABLE HOMES, INC.
Reports of Independent Public Accountants
Consolidated Statements of Income for the years ended December 31, 1991, 1992 and
1993
Consolidated Statements of Cash Flows for the years ended December 31, 1991, 1992
and 1993
Notes to Consolidated Financial Statements
29
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of J.M. Peters Company, Inc.:
We have audited the accompanying consolidated balance sheets of J.M. PETERS
COMPANY, INC. and subsidiaries, (a Delaware corporation) as of February 28, 1993
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of the Joint Ventures (Note 1), which statements
reflect 18 percent of consolidated assets at February 28, 1993 and assets and
revenues of 15 and 33 percent, respectively, of the consolidated totals at
February 28, 1994. Those statements were audited by other auditors whose report
has been furnished to us and our opinion, insofar as it relates to the amounts
included for those entities, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of J.M. Peters Company, Inc. and subsidiaries as of
February 28, 1993 and 1994, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN & CO.
Orange County, California
March 11, 1994
30
32
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Montilla Development, L.P.
We have audited the accompanying balance sheets of Ranchland Montilla
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Montilla
Development, L.P. as of December 31, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
31
33
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Alicante Development, L.P.
We have audited the accompanying balance sheets of Ranchland Alicante
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Alicante
Development, L.P. as of December 31, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
32
34
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Portola Development, L.P.
We have audited the accompanying balance sheets of Ranchland Portola
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Portola
Development, L.P. as of December 31, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
33
35
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Fairway Development, L.P.
We have audited the accompanying balance sheets of Ranchland Fairway
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Fairway
Development, L.P. as of December 31, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
34
36
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of J. M. Peters Company, Inc. (the
"Company") for the year ended February 29, 1992. These financial statements are
the responsiblity of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our report dated May 15, 1992, we disclaimed an opinion on the February
29, 1992 financial statements because of the possible material effects that the
outcome of an 85.8% change in the Company's ownership coupled with substantial
doubt about the Company's ability to continue as a going concern may have had on
those financial statements. As discussed in Note 1 -- Organization, an 85.8%
ownership interest was purchased by Capital Pacific Homes, Inc. on August 12,
1992 and approximately $98 million of indebtedness was contributed to equity.
Accordingly, our present opinion on the February 29, 1992 financial statements,
as presented herein, differs from that previously expressed.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of the Company for the year ended February 29, 1992, in
conformity with generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
May 15, 1992, except as to the second paragraph
above and Note 1 -- Organization, which are as
of March 11, 1994
35
37
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
FEBRUARY 28, FEBRUARY 28,
1993 1994
------------ ------------
CASH AND CASH EQUIVALENTS........................................... $ 9,454 $ 10,001
RESTRICTED CASH..................................................... 1,888 1,483
ACCOUNTS AND NOTES RECEIVABLE....................................... 1,905 1,650
REAL ESTATE PROJECTS................................................ 99,636 105,696
PREPAID EXPENSES AND OTHER ASSETS................................... 2,668 3,124
------------ ------------
TOTAL ASSETS......................................... $ 115,551 $ 121,954
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES............................ $ 7,754 $ 17,692
NOTES PAYABLE....................................................... 38,433 34,709
DUE TO CAPITAL PACIFIC HOMES, INC................................... 1,702 --
------------ ------------
Total liabilities......................................... 47,889 52,401
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN JOINT VENTURES................................. 19,647 13,959
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share;
15,000,000 shares authorized;
14,995,000 and 13,980,000 issued and outstanding
in 1994 and 1993, respectively................................. 1,398 1,500
Additional paid-in capital........................................ 207,824 210,387
Accumulated deficit............................................... (161,207) (156,293)
------------ ------------
Total stockholders' equity................................ 48,015 55,594
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $ 115,551 $ 121,954
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
36
38
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED
----------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
------------ ------------ ------------
REVENUES:
Sales of homes and land............................... $182,670 $ 72,148 $ 88,140
Interest and other income, net........................ 2,274 3,554 2,926
------------ ------------ ------------
184,944 75,702 91,066
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of homes and land................................ 170,329 68,257 73,348
Adjustments to carrying value of real estate projects
and investments in partnerships.................... 56,016 75,476 --
Selling, general and administrative................... 15,579 9,764 12,322
Minority interest..................................... -- -- 4,332
Interest.............................................. 14,691 8,538 418
------------ ------------ ------------
256,615 162,035 90,420
------------ ------------ ------------
Income (loss) before provision (benefit) for income
taxes and extraordinary gain.......................... (71,671) (86,333) 646
PROVISION (BENEFIT) FOR INCOME TAXES.................... (13,895) (1,792) --
------------ ------------ ------------
Income (loss) before extraordinary gain................. (57,776) (84,541) 646
EXTRAORDINARY GAIN...................................... -- -- 4,268
------------ ------------ ------------
Net income (loss)....................................... $(57,776) $(84,541) $ 4,914
------------ ------------ ------------
------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE:
Before extraordinary gain............................. $ (4.13) $ (6.05) $ .04
Extraordinary gain.................................... -- -- .30
------------ ------------ ------------
Net income (loss)..................................... $ (4.13) $ (6.05) $ .34
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES....................... 13,980 13,980 14,488
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
37
39
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 1994
(IN THOUSANDS)
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- --------- --------
BALANCE, February 28, 1991...................... $1,398 $ 49,661 $ (18,890) $ 32,169
Net loss...................................... -- -- (57,776) (57,776)
------ ---------- --------- --------
BALANCE, February 29, 1992...................... 1,398 49,661 (76,666) (25,607)
Capital contribution related to purchase debt
restructuring.............................. -- 97,510 -- 97,510
Capital contribution related to tax sharing
claims..................................... -- 60,653 -- 60,653
Net loss...................................... -- -- (84,541) (84,541)
------ ---------- --------- --------
BALANCE, February 28, 1993...................... 1,398 207,824 (161,207) 48,015
Shares issued in connection with acquisition
of
Durable Homes, Inc......................... 102 2,563 -- 2,665
Net income.................................... -- -- 4,914 4,914
------ ---------- --------- --------
BALANCE, February 28, 1994...................... $1,500 $ 210,387 $(156,293) $ 55,594
------ ---------- --------- --------
------ ---------- --------- --------
See accompanying notes to consolidated financial statements.
38
40
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED
------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (57,776) $(84,541) $ 4,914
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Extraordinary gain..................................... -- -- (4,268)
Depreciation and amortization.......................... 281 195 131
Adjustments to carrying value of real estate projects
and investments in partnerships...................... 56,016 75,476 --
Adjustment to state tax liability...................... (13,895) -- --
Changes in Assets and Liabilities
Net of the Effects of the Purchase of Durable Homes,
Inc.:
Decrease in accounts and notes receivable............ 116 1,562 259
Decrease in real estate projects..................... 115,367 49,454 226
(Increase) decrease in prepaid expenses and other
assets............................................ 1,067 (15) (12)
(Decrease) increase in accounts payable and accrued
liabilities....................................... 3,386 (2,478) 6,209
Gain related to debt restructuring................... -- (1,225) --
------------ ------------ ------------
Net cash provided by operating activities......... 104,562 38,428 7,459
------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of Durable Homes, Inc......................... -- -- (1,500)
Purchases of property and equipment, net.................. (2) (56) (68)
(Increase) decrease in investments in partnerships........ 493 (139) (45)
------------ ------------ ------------
Net cash provided by (used in) investing
activities...................................... 491 (195) (1,613)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from construction notes.......................... 32,266 6,241 39,374
Principal payments of construction notes.................. (133,739) (28,642) (35,574)
Advances from San Jacinto................................. 12,821 3,025 --
Payments to San Jacinto................................... (3,204) -- --
Principal payments to Capital Pacific Homes, Inc.......... -- (47,298) (1,702)
Minority interest in Joint Ventures....................... -- 19,647 (7,802)
------------ ------------ ------------
Net cash used in financing activities............. (91,856) (47,027) (5,704)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 13,197 (8,794) 142
CASH AND CASH EQUIVALENTS, beginning of year................ 6,939 20,136 11,342
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year...................... $ 20,136 $ 11,342 $ 11,484
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH AND NONCASH ACTIVITIES:
Distribution of property from partnership................. $ 24,248 -- --
Amount paid during the year for interest, net of amount
capitalized............................................ 3,583 $ 878 $ 1,101
Income tax refund and related interest.................... -- 3,150 --
San Jacinto contribution of capital....................... -- 158,163 --
Decrease in due to San Jacinto (tax-sharing claims)....... -- 60,653 --
Decrease in due to San Jacinto advances................... -- 145,499 --
Increase in due to Capital Pacific Homes.................. -- 49,000 --
Residential inventory surrendered in exchange for debt
forgiveness............................................ -- -- 9,980
Note payable reduced by debt forgiveness.................. -- -- 14,248
Common stock issued in connection with the acquisition of
Durable Homes, Inc..................................... -- -- 2,665
See accompanying notes to consolidated financial statements.
39
41
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On July 1, 1992, Capital Pacific Homes, Inc. (CPH), a Delaware corporation,
entered into a definitive purchase agreement (the Purchase Agreement), pursuant
to which CPH acquired from San Jacinto F.A. (San Jacinto) (i) 12,000,000 shares
of J.M. Peters, Inc. and subsidiaries the Company) common stock (the Purchased
Shares) representing 85.8 percent of the total outstanding shares of common
stock of the Company and (ii) all debt of the Company owed to San Jacinto which,
at the time of the closing and after giving effect to debt restructuring,
equaled $49,000,000. Utilizing the proceeds from the sale of real estate
projects to third parties, cash received from the joint ventures discussed below
and cash on hand, the Company has repaid this debt to CPH at February 28, 1994.
The closing of the purchase transaction occurred on August 12, 1992. The
indebtedness of the Company to San Jacinto equaled approximately $146,000,000
prior to the purchase transaction. Pursuant to a debt restructuring agreement,
and prior to the closing, San Jacinto contributed to the capital of the Company
$97,510,000 of the indebtedness.
Acquisition of Durable Homes, Inc.
Effective September 1, 1993, the Company acquired all of the common stock
of Durable Homes, Inc. (Durable) for a total purchase price, including direct
costs of the acquisition, of $4.2 million. The Company paid $1.5 million cash
and issued 1,015,000 shares of its common stock to the seller. The transaction
was accounted for as a purchase. The income of Durable has been included in the
consolidated financial statements of the Company from the effective date of the
acquisition through February 28, 1994. Durable builds single family homes and
condominiums in Nevada.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Durable had been acquired as of the
beginning of the fiscal years presented, after including the impact of certain
adjustments, including the reduction of interest income attributable to the cash
paid, tax provision of Durable which was an S corporation and the tax benefit
attributable to filing a consolidated tax return with the Company, including the
utilization of certain net operating losses. The information set forth below
includes Durable data for its fiscal years ended December 31, 1992 and 1993.
1993 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
(EXPRESSED IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
Sales and revenues.................................. $ 111,886 $ 108,552
----------- -----------
----------- -----------
Net income (loss):
Before extraordinary gain......................... $ (82,320) $ 1,427
Net income (loss)................................. $ (82,320) $ 5,312
----------- -----------
----------- -----------
Net income (loss) per share:
Before extraordinary gain......................... $ (5.49) $ .09
Net income (loss) per share....................... $ (5.49) $ .35
----------- -----------
----------- -----------
The proforma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented, nor are they intended to be a reflection of future results.
Principles of Consolidation and Minority Interest
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and investments for which it has control. All
other investments (See Note 5) are accounted for on
40
42
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the equity method. All significant intercompany balances and transactions have
been eliminated in consolidation.
Effective upon the closing date of the purchase transaction with San
Jacinto, Peters Ranchland Company, Inc., a wholly owned subsidiary of the
Company, as general partner, entered into four limited partnership agreements
with IHP Investment Fund I, L.P. (a CalPERS advisor), as limited partner (Joint
Ventures) to pursue the development of various real properties of the Company,
with such properties transferred to the joint ventures concurrently with the
closing. Approximately $16,610,000 in proceeds from the transfer of the
foregoing properties to the Joint Ventures was applied by the Company against
repayment of the Company's note and CPH delivered these proceeds to San Jacinto,
which were applied against repayment of the CPH note payable to San Jacinto.
Prior to the transfer of these four properties to the joint ventures, the
properties were written down by $25,336,000. Peters Ranchland Company, Inc. and
IHP Investment Fund I, L.P.(IHP), each have a 50% interest in each Joint
Venture. The financial statements of the Joint Ventures have been consolidated
herein.
The partnership agreements provide that profits from the Joint Ventures are
allocated first, to the partners to recover previous net loss allocations;
second, to the extent of any preferred return; the balance to the partners in
accordance with their percentage interests. Net losses are generally allocated
first, to the partners in accordance with percentage interests until the limited
partner's capital account is reduced to zero; the balance is allocated to the
general partner.
The partnership agreements provide that distributions from the Joint
Ventures are generally allocated first, to the partners for preferred return on
additional capital and for additional capital contributions; second, for payment
of limited partner preferred returns; third, for payment of limited partner
capital contributions; the balance is allocated to the partners in accordance
with their respective percentage interests.
The Partnership Agreement provides, among other things, that the partners
shall be entitled to receive a preferred return on contributed capital computed
at prime plus three percent. As of February 28, 1993, the Partnership had
unaccrued and unpaid preferred returns on capital contributions of $889,000 to
IHP. Payments for preferred returns were $2,854,000 during fiscal year ended
February 28, 1994.
Commitment fees totaling $988,000 and $1,033,000 were paid to IHP and
capitalized to the real estate being developed by joint ventures during the
period August 12, 1992 (inception) through February 28, 1993 and fiscal 1994,
respectively. These capitalized fees are included in cost of sales as the units
are sold.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. Total property and
equipment were $222,000 and $159,000 (net of accumulated depreciation of
$2,074,000 and $2,152,000, respectively) as of February 28, 1993 and 1994,
respectively, and are included in prepaid expenses and other assets in the
consolidated balance sheets.
Real Estate Projects
Real estate projects are carried at the lower of cost or estimated net
realizable value. Estimated net realizable value represents management's
estimates, based on management's present plans and intentions, of sale prices
less development and disposition costs, assuming that the development and
disposition occurs in the normal course of business. It is the Company's policy
to exclude postcompletion carrying costs in the calculation of net realizable
value. Net realizable values for real estate projects under or held for
development are generally based on an assumption of the completion of housing
units within a project and the sale of such units to home buyers or, to a lesser
extent, sale of lots to other home builders.
41
43
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All direct and indirect land costs, offsite and onsite improvements and
applicable interest and carrying charges are capitalized to real estate projects
under development; marketing costs are expensed in the period incurred. Land and
land development costs are accumulated by project and are allocated to
individual phases using the relative sales value method.
Revenue Recognition
The Company's accounting policies follow specific provisions of the
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," which specifies minimum down payment requirements, financing terms
and other certain requirements for sales of real estate.
Income from sales is recognized when title has passed, the buyer has met
minimum down payment requirements and the terms of any notes received by the
Company satisfy continuing investment requirements. At the time of sale,
accumulated costs are relieved from real estate projects and charged to cost of
sales on a relative sales value basis.
Income Taxes
Effective March 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109. Accordingly, for the year ended
February 28, 1994, all disclosures are in accordance with SFAS No. 109. Under
the provisions of SFAS No. 109, the Company elected not to restate prior years'
consolidated financial statements. The cumulative effect of initial adoption on
prior years' retained earnings deficit was not significant. Additionally, the
effect of the adoption of SFAS No. 109 upon income before taxes for fiscal 1994
was not significant.
The Company files a consolidated federal and combined state income tax
return with CPH. As of February 28, 1993 and 1994, the Company has substantial
NOL carryforwards, the utilization of which will be insignificant due to the
purchase transaction by CPH on August 12, 1992 and the application of federal
income tax regulations.
No written tax sharing agreement with respect to taxes exists between the
member companies of the CPH consolidated tax group as of December 31, 1993. The
CPH consolidated tax group files on a calendar year basis, whereas the Company's
financial statements reflect a February 28 fiscal year end. As of December 31,
1993, the Company estimates that it has a small federal and California tax
liability and a net operating loss carryforward to 1994, which the Company can
utilize to offset regular taxable income that may be generated after the 1993
tax year.
Prior to August 12, 1992, San Jacinto and its subsidiaries, including the
Company, were members of a consolidated federal income tax return group. Prior
to February 28, 1993, the Company had recorded income tax payable as due to San
Jacinto. During fiscal year 1993, San Jacinto reduced the amount payable under
the tax sharing arrangement by $60,653,000. This amount is reflected as a
capital contribution in the accompanying consolidated financial statements.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, short-term
investments which have a maturity of 90 days or less from the date of purchase
are considered cash equivalents.
Reclassifications
Reclassifications have been made to certain prior year balances in order to
conform with the current year presentation.
42
44
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRICTED CASH
The Company has restricted cash totaling $1,888,000 and $1,483,000 as of
February 28, 1993 and 1994, respectively. Included in these amounts is
$1,000,000 and $750,000 as of February 28, 1993 and 1994, respectively, which is
held as collateral for the Company's bonding obligations.
3. REAL ESTATE PROJECTS
Real estate projects consist of the following at February 28, 1993 and 1994
(in thousands):
1993 1994
------- --------
Land and improvements under construction................ $92,251 $ 91,763
Completed residential homes............................. 1,430 6,472
Completed model homes................................... 5,955 7,461
------- --------
$99,636 $105,696
------- --------
------- --------
Total interest cost incurred during the years ended February 29, 1992,
February 28, 1993 and February 29, 1994, was $21,383,000, $8,871,000 and
$2,532,000, respectively, of which $6,692,000, $333,000, and $2,114,000,
respectively, was capitalized.
4. DHI JOINT VENTURES
During 1993 Durable entered into three joint venture arrangements as a
general partner for the development of various real properties. The Company
shares in the cash flows and the profits of these joint ventures in accordance
with the percentages set forth in the respective agreements, which range from
100 percent to 55 percent. The limited partners receive a preferred return or a
return of capital prior to the Company's receipt of cash from these joint
ventures. The Company accrues for its respective share of profits, after any
preferred returns to the limited partner, in accordance with its percentage
interest in each of the joint ventures.
5. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company is a general partner and has a 50 percent ownership in two
unconsolidated entities. The Company's investments are as follows at February
28, 1993 and 1994 (in thousands):
1993 1994
---- ----
P.B. Partners................................................. $ 23 $ 65
Bay Hill Escrow............................................... 144 147
---- ----
$167 $212
---- ----
---- ----
The Company uses the equity method of accounting for its investments in
unconsolidated 50 percent-owned entities. The accounting policies of the
entities are substantially the same as those of the Company. Investments in
entities are included in prepaid expenses and other assets in the consolidated
balance sheets.
43
45
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is summarized, unaudited combined financial information for the
unconsolidated entities at February 28, 1993 and 1994 (in thousands):
ASSETS
1993 1994
---- ----
Cash....................................................... $376 $345
Accounts receivable........................................ 29 --
Other assets............................................... 56 68
---- ----
$461 $413
---- ----
---- ----
LIABILITIES AND EQUITY
Accounts payable and other liabilities..................... $110 $ 5
---- ----
Equity
The Company.............................................. 167 212
Others................................................... 184 196
---- ----
351 408
---- ----
$461 $413
---- ----
---- ----
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
February 28, 1993 and 1994 (in thousands):
1993 1994
------ -------
Accounts payable...................................... $1,091 $10,809
Compensation.......................................... 170 345
Litigation............................................ 557 536
Warranty.............................................. 701 450
Interest.............................................. 2,862 2,137
Property taxes........................................ 1,045 1,618
Other................................................. 1,328 1,797
------ -------
$7,754 $17,692
------ -------
------ -------
7. NOTES PAYABLE
Notes payable consist of the following at February 28, 1993 and 1994 (in
thousands):
1993 1994
------- -------
Construction notes matured............................... $24,495 $10,402
Construction notes maturing in one to two years.......... -- 9,229
Promissory notes collateralized by deeds of trust,
including interest at prime plus one percent due
quarterly.............................................. 13,938 11,123
Promissory note collateralized by deed of trust,
including interest at prime plus 1.5 percent........... -- 2,015
Model loans collateralized by deeds of trust including
interest at prime plus 3.0 percent..................... -- 1,940
------- -------
$38,433 $34,709
------- -------
------- -------
44
46
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At February 28, 1993 and 1994, the aggregate carrying value of assets
collateralizing the above notes was $17,407,000 and $61,379,000, respectively.
Construction notes maturing in one to two years have interest rates ranging
from the prime rate plus .75 percent to the prime rate plus 3.0 percent and
notes aggregating $1.8 million are at a fixed rate of 20%. The prime rate was 6
percent at February 28, 1993 and 1994. Notes are collateralized by deeds of
trust on real property.
The construction loans which have matured in the amount of $24.5 million
and $10.4 million at February 28, 1993 and 1994, respectively, are acquisition
and development loans which originated in 1989, were previously restructured and
extended and matured in early 1992. During fiscal 1994, the Company surrendered
certain real estate collateral in settlement of approximately $14 million of
debt in default at February 28, 1993. The Company recorded an extraordinary gain
of approximately $4.3 million in connection with this transaction. Two loans,
aggregating approximately $10.4 million, remain in default as of February 28,
1994.
An assignee of one of the lenders holding a note in the amount of
approximately $9.5 million, has filed a judicial foreclosure action against the
Company. The Company is continuing to negotiate with the lenders, or their
assignees, in an effort to resolve the defaults. If the Company cannot repay,
renegotiate, restructure or otherwise settle these loans in default, the lenders
or assignees may enforce their rights under the loan agreements, including the
right of foreclosure.
Prior to February 28, 1993, the Company entered into an agreement with its
lender which modified the terms of its promissory notes. As a result of the
agreement, the maturity date of the notes was extended from December 26, 1993
and August 14, 1994, respectively to January 8, 1995 for both notes. All
remaining unpaid principal is due January 8, 1995 for both notes. Additionally,
accrued interest totaling $2,949,000 was forgiven by the lender, resulting in a
gain of $1,225,000. This transaction has been accounted for as a troubled debt
restructuring. Accordingly, the obligation as shown as of February 28, 1993 and
1994, reflects the total cash to be paid to the lender. Under the accounting for
a troubled debt restructuring, no interest expense will be recorded by the
Company on this obligation through maturity. The gain of $1,225,000 is included
in interest and other income in the accompanying 1993 consolidated financial
statements.
During the years ended February 29, 1992, February 28, 1993 and 1994, the
highest month-end balance on construction loans was $139,482,000, $46,709,000
and $38,030,000, respectively, and the weighted average outstanding balance was
$80,964,000, $33,027,000 and $23,804,000, respectively. The weighted average
interest rates on construction loans during the years ended February 29, 1992,
February 28, 1993 and 1994, were 9.3 percent, 8.8 percent and 10.6 percent,
respectively. The weighted average interest rates on construction loans at
February 29, 1992, February 28, 1993 and 1994, were 7.39 percent, 8.76 percent
and 10.9 percent, respectively.
The aggregate scheduled principal maturities of notes payable are as
follows (in thousands):
Years ending February 28:
Notes matured.................... $10,402
1995............................. 19,582
1996............................. 2,795
Thereafter....................... 1,930
-------
$34,709
-------
-------
45
47
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The expense (benefit) for income taxes consists of the following for the
years ended February 29, 1992, February 28, 1993 and 1994 (in thousands):
1992 1993 1994
-------- ------- -----
Current
Federal.................................... $ -- $ -- $ 100
State...................................... (13,895) (1,792) 210
-------- ------- -----
(13,895) (1,792) 310
-------- ------- -----
Deferred
Federal.................................... -- -- (100)
State...................................... -- -- (210)
-------- ------- -----
-- -- (310)
-------- ------- -----
$(13,895) $(1,792) $ 0
-------- ------- -----
-------- ------- -----
The deferred income tax benefit at February 28, 1994 results from the
following temporary differences between financial and tax reporting (in
thousands):
Accrued expenses..................................................... $ (3)
Construction period expenses......................................... 9
Utilization of NOL carryforward...................................... (265)
Decrease in valuation allowance...................................... (53)
State taxes (net of federal effect).................................. 2
-----
$(310)
-----
-----
The income tax benefit for the year ended February 28, 1993, represents a
refund received during the year for state income taxes paid in a previous year.
Associated interest income of $1,358,000 was also received in connection with
this refund and is included in interest and other income in the 1993
consolidated statement of operations.
The state income tax benefit of $13,895,000, for the year ended February
29, 1992, represents a reversal of accrued state income taxes. The Company
previously provided for state income taxes assuming that it would be taxed by
the state on a stand-alone basis. During the year ended February 29, 1992, the
Franchise Tax Board examined the combined franchise tax returns of the former
parent and its subsidiaries, including the Company, for the tax years ended in
1987, 1988 and 1989, and advised the Company that the former parent and its
subsidiaries, including the Company, were found to be engaged in a single
unitary business. Based on such examination and finding, the Company believes
that it is not liable for the previously accrued state income taxes.
46
48
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of income taxes (benefit) computed at the federal
statutory rate and the income tax benefit for financial reporting purposes for
the years ended February 29, 1992, February 28, 1993 and 1994, is as follows:
1992 1993 1994
--- --- ---
Income taxes at statutory rate......................... (34)% (34)% 34%
State income taxes, net of federal tax benefit......... (19) (2) 6
Loss for which no benefit is allowed................... 34 34 0
Utilization of net operating loss carryforwards........ -- -- (39)
Increase in valuation allowance........................ -- -- (1)
--- --- ---
(19)% (2)% 0%
--- --- ---
--- --- ---
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), effective for fiscal years beginning after December 15, 1992. The
Company adopted SFAS No. 109 on March 1, 1993. Under SFAS No. 109, deferred
taxes are based on a balance sheet approach whereby the ending deferred
liability and/or asset is determined by applying the enacted tax rates to the
difference between the tax basis of assets and liabilities and their basis for
financial reporting purposes.
9. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based upon the weighted average
number of common shares outstanding of 13,980,000, 13,980,000 and 14,488,000 at
February 29, 1992, February 28, 1993 and 1994, respectively. The effect of stock
options was antidilutive in all years presented, and has not been included in
the computation of net income (loss) per common share.
10. STOCK OPTION PLAN
In April 1987, the Company adopted its 1987 Stock Option Plan (the Plan),
covering options to purchase a maximum of 1,350,000 shares of its common stock.
On October 5, 1993, the Plan was amended to provide that the maximum number of
shares that may be issued under the Plan be reduced to 5,000 shares. Under the
Plan, directors and key employees of the Company, former parent and any of its
subsidiaries are eligible to receive options to purchase common stock under
either incentive or non incentive stock options. No option may exceed a term of
10 years. The option price for incentive stock options may not be less than the
fair market value of the shares at the time the option is granted.
Stock option activity under the plan is as follows for the years ended
February 29, 1992, February 28, 1993 and February 28, 1994, respectively.
1992 1993 1994
-------- -------- --------
Exercised........................................ -- -- --
Expired or forfeited............................. 145,620 109,060 488,925
Outstanding at end of year....................... 597,985 488,925 --
Exercisable at end of year....................... 522,925 488,925 --
Available for grant at end of year............... 254,300 254,300 5,000
Exercise price of options outstanding............ $ 6.00 $ 6.00 $ --
47
49
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
During fiscal 1994, the Company reimbursed CPH for expenses aggregating
$150,000 in connection with the acquisition of Durable.
During fiscal 1993, the Company acquired an unimproved lot from CPH. The
acquisition cost of the lot was $1,550,000 and the Company issued a note payable
to CHP in the amount of $1,050,000. This note was subsequently assigned by CPH
to the chairman of the board of the Company. All principal and accrued interest
were paid by the Company in full at February 28, 1993. During fiscal 1994, this
lot was sold for $1,710,000.
A key employee of the Company purchased a home from the Company for
$368,000 in fiscal 1993. The Company carried back a second trust deed in the
amount of $36,800. The note, which the Company believes was on market terms, is
due and payable in November 1997.
An officer of the Company purchased a home from the Company in fiscal year
1994 for $425,000 (the market price at that time).
12. COMMITMENTS AND CONTINGENCIES
General
Approximately $21,467,000 and $23,185,000 of performance bonds were
outstanding at February 28, 1993 and 1994, respectively. The beneficiaries of
these bonds are certain municipalities. The Company has outstanding letters of
credit totaling $672,000 and $552,000 to ensure performance on various
agreements at February 28, 1993 and 1994, respectively. The Company has pledged
a certificate of deposit in a like amount as collateral for the obligation under
the letter of credit.
The Company has entered into agreements to lease certain office facilities
under operating leases which expire at various dates through fiscal year 1995.
The leases generally provide that the Company shall pay property taxes,
insurance and other items. Minimum payments under noncancelable leases at
February 28, 1994, are as follows:
YEARS ENDING FEBRUARY 28 (IN THOUSANDS):
----------------------------------------------
1995............................ $704
1996............................ 7
Thereafter........................ --
----
$711
----
----
Total rent expense was $632,000, $599,000 and $629,000 for the years ended
February 29, 1992, February 28, 1993 and 1994, respectively.
As discussed in Notes 1, 4 and 5, the Company is a general partner in
several joint venture partnerships. As a general partner, the Company is liable
for all debts of the partnerships without limitation to the respective
partnership interest.
Dividends
No dividends were declared or paid for the years ended February 29, 1992,
February 28, 1993 or 1994.
Legal Proceedings
The Company is named as a defendant in lawsuits filed from time to time
involving claims arising in the ordinary course of the Company's business. While
certain of these matters involve substantial amounts,
48
50
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management believes such claims and lawsuits as are currently pending will not
have a materially adverse effect on the Company's financial position or results
of operations.
13. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended February 28, 1993
and 1994 is as follows (in thousands except for per share data):
QUARTER
-------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- ------- --------
1994:
Total revenues............................... $ 4,004 $ 8,250 $37,343 $41,469 $ 91,066
Gross profit on sales of homes and land...... (157) (26) 6,750 8,225 14,792
Extraordinary gain........................... -- -- 4,268 -- 4,268
Net income (loss)............................ $(1,951) $ (1,557) $ 6,123 $ 2,299 $ 4,914
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Net income (loss) per common share
Before extraordinary gain............... $ (0.14) $ (.11) $ 0.12 $ .15 $ .04
Extraordinary gain...................... -- -- .29 -- .30
Net income (loss)....................... $ (0.14) $ (.11) $ 0.41 $ .15 $ .34
------- -------- ------- ------- --------
------- -------- ------- ------- --------
1993:
Total revenues............................... $16,675 $ 37,547 $13,873 $ 7,607 $ 75,702
Gross profit on sales of homes and land...... 3,247 1,343 2,373 (3,072) 3,891
Adjustment to carrying value of real
estate.................................... -- (75,036) -- (440) (75,476)
Net income (loss)............................ $(2,297) $(79,314) $ 1,991 $(4,921) $(84,541)
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Net income (loss) per common share........... $ (0.16) $ (5.67) $ 0.14 $ (0.36) $ (6.05)
------- -------- ------- ------- --------
------- -------- ------- ------- --------
49
51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholder of Durable Homes, Inc.:
We have audited the accompanying consolidated statements of income and cash
flows of DURABLE HOMES, INC. and subsidiaries (a Nevada corporation) for the
year ended December 31, 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Durable
Homes, Inc. and subsidiaries for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Orange County, California
March 7, 1994
50
52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
of Durable Homes, Inc.:
In our opinion, the accompanying statements of income and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of Durable Homes, Inc. for the years ended December 31, 1991 and 1992, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Durable Homes, Inc. for
any period subsequent to December 31, 1992.
PRICE WATERHOUSE
Salt Lake City, Utah
February 25, 1993
51
53
DURABLE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
------------ ------------ ------------
REVENUES (Note 1)
Sales............................................... $ 31,461 $ 35,977 $ 38,458
Other............................................... 34 207 220
------------ ------------ ------------
31,495 36,184 38,678
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales....................................... 24,121 28,395 29,921
Developer fees (Note 2)............................. 234 175 174
Selling, general and administrative................. 4,494 4,955 5,844
Depreciation (Note 1)............................... 93 127 80
Minority interest (Note 1).......................... -- -- 460
------------ ------------ ------------
28,942 33,652 36,479
------------ ------------ ------------
INCOME BEFORE TAXES................................... 2,553 2,532 2,199
PROVISION FOR INCOME TAXES (Note 1)................... -- -- --
------------ ------------ ------------
NET INCOME............................................ $ 2,553 $ 2,532 $ 2,199
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated statements.
52
54
DURABLE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 2,553 $ 2,532 $ 2,199
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation....................................... 93 127 80
Loss on sale of property and equipment............. -- 22 --
Gain on sale of other assets....................... (29) -- --
Change in assets and liabilities
(Increase) decrease in receivables.............. 14 (206) 157
(Increase) decrease in inventories.............. 1,588 (5,174) (2,829)
(Increase) decrease in prepaid expenses and
deposits...................................... 36 (80) --
Decrease in other assets........................ -- 50 --
Increase (decrease) in construction payables.... (581) 1,578 (57)
Decrease in accounts payable and accrued
expenses...................................... (379) (12) (49)
------------ ------------ ------------
Net cash (used in) provided by operating
activities................................. 3,295 (1,163) (499)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (233) (138) (80)
Proceeds from sale of other assets...................... 218 38 --
Purchase of other assets................................ (49) (38) --
Payments received on notes receivable................... 79 -- --
Issuance of notes receivable............................ (77) (24) --
------------ ------------ ------------
Net cash provided by (used in) investing
activities................................. (62) (162) (80)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................ 24,779 33,382 31,789
Repayment of borrowings................................. (26,186) (30,616) (30,796)
Distributions to shareholder............................ (2,198) (2,481) (1,915)
Minority interest....................................... -- -- 2,007
------------ ------------ ------------
Net cash provided by (used in) financing
activities................................. (3,605) 285 1,085
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH........................... $ (372) $ (1,040) $ 506
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Distributions to the shareholder of the Company during the year ended
December 31, 1992 include receivables of $139,000, other assets of $35,000 and
property and equipment of $56,000.
Distributions to the former shareholder of the Company during the year
ended December 31, 1993 include non cash amounts of $788,000.
The accompanying notes are an integral part of these consolidated statements.
53
55
DURABLE HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Durable Homes, Inc. (Durable) is engaged in the development, construction
and sale of residential real estate. Effective September 1, 1993, all of the
outstanding common stock of Durable was acquired by J.M. Peters Company, Inc.
(J.M. Peters).
During 1993, Durable entered into three joint venture arrangements as a
general partner for the development of various real properties. Durable shares
in the cash flows and the profits of these joint ventures in accordance with the
percentages set forth in the respective agreements, which range from 100 percent
to 55 percent. The limited partners receive a preferred return or a return of
capital prior to Durable's receipt of cash from these joint ventures. Durable
accrues for its respective share of profits, after any preferred returns to the
limited partner, in accordance with its percentage interest in each of the joint
ventures.
The consolidated financial statements include the accounts of Durable and
the three joint ventures. All significant intercompany balances have been
eliminated in the consolidated financial statements. A summary of significant
accounting policies follows:
Inventories
Inventories, comprising land held for development and single-family homes
and condominiums under construction, are stated at the lower of cost or market.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is determined using accelerated methods over the useful lives of
the assets which range from three to seven years. Expenditures for maintenance
and repairs are charged to expense as incurred.
Revenue recognition
Revenue from the sale of residential properties is recognized when legal
title passes to the purchaser at closing.
Capitalized interest
Interest on construction loans is capitalized in inventory during the
development and construction period and relieved through cost of sales when the
real estate is sold. During the years ended December 31, 1992 and 1993, total
interest of $592,000 and $1,580,000, respectively, was incurred and capitalized.
Income taxes
For 1991 and 1992, Durable was taxed as a S-corporation whereby the income
tax effects of Durable's activities accrued directly to the shareholder.
Commencing September 1, 1993, the effective date of the acquisition of the
common stock of Durable by J.M. Peters, Durable's taxable income is offset by
the tax operating losses and net operating loss carry forwards of J.M. Peters.
2. DEVELOPER FEES
Durable purchased certain undeveloped land from a corporation during the
time that a director of Durable was a shareholder. As partial consideration for
the purchase, Durable assigned to the corporation an undivided interest in the
net profits derived from the sale of certain real estate. The corporation's
share of net profits for the years ended December 31, 1991, 1992 and 1993 was
$166,000, $115,000 and $174,000, respectively, and is included in developer
fees.
54
56
DURABLE HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1991, Durable purchased the escrow position in certain undeveloped
land from a corporation in which the brother of the shareholder of Durable was a
shareholder. As partial consideration, Durable assigned to the corporation an
undivided 20 percent interest in the net profits derived from the sale of
certain inventories. All of the real estate was sold at December 31, 1992. The
corporation's share of net profits for the year ended December 31, 1991 and 1992
was $68,000 and $60,000, respectively, and is included in developer fees.
3. PROFIT SHARING PLAN
Durable administers a defined contribution profit sharing plan for eligible
employees. Employees begin participating in the plan after completing one year
of service and attaining the age of 21. Under the provisions of the plan, the
Board of Directors determines the annual contribution to the plan. Profit
sharing expense for each of the years ended December 31, 1991, 1992 and 1993 was
$125,000, $125,000 and $75,000, respectively.
4. RELATED PARTY TRANSACTIONS
Prior to the acquisition of Durable by J.M. Peters, Durable contracted for
advertising services with an advertising agency in which shareholders had a
minority interest. Advertising costs incurred for services rendered by the
advertising agency for the years ended December 31, 1991, 1992 and 1993 were
$235,000, $477,000 and $427,000, respectively.
During 1993, prior to the acquisition of Durable by J.M. Peters, Durable
distributed non-cash assets, aggregating $788,000, to the previous shareholder.
The non cash assets distributed included advances and investments unrelated to
the residential home building business, certain related party notes receivable
and automobile equipment. The distribution was reflected as a reduction of
shareholder's equity.
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57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements. The following Consolidated Financial
Statements, together with the Notes thereto and Independent
Auditors' Report thereon, are included in Part II, Item 8 of this
report.
J.M. PETERS COMPANY, INC.
Reports of Independent Public Accountants................................
Consolidated Balance Sheets as of February 28, 1993 and 1994.............
Consolidated Statements of Operations for the years ended February 29,
1992, February 28, 1993 and February 28, 1994.........................
Consolidated Statements of Stockholders' Equity for the years ended
February 29, 1992, February 28, 1993 and February 28, 1994............
Consolidated Statements of Cash Flows for the years ended February 29,
1992, February 28, 1993 and February 28, 1994.........................
Notes to Consolidated Financial Statements...............................
DURABLE HOMES, INC.
Reports of Independent Public Accountants................................
Consolidated Statements of Income for the years ended December 31, 1991,
1992 and 1993.........................................................
Consolidated Statements of Cash Flows for the years ended December 31,
1991, 1992 and 1993...................................................
Notes to Consolidated Financial Statements...............................
2. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- - ------
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 See the Articles of Incorporation and Bylaws of the Registrant (Exhibits 3.1 and
3.2).
10.1 Agreement of Limited Partnership of Ranchland Fairway Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between Peters
Ranchland Company Inc., a Delaware corporation, and IHP Investment Fund I, L.P., a
California limited partnership. (Incorporated by reference to Exhibit 26 of
Schedule 13D*).
10.2 Agreement of Limited Partnership of Ranchland Montilla Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between Peters
Ranchland Company Inc., a Delaware corporation, and IHP Investment Fund I, L.P., a
California limited partnership. (Incorporated by reference to Exhibit 27 of
Schedule 13D*).
10.3 Agreement of Limited Partnership of Ranchland Portola Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between Peters
Ranchland Company Inc., a Delaware corporation, and IHP Investment Fund I, L.P., a
California limited partnership. (Incorporated by reference to Exhibit 28 of
Schedule 13D*).
10.4 Agreement of Limited Partnership of Ranchland Alicante Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between Peters
Ranchland Company Inc., a Delaware corporation, and IHP Investment Fund I, L.P., a
California limited partnership. (Incorporated by reference to Exhibit 29 of
Schedule 13D*).
56
58
EXHIBIT
NUMBER DESCRIPTION
- - ------
10.5 First Amended and Completely Restated Agreement of Limited Partnerhsip of
Ranchland Fairway Development L.P., a California Limited Partnership, dated as of
May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investments Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.8 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1993).
10.6 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Montilla Development L.P., a California Limited Partnership, dated as of
May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.9 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1993).
10.7 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Portola Development L.P., a California Limited Partnership, dated as of
May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.10 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1993).
10.8 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Alicante Development L.P., a California Limited Partnership, dated as of
May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1993).
10.9 Form of Construction Loan Agreement by and between Ranchland Portola Development
L.P., a California Limited Partnership and IHP Investment Fund I, L.P., a
California Limited Partnership (incorporated by reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.10 Form of Construction Loan Promissory Note by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP Investment Fund I,
L.P., a California Limited Partnership (incorporated by reference to Exhibit 10.13
of the Registrant's Annual Report on Form 10-K for the fiscal year ended February
28, 1993).
10.11 Form of Construction Deed of Trust, Assignment of Leases and Security Agreement by
and between Ranchland Portola Development L.P., a California Limited Partnership
and IHP Investment Fund I, L.P., a California Limited Partnership (incorporated by
reference to Exhibit 10.14 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993).
10.12 Form of Land Loan Agreement by and between Ranchland Portola Development L.P., a
California Limited Partnership and IHP Investment Fund I, L.P., a California
Limited Partnership (incorporated by reference to Exhibit 10.15 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.13 Form of Land Loan Promissory Note by and between Ranchland Portola Development
L.P., a California Limited Partnership and IHP Investment Fund I, L.P., a
California Limited Partnership (incorporated by reference to Exhibit 10.16 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.14 Form of Land Deed of Trust, Assignment of Leases and Security Agreement by and
between Ranchland Portola Development L.P., a California Limited Partnership and
IHP Investment Fund I, L.P., a California Limited Partnership (incorporated by
reference to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993).
10.15 Indenture agreement by and between J.M. Peters Company, Inc., as Issuer; Durable
Homes, Inc., J.M. Peters Nevada, Inc., and Peters Ranchland, Inc., as Guarantors,
and United States Trust Company of New York, as Trustee, dated as of May 13, 1994.
57
59
EXHIBIT
NUMBER DESCRIPTION
10.16 Warrant Agreement by and between J.M. Peters Company, Inc., and United States
Trust Company of New York, Warrant Agent, dated as of May 13, 1994.
10.17 Warrant Registration Rights Agreement by and between J.M. Peters Company, Inc.,
and Morgan Stanley & Co. Incorporated dated as of May 13, 1994.
10.18 Notes Registration Rights Agreement by and between J.M. Peters Company, Inc., and
Morgan Stanley & Co. Incorporated dated as of May 13, 1994.
21.1 Subsidiaries of the Registrant.
- - ---------------
* "Schedule 13D" means the Schedule 13D filed with the Securities and Exchange
Commission on August 21, 1992 by Capital Pacific Homes, Inc., Hadi
Makarechian, Barbara Makarechian and Dale Dowers, as a group, reporting
beneficial ownership of J.M. Peters Company, Inc. in excess of 5%.
(b) Reports on Form 8-K.
On October 26, 1993, Registrant filed a report on Form 8-K dated October
15, 1993. Items reported on this Form 8-K were:
-- Item 2. Acquisition or Disposition of Assets.
-- Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
58
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Newport
Beach, State of California, on May 27, 1994.
J.M. PETERS COMPANY, INC.
By /s/ HADI MAKARECHIAN
________________________________
Hadi Makarechian
Chairman of the Board and
Chief Executive Officer
Date: May 27, 1994
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Hadi Makarechian and Gregory R. Petersen, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for each person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments to
this report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully and to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue of the powers herein granted.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
-------------- --------- -----------
/s/ HADI MAKARECHIAN
_____________________________________________ Chairman of the Board May 27, 1994
Hadi Makarechian and Chief Executive Officer
(Principal Executive Officer)
/s/ DALE DOWERS
_____________________________________________ Director, President and May 27, 1994
Dale Dowers Chief Operating Officer
/s/ GREGORY R. PETERSEN
_____________________________________________ Vice President, Chief Financial May 27, 1994
Gregory R. Petersen Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ JAMES M. PETERS
_____________________________________________ Director May 27, 1994
James M. Peters
_____________________________________________ Director May , 1994
Allan L. Acree
/s/ KARL KAISER
_____________________________________________ Director May 27, 1994
Karl Kaiser
59
61
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- - ------ ------------------------------------------------------------------ ---------------
3.1 Articles of Incorporation of the Registrant.......................
3.2 Bylaws of the Registrant..........................................
4.1 See the Articles of Incorporation and Bylaws of the Registrant
(Exhibits 3.1 and 3.2)............................................
10.1 Agreement of Limited Partnership of Ranchland Fairway Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership. (Incorporated by reference to Exhibit 26 of Schedule
13D*).............................................................
10.2 Agreement of Limited Partnership of Ranchland Montilla Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership. (Incorporated by reference to Exhibit 27 of Schedule
13D*).............................................................
10.3 Agreement of Limited Partnership of Ranchland Portola Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership. (Incorporated by reference to Exhibit 28 of Schedule
13D*).............................................................
10.4 Agreement of Limited Partnership of Ranchland Alicante Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership. (Incorporated by reference to Exhibit 29 of Schedule
13D*).............................................................
10.5 First Amended and Completely Restated Agreement of Limited
Partnerhsip of Ranchland Fairway Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investments Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.8 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.6 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Montilla Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.9 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.7 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Portola Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.10 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.8 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Alicante Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.11 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
62
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- - ------ ----------------
10.9 Form of Construction Loan Agreement by and between Ranchland
Portola Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.12 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.10 Form of Construction Loan Promissory Note by and between Ranchland
Portola Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.13 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.11 Form of Construction Deed of Trust, Assignment of Leases and
Security Agreement by and between Ranchland Portola Development
L.P., a California Limited Partnership and IHP Investment Fund I,
L.P., a California Limited Partnership (incorporated by reference
to Exhibit 10.14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1993)......................
10.12 Form of Land Loan Agreement by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.15 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.13 Form of Land Loan Promissory Note by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.16 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).............................................................
10.14 Form of Land Deed of Trust, Assignment of Leases and Security
Agreement by and between Ranchland Portola Development L.P., a
California Limited Partnership and IHP Investment Fund I, L.P., a
California Limited Partnership (incorporated by reference to
Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993)..........................
10.15 Indenture agreement by and between J.M. Peters Company, Inc., as
Issuer; Durable Homes, Inc., J.M. Peters Nevada, Inc., and Peters
Ranchland, Inc., as Guarantors, and United States Trust Company of
New York, as Trustee, dated as of May 13, 1994....................
10.16 Warrant Agreement by and between J.M. Peters Company, Inc., and
United States Trust Company of New York, Warrant Agent, dated as
of May 13, 1994...................................................
10.17 Warrant Registration Rights Agreement by and between J.M. Peters
Company, Inc., and Morgan Stanley & Co. Incorporated dated as of
May 13, 1994......................................................
10.18 Notes Registration Rights Agreement by and between J.M. Peters
Company, Inc., and Morgan Stanley & Co. Incorporated dated as of
May 13, 1994......................................................
21.1 Subsidiaries of the Registrant....................................
- - ---------------
* "Schedule 13D" means the Schedule 13D filed with the Securities and Exchange
Commission on August 21, 1992 by Capital Pacific Homes, Inc., Hadi
Makarechian, Barbara Makarechian and Dale Dowers, as a group, reporting
beneficial ownership of J.M. Peters Company, Inc. in excess of 5%.