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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 29, 1996 COMMISSION FILE NUMBER: 0-15925
CAPITAL PACIFIC HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2956559
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4100 MACARTHUR BLVD., SUITE 200
NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 622-8400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK $.10 PAR VALUE THE AMERICAN STOCK EXCHANGE
(TITLE OF EACH CLASS) (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 22, 1996, the aggregate market value of the voting stock held by
persons other than the directors, executive officers and principal shareholders
filing Schedules 13D of the Registrant was $6,513,413 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 principal
shareholders, directors and executive officers are affiliates as defined in Rule
405 under the Securities Act of 1933.
At May 22, 1996, there were 14,995,000 shares of Common Stock outstanding.
Part III incorporates certain information by reference to the Registrant's
definitive proxy statement to be filed with the Commission no later than June
28, 1996.
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PART 1
ITEM 1. BUSINESS
GENERAL
Capital Pacific Holdings, Inc. ("the Company"), known until August, 1995 as
J.M. Peters Company, Inc., is one of the leading single-family homebuilders in
Southern California, Las Vegas, Nevada, Austin, Texas and Phoenix, Arizona where
it builds and sells homes targeted to entry level and move-up buyers. Since
1975, the Company has built and sold in excess of 10,000 homes in California,
principally in Orange County, but also in the adjacent counties of Riverside,
San Diego, Ventura 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 in excess of 7,000 homes, principally in Las
Vegas but also in Laughlin, Nevada. Since 1992, Clark Wilson Homes, Inc. ("Clark
Wilson"), a wholly owned subsidiary that was acquired by the Company in 1994
(the "Clark Wilson Acquisition"), has built and sold nearly 1,000 homes,
principally in Austin, Texas. During the fiscal year ended February 29, 1996,
the Company (including unconsolidated joint ventures) closed 1,174 home sales at
an average sales price of $176,000 (including 307 homes closed in California at
an average sales price of $283,000, 547 homes closed in Nevada at an average
sales price of $135,000, 272 homes closed in Texas at an average sales price of
$144,000 and 48 homes closed in Arizona at an average sales price of $123,000).
In August 1992, Capital Pacific Homes, Inc., a Delaware corporation,
acquired control of the Company in a $47.25 million purchase (the "Acquisition")
from the Resolution Trust Corporation ("RTC"). Capital Pacific Homes, Inc. was
merged with and into the Company effective December 31, 1994.
In August, 1995, the Company changed its name to Capital Pacific Holdings,
Inc. and changed its stock ticker symbol on the American Stock Exchange ("AMEX")
from "JMP" to "CPH." The Company continues to use the J.M. Peters Company, Inc.
name in its marketing materials.
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 and Clark Wilson and
establishing a metropolitan Phoenix, Arizona operation, the Company has
expanded its geographic reach beyond its Southern California markets to
include Las Vegas and Laughlin, Nevada, Austin, Texas and Phoenix, Arizona.
While the Company has no specific plans to expand outside the Nevada,
Texas, Arizona 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 homes to a broad segment of its potential customer base.
Within Austin, Texas, Clark Wilson serves both the entry level as well as
move-up buyers. The Phoenix, Arizona operations also serves the entry level
and move-up buyers market. Within Nevada, Durable historically focused on
entry level and first time move-up buyers. Through its J.M. Peters Nevada,
Inc. ("JMPN") subsidiary, the Company offers higher-end products in Nevada.
Within Southern California, the Company historically focused on second and
third time move-up buyers, however, since the Acquisition, the Company has
lowered its average sales price in Southern California (from $347,000
average sales price in fiscal year 1992 to $334,000, $293,000, $291,000 and
$285,000 in fiscal years 1993, 1994, 1995, and 1996, respectively),
enabling the Company to offer homes to first-time move-up buyers in
Southern California as well as to the higher-end segments of that market.
(3) Enhancing the Company's capital base and sources of financial
liquidity. The Company has diversified its sources of financing and will
continue this strategy in the future. 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 and corporate lines of credit. Consistent with this approach, in
May, 1994 the Company completed the sale of $100,000,000 of 12 3/4% Senior
Notes
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("Notes") including 790,000 warrants to purchase common stock (the
"Offering"). The proceeds from the offering were used to repay certain debt
of the Company, acquire certain properties and for general working capital
purposes. The Company has also obtained one $40 million recourse and two
$25 million non-recourse secured lines of credit with a bank to provide
additional flexibility and has established non-recourse construction lines
of credit for Durable and Clark Wilson totaling $13.0 and $26.5 million,
respectively. The Company intends to maintain its traditional lending
relationships as an additional source of liquidity to the extent permitted
by the indenture (the "Indenture") to which the Notes are subject. The
Company believes this financing strategy will allow orderly growth and
greater flexibility to react quickly to changing market conditions. The
Company also utilizes joint ventures within its operations as a source of
financing and risk management. Since the Acquisition, the Company has
formed joint ventures with IHP Investment Fund I, L.P. (an advisor to the
State of California Public Employees Retirement System ("CalPERS")) and
other investors and has successfully completed several projects and closed
many homes utilizing this strategy.
(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 home-building 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 in which it plans to
continue to build while avoiding excess land holdings. The Company prefers
to purchase Entitled land, typically in parcels of only 50 to 250 lots and
makes use of options, seller financing and joint ventures, when available,
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 and subdivision
approvals. The Company generally tries to limit its speculative building by
commencing construction only after some sales have been made and prefers to
limit each construction phase to 10-15 units. The Company generally
purchases and holds land in amounts sufficient to support home production
and sales over a 24 to 48 month period in California, and in amounts
sufficient to support home production and sales over an 18 to 36 month
period in Nevada, Texas and Arizona.
GEOGRAPHIC MARKETS
At February 29, 1996, the Company owned lots in various stages of
development with respect to its projects, including 15 projects located in the
Orange, Los Angeles and Riverside Counties of Southern California, 10 projects
located in Las Vegas and Laughlin, Nevada, 12 projects located in Austin, Texas
and 3 projects located in Phoenix, Arizona. The Company is currently selling
homes in 35 of these projects. The Company's homes currently range in size from
1,284 to 6,287 square feet in Southern California, from 930 to 3,290 square feet
in Nevada, from 1,200 to 3,530 square feet in Texas and from 930 to 3,579 square
feet in Arizona. The Company's homes are currently priced from $129,900 to
$1,200,000 in Southern California, from $86,000 to $305,000 in Nevada, from
$99,000 to $200,000 in Texas and from $69,000 to $285,000 in Arizona. At
February 29, 1996, the Company owned approximately 2,150 building sites (853 in
California, 592 in Nevada, 490 in Texas and 215 in Arizona) and controlled an
additional 703 building sites (225 in California, 620 in Nevada, 415 in Texas
and 103 in Arizona) through options and purchase contracts.
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DEVELOPMENTS IN PROCESS -- CALIFORNIA
The following table sets forth certain information regarding projects under
development in California during fiscal year 1996.
HOMES AVAILABLE FOR
UNDER CONSTRUCTION FUTURE
NAME AND TOTAL UNITS AT 2/29/96 CONSTRUCTION UNITS
LOCATION OF UNITS REMAINING ------------------------- --------------- CLOSED IN AVG. PRICE START OF
PROJECT PLANNED AT 2/29/96 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1996 OF HOMES(B) CONSTRUCTION
- --------------- -------- ---------- ----- ------ -------- ----- ------- ---------- ------------ -------------
WHOLLY-OWNED:
THE COURTS
Palmia/Mission
Viejo
Orange
County......... 180 109 14 4 27 -- 64 60 $146,000 FY95
FULLERTON
Fullerton
Orange
County....... 143 129 12 4 25 -- 88 14 418,000 FY96
NEWPORT COAST
Irvine
Orange
County....... 29 29 -- -- -- -- 29 -- N/A(c) FY97
THE VILLAS
Palmia/Mission
Viejo
Orange
County......... 171 121 26 5 23 7 60 50 197,000 FY96
RANCHO SERRANO
Temecula
Riverside
County....... 120 33 6 -- 5 2 20 32 232,000 FY94
COZUMEL
La Quinta
Riverside
County....... 86 69 3 5 15 -- 46 2 470,000 FY94
CAYMAN
La Quinta
Riverside
County....... 40 21 1 4 10 -- 6 5 349,000 FY94
ANTIGUA CUSTOM
LOTS
La Quinta
Riverside
County....... 73 52 -- -- -- -- 52 4 175,000 N/A
MULHOLLAND PARK
Tarzana
Los Angeles
County....... 163 163 14 6 23 -- 120 -- 887,000 FY96
MULHOLLAND PARK
CUSTOM LOTS
Tarzana
Los Angeles
County....... 10 6 -- -- -- 1 5 4 357,000 N/A
LAKE HILLS
Corona
Riverside
County....... 56 40 18 -- -- 1 21 16 223,000 FY96
VISTA
COLLECTION
Corona
Riverside
County....... 53(d) 53 -- 2 -- -- 51 -- 155,000 FY97
HARBORRIDGE
San Clemente
Orange
County....... 124(e) 112 10 4 17 -- 81 12 297,000 FY96
-------- ----- ----- -- --- ----- ------- ---
SUBTOTAL
WHOLLY-OWNED... 1,248 937 104 34 145 11 643 199
-------- ----- ----- -- --- ----- ------- ---
JOINT VENTURES:
HARBOR VIEW
San Clemente
Orange
County....... 92 25 8 -- 16 1 -- 64 322,000 FY95
CANYON ESTATES
Coto de Caza
Orange
County....... 58 7 5 -- -- 1 1 51 462,000 FY95
RANCHLAND
MONTILLA
Rancho Santa
Margarita
Orange
County......... 93 -- -- -- -- -- -- 1 335,000 FY93
PETERS WALNUT
ESTATES
Walnut
Los Angeles
County....... 16 16 -- -- -- 10 6 -- 571,000 FY97
-------- ----- ----- -- --- ----- ------- ---
SUBTOTAL JOINT
VENTURES..... 259 48 13 0 16 12 7 116
-------- ----- ----- -- --- ----- ------- ---
TOTALS......... 1,507 985 117 34 161 23 650 315
======== ===== ===== == === ===== ======= ===
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(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 29, 1996, and estimated average price for other projects.
(c) The design development process for this project is not sufficiently advanced
to identify a specific average. Final approval is subject to master
developer approval.
(d) Includes 51 lots the Company has the right to acquire under an option
contract with the seller. There can be no assurance that the Company will
actually acquire such lots within the option term. Five of such lots were
purchased in May 1996.
(e) Includes 81 lots the Company has the right to acquire under an option
contract with the seller. There can be no assurance that the Company will
actually acquire such lots within the option term.
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DEVELOPMENTS IN PROCESS -- NEVADA
The following table sets forth certain information about projects under
development in Nevada during fiscal year 1996.
HOMES UNDER AVAILABLE
CONSTRUCTION AT FOR FUTURE UNITS
NAME AND TOTAL UNITS 2/29/96 CONSTRUCTION CLOSED AVG.
LOCATION OF UNITS REMAINING -------------------- ------------ IN PRICE OF START OF
PROJECT PLANNED AT 2/29/96 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1996 HOMES(B) CONSTRUCTION
- ------------------------------------- ------- ---------- ---- ----- ------- ---- ------ ------- ----------- ------------
WHOLLY-OWNED:
ROSEWALK
Las Vegas
Clark County......................... 138 -- -- -- -- -- -- 45 $ 93,000 FY94
WHITE CLIFFS
Las Vegas
Clark County......................... 172 18 9 -- 9 -- -- 102 107,000 FY94
THE FALLS AT HIDDEN CANYON
North Las Vegas
Clark County......................... 241 118 14 6 6 6 86 88 110,000 FY95
SPINNAKER BAY
Laughlin
Clark County......................... 108 2 2 -- -- -- -- 19 120,000 FY93
LAS HADAS
Las Vegas
Clark County......................... 94 -- -- -- -- -- -- 25 87,000 FY94
COUNTRY MEADOWS
Las Vegas
Clark County......................... 99 80 5 3 6 -- 66 19 130,000 FY96
ECHOES
Las Vegas
Clark County......................... 194 -- -- -- -- -- -- 1 105,000 FY93
ALTEZZA
Las Vegas
Clark County......................... 128(c) 128 -- 4 -- -- 124 -- 263,000 FY96
COURTNEY RANCH
Las Vegas
Clark County......................... 168(d) 168 -- 4 -- -- 164 -- 132,000 FY96
PALATINE HILL
Las Vegas
Clark County......................... 135(e) 135 -- 4 4 -- 127 -- 220,000 FY96
PORTRAITS
Las Vegas
Clark County......................... 54 -- -- -- -- -- -- 3 158,000 FY94
COUNTRY LANE
Las Vegas
Clark County......................... 228 197 9 2 10 -- 176 31 129,000 FY95
SEQUOIA
Las Vegas
Clark County......................... 181 29 10 2 17 -- -- 140 122,000 FY95
----- --- -- -- -- -- --- ---
SUBTOTAL WHOLLY-OWNED................ 1,940 875 49 25 52 6 743 473
----- --- -- -- -- -- --- ---
JOINT VENTURES:
TAOS ESTATES(F)
Las Vegas
Clark County......................... 91 17 9 2 6 -- -- 74 276,000 FY94
----- --- -- -- -- -- --- ---
SUBTOTAL JOINT VENTURES.............. 91 17 9 2 6 -- -- 74
----- --- -- -- -- -- --- ---
TOTALS............................... 2,031 892 58 27 58 6 743 547
===== === == == == == === ===
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 29, 1996, and estimated average price for other projects.
(c) Durable owns 45 lots in the Altezza project, and holds options on 83 lots
for the remainder of the project. There can be no assurance that the Company
will actually acquire such lots within the option term.
(d) Durable owns 56 lots in the Courtney Ranch project, and holds options on 112
lots for the remainder of the project. There can be no assurance that the
Company will actually acquire such lots within the option term.
(e) Durable owns 30 lots in the Palatine Hill project, and holds options on 105
lots for the remainder of the project. There can be no assurance that the
Company will actually acquire such lots within the option term. Twenty of
such lots were purchased on May 7, 1996.
(f) J.M. Peters Nevada, Inc. and Durable are the general partners.
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DEVELOPMENTS IN PROCESS -- TEXAS
The following table sets forth certain information about projects under
development in Texas during fiscal year 1996.
HOMES UNDER AVAILABLE FOR
CONSTRUCTION FUTURE UNITS
NAME AND TOTAL UNITS AT 2/29/96 CONSTRUCTION(C) CLOSED
LOCATION OF UNITS REMAINING -------------------- --------------- IN AVG. PRICE START OF
PROJECT PLANNED(A) AT 2/29/96 SOLD MODEL SPEC(B) SOLD UNSOLD FY 1996 OF HOMES CONSTRUCTION
- -------------------------- ---------- --------- ---- ----- ------- ------ ------- ------- ----------- ------------
CAT HOLLOW
Round Rock
Williamson County......... 153 76 8 1 7 15 45 61 148,000 FY94
CIRCLE C RANCH
Austin
Travis County............. 95 49 3 -- 1 -- 45 40 156,000 FY93
CYPRESS CREEK
Cedar Park
Williamson County......... 70 41 7 1 4 3 26 12 152,000 FY94
MCKINNEY PARK(D)
Austin
Travis County............. 57 -- -- -- -- -- -- 2 100,000 FY94
MEADOWS AT CHANDLER
Round Rock
Travis County............. 44 -- -- -- -- -- -- 1 97,000 FY93
NORTH PARK
Pflugerville
Travis County............. 86 2 1 -- -- 1 -- 32 125,000 FY93
RANCH AT CYPRESS
Cedar Park
Williamson County......... 102 60 6 2 4 2 46 37 152,000 FY94
SPRINGBROOK
Round Rock
Travis County............. 221 71 29 2 7 16 17 39 145,000 FY94
SPRINGFIELD
Austin
Travis County............. 73 -- -- -- -- -- -- 1 98,000 FY94
LAKE POINTE
Austin
Travis County............. 46 43 5 2 4 4 28 3 225,000 FY95
THE SETTLEMENT
Round Rock
Williamson County......... 44 22 7 1 4 -- 10 22 116,000 FY94
WINDERMERE PARK
Pflugerville
Travis County............. 139 -- -- -- -- -- -- 8 120,000 FY93
TRAVIS COUNTRY
Austin
Travis County............. 284 278 19 2 10 17 230 6 177,000 FY96
ONION CREEK
Austin
Travis County............. 54 54 2 1 4 1 46 -- 227,000 FY96
LAKE POINT SOUTH
Austin
Travis County............. 34 26 11 -- 4 3 8 8 173,000 FY96
MEADOWS OF BRUSHY CREEK
Round Rock
Williamson County......... 15 15 3 -- 4 -- 8 -- 170,000 FY96
----- --- --- -- -- -- --- ---
TOTALS.................... 1,517 737 101 12 53 62 509 272
===== === === == == == === ===
- ---------------
(a) Most Developments listed include lot option contracts executed by Clark
Wilson Homes for future lot takedowns.
(b) Speculative units are unsold homes under construction.
(c) The total Available for Future Construction contains lots under the control
of Clark Wilson and lots actually purchased by Clark Wilson.
(d) Remaining options for 44 lots will not be exercised.
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DEVELOPMENTS IN PROCESS -- ARIZONA
The following table sets forth certain information about projects under
development in Arizona during fiscal year 1996.
HOMES UNDER AVAILABLE FOR
CONSTRUCTION AT 2/29/96 FUTURE UNITS
NAME AND TOTAL UNITS CONSTRUCTION CLOSED
LOCATION OF UNITS REMAINING ----------------------- -------------- IN AVG. PRICE START OF
PROJECT PLANNED AT 2/29/96 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1996 OF HOMES(B) CONSTRUCTION
- ----------------------- -------- ---------- ----- ------ -------- ----- ------- -------- ------------ --------------
WHOLLY-OWNED:
WILDFLOWER
Chandler
Maricopa County........ 132 99 20 2 -- 29 48 33 112,000 FY96
--- --- ----- -- -- ----- ------- ---
AMBROSIA AT AMBERLEA
Phoenix
Maricopa County........ 101 91 2 3 14 11 61 10 81,000 FY96
--- --- ----- -- -- ----- ------- ---
SCOTTSDALE VISTA
ESTATES
Scottsdale
Maricopa County(c)..... 54 49 3 -- 7 6 33 5 279,000 FY96
--- --- ----- -- -- ----- ------- ---
TOTALS................. 287 239 25 5 21 46 142 48
=== === ===== == == ===== ======= ===
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 29, 1996, and estimated average price for projects under
development on February 29, 1996.
(c) Includes 24 lots the Company has the right to acquire under an option
contract with a seller. There can be no assurance that the Company will
actually acquire such lots within the option term. Eight of such lots were
purchased in March, 1996.
JOINT VENTURES
The Company conducts its home-building operations as either wholly-owned
projects or through joint ventures in which the joint venture partner provides
capital, land and/or financing required for the project. The Company has
utilized joint ventures in order to increase access to sources of capital, land
and financing. The Company expects to continue 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 29, 1996, the Company's joint ventures were as follows:
-------------------------------------------------
TOTAL UNITS CUMULATIVE UNITS UNITS REMAINING
PLANNED CLOSED AT 2/29/96 AT 2/29/96
----------- ----------------- ---------------
CAPITAL PACIFIC HOLDINGS, INC.
J.M.P. Harbor View -- Orange County................ 92 67 25
J.M.P. Canyon Estates -- Orange County............. 58 51 7
Peters Walnut Estates.............................. 16 0 16
--- --- ---
Sub-tota1.................................. 166 118 48
--- --- ---
J.M. PETERS NEVADA, INC./DURABLE HOMES, INC.(A)
Taos Estates -- Las Vegas.......................... 91 74 17
--- --- ---
Total................................................ 257 192 65
=== === ===
- ---------------
(a) JMPN and Durable are co-general partners in Taos Estates, L.P.
California Joint Ventures. The Company entered into two new joint ventures
with CalPERS for the development of 150 homes in San Clemente and Coto de Caza,
California in fiscal year 1996. Also added in fiscal year 1996 was Peters Walnut
Estates, a joint venture with another partner to build 16 move-up homes in Los
Angeles County, California.
Las Vegas, Nevada Joint Venture. JMPN and Durable are general partners in
Taos Estates, L.P., a California limited partnership, formed to develop the Taos
Estates project in Las Vegas, Nevada.
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LAND ACQUISITION
The Company typically purchases and holds Entitled land in California in
amounts sufficient to support home production and sales over a 24 to 48 month
period. The Company also tries to maintain an additional 18 month supply of
Entitled land through options and other means when practicable. The Company
typically purchases or options Entitled land in Nevada, Texas and Arizona in
amounts sufficient to support home production and sales over an 18 month to 36
month period. 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 29, 1996:
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD BE
CONSTRUCTED ON LAND CONTROLLED AS OF FEBRUARY
29, 1996(A)
------------------------------------------------
UNDER
REGION OWNED OPTION(B) CONTROLLED(C) TOTAL
- -------------------- ----- --------- ------------- ------
Southern California 853 132 93 1,078
Nevada 592 300 320 1,212
Texas 490 247 168 905
Arizona 215 24 79 318
----- --- --- -----
2,150 703 660 3,513
===== === === =====
- ---------------
(a) Based upon current management estimates, which are subject to change.
(b) There can be no assurance that the Company will actually acquire any lots
under option.
(c) 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 actually acquire any such properties.
The Company typically considers numerous factors including, but not limited
to, 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 tries to avoid speculative building by constraining project
phase sizes, and entitlement risks by acquiring Entitled land and acquiring lots
through the use of options, development agreements and joint ventures with lot
owners when appropriate. Additionally, by forming strategic alliances with
partners, the Company has been able to obtain access to additional capital and
construction financing to spread project risk, which allows the Company, when
practicable, to minimize the risk of holding property and to preserve its
capital.
PRODUCT DESIGN
The Company has numerous industry design awards for its homes and
developments. The Company's homes are noted for their innovative design,
attention to detail and quality construction.
The Company contracts with a number of outside architects, designers,
engineers, consultants and subcontractors. While some of the Company's employees
are involved in various stages of the design process, the Company believes that
the use of third parties for the production of the final design, engineering and
construction reduces its costs, increases design innovation and quality, and
reduces the risks of liability associated with the design and construction
process. The Company monitors the work of outside architects, designers and
engineers through consultants and employees of the Company. 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, construction effectiveness and
quality.
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The Company creates architectural variety within its projects by offering
numerous floor plans and exterior styles. By doing so, the Company hopes to
enhance home values by creating diversified neighborhood looks within its
projects.
Generally, the Company selects the interior finish of its homes. 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 Center ("Newport Design") or through the homebuyer's
consultants.
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 consultants and employees coordinate the
construction of each project and the activities of subcontractors and suppliers,
and subject their work to quality and cost controls and compliance with zoning
and building codes. Subcontractors typically are retained on a phase-by-phase or
unit-by-unit basis to complete construction at a fixed price. Agreements with
the Company's subcontractors are generally entered into after competitive
bidding on a unit-by-unit basis. The Company has established long-term
relationships with a large number of subcontractors. The Company is not
dependent to any material degree 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, when possible, with
manufacturers and suppliers in order to take advantage of its volume of
production.
The Company typically develops its projects in several phases generally
averaging approximately 10-15 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, except for
construction of the model homes. Subsequent phases are generally not started
until at least 60% 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 for larger homes and three to
four months for smaller homes and within its Nevada, Texas and Arizona
developments within three to four months.
SALES AND MARKETING
The Company typically builds, 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 in certain markets. 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 construction and design options provided by the Company.
The Company normally sells all of its homes through Company sales
representatives who typically work from the sales offices located either at the
model homes or at sales centers used in each subdivision. To a lesser extent,
the Company also uses community, regional and cooperative brokers to sell its
homes when necessary. 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 and
upgrades. Sales
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representatives attend periodic meetings at which they are given information
regarding other projects in the area, the variety of financing programs
available, construction schedules and marketing and advertising plans for their
projects.
The Company generally opens on-site sales offices before the construction
of the model homes are completed. These on-site sales offices are utilized as
temporary sales centers to commence the sales process to potential customers.
Once a Preliminary Subdivision Report ("Pink Report") has been issued by the
California Department of Real Estate ("DRE"), potential homebuyers may reserve a
home by submitting a refundable deposit (a reservation fee) ranging from $500 to
$20,000, signing a receipt for the Pink Report and executing a reservation
document. The Company then conducts preliminary research concerning the credit
status of the potential homebuyer in order to "pre-qualify" the homebuyer. Once
the prospective homebuyer has been "pre-qualified" and there is a strong
indication that the homebuyer will qualify for a mortgage (although final loan
approval is still pending), and a Final Subdivision Report ("White Report") has
been received from the DRE for the project, the homebuyer must convert the
reservation fee to an "earnest money deposit" and complete a purchase contract
for the purchase of their home. The Company attempts to keep its contract
cancellation rate low by attempting to pre-qualify prospective homebuyers and
allowing homebuyers to customize their homes at an early point in the purchase
process. 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 to the terms of the purchase contract. The Company generally
determines whether to seek to obtain such damages on a case-by-case basis. When
home purchase contracts are canceled, the Company is usually able to identify
alternate homebuyers.
The Company makes extensive use of advertising and other promotional
activities, including newspaper, radio, television 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 market area, it is able to utilize regional advertising that
highlights all Company projects within that same market area.
The Company established a highly sophisticated website on the Internet
during fiscal year 1996. The website address is (http://www.cph-inc.com). The
Company will utilize the Internet through its website address to augment its
advertising and promotional activities.
The Company provides flooring and other amenities and upgrades to its
homebuyers in California through its wholly-owned subsidiary, Newport Design,
and through its other design centers in Nevada and Texas.
BACKLOG AND INVENTORY
The Company typically pre-sells homes prior to and during construction
through purchase contracts or reservations requiring earnest money deposits or
reservation fees. Generally, these contracts or reservations 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 such a contract or reservation and receipt of an earnest money
deposit or reservation fee and is removed when such contracts or reservations
are canceled as described above or the home purchase escrow is closed. At
February 29, 1996, the Company had a backlog in California of 140 homes with an
aggregate sales value of $43.2 million, compared to a backlog of 195 homes with
an aggregate sales value of $63.2 million at February 28, 1995. At February 29,
1996, the Company had a total backlog in Nevada of 64 homes with an aggregate
sales value of $8.9 million, compared to a backlog of 155 homes with an
aggregate sales value of $21.3 million at February 28, 1995. At February 29,
1996, the Company had a total backlog in Texas of 163 homes with an aggregate
sales value of $26.2 million, compared to a backlog of 82 homes with an
aggregate sales value of $11.5 million at February 28, 1995. The Arizona
projects in the first year of operation had a backlog of 71 units with an
aggregate sales value of $8.6 million.
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The following table shows net new 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 or reservation for each quarter since
the beginning of fiscal year 1996. Management believes that the Company's
backlog at any given time may be 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 ($000S)
------- ----- ----- --------
Fiscal Year 1996 1st Quarter................ 324 245 511 $130,586
2nd Quarter............................... 234 224 521 130,266
3rd Quarter............................... 264 236 549 123,782
4th Quarter............................... 360 469 438 86,899
----- -----
Total Fiscal Year 1996............ 1,182 1,174
===== =====
Fiscal Year 1995 1st Quarter................ 167 193 279 $ 55,073
2nd Quarter............................... 116 172 223 44,465
3rd Quarter............................... 217 252 304(a) 54,777
4th Quarter............................... 335 207 432 95,940
----- -----
Total Fiscal Year 1995............ 835 824
===== =====
- ---------------
(a) Includes 116 homes in Clark Wilson's backlog at August 31, 1994.
MORTGAGE COMPANY
The Company established mortgage operations in California through its
wholly owned subsidiary Capital Pacific Mortgage, Inc. during fiscal year 1996.
The Company offers mortgage broker services to certain of its California
homebuyers through Capital Pacific Mortgage, Inc. The Company also offers
mortgage broker services to certain of its Texas homebuyers through Fairway
Financial Company, established in fiscal year 1995.
HOMEOWNER WARRANTY
The Company provides homeowners with a limited warranty wherein the Company
will correct for a limited period deficiencies listed in the homeowner warranty
manual which may include, but not be limited, to the following: 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
certain Nevada and Texas homebuyers with policies issued by third-parties that
extend protection beyond the Company's warranty period. 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 in
the architectural design or actual construction of its new home. The Company
establishes warranty reserves, on a per unit basis, at time of closing.
COMPETITION
The home-building 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 may 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.
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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 tries to devote 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
certain areas, 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, 1996, the Company employed 288 persons full-time, compared
to 232 persons at April 30, 1995. Of these, 20 were in executive positions, 52
were engaged in sales activities, 132 in project activities (28 of which are
involved in the steel framing division in Las Vegas, Nevada) and 84 in
administrative and clerical activities. None of the Company's employees are
represented by a union. 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,
increases in the price of lumber and other materials has a negative impact on
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.
The Company has established a steel framing division in Las Vegas, Nevada.
ITEM 2. PROPERTIES
The Company owns one facility and leases other facilities in California,
Nevada, Texas and Arizona. The Company owns its principal offices, which are
located at 4100 MacArthur Blvd., Suite 200, Newport Beach, California 92660,
where the Company occupies approximately 20,000 out of a total 45,000 square
feet of space available. The majority of the remaining office space is leased to
third parties.
Durable has acquired an approximately 2.5 acre property on which Durable
intends to construct a 19,000 square foot office building. The principal offices
of Durable and JMPN will occupy approximately 10,000 square feet. The remaining
office space will be leased to third parties.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation arising in the ordinary
course of its business. The legal responsibility and financial impact with
respect to such litigation cannot presently be ascertained.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on AMEX under the Symbol "CPH." The
following table sets forth the quarterly high and low sales prices for the
Common Stock for the periods indicated.
HIGH LOW
----- -----
FISCAL 1996
Fourth Quarter............................................. $4.38 $2.13
Third Quarter.............................................. 3.25 2.25
Second Quarter............................................. 3.44 2.00
First Quarter.............................................. 2.81 2.00
FISCAL 1995
Fourth Quarter............................................. 3.00 2.00
Third Quarter.............................................. 3.00 1.88
Second Quarter............................................. 4.00 2.63
First Quarter.............................................. 3.94 2.63
Subject to Indenture and loan agreement covenants, 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, but rather to retain any earnings. No
dividends have been paid during the last two years.
On April 30, 1996, the Company had approximately 1,800 beneficial holders
of its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information of the Company is
presented for the fiscal years ended February 29, 1996, February 28, 1995,
February 28, 1994, February 28, 1993 and February 29, 1992. 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 year's balances to conform to the
current year presentation.
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(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND OPERATING DATA)
----------------------------------------------------
LAST DAY OF FEBRUARY
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
Total revenues.............................. $184,944 $ 75,702 $ 91,066 $143,089 $169,018
-------- -------- -------- -------- --------
Cost and expenses:
Cost of homes and land.................... 170,329 68,257 73,348 112,152 138,707
Adjustments to carrying value of real
estate projects and investments in
partnerships........................... 56,016 75,476 -- -- --
Interest expense............................ 14,691 8,538 418 -- --
Provision for litigation judgment........... -- -- -- 1,950 --
Selling, general and administrative......... 15,579 9,764 12,322 22,314 26,126
-------- -------- -------- -------- --------
Total costs and expenses.......... 256,615 162,035 86,088 136,416 164,833
Minority interest........................... -- -- 4,332 5,883 1,080
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary items....................... (71,671) (86,333) 646 790 3,105
Income tax (benefit) expense................ (13,895) (1,792) -- 216 503
-------- -------- -------- -------- --------
Income (loss) before extraordinary items.... (57,776) (84,541) 646 574 2,602
Extraordinary gain for debt retired at less
than face value, net of taxes............. -- -- 4,268 3,075 --
-------- -------- -------- -------- --------
Net income (loss)........................... $(57,776) $(84,541) $ 4,914 $ 3,649 $ 2,602
======== ======== ======== ======== ========
Net income (loss) per common share:
Before extraordinary items.................. $(4.13) $(6.05) $.04 $.04 $.17
Extraordinary items......................... -- -- .30 .20 --
------ ------ ------ ----- -----
Net income (loss) per share(1).............. $(4.13) $(6.05) $.34 $.24 $.17
------ ------ ------ ----- -----
------ ------ ------ ----- -----
AT THE LAST DAY OF FEBRUARY
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Real estate projects........................ $224,566 $ 99,636 $105,696 $167,807 $227,194
Total assets................................ 250,822 115,551 121,954 215,175 266,508
Notes payable............................... 59,165 38,433 34,709 29,391 63,929
Senior Unsecured Notes Payable.............. -- -- -- 100,000 100,000
Due to parent............................... 204,138 1,702 -- -- --
Stockholders' equity........................ (25,607) 48,015 55,594 60,744 63,346
OPERATING DATA (in units):
Homes closed................................ 395 115 404 824(2) 1,174
Homes contracted for........................ 326 126 478 835(3) 1,182
Homes in backlog............................ 81 92 305 432 440
- ---------------
(1) The weighted average number of shares outstanding is 14,995,000 for the
years ended February 29, 1996 and February 28, 1995, 14,488,000 for the year
ended February 28, 1994 and 13,980,000 for the years ended February 28, 1993
and February 29, 1992.
(2) Excludes homes closed by Clark Wilson for the six month period prior to
acquisition.
(3) Excludes 116 homes in Clark Wilson's backlog at August 31, 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995) that involves risk and uncertainty, including
projections and assumptions regarding the business environment in which the
Company operates. Actual future results and trends may differ materially
depending on a variety of factors, including the Company's successful execution
of internal performance strategies; changes in general national and regional
economic conditions, such as levels of employment, consumer confidence and
income, availability to homebuilders of financing for acquisitions, development
and construction, availability of financing to homebuyers for permanent
mortgages, interest rate levels and the demand for housing; supply levels of
labor and materials; difficulties in obtaining permits or approvals from
governmental authorities; difficulties in marketing homes; regulatory and
weather and other environmental uncertainties; competitive influences; and the
outcome of pending and future legal claims and proceedings.
RESULTS OF OPERATIONS -- GENERAL
The results of operations of the Company for the fiscal year ended February
28, 1995, do not include the full year of Clark Wilson's results of operations
due to the fact that the Clark Wilson Acquisition did not occur until the start
of the third quarter of fiscal year 1995.
FISCAL YEAR 1996 (YEAR ENDED FEBRUARY 29, 1996) COMPARED TO FISCAL YEAR 1995
(YEAR ENDED FEBRUARY 28, 1995)
Net Income. The Company recorded net income of $2.6 million in fiscal year
1996, or $0.17 per share, compared to net income (before extraordinary gain) of
$574 thousand, or $0.04 per share, for fiscal year 1995. Fiscal year 1995 net
income of $3.6 million includes $3.1 million (net of tax), or $0.20 per share,
extraordinary gain due to the resolution of project financing at less than the
face amount of the debt. There was no extraordinary gain in fiscal year, 1996.
These results were due to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1996 of $163.8 million increased $24.7 million, or 17.7%, from fiscal year 1995.
This increase was due to a greater number of home closings during the fiscal
year. Home closings for fiscal year 1996 were 1,174 (which includes 115 homes
closed in unconsolidated joint ventures) compared to 824 homes (which includes 3
homes closed in unconsolidated joint ventures) for fiscal year 1995, an increase
of 350 homes. This increased activity was primarily due to increased closings in
California, and a full year of Clark Wilson activity compared to six months of
Clark Wilson activity in the prior fiscal year. The revenues figures for fiscal
year 1996 and fiscal year 1995 do not include closings from unconsolidated joint
ventures. Total revenues from unconsolidated joint ventures were $44.6 million
for fiscal year 1996 compared to $900 thousand for fiscal year 1995. Had these
closings been included in the fiscal year 1996 and fiscal year 1995 revenue
figures, fiscal year 1996 revenues from home closings would be $208.4 million,
reflecting an increase of $68.4 million in revenues, or an increase of 48.8%,
from fiscal year 1995 revenues of $140 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1996 of $26.1 million increased $3.8
million over fiscal year 1995. This increase was primarily due to the increased
closings and number of projects being marketed in California and a full year of
Clark Wilson activity (compared to a half year in fiscal year 1995).
Minority Interest. Minority interest expense for fiscal year 1996 of $1.1
million decreased $4.8 million from fiscal year 1995. This decrease was due to a
reduced number of consolidated joint venture home closings in fiscal year 1996.
For fiscal year 1996, consolidated joint venture closings totaled 75 units
versus the 264 units closed in fiscal year 1995.
During the fiscal year ended February 29, 1996, the Company recorded 1,182
net orders (home sales contracted for less cancellations), which was 347 homes
higher than fiscal year 1995. The Company had 438
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homes in its backlog (homes under contract but not closed) at February 29, 1996,
which was an increase of 6 homes over the Company's backlog at February 28,
1995.
FISCAL YEAR 1995 (YEAR ENDED FEBRUARY 28, 1995) COMPARED TO FISCAL YEAR 1994
(YEAR ENDED FEBRUARY 28, 1994)
Net Income. The Company recorded net income after extraordinary items of
$3.6 million in fiscal year 1995 or $0.24 per share, compared to net income of
$4.9 million, or $0.34 per share, for fiscal year 1994. These results were due
to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1995 of $135.9 million increased $54.7 million, or 67%, from fiscal year 1994.
This increase was due to a greater number of home closings during the fiscal
year. Home closings for fiscal year 1995 were 824, compared to 404 homes for
fiscal year 1994, an increase of 420 homes. This increased activity was
primarily due to increased closings in California, including the home closings
from the projects developed by the CalPERS partnerships, which contributed 192
home closings and approximately $56.5 million in revenues, a full twelve months
of closings for Durable, and the Clark Wilson Acquisition. The Clark Wilson
Acquisition contributed $18.1 million of revenues and 135 home closings during
the period from September 1, 1994, the effective date of the Clark Wilson
Acquisition, through February 28, 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1995 of $22.3 million increased $10.0
million over fiscal year 1994. This increase was primarily due to the increased
closings and number of projects being marketed in California, a full year of
Durable activity (versus a half year in fiscal 1994) and the effect of the Clark
Wilson Acquisition, which was consummated as of September 1, 1994.
Minority Interest. Minority interest expense for fiscal year 1995 of $5.9
million increased $1.6 million from fiscal year 1994. This increase was due to a
greater number of joint venture home closings in fiscal year 1995. For fiscal
year 1995, joint venture closings totalled 264 units versus the 239 units closed
in fiscal year 1994.
Provision for Litigation Judgment. During fiscal year 1995 a California
jury delivered a verdict of $2.2 million compensatory and $1.0 million punitive
damages against the Company in connection with certain sales activities
occurring in 1989 and 1990, at least two years prior to the 1992 Acquisition of
the Company by current management. The Company settled the lawsuit for $2.3
million. The amount of $2.0 million (net of reserves) was charged against the
Company's third quarter results.
During the fiscal year ended February 28, 1995, the Company recorded 835
net orders (home sales contracted for less cancellations), which was 357 homes
higher than fiscal year 1994. The Company had 432 homes in its backlog (homes
under contract but not closed) at February 28, 1995, which was an increase of
127 homes over the Company's backlog at February 28, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements are for the acquisition,
development, construction and marketing of its 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 Company has principally used secured recourse and non-recourse bank
financing, bond financing and financing provided by CalPERS and other joint
venture partners for acquisition, development and construction, with financing
for individual projects or phases of projects secured by such projects.
In May, 1994 the Company 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 were used to repay certain debt
15
17
of the Company, acquire certain properties and for general working capital and
construction purposes. The proceeds are projected to provide liquidity, when
combined with additional financing permitted under the Indenture and cash flow
from operations, sufficient to fund the Company's current and projected
acquisition, development and construction activities for a period of at least
two years.
In May, 1994 the Company obtained a $25 million recourse secured line of
credit facility with a bank. In September, 1994 the Company obtained an
additional $25 million non-recourse secured line of credit facility with the
same bank. In August, 1995, the Company successfully completed negotiations with
its bank increasing total contingent availability under all credit facilities
with the bank from $50 million to $90 million. As of February 29, 1996, the
Company has in place three separate facilities with the bank. The terms of the
various credit facilities expire on dates ranging from October 1, 1996 through
March 31, 1998. The Company is negotiating extensions on all facilities due
within the next fiscal year. The Company expects to successfully complete these
negotiations prior to the maturity dates of the credit facilities. The
facilities are secured by liens on various completed or under construction homes
and on lots held by the Company. The credit agreements contain 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 agreements also define certain events that constitute events
of default. The bank is entitled to payment out of the proceeds of its
collateral prior to any holders of unsecured indebtedness, including the Notes.
Durable and Clark Wilson also have non-recourse lines of credit to
facilitate construction activity. Durable has obtained a $13.0 million
non-recourse line of credit. The term of the commitment under this facility will
expire July 1, 1996. Durable is currently negotiating an extension of this
facility and expects to successfully complete this negotiation. Clark Wilson has
secured a $15 million non-recourse line of credit. The term of the commitment
under this facility will expire June 30, 1996. Clark Wilson is currently
negotiating an extension of this facility and expects to successfully complete
this negotiation. Subsequent to February 29, 1996, Clark Wilson has secured an
additional $11.5 million non-recourse line of credit. The initial term of the
commitment under this facility will expire May 31, 1997.
The Indenture contains restrictions on the incurring of indebtedness which
affect the availability of these bank facilities based on various measures of
the financial performance of the Company. Subject to such restrictions, the bank
facilities will be available to augment cash flow from operations, joint venture
funds 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 balanced by potential
increased sales prices.
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 materials and other 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 duplicate its
past ability to raise sales prices enough to compensate for higher costs, 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.
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TAXES
The Company was from the time of the Acquisition until the end of calendar
year 1994 part of the Capital Pacific Homes, Inc. consolidated tax group. No
written tax sharing agreement with respect to taxes existed between the member
companies of the Capital Pacific Homes, Inc. consolidated tax group. The Capital
Pacific Homes, Inc. consolidated tax group filed 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, 1994, the Company had a federal and
California tax liability and a net operating loss carryforward to 1995, which
the Company can utilize to offset regular taxable income that may be generated
after the 1994 tax year. The Indenture required the merger of the Company with
Capital Pacific Homes, Inc. (which merger was completed as of December 31,
1994), as a result of which the Company will no longer be part of a consolidated
group and will file its own tax returns on a calendar year basis effective with
the 1995 tax year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAPITAL PACIFIC HOLDINGS, INC. (CPH)
Reports of Independent Public Accountants
Consolidated Balance Sheets as of February 28, 1995 and February 29, 1996
Consolidated Statements of Operations for the years ended February 28, 1994,
February 28, 1995 and February 29, 1996
Consolidated Statements of Stockholders' Equity for the years ended February
28, 1994, February 28, 1995 and February 29, 1996
Consolidated Statements of Cash Flows for the years ended February 28, 1994,
February 28, 1995 and February 29, 1996
Notes to Consolidated Financial Statements
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Capital Pacific Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of CAPITAL
PACIFIC HOLDINGS, INC. (a Delaware corporation) and subsidiaries as of February
28, 1995 and February 29, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended February 29, 1996. 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
total assets and total revenues of 15 and 33 percent in February 28, 1994 and 4
and 38 percent in February 28, 1995, and 1 and 1 percent in February 29, 1996,
respectively, of the consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for those entities, is based solely on the
reports of the other auditors.
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 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 Capital Pacific Holdings, Inc. and subsidiaries as of
February 28, 1995 and February 29, 1996, and the results of their operations and
their cash flows for each of the three years in the period ended February 29,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 2, 1996
18
20
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, 1994 and 1993, and the related statements of operations, partners'
capital and cash flows for the years then ended (not presented separately
herein). 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, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 24, 1995
19
21
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, 1994 and 1993, and the related statements of operations, partners'
capital and cash flows for the years then ended (not presented separately
herein). 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, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 24, 1995
20
22
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, 1995 and 1994, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 1995 (not presented separately herein). 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, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 15, 1996
21
23
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, 1995 and 1994, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 1995 (not presented separately herein). 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, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 15, 1996
22
24
INDEPENDENT AUDITORS' REPORT
To the Partners
J.M.P. Canyon Estates, L.P.
We have audited the accompanying balance sheet of J.M.P. Canyon Estates, L.P.
(the "Partnership"), a California limited partnership, as of December 31, 1995
and 1994, and the related statements of operations, partners' capital and cash
flows for the year ended December 31, 1995 and the period July 27, 1994
(inception) through December 31, 1994 (not presented separately herein). 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 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 financial position of J.M.P. Canyon Estates, L.P. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the year ended December 31, 1995 and the period July 27, 1994
(inception) through December 31, 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 15, 1996
23
25
INDEPENDENT AUDITORS' REPORT
To the Partners
J.M.P. Harbor View, L.P.
We have audited the accompanying balance sheet of JMP Harbor View, L.P. (the
"Partnership"), a California limited partnership, as of December 31, 1995 and
1994, and the related statements of partners' capital and cash flows for year
ended December 31, 1995 and the period December 13, 1994 (inception) through
December 31, 1994 (not presented separately herein). 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 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 financial position of JMP Harbor View, L.P. as of
December 31, 1995 and 1994, and the results of its cash flows for the year ended
December 31, 1995 and the period December 13, 1994 (inception) through December
31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 15, 1996
24
26
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
CASH AND CASH EQUIVALENTS........................................... $ 22,401 $ 13,850
RESTRICTED CASH..................................................... 1,421 1,429
ACCOUNTS AND NOTES RECEIVABLE....................................... 3,818 4,421
REAL ESTATE PROJECTS................................................ 167,807 227,194
PROPERTY AND EQUIPMENT.............................................. 5,891 6,685
PREPAID EXPENSES AND OTHER ASSETS................................... 13,837 12,929
-------- ---------
TOTAL ASSETS......................................... $215,175 $ 266,508
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE.................................................... $ 9,986 $ 26,333
ACCRUED LIABILITIES................................................. 11,530 10,006
NOTES PAYABLE....................................................... 29,391 63,929
SENIOR UNSECURED NOTES PAYABLE...................................... 100,000 100,000
-------- ---------
Total liabilities......................................... 150,907 200,268
-------- ---------
COMMITMENTS AND CONTINGENCIES.......................................
MINORITY INTEREST IN JOINT VENTURES................................. 3,524 2,894
-------- ---------
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share; 30,000,000 shares
authorized; 14,995,000 issued and outstanding.................. 1,500 1,500
Additional paid-in capital........................................ 211,888 211,888
Accumulated deficit............................................... (152,644) (150,042)
-------- ---------
Total stockholders' equity................................ 60,744 63,346
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $215,175 $ 266,508
======== =========
See accompanying notes to consolidated financial statements.
25
27
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
REVENUES:
Sales of homes and land............................... $88,140 $139,123 $163,768
Equity in income (loss) of partnerships............... 77 (7) 1,560
Interest and other income, net........................ 2,849 3,973 3,690
------- -------- --------
91,066 143,089 169,018
------- -------- --------
COSTS AND EXPENSES:
Cost of homes and land................................ 73,348 112,152 138,707
Selling, general and administrative................... 12,322 22,314 26,126
Provision for litigation judgment..................... -- 1,950 --
Minority interest in joint ventures................... 4,332 5,883 1,080
Interest.............................................. 418 -- --
------- -------- --------
90,420 142,299 165,913
------- -------- --------
Income before provision for income taxes and
extraordinary gain.................................... 646 790 3,105
Provision for income taxes.............................. -- 216 503
------- -------- --------
Income before extraordinary gain........................ 646 574 2,602
Extraordinary gain for debt retired at less than face
value,
net of taxes.......................................... 4,268 3,075 --
------- -------- --------
Net income.............................................. $ 4,914 $ 3,649 $ 2,602
======= ======== ========
NET INCOME PER COMMON SHARE:
Before extraordinary gain............................. $ .04 $ .04 $ .17
Extraordinary gain.................................... .30 .20 --
------- -------- --------
Net income............................................ $ .34 $ .24 $ .17
======= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES....................... 14,488 14,995 14,995
======= ======== ========
See accompanying notes to financial statements.
26
28
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 29, 1996
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------ ---------- ------------ -------
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
Issuance of warrants in connection with
offering of senior unsecured notes
payable.................................... -- 1,501 -- 1,501
Net income.................................... -- -- 3,649 3,649
------ -------- --------- -------
BALANCE, February 28, 1995...................... 1,500 211,888 (152,644) 60,744
Net income.................................... -- -- 2,602 2,602
------ -------- --------- -------
BALANCE, February 29, 1996...................... $1,500 $211,888 $(150,042) $63,346
====== ======== ========= =======
See accompanying notes to financial statements.
27
29
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income................................................... $ 4,914 $ 3,649 $ 2,602
Adjustments to reconcile net income to net cash provided by
(used in) operating activities --
Extraordinary gain, net.................................... (4,268) (3,075) --
Provision for litigation judgment.......................... -- 1,950 --
Depreciation and amortization.............................. 131 794 1,390
Changes in Assets and Liabilities
Net of the Effects of the Purchase of Clark Wilson, Inc.
and Durable Homes, Inc.:
(Increase) decrease in accounts and notes receivable..... 259 (2,168) (603)
(Increase) decrease in real estate projects.............. 226 (60,547) (57,109)
(Increase) decrease in prepaid expenses and other
assets................................................ 393 (470) (2,013)
Increase in accounts payable and accrued liabilities..... 6,209 2,449 14,823
-------- -------- --------
Net cash provided by (used in) operating activities... 7,864 (57,418) (40,910)
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of Clark Wilson Homes, Inc....................... -- (3,631) --
Acquisition of Durable Homes, Inc............................ (1,500) -- --
Purchases of property and equipment.......................... (68) (5,982) (1,269)
Decrease (increase) in investments in partnerships........... (45) (1,949) 1,635
-------- -------- --------
Net cash provided by (used in) investing activities... (1,613) (11,562) 366
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from senior unsecured notes payable, net............ -- 95,834 --
Proceeds from notes payable.................................. 39,374 59,406 131,572
Principal payments of notes payable.......................... (35,574) (63,425) (98,949)
Principal payments to Capital Pacific Homes, Inc............. (1,702) -- --
Minority interest in joint ventures.......................... (7,802) (10,435) (630)
-------- -------- --------
Net cash provided by (used in) financing activities... (5,704) 81,380 31,993
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 547 12,400 (8,551)
CASH AND CASH EQUIVALENTS, beginning of period................. 9,454 10,001 22,401
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period....................... $ 10,001 $ 22,401 $ 13,850
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH AND NONCASH ACTIVITIES:
Cash paid during the year for interest....................... $ 2,372 $ 6,556 $ 17,939
Cash paid during the year for income taxes................... 6 20 1,479
Residential inventory surrendered in exchange for debt
forgiveness................................................ 9,980 1,048 --
Note payable and accrued interest reduced by debt
forgiveness................................................ 14,248 4,713 --
Common stock issued in connection with the acquisition of
Durable Homes, Inc......................................... 2,665 -- --
Promissory note payable issued to seller in connection with
the acquisition of Clark Wilson Homes, Inc................. -- 2,500 --
Issuance of warrants in connection with offering of senior
unsecured notes payable.................................... -- 1,501 --
Land acquisition financed by purchase money trust deeds...... -- 2,249 --
Debt assumed by consolidated partnership for land
contributed................................................ -- -- 1,915
See accompanying notes to financial statements.
28
30
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Company Organization and Operations
On July 1, 1992, Capital Pacific Homes, Inc., a Delaware corporation,
entered into a definitive purchase agreement (the "Purchase Agreement"),
pursuant to which Capital Pacific Homes, Inc. acquired from San Jacinto F.A.
("San Jacinto") (i) 12,000,000 shares of J.M. Peters Company, Inc., known since
August, 1995 as Capital Pacific Holdings, Inc. (the "Company") Common Stock
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 had repaid this debt to Capital Pacific Homes, Inc. 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.
Effective December 31, 1994, Capital Pacific Homes, Inc. merged with and
into the Company (the "Merger") pursuant to an Agreement and Plan of Merger,
dated November 21, 1994 (the "Merger Agreement") with the Company surviving the
Merger. The Company's Board of Directors and a majority of the stockholders
approved the Merger. Accordingly, the separate legal existence of Capital
Pacific Homes, Inc. was terminated. The Merger did not change the
capitalization, corporate structure or Board of Directors of the Company. In
addition, there was no modification of or amendment to the Certificate of
Incorporation and Bylaws, as amended, of the Company as a result of the Merger.
The Merger Agreement provided for the cancellation of each share of Common Stock
of the Company held by Capital Pacific Homes, Inc. and the issuance of an equal
amount of new shares of Common Stock of the Company to the shareholders of
Capital Pacific Homes, Inc. No assets or recorded liabilities were acquired.
In August 1995, the Company changed its name to Capital Pacific Holdings,
Inc. The Company continues to use the J.M. Peters Company, Inc. name in its
marketing materials and is qualified to do business in California as J.M. Peters
Company, Inc.
The Company is a regional builder of single-family homes with operations
throughout the major metropolitan areas of California, Nevada, Texas and
Arizona. Approximately 43, 35, 19 and 3 percent of the Company's total revenues
(including the unconsolidated joint ventures) were in California, Nevada, Texas
and Arizona, respectively, for the year ended February 29, 1996. Economic growth
in California has slowed considerably in the 1990s compared to the late 1980s.
The average sales price of homes in most of the areas in California in which the
Company does business has decreased over the past three to four years and there
can be no assurance that home sales prices will not decline further in the
future.
The Company's business, and the markets which it serves in California,
Nevada, Texas and Arizona is affected by local, national and world economic
conditions and events, in particular by the level of mortgage interest rates and
consumer confidence. The Company cannot predict whether mortgage interest rates
will be at levels attractive to prospective homebuyers. If interest rates
increase, in particular mortgage interest rates, the Company's operating results
could be adversely impacted.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
29
31
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
liabilities and disclosures of contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from estimated amounts.
Acquisition of Clark Wilson Homes, Inc.
Effective September 1, 1994, the Company acquired all of the common stock
of Clark Wilson Homes, Inc. ("Clark Wilson") and Fairway Financial Company
("Fairway") for a total purchase price, including direct costs of the
acquisition, of $6.1 million. The Company paid $3.5 million cash and issued a
$2.5 million contingent promissory note to the seller. The amount due under such
note is fully dependent upon the performance of Clark Wilson. The transaction
was accounted for as a purchase. The results of operations for Clark Wilson and
Fairway have been included in the consolidated financial statements of the
Company from the effective date of the acquisition. Clark Wilson builds single
family homes in Texas. Fairway assists Clark Wilson homebuyers with obtaining
financing for new home purchases.
The allocation of purchase price at September 1, 1994, was as follows (in
thousands):
Cash and cash equivalents.......................................... $ 95
Real estate inventories............................................ 11,055
Other assets....................................................... 1,362
Goodwill........................................................... 3,803
Accounts payable and other liabilities............................. (2,759)
Notes payable...................................................... (7,425)
-------
Total............................................................ $ 6,131
=======
Goodwill is included in prepaid expenses and other assets in the
accompanying consolidated balance sheets and is being amortized on a straight
line basis over a five year period.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Clark Wilson and Fairway 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 Clark Wilson 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 Clark Wilson data for the fiscal years
ended February 28, 1994 and 1995.
1994 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
(EXPRESSED IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
Sales and revenues.................................. $ 110,599 $ 164,427
======== ========
Net income:
Before extraordinary items........................ $ 982 $ 2,222
Net income........................................ $ 5,250 $ 4,004
======== ========
Net income per share:
Before extraordinary items........................ $ 0.07 $ 0.15
Net income per share.............................. $ 0.36 $ 0.27
======== ========
The pro forma 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.
30
32
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Principles of Consolidation and Minority Interest in Joint Ventures
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 4) are accounted for on 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
("Joint Ventures") with IHP Investment Fund I, L.P. ("IHP") (an advisor to the
State of California Public Employees Retirement System ("CalPERS")), the limited
partner, to pursue the development of various real properties of the Company,
with such properties transferred to the Joint Ventures concurrently with the
closing. Peters Ranchland Company, Inc. and IHP each have a 50% interest in each
Joint Venture. The financial statements of the Joint Ventures have been
consolidated herein. As of February 29, 1996, home building operations of these
Joint Ventures have been completed and all homes sold.
Two additional limited partnerships with IHP (J.M.P. Canyon Estates, L.P.
and J.M.P. Harbor View, L.P.), entered into during fiscal year 1995, have been
constructing homes and had closings in fiscal year 1996. These new partnerships
are accounted for on the equity method of accounting and are not consolidated.
Long-Lived Assets
Effective February 29, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identified intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable based on the
estimated future cash flows (undiscounted and without interest charges). SFAS
No. 121 also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less costs to sell. The effect of adoption was not material to the
Company's financial statements.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of three to thirty years using the straight-line method.
Total property and equipment were $5,891,000 and $6,685,000 (net of accumulated
depreciation of $2,683,000 and $3,217,000, respectively) as of February 28, 1995
and February 29, 1996, respectively.
Real Estate Projects
All direct and indirect land costs, offsite and onsite improvements and
applicable interest and carrying charges are capitalized to real estate projects
under development. Capitalized costs are included in cost and expenses as real
estate is sold; direct 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.
Prior to February 29, 1996, each real estate project was carried at the
lower of its cost or its estimated net realizable value. SFAS No. 121 changes
the method of valuing long-lived assets, including real estate projects, whereby
long-lived assets that are expected to be held and used in operations are to be
carried at the lower of cost or, if impaired, the fair value of the asset,
rather than the net realizable value. Long-lived assets to be disposed of should
be reported at the lower of carrying amount or fair value less cost to sell. In
evaluating long-lived assets held for use, a review for impairment loss is
triggered if the sum of the expected future cash flows
31
33
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(undiscounted and without interest charge) is less than the carrying amount of
the asset. Various assumptions and estimates are used to determine fair value in
determining the amount of any impairment loss including, among others, estimated
costs of construction, development and direct marketing, sales absorption rates,
anticipated sales prices and carrying costs. The calculation of the impairment
loss is based on estimated future cash flows which are calculated to include an
appropriate return and interest. The estimates used to determine the impairment
adjustment can change in the near term as the economy in the Company's key areas
change.
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, which requires the liability
method of accounting for income taxes.
The Company was from the time of the Capital Pacific Homes, Inc.
acquisition until the end of calendar year 1994 part of the Capital Pacific
Homes, Inc. consolidated tax group. Effective December 31, 1994, Capital Pacific
Homes, Inc. merged with and into the Company. Beginning with the tax year ended
December 31, 1995, the Company will file its own consolidated tax returns.
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.
Impact of Recently Issued Accounting Standards
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation." Under SFAS No. 123, companies have the option to implement a fair
value-based accounting method or continue to account for employee stock options
and stock purchase plans using the intrinsic value based method of accounting as
prescribed by Accounting Principles Board (APB) Opinion No. 25 "Accounting for
Stock Issued to Employees." Entities electing to remain under APB Opinion No. 25
must make pro forma disclosures of net income or loss and earnings per share as
if the fair value based method of accounting defined in SFAS No. 123 had been
applied. SFAS No. 123 is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company has not yet determined whether
they will implement the fair value-based accounting method or continue
accounting for stock options under APB Opinion No. 25.
Reclassifications
Certain reclassifications have been made to certain prior year balances in
order to conform with the current year presentation.
32
34
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRICTED CASH
The Company has restricted cash totaling $1,421,000 and $1,429,000 as of
February 28, 1995 and February 29, 1996, respectively. Included in these amounts
for fiscal 1995 and 1996 is $500,000, which is held as collateral for the
Company's bonding obligations. The balance of restricted cash are deposits to
various municipalities, banks, and utilities to guarantee future performance of
development obligations.
3. REAL ESTATE PROJECTS
Real estate projects consist of the following at February 28, 1995 and
February 29, 1996 (in thousands):
1995 1996
-------- --------
Land and improvements under construction............... $141,910 $191,025
Completed residential homes............................ 18,820 18,374
Completed model homes.................................. 7,077 17,795
-------- --------
$167,807 $227,194
======== ========
Total interest cost incurred during the years ended February 28, 1994, 1995
and February 29, 1996 was $2,532,000, $11,810,000 and $18,261,000 respectively,
of which $2,114,000, $11,810,000 and $18,261,000 respectively, was capitalized.
4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company is a general partner and/or has a 50 percent ownership in three
unconsolidated entities at February 29, 1996. The Company's investments are as
follows at February 28, 1995 and February 29, 1996 (in thousands):
1995 1996
------ ------
Bay Hill Escrow, Inc. ..................................... $ 213 $ 177
J.M.P. Canyon Estates, L.P................................. 557 966
J.M.P. Harbor View, L.P.................................... 1,062 1,336
------ ------
$1,832 $2,479
====== ======
The Company uses the equity method of accounting for its investments in
these unconsolidated 50 percent-owned entities. The accounting policies of the
entities are substantially the same as those of the Company. Investments in
these entities are included in prepaid expenses and other assets in the
consolidated balance sheets.
Following is summarized, combined financial information for the
unconsolidated entities at February 28, 1995 and February 29, 1996 (in
thousands):
ASSETS
1995 1996
------- ------
Cash................................................... $ 1,178 $1,370
Real estate projects................................... 21,601 5,647
Other assets........................................... 191 236
------- ------
$22,970 $7,253
======= ======
33
35
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995 1996
------- -------
EQUITYAccounts payable and other liabilities.......... $ 4,353 $ 3,560
------- -------
Equity
The Company......................................... 1,832 2,479
Others.............................................. 16,785 1,214
------- -------
18,617 3,693
------- -------
$22,970 $ 7,253
======= =======
INCOME STATEMENT
1995 1996
------ -------
Sales of homes and land................................... $ 936 $44,695
Interest and other income, net............................ 134 (71)
------ -------
1,070 44,624
------ -------
Costs and expenses........................................ 1,084 38,981
------ -------
Net income (loss)......................................... $ (14) $ 5,643
====== =======
5. NOTES PAYABLE
Notes payable consist of the following at February 28, 1995 and February
29, 1996 (in thousands):
1995 1996
------- -------
Promissory notes collateralized by deeds of trust, $ 3,661
including interest varying from 9.5 percent to
prime plus one percent............................. $ 4,878
Notes payable to bank, at banks prime rate plus 1.0 241
percent, maturing December 1996.................... --
Notes payable to bank, including interest at prime 1,915
plus
2.5 percent, maturing June 7, 1996................. --
Notes payable to banks, including interest varying 30,158
from prime plus one percent to prime plus two
percent, maturing between June 30, 1996 and March
31, 1998 secured by certain real estate inventories
on a non-recourse basis............................ 17,011
Notes payable to bank, including interest at prime 25,454
plus one percent with the term of the commitment
reducing commencing October 1, 1996 through March
31, 1998 secured by certain real estate inventories
on a recourse basis................................ 5,002
Contingent promissory note payable to previous owner 2,500
of Clark Wilson secured by Stock Pledge Agreement
on a non-recourse basis, under which the amounts
due, including interest at 8 percent, are fully
dependent upon the performance of the entity
acquired........................................... 2,500
------- -------
$29,391 $63,929
======= =======
The Company is currently negotiating extensions of all bank notes payable
due within the next fiscal year. The Company expects to successfully complete
these negotiations prior to the maturity dates of the bank notes payable.
34
36
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At February 28, 1995 and February 29, 1996, the aggregate carrying value of
assets collateralizing the above notes was $97,237,000 and $122,498,000,
respectively.
In August, 1995, the Company increased its total availability under all
credit facilities with its principal bank (the "Bank") from $50 million to $90
million. As of February 29, 1996, the Company had in place three separate
revolving credit facilities (the "Facilities") with the Bank.
A commitment fee is payable annually on the Facilities. Availability of
funds under the Facilities are subject to, among other things, the Indenture,
performance ratio requirements, specific loan-to-value factors, appraisal
reports and the satisfactory underwriting by the Bank on a project basis. At
February 29, 1996, the Company had aggregate borrowings outstanding of $47.8
million under the Facilities.
The Facilities are secured by liens on various completed or under
construction homes and lots held by the Company. Pursuant to the Facilities, the
Company is subject to certain covenants, which require, among other things, the
maintenance of a consolidated liabilities to consolidated net worth ratio,
minimum liquidity, minimum net worth and loss limitations, all as defined in the
documents that evidence the Facilities. At February 29, 1996 the Company was in
compliance with these covenants. The Facilities also define certain events that
constitute events of default. As of February 29, 1996, no such event of default
had occurred.
Durable and Clark Wilson also have secured non-recourse lines of credit to
facilitate construction activity. Durable's $13.0 million facility has a
maturity date of July 1, 1996. Clark Wilson has a non-recourse secured line of
credit for $15.0 million with a maturity date of June 30, 1996. Durable and
Clark Wilson are currently negotiating extensions of these facilities and expect
to successfully complete these negotiations.
Subsequent to year end Clark Wilson obtained an additional $11.5 million
non-recourse secured line of credit with a bank. This facility has a term of one
year (maturity date of May 31, 1997) bearing interest at prime (8.25% at
February 29, 1996) plus one-half of one percent.
During fiscal year 1994, the Company surrendered certain real estate
collateral in settlement of approximately $14 million of debt in default at
February 28, 1993, which default occurred during control of the Company by the
Resolution Trust Corporation. The Company recorded an extraordinary gain of
approximately $4.3 million (net of taxes) in connection with this transaction.
During the years ended February 28, 1994, 1995 and February 29, 1996, the
highest month-end balance on notes payable was $38,030,000, $34,364,000 and
$70,171,000, respectively, and the weighted average outstanding balance was
$23,804,000, $19,880,000 and $48,162,000, respectively. The weighted average
interest rates on notes payable during the years ended February 28, 1994, 1995
and February 29, 1996, were 10.6 percent, 10.9 percent and 10.8 percent,
respectively. The weighted average interest rates on notes payable at February
28, 1994, 1995 and February 29, 1996, were 10.9 percent, 9.8 percent and 9.3
percent, respectively.
The aggregate scheduled principal maturities of notes payable are as
follows (in thousands):
AS OF
FEBRUARY 29,
1996
------------
Fiscal years ending:
1997...................................................... $ 59,391
1998...................................................... 2,038
1999...................................................... --
2000...................................................... 2,500
-------
$ 63,929
=======
35
37
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SENIOR UNSECURED NOTES PAYABLE
In May, 1994, the Company issued $100 million principal amount of its
12 3/4 percent Senior Notes due May 1, 2002 (the "Notes") including 790,000
warrants to purchase the Company's common stock at a price of $3.30 per share.
Interest is due and payable on May 1 and November 1 of each year. The Notes are
fully and unconditionally guaranteed by certain of the Company's subsidiaries
(See Note 13). Prior to May 1, 1997, the Company may use proceeds of one or more
public equity offerings to redeem up to 35% of the aggregate principal amount of
the Notes at 112.75% of their principal amount, plus accrued interest. The Notes
will not otherwise be redeemable at the option of the Company prior to May 1,
1999. Thereafter, the Notes will be redeemable at 106.375% of their principal
amount, declining ratably to par on and after May 1, 2001, plus accrued
interest.
The Company will be obligated to make an offer to purchase 10% of the
outstanding principal balance of the Notes at a purchase price equal to 100% of
the principal amount, plus accrued interest, in the event there are two
consecutive fiscal quarters that the Company's Consolidated Tangible Net Worth
(as defined) is less than $37 million. In addition, the Notes contain other
restrictive covenants, which, among other things, limit the incurrence of
additional indebtedness; the payment of dividends; the ability to create liens;
make restricted payments (as defined); and the ability to enter into certain
transactions with affiliates. As of February 29, 1996 the Company was in
compliance with these covenants and was not required to make any such offer.
At February 29, 1996, the Company's unamortized bond issuance cost was $4.7
million, net of accumulated amortization of $1.2 million, which is being
amortized over the term of the notes utilizing the effective interest rate
method. Unamortized bond issuance cost is included in prepaid expenses and other
assets in the accompanying consolidated balance sheets.
7. INCOME TAXES
The expense for income taxes consists of the following for the years ended
February 28, 1994, 1995 and February 29, 1996 (in thousands):
1994 1995 1996
----- ------- ----
Current
Federal......................................... $ 100 $ 1,026 $365
State........................................... 210 230 138
----- ------- ----
310 1,256 503
----- ------- ----
Deferred
Federal......................................... (100) (950) --
State........................................... (210) (90) --
----- ------- ----
(310) (1,040) --
----- ------- ----
Provision for income taxes on income before
extraordinary gain.............................. $ -- $ 216 $503
===== ======= ====
36
38
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred income tax benefit at February 28, 1995 and February 29, 1996
results from the following temporary differences between financial and tax
reporting (in thousands):
1995 1996
------- -------
Accrued expenses......................................... $ (514) $ (120)
Construction period expenses............................. 576 746
Utilization of NOL carryforward.......................... (1,037) --
Increase in valuation allowance.......................... -- (678)
State taxes (net of federal effect)...................... (2) --
Depreciation............................................. (63) 52
------- -------
$(1,040) $ --
======= =======
The components of the Company's deferred income tax asset (liability) as of
February 28, 1995 and February 29, 1996 are as follows:
1995 1996
------- -------
Depreciation............................................. $ 77 $ 129
Accrued expenses......................................... 1,377 1,257
Construction period expenses............................. 1,585 2,331
NOL carryforward......................................... -- --
State taxes (net of federal offset)...................... -- --
Valuation allowance...................................... (3,039) (3,717)
------- -------
$ -- $ --
======= =======
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
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 28, 1994, 1995 and February 29, 1996, are as follows:
1994 1995 1996
---- ---- ----
Income taxes at statutory rate.......................... 34% 34% 34%
State income taxes, net of federal tax benefit.......... 6 3 3
Utilization of net operating loss carryforward.......... (39) (10) (21)
Increase in valuation allowance......................... (1) -- --
--- --- ---
0% 27% 16%
=== === ===
8. NET INCOME (LOSS) PER COMMON SHARE
Net income per common share is based upon the weighted average number of
common shares outstanding of 14,488,000, 14,995,000 and 14,995,000 at February
28, 1994, 1995 and February 29, 1996, respectively. The effect of stock options
and warrants were antidilutive in all years presented, and has not been included
in the computation of net income per common share.
9. STOCK OPTION PLAN
In April 1987, the Company adopted its 1987 Stock Option Plan (the "1987
Plan"), covering options to purchase a maximum of 1,350,000 shares of its common
stock. On October 5, 1993, the 1987 Plan was amended to provide that the maximum
number of shares that may be issued under the 1987 Plan be reduced
37
39
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to 5,000 shares. Effective February 28, 1995, the Board of the Corporation
approved the 1995 Stock Incentive Plan (the "1995 Plan"), which supersedes the
1987 Stock Option Plan in its entirety. The 1995 Plan permits a committee
designated by the Board of the Corporation to make awards to present and former
key employees and directors of the Company and its subsidiaries. Subject to
various restrictions, awards could be in the form of stock options, restricted
or unrestricted stock, stock appreciation rights or a combination of the above.
The maximum number of shares or share equivalents that may be awarded under the
1995 Plan is 1,500,000. No awards have been made under the 1995 Plan.
10. RELATED PARTY TRANSACTIONS
During fiscal 1995, the Company reimbursed CHH II, Inc., a corporation
controlled by the chairman of the board of the Company, for $43,000 in expenses
incurred in connection with the acquisition by the Company of an aircraft.
During fiscal 1994, the Company reimbursed Capital Pacific Homes, Inc. for
expenses aggregating $150,000 in connection with the acquisition of Durable.
Commitment fees totaling $1,033,000 and $667,000 were paid to joint venture
partners and capitalized to the real estate being developed during the period
August 12, 1992 (inception) through February 28, 1994 and during fiscal 1995,
respectively. These capitalized fees are included in cost of sales as the units
are sold.
In fiscal 1995, the Company contributed land and improvements valued at
$9,351,000 to an unconsolidated joint venture with CalPERS and received a
distribution of cash in the amount of $8,226,000.
The Company has made advances to unconsolidated joint ventures for
construction. The balance of advances at February 29, 1996 was $1,314,000. This
amount is included in accounts and notes receivable on the consolidated balance
sheet.
During fiscal 1995 and 1996, the Company recognized $1,821,000 and
$1,254,000 in construction overhead income on joint ventures.
11. COMMITMENTS AND CONTINGENCIES
General
Approximately $37,470,000 and $32,272,000 of performance bonds were
outstanding at February 28, 1995 and February 29, 1996, respectively. The
estimated cost to complete the development work related to the performance bonds
are $20,674,000 and $15,549,000 at February 28, 1995 and February 29, 1996,
respectively. The beneficiaries of these bonds are certain municipalities. The
Company has an outstanding letter of credit in the amount of $472,000 to ensure
performance on certain agreements as of February 28, 1995 and February 29, 1996.
The Company has pledged a certificate of deposit in a like amount as collateral
for the obligation under the letter of credit which is included in restricted
cash.
The Company has entered into agreements to lease certain office equipment
and facilities under operating leases which expire at various dates through
fiscal year 2001. The facility leases generally provide that the
38
40
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company shall pay property taxes, insurance and other items. Minimum payments
under noncancelable leases at February 29, 1996, are as follows:
YEARS ENDING FEBRUARY 28 OR FEBRUARY 29 (IN
THOUSANDS):
- ------------------------------------------------
1997........................ $306
1998........................ 275
1999........................ 158
2000........................ 34
2001........................ 11
----
$784
====
Total rent expense was $629,000, $864,000 and $415,000 for the years ended
February 28, 1994, 1995 and February 29, 1996, respectively.
As discussed in Notes 1 and 4, 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 28, 1994,
1995, and February 29, 1996.
Legal Proceedings
The Company and certain of its subsidiaries are parties to claims and
litigation proceedings arising in the normal course of business. The legal
responsibility and financial impact with respect to such claims and litigation
cannot presently be ascertained. It is reasonably possible that the estimate of
reserves provided for by the Company with respect to such claims and litigation
could change in the near term and such change could be material.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents -- The carrying amount is a reasonable estimate of
fair value. These assets primarily consist of short term investments and demand
deposits.
Notes Payable to Banks -- These notes payable mature in two to three years.
The rates of interest paid on the notes approximate the current rates available
for secured real estate financing with similar terms and maturities.
Promissory Note Payable -- This note is payable based on performance of the
entity acquired. The carrying amount is a reasonable estimate of fair value.
Trust Deed Notes Payable -- These notes are primarily for purchase money
deeds of trust on land acquired. These notes generally have maturities ranging
from one to two years. The rates of interest paid on these notes approximate the
current rates available for secured real estate financing with similar terms and
maturities.
Senior Unsecured Notes Payable Due 2002 -- This issue is not publicly
traded on a major exchange. Consequently, the fair value of this issue is based
on a trade closest to the year ended February 29, 1996.
39
41
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
AT FEBRUARY 28, AT FEBRUARY 29,
-------------------- --------------------
1995 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
Financial Assets:
Cash and equivalents............................ $ 23,822 $23,822 $ 13,850 $13,850
Financial Liabilities:
Notes payable to banks.......................... $ 22,013 $22,013 $ 59,806 $59,806
Trust deed notes payable........................ 4,878 4,878 1,622 1,622
Senior unsecured notes payable.................. 100,000 100,000 82,000 96,000
Promissory note payable......................... 2,500 2,500 2,500 2,500
13. SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the offering in fiscal 1995 of the Senior Unsecured
Notes (the "Offering"), the Company and certain of its wholly-owned subsidiaries
(Guarantors) jointly, severally, fully and unconditionally guaranteed such
notes. Supplemental condensed combined financial information of the Company,
Guarantors and non-guarantors is presented as follows. As discussed in Note 3 in
Notes To Supplemental Guarantor Information, these financial statements are
prepared using the equity method of accounting for the Company's and the
Guarantors' investments in subsidiaries and partnerships. This supplemental
financial information should be read in conjunction with the Consolidated
Financial Statements.
AS OF AND FOR THE TWELVE MONTHS ENDED FEBRUARY 29, 1996
(IN THOUSANDS)
(UNAUDITED)
CAPITAL PACIFIC NON- TOTAL
HOLDINGS, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
--------------- ------------- ------------- --------------- ------------
BALANCE SHEET
Cash........................... $ 6,034 $ 2,747 $ 5,069 $ -- $ 13,850
Inventories.................... 156,679 26,650 43,740 125 227,194
Investment in Partnerships and
subsidiaries(3).............. 29,524 1,314 -- (28,242) 2,596
Intercompany advances.......... 29,675 -- -- (29,675) --
Other.......................... 15,651 1,364 6,913 (1,060) 22,868
-------- ------- ------- -------- --------
Total Assets......... $237,563 $32,075 $55,722 $(58,852) $266,508
======== ======= ======= ======== ========
Accounts payable and accrued
liabilities.................. $ 23,923 $ 6,735 $ 6,741 $ (1,060) $ 36,339
Intercompany advances.......... -- 5,451 24,224 (29,675) --
Notes payable.................. 150,294 2,743 10,892 -- 163,929
Minority interest.............. -- -- -- 2,894 2,894
Shareholders' equity........... 63,346 17,146 13,865 (31,011) 63,346
-------- ------- ------- -------- --------
Total Liabilities and
Equity............. $237,563 $32,075 $55,722 $(58,852) $266,508
======== ======= ======= ======== ========
40
42
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CAPITAL PACIFIC NON- TOTAL
HOLDINGS, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
--------------- ------------- ------------- --------------- ------------
OPERATIONS
Revenues:
Sales of homes and land...... $ 44,564 $53,284 $65,920 $ -- $163,768
Interest and other income,
net....................... 1,554 739 1,801 (404) 3,690
Equity in income of
partnerships and
subsidiaries(3)........... 6,548 769 55 (5,812) 1,560
--------- ------- ------- --------- --------
Total Revenues....... 52,666 54,792 67,776 (6,216) 169,018
--------- ------- ------- --------- --------
Cost of homes and land......... 39,739 44,819 55,053 (904) 138,707
Selling, general and
administrative............... 9,822 7,036 9,268 -- 26,126
Interest....................... -- -- -- -- --
Minority interest.............. -- -- -- 1,080 1,080
--------- ------- ------- --------- --------
Income (loss) before provision
(benefit) for income taxes
and extraordinary gain....... 3,105 2,937 3,455 (6,392) 3,105
Provision (benefit) for income
taxes........................ 503 934 251 (1,185) 503
--------- ------- ------- --------- --------
Net Income (loss).... $ 2,602 $ 2,003 $ 3,204 $ (5,207) $ 2,602
========= ======= ======= ========= ========
STATEMENT OF CASH FLOWS
Net cash from (used in)
operating activities......... $ (32,640) $ 741 $(9,641) $ 630 $(40,910)
--------- ------- ------- --------- --------
Net cash from (used in)
investing activities......... 1,061 (540) (155) -- 366
--------- ------- ------- --------- --------
Net cash from (used in)
financing activities......... 32,501 (866) 988 (630) 31,993
--------- ------- ------- --------- --------
Net increase (decrease) in
cash......................... 922 (665) (8,808) -- (8,551)
Cash -- beginning of period.... 5,112 3,412 13,877 -- 22,401
--------- ------- ------- --------- --------
Cash -- end of period.......... $ 6,034 $ 2,747 $ 5,069 $ -- $ 13,850
========= ======= ======= ========= ========
41
43
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
(UNAUDITED)
CAPITAL
PACIFIC NON- TOTAL
HOLDINGS, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
--------------- ------------- ------------- --------------- ------------
BALANCE SHEET
Cash........................... $ 5,112 $ 3,412 $13,877 $ -- $ 22,401
Inventories.................... 119,283 26,084 22,440 -- 167,807
Investment in Partnerships and
subsidiaries(3).............. 22,199 2,672 -- (22,922) 1,949
Intercompany advances.......... 25,678 -- -- (25,678) --
Other.......................... 15,954 692 6,696 (324) 23,018
-------- ------- ------- -------- --------
Total Assets.............. $ 188,226 $32,860 $43,013 $ (48,924) $215,175
======== ======= ======= ======== ========
Accounts payable and accrued
liabilities.................. $ 9,689 $ 7,619 $ 4,532 $ (324) $ 21,516
Intercompany advances.......... -- 8,167 17,511 (25,678) --
Notes payable.................. 117,793 3,609 7,989 -- 129,391
Minority interest.............. -- -- -- 3,524 3,524
Shareholders' equity........... 60,744 13,465 12,981 (26,446) 60,744
-------- ------- ------- -------- --------
Total Liabilities and
Equity.................. $ 188,226 $32,860 $43,013 $ (48,924) $215,175
======== ======= ======= ======== ========
STATEMENT OF OPERATIONS
Revenues:
Sales of homes and land...... $ 18,722 $35,375 $85,026 $ -- $139,123
Interest and other income,
net....................... 1,036 2,282 1,104 (449) 3,973
Equity in income of
partnerships and
subsidiaries(3)........... 6,735 4,499 -- (11,241) (7)
-------- ------- ------- -------- --------
Total Revenues............ 26,493 42,156 86,130 (11,690) 143,089
-------- ------- ------- -------- --------
Cost of homes and land......... 15,474 29,628 67,050 112,152
Selling, general and
administrative............... 8,279 6,050 8,434 (449) 22,314
Provision for litigation
judgement.................... 1,950 -- -- -- 1,950
Minority interest.............. -- -- -- 5,883 5,883
-------- ------- ------- -------- --------
Income (loss) before provision
(benefit) for income taxes
and extraordinary gain....... 790 6,478 10,646 (17,124) 790
Provision (benefit) for income
taxes........................ 216 2,182 89 (2,271) 216
-------- ------- ------- -------- --------
Income (loss) before
extraordinary gain........... 574 4,296 10,557 (14,853) 574
Extraordinary gain, Net........ 3,075 -- -- -- 3,075
-------- ------- ------- -------- --------
Net Income (loss).... $ 3,649 $ 4,296 $10,557 $ (14,853) $ 3,649
======== ======= ======= ======== ========
42
44
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CAPITAL
PACIFIC NON- TOTAL
HOLDINGS, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
--------------- ------------- ------------- --------------- ------------
FLOWSNet cash from (used in)
operating activities......... $ (81,810) $ 1,692 $12,265 $ 10,435 $(57,418)
Net cash from (used in)
investing activities......... (11,569) 7 -- -- (11,562)
Net cash used in financing
activities:
Net payments to notes
payable................... (2,623) (1,306) (90) -- (4,019)
Senior unsecured notes
payable................... 95,834 -- -- -- 95,834
Minority interest in joint
ventures.................. -- -- -- (10,435) (10,435)
--------- ------- ------- --------- --------
Net cash from (used in)
financing
activities........... 93,211 (1,306) (90) (10,435) 81,380
--------- ------- ------- --------- --------
Net increase (decrease)
in cash.............. (168) 393 12,175 -- 12,400
Cash -- beginning of period.... 5,280 3,019 1,702 -- 10,001
--------- ------- ------- --------- --------
Cash -- end of period.......... $ 5,112 $ 3,412 $13,877 $ -- $ 22,401
========= ======= ======= ========= ========
43
45
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEAR ENDED FEBRUARY 28, 1994 (IN THOUSANDS)
(UNAUDITED)
CAPITAL
PACIFIC NON- TOTAL
HOLDINGS, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
-------------- ------------- ------------- --------------- ------------
BALANCE SHEET CASH.............. $ 5,280 $ 3,019 $ 1,702 $ -- $ 10,001
Inventories..................... 64,086 13,097 28,517 (4) 105,696
Investment in Partnerships and
subsidiaries(3)............... 9,798 2,782 -- (12,580) --
Other........................... 4,753 1,795 1,345 (1,636) 6,257
------- ------- -------- -------- --------
Total Assets.......... $ 83,917 $20,693 $ 31,564 $ (14,220) $121,954
======= ======= ======== ======== ========
Accounts Payable and Accrued
Liabilities................... $ 4,359 $ 6,428 $ 7,738 (833) $ 17,692
Notes Payable................... 23,964 4,915 5,830 -- 34,709
Minority Interest............... -- -- -- 13,959 13,959
Shareholders' Equity............ 55,594 9,350 17,996 (27,346) 55,594
------- ------- -------- -------- --------
Total Liabilities &
Equity.............. $ 83,917 $20,693 $ 31,564 $ (14,220) $121,954
======= ======= ======== ======== ========
STATEMENT OF OPERATIONS
Revenues:
Sales of homes and land....... $ 20,166 $10,964 $ 57,010 $ -- $ 88,140
Interest and other income,
net........................ 897 1,451 578 -- 2,926
Equity in income of
partnerships and
subsidiaries(3)............ 5,121 2,669 -- (7,790) --
------- ------- -------- -------- --------
Total Revenues........ 26,184 15,084 57,588 (7,790) 91,066
------- ------- -------- -------- --------
Cost of homes and land.......... 16,462 6,990 49,896 -- 73,348
Selling, general and
administrative................ 8,658 3,274 390 -- 12,322
Interest........................ 418 -- -- -- 418
Minority Interest............... -- -- 4,332 -- 4,332
------- ------- -------- -------- --------
Income (loss) before provision
for income taxes and
extraordinary gain............ 646 4,820 2,970 (7,790) 646
Provision for income taxes...... -- -- -- -- --
------- ------- -------- -------- --------
Income (loss) before
extraordinary gain............ 646 4,820 2,970 (7,790) 646
Extraordinary Gain.............. 4,268 -- -- -- 4,268
------- ------- -------- -------- --------
Net Income (loss)..... $ 4,914 $ 4,820 $ 2,970 $ (7,790) $ 4,914
======= ======= ======== ======== ========
44
46
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CAPITAL
PACIFIC NON- TOTAL
HOLDINGS, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
-------------- ------------- ------------- --------------- ------------
FLOWSNet cash from (used in)
Operating activities.......... $ (1,650) $ 4,262 $ (2,550) $ 7,802 $ 7,864
Net cash used in Investing
activities:
Acquisition of Durable........ (1,500) -- -- -- (1,500)
Other......................... (111) -- (2) -- (113)
-------- ------- --------- --------- --------
Net cash used in
Investment
activities.......... (1,611) -- (2) -- (1,613)
-------- ------- --------- --------- --------
Net cash from (used in)
Financing activities
Net borrowings (payments) from
construction loans......... 1,593 (1,608) 3,815 -- 3,800
Payments to parent company.... (1,702) -- -- -- (1,702)
Minority interest in joint
ventures................... -- -- -- (7,802) (7,802)
-------- ------- --------- --------- --------
Net cash from (used
in) Financing
activities.......... (109) (1,608) 3,815 (7,802) (5,704)
-------- ------- --------- --------- --------
Net increase (decrease) in
cash.......................... (3,370) 2,654 1,263 -- 547
Cash -- beginning of period..... 8,650 365 439 -- 9,454
-------- ------- --------- --------- --------
Cash -- end of period........... $ 5,280 $ 3,019 $ 1,702 $ -- $ 10,001
======== ======= ========= ========= ========
See notes to supplemental guarantor information.
45
47
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO SUPPLEMENTAL GUARANTOR INFORMATION.
(1) Guarantors include Durable Homes, Inc., J.M. Peters Nevada, Inc., and
Peters Ranchland Company, Inc., all wholly-owned subsidiaries of
Capital Pacific Holdings, Inc.
(2) The non-guarantors include:
(a) The limited partnerships in which Peters Ranchland Company, Inc.,
is general partner:
- Ranchland Alicante Development, L.P.
- Ranchland Montilla Development, L.P.
- Ranchland Fairway Estates Development, L.P.
- Ranchland Portola Development, L.P.
(b) The limited partnerships in which J.M. Peters California, Inc., is
a general partner:
- J.M.P. Mulholland Estates I, L.P.
- J.M.P. Mulholland Estates II, L.P.
(c) The limited partnership in which J.M. Peters Nevada, Inc. and
Durable Homes, Inc., are general partners:
- Taos Estates, L.P.
(d) The general partnership in which Capital Pacific Holdings, Inc.,
is a general partner:
- Peters Walnut Estates
(e) The wholly owned subsidiaries of Capital Pacific Holdings, Inc.:
- Newport Design Center
- Capital Pacific Communities, Inc.
- Durable Homes of California, Inc.
- J.M. Peters Arizona, Inc. (expected to become a guarantor in
fiscal year 1997)
- Capital Pacific Mortgage, Inc. (expected to become a guarantor
in fiscal year 1997)
- Clark Wilson Homes, Inc. (expected to become a guarantor in
fiscal year 1997)
- Fairway Financial Company
- Parkland Estates Company, Inc. (expected to become a guarantor
in fiscal year 1997)
- J.M. Peters California, Inc. (expected to become a guarantor in
fiscal year 1997)
- J.M. Peters Homes of Arizona, Inc.
(f) Fifty percent owned entities of Capital Pacific Holdings, Inc.:
- Bay Hill Escrow, Inc.
- J.M.P. Harbor View, L.P.
- J.M.P. Canyon Estates, L.P.
(3) Investments in partnerships and subsidiaries are accounted for by the
Company and the Guarantors on the equity method of accounting for
purposes of the supplemental combining presentation.
(4) The elimination entries eliminate investments in subsidiaries,
partnerships and intercompany balances.
46
48
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended February 28, 1995
and February 29, 1996 is as follows (in thousands except for per share data):
QUARTER
------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
1996:
Total revenues................................ $33,140 $28,416 $33,558 $73,904 $169,018
Gross profit on sales of homes and land....... 5,426 4,633 4,817 10,185 25,061
Net income (loss)............................. $ (273) $ (226) $ 550 $ 2,551 $ 2,602
======== ======== ======== ======== =========
Net income (loss) per common share.............. $ (.02) $ (.01) $ .04 $ .16 $ .17
======== ======== ======== ======== =========
1995:
Total revenues................................ $32,770 $33,252 $45,907 $31,160 $143,089
Gross profit on sales of homes and land....... 6,375 6,042 8,374 6,180 26,971
Extraordinary gain............................ 3,075 -- -- -- 3,075
Net income (loss)............................. $ 3,942 $ 356 $ (771) $ 122 $ 3,649
======== ======== ======== ======== =========
Net income (loss) per common share:
Before extraordinary gain................ $ .06 $ .02 $ (.05) $ .01 $ .04
Extraordinary gain....................... .20 -- -- -- .20
-------- -------- -------- -------- ---------
Net income (loss)........................ $ .26 $ .02 $ (.05) $ .01 $ .24
======== ======== ======== ======== =========
47
49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Commission no later
than June 28, 1996 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the
Company's definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference to the
Company's definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to the
Company's definitive Proxy Statement.
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.
CAPITAL PACIFIC HOLDINGS, INC.
Reports of Independent Public Accountants................................
Consolidated Balance Sheets as of February 28, 1995 and February 29,
1996..................................................................
Consolidated Statements of Operations for the years ended February 28,
1994, February 28, 1995 and February 29, 1996.........................
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1994, February 28, 1995 and February 29, 1996............
Consolidated Statements of Cash Flows for the years ended February 28,
1994, February 28, 1995 and February 29, 1996.........................
Notes to Consolidated Financial Statements...............................
2. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------
3.1 Articles of Incorporation of the Registrant. (Pages 1-2)
3.2 Bylaws of the Registrant. (Pages 1-17)
4.1 See the Articles of Incorporation and Bylaws of the Registrant (Exhibits 3.1 and
3.2) and the Indenture and related agreements (Exhibits 10.1-10.4).
10.1 Indenture agreement by and between Capital Pacific Holdings, 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. (Incorporated by reference to Exhibit 10.15 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28, 1994).
48
50
EXHIBIT
NUMBER DESCRIPTION
10.2 Warrant Agreement by and between Capital Pacific Holdings, Inc., and United States
Trust Company of New York, Warrant Agent, dated as of May 13, 1994. (Incorporated
by reference to Exhibit 10.16 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1994).
10.3 Warrant Registration Rights Agreement by and between Capital Pacific Holdings,
Inc., and Morgan Stanley & Co. Incorporated dated as of May 13, 1994.
(Incorporated by reference to Exhibit 10.17 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1994).
10.4 Notes Registration Rights Agreement by and between Capital Pacific Holdings, Inc.,
and Morgan Stanley & Co. Incorporated dated as of May 13, 1994. (Incorporated by
reference to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1994).
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst and Young, LLP
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (Included on page 50).
27 Financial Data Schedule.
49
51
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 29, 1996.
CAPITAL PACIFIC HOLDINGS, INC.
By /s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
Chairman of the Board
Date: May 29, 1996
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Hadi Makarechian and Anthony M. Laughlin, 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 DATE
------------------------------- -------------
/s/ HADI MAKARECHIAN Director, Chairman of the Board May 29, 1996
- -----------------------------------------------
Hadi Makarechian
/s/ DALE DOWERS Director, President and Chief May 29, 1996
- ----------------------------------------------- Executive Officer
Dale Dowers
/s/ ANTHONY M. LAUGHLIN Vice President, Chief Financial May 29, 1996
- ----------------------------------------------- Officer and Secretary
Anthony M. Laughlin (Principal Financial and
Accounting Officer)
/s/ WILLIAM FUNK Director May 29, 1996
- -----------------------------------------------
William Funk
KARL KAISER Director May 29, 1996
- -----------------------------------------------
Karl Kaiser
/s/ ALLAN L. ACREE Director May 29, 1996
- -----------------------------------------------
Allan L. Acree
50
52
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ -------------------------------------------------------------------------- ----------
3.1 Articles of Incorporation of the Registrant (Pages 1-2)...................
3.2 Bylaws of the Registrant (Pages 1-17).....................................
4.1 See the Articles of Incorporation and Bylaws of the Registrant (Exhibits
3.1 and 3.2) and the Indenture and related agreements (Exhibits
10.1-10.4)................................................................
10.1 Indenture agreement by and between Capital Pacific Holdings, 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 (Incorporated by reference to
Exhibit 10.15 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1994)......................................
10.2 Warrant Agreement by and between Capital Pacific Holdings, Inc., and
United States Trust Company of New York, Warrant Agent, dated as of May
13, 1994 (Incorporated by reference to Exhibit 10.16 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1994).....................................................................
10.3 Warrant Registration Rights Agreement by and between Capital Pacific
Holdings, Inc., and Morgan Stanley & Co. Incorporated dated as of May 13,
1994 (Incorporated by reference to Exhibit 10.17 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1994).....................................................................
10.4 Notes Registration Rights Agreement by and between Capital Pacific
Holdings, Inc., and Morgan Stanley & Co. Incorporated dated as of May 13,
1994 (Incorporated by reference to Exhibit 10.18 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 28,
1994).....................................................................
21.1 Subsidiaries of the Company...............................................
23.1 Consent of Ernst and Young, LLP...........................................
23.2 Consent of Arthur Andersen LLP............................................
24 Power of Attorney (Included on page 50)...................................
27 Financial Data Schedule...................................................
51