FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OR 1934
For the transition period from N/A
Commission File Number 33-72106
THE FORECAST GROUP"Registered Tradename", L.P.
FORECAST"Registered Tradename"CAPITAL CORPORATION
(Exact Name of Registrant as specified in its charter)
California 33-0582072
California 33-0582077
(State of Organization) (IRS Employer Identification Number)
10670 Civic Center Drive, Rancho Cucamonga, California 91730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909)987-7788
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
11 3/8% Senior Notes Due 2000 None
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicated by check mark whether the Registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO___
There was no voting stock held by non-affiliates of the Registrant
at May 31, 1996.
At May 31, 1996, Forecast"Registered Tradename"Capital Corporation
had 2,500 shares of Common stock outstanding.
<PAGE>
<TABLE>
THE FORECAST GROUP"Registered Tradename"L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in 000's)
April 30, October 31,
1996 1995
<S> <C> <C>
------- ------
Assets
Cash and cash equivalents $4,995 $8,090
Accounts receivable 491 665
Accounts and notes receivable,
related parties 5,232 2,531
Real estate held for development
and sale 84,040 82,572
Property and equipment, net 1,230 1,234
Other assets. 2,451 2,185
------ ------
Total assets $98,439 $97,277
======= =======
Liabilities and partners' equity
Accounts payable $10,005 $9,584
Accounts payable,
related parties ---- 36
Accrued expenses 3,333 3,498
Notes payable:
11 3/8 % Senior Notes due
December 2000 34,475 39,790
Collateralized by real estate
held for development
and sale 25,469 21,117
Other Notes Payable 18 18
------ ------
Total notes payable 59,962 60,925
Total liabilities 73,300 74,043
------ ------
Partners' equity 25,903 23,998
Less capital notes receivable
from partners (764) (764)
------ ------
Total partners' equity 25,139 23,234
------ ------
Total liabilities and
partners' equity $98,439 $97,277
======= =======
</TABLE>
[FN] See accompanying notes.
<TABLE>
THE FORECAST GROUP"Registered Tradename"L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
For the six and three months ended April 30, 1996 and 1995
(Unaudited)
(Amounts in 000's) Six Months ended Three Months ended
April 30 April 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Housing sales $58,103 $54,373 $31,594 $29,548
Cost of housing sales 48,315 49,262 26,125 26,141
Selling & marketing expense s 6,580 5,467 3,541 2,921
General & administrative exp 3,425 3,651 1,673 1,997
------- ------- ------- -------
Operating income (loss) (217) (4,007) 255 (1,511)
Interest income 131 101 65 34
Interest and fee expense -- (82) -- (38)
Other income and expenses 115 232 50 (66)
------- ------- ------- ------
Income/(Loss) before
extraordinary gain 29 (3,756) 370 (1,581)
Extraordinary gain on debt
extinguishment. (Note6) 1,876 1,971 493 991
------- ------- ------ ------
Net Income/(Loss) $1,905 $(1,785) $863 $(590)
======= ======= ====== ======
Partners' Equity at
Beginning of Period $23,998 $27,786 $25,040 $26,591
Net Income/(Loss) this Period 1,905 (1,785) 863 (590)
------- ------- ------- -------
Subtotal 25,903 26,001 25,903 26,001
Less: Capital Notes
Receivable from Partners (764) (764) (764) (764)
------- ------- ------- -------
Partners' Equity at
End of Period $25,139 $25,237 $25,139 $25,237
======= ======= ======= =======
</TABLE>
[FN] See accompanying notes.
<TABLE>
THE FORECAST GROUP"Registered Tradename"L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended April 30, 1996 and 1995
(Unaudited)
(Amounts in 000's)
1996 1995
---- ----
<S> <C> <C>
Operating activities
Net Income/(Loss) $ 1,905 $ (1,785)
Adjustments to reconcile net
loss to net cash(used in)
provided by operating activities:
Extraordinary Gain on
Extinguishment of Senior Notes (1,876) (1,971)
Depreciation and amortization 128 152
Loss (Gain) on sale of property
and equipment 9 63
Changes in operating assets and liabilities:
(Increase) decrease in
accounts receivable 174 312
(Increase)/Decrease in
accounts and notes receivable,
related parties (2,701) (5)
(Increase)/Decrease in
real estate inventory (1,468) (5,366)
(Increase)/Decrease in
other assests (454) (2)
Increase (decrease) in accounts
payable and accrued expenses 221 (1,077)
------ ------
Net cash used in
operating activities (4,062) (9,679)
Investing activities
Additions/(Deletions) to
property and equipment (134) (318)
Proceeds from sale of
property and equipment --- 22
Principal received on
GNMA certificates --- 9
------ ------
Net cash used in provided by
investing activities (134) (287)
Financing activities
Retirement of 11 3/8% Senior Notes
due 2000 (3,251) (4,208)
Borrowings on notes payable
collateralized by real estate 33,061 15,880
Borrowings on notes payable,
related parties 2,221 1,594
Repayments of notes payable (28,709) (10,520)
Repayments of notes payable,
related parties (2,221) (1,631)
------ ------
Net cash provided by
financing activities 1,101 1,115
------ ------
Decrease in cash and cash equivalents (3,095) (8,851)
Cash and cash equivalents at
beginning of year 8,090 13,252
------ ------
Cash and cash equivalents at
end of year 4,995 4,401
====== ======
</TABLE>
[FN] See accompanying notes.
<PAGE>
THE FORECAST GROUP"Registered Tradename"L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and related disclosures
contained in the Form 10-K for the year ended October 31, 1995
(File No. 33-72106) as filed with the Securities and Exchange
Commission. The results of operations for the three and six months
ended April 30, 1996 do not necessarily indicate the results that
can be expected for the full fiscal year.
2. Real Estate Held for Development and Sale and Related Notes
Payable Real estate held for development and sale and related notes
payable consist of the following:
<TABLE>
(Amounts in 000's) April 30, 1996
Real Estate Held Notes Payable
---------------- -------------
<S> <C> <C>
Land held for development and sale $13,204 $1,679
Residential projects in process 63,839 17,743
Model homes 6,997 6,047
------- ------
Total $84,040 $25,469
======= =======
(Amounts in 000's) October 31, 1995
Real Estate Held Notes Payable
---------------- -------------
Land held for development and sale $13,029 $1,679
Residential projects in process 62,486 16,226
Model homes 7,057 3,212
------- ------
Total $82,572 $21,117
======= =======
</TABLE>
3. Interest Expense
The following summarizes the components of interest expense
incurred, capitalized, expensed and paid:
<TABLE>
(Amounts in 000's) FOR SIX MONTHS FOR THREE MONTHS
ENDED ENDED
April 30, April 30,
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Interest Incurred $3,760 $4,188 $1,848 $2,054
Interest incurred and
capitalized $3,760 $4,106 $1,848 $2,016
Capitalized interest amortized
to cost of housing sales $2,825 $2,179 $1,589 $1,342
Interest paid $3,969 $4,509 $873 $1,134
</TABLE>
4. Transactions With Affiliates
In the first part of the Company's quarter ending January 31, 1995,
the board of directors of Forecast"Registered Tradename"Homes,
Inc., resolved that it would be in the Company's best long-term
interests to seek the assistance of Mr. Previti in acquiring the
Company's senior notes on the open market, if he could acquire them
at a favorable discount from their stated face value. At the same
time, the board of directors agreed that the Company would
repurchase the notes from Mr. Previti at his cost basis, plus
interest, at such time as the Company had sufficient financial
resources. Through Mr. Previti's acquisition of the notes, the
Company determined it would be able to achieve the following
favorable benefits: (1) preventing an immediate reduction in the
Company's cash flow during a traditionally slow unit closing
period, without losing the opportunity to repurchase those notes at
favorable market prices; and (2) affording the Company the
opportunity to use its available financing vehicles for the
continued operation of the Company, rather than the repurchase of
notes, thus avoiding incurring additional debt which may have
caused the Company to be out of compliance with certain covenants
contained within the Indenture. Acting upon this authorization,
Mr. Previti did acquire $3,790,000 of senior notes that were
carried over from prior periods. These senior notes were held,
either in Mr. Previti's own account or on margin. In addition, Mr.
Previti acquired another $4,850,000 in face value of senior notes,
on margin, throughout the six month period ended April 30, 1996,
for a purchase price of $3,100,000, plus accrued interest. As of
April 30, 1996, the Company had re-purchased $4,740,000 of the
aggregate $8,640,000 of these notes from Mr. Previti and retired
them.
The purchase price paid by the Company, for the notes purchased by
Mr. Previti throughout the first six months, was $2,920,000, plus
accrued interest of $321,000. During the first six months ending
April 30, 1996, the Company also purchased and retired another
$575,000 of senior notes, on its own account, at a price of
$331,000, plus accrued interest of $6,800. Due to the benefits of
acquiring senior notes on margin, and the securities company's policy
against setting up margin accounts for entities like the
Company, the Company asked Mr. Previti to purchase $4,850,000 of
the senior notes on margin, and did advance $2,211,000 for Mr.
Previti to in fact acquire those senior notes in this reporting
period. To ensure repayment of these sums, Mr. Previti executed
two separate notes, in favor of the Company, that are secured by
Mr. Previti's interest in the notes the funds were lent to
purchase. Both notes are due and payable, on or before July 31,
1996. One note is in the amount of $561,000 and bears interest at
the rate of 10.0% per year. The other note is in the amount of
$1,650,000 and bears interest at the rate of 12.0% per year. In
the future, the Company may acquire additional notes on the open
market through either its own account or Mr. Previti, so long as
the discount at which those notes are acquired is deemed to be
favorable to the Company. As of April 30, 1996, Mr. Previti still
owned, either directly or through a beneficial interest, $3,900,000
in face value of notes which were acquired on December 12, 1994,
and March 12, 1996, at a substantial discount from their face
value. If the Company elects to repurchase these notes, it will be
obligated to pay Mr. Previti his cost basis, plus accrued interest.
The Company believes that the transactions discussed above were on
terms at least as favorable to the Company as a comparable
transaction made on an arms length basis between unaffiliated
parties Furthermore, each transaction was reviewed and approved in
keeping with the specific terms of the Indenture relating to the
selling and issuance of the notes.
5. 11 3/8% Senior Notes Due December 2000
In February 1994, the Company issued $50,000,000 in 11 3/8% Senior
Notes through a public debt offering. The notes are joint and
several obligations of the Company and Forecast "Registered
Tradename" Capital Corporation ("Capital"), with interest only
payments due semi-annually on June 15 and December 15 of each year.
The notes are unsecured obligations of the Company and rank pari
passu in right of payment with all senior indebtedness of the
Company.
The Indenture governing the Senior Notes requires the Company to
maintain a minimum net worth of $25 million. If the Company's net
worth at the end of any two consecutive fiscal quarters (the last
day of such second consecutive fiscal quarter being referred to as
the "Trigger Date"; and no single fiscal quarter being capable of
being used more than one time in the calculation for non-
compliance) is less than $25 million (the "Minimum Net Worth"),
then the Company is required to make an offer to all Senior Note
holders (a "Net Worth Offer") to acquire on a pro rata basis,
Senior Notes in the aggregate principal amount of $5 million (or if
less than $5 million of aggregate principal amount of all Senior
Notes is then outstanding, then all Senior Notes at that time
outstanding) (the "Net Worth Offer Amount") at a purchase price
equal to 100.0% of the principal amount thereof, plus accrued
interest to the date of repurchase (the "Net Worth Price").
Notwithstanding this requirement to offer to, and then, repurchase
Senior Notes, the Indenture allows the Company to credit against
the Net Worth Offer Amount, the principal amount of any Senior
Notes acquired by the Company prior to the Trigger Date, through
repurchase or optional redemption. The Company may not, however,
use any specific Senior Note repurchase in any more than one Net
Worth Offer. In no event shall the failure to meet the Minimum Net
Worth at the end of any fiscal quarter be counted toward the making
of more than one Net Worth Offer.
For the fiscal quarters ended October 31, 1995 and January 31,
1996, the Company was not in compliance with the minimum net worth
covenant. Therefore, January 31, 1996 became a Trigger Date for
the Company, requiring a Net Worth Offer. However, despite this
event, the Company had already repurchased or redeemed a sufficient
amount of Senior Notes to meet any repurchase obligations resulting
from the first Trigger Date. As of April 30, 1996, the Company's
net worth was again above the $25 million threshold, preventing the
occurrence of a Trigger Date at any time prior to October 31, 1996.
Furthermore, because the Company had retired over $15 million of
Senior Notes as of April 30, 1996, it believes that even were the
Company not to meet its minimum net worth (something the Company's
management does not presently, or in the foreseeable future,
believe will occur due to the anticipated levels of income from
operations and the retirement of Senior Notes), it has sufficient
repurchase reserves to off-set at least another two Trigger Dates,
without having to actually make a Net Worth Offer. In addition,
while there can be no assurances, the Company's management does
not presently believe its net worth will drop below the $25 million
level at any time in the foreseeable future.
6. Extraordinary Item
During the six months ended April 30, 1996, the Company repurchased
a portion of its Senior Notes having an aggregate outstanding
principal amount of $5,315,000, with $1,500,000 being related to
repurchase activity in the three months ending April 30, 1996. The
Senior Notes purchased from Mr. Jim Previti (the Company's
President) during the six month period ended April 30, 1996, were
acquired at his cost (plus accrued interest as of the repurchase
date), for a total expenditure of $3,241,000 over the six month
period, and $1,020,000 over the three month period, both ending as
of April 30, 1996. Net of allocable issuance costs, the resultant
income of $1,384,000 and $492,000 were reported as extraordinary
gains in the Company's financial statements for the six and three
month periods, respectively, ending on April 30, 1996.
<TABLE>
FORECAST "Registered Tradename"CAPITAL CORPORATION
BALANCE SHEET
For the periods ended April 30, 1996 and October 31, 1995
(Unaudited)
April 30, 1996 October 31, 1995
(unaudited)
-------------- ---------------
<S> <C> <C>
ASSETS
Cash $ 100 $ 100
------ -----
Total Assets $ 100 $ 100
====== =====
LIABILITIES & SHAREHOLDERS' EQUITY:
Accounts Payable, Related Parties $1,500 $700
------ -----
Total Liabilities 1,500 700
Common Stock, $1.00 par value:
Authorized Shares - 10,000
Issued and Outstanding
Shares - 2,500 2,500 2,500
Accumulated Deficit (3,900) (3,100)
------ ------
Total Shareholders' Equity/(Deficit) (1,400) ( 600)
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY/(DEFICIT) $100 $100
==== ====
</TABLE>
[FN] See accompanying notes to Financial Statements.
<PAGE>
<TABLE>
FORECAST "Registered Tradename"CAPITAL CORPORATION
STATEMENTS OF OPERATIONS AND SHAREHOLDER'S EQUITY
(Unaudited)
For The Six Months For The Three Months
Ended Ended
April 30, April 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Tax Expense $800 $800 $800 $800
---- ---- ---- ----
Net Loss ($800) ($800) ($800) ($800)
Shareholders' Equity/(Deficit)
at Beginning of Period ($600) $400 ($600) $400
Net Income/(Loss)
this Period (800) (800) (800) (800)
----- ----- ----- -----
Shareholders' Equity/(Deficit)
at End of Period ($1,400) ($400) ($1,400) ($400)
======= ===== ======= =====
</TABLE>
[FN] See accompanying notes to Financial Statements.
<PAGE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENT
(Unaudited)
1. Basis of Presentation
Forecast"Registered Tradename"Capital Corporation was incorporated
in California on September 20, 1993. The only activity for both
the three months and six months ended April 30, 1996, was an Income
Tax expense of $800 that was paid in the three month period ended
April 30, 1996. The Company is a wholly-owned subsidiary of The
Forecast Group "Registered Tradename" L.P., a California limited
partnership that is engaged in the residential real estate
development business.
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-
Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and related
disclosures contained in the Form 10K for the year ended October
31, 1995 (File No. 33-72106) as filed with the Securities and
Exchange Commission.
The results of operations for the six months ended April 30, 1996
do not necessarily indicate the results that can be expected for
the full fiscal year.
2. Income Taxes
The Company is a "C" Corporation for federal and state income tax
reporting purposes and accounts for income taxes in accordance with
Financial Accounting Standards Board Statement No. 109 "Accounting
for Income Taxes".
<PAGE>
Part I. Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the period indicated, certain
income statement items as percentages of total home building sales
and certain other data:
<TABLE>
($'s in 000's) Percentage of Percentage of
Housing Sales Housing Sales
For the six months For the three months
ended ended
April 30, April 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Housing sales 100.0% 100.0% 100.0% 100.0%
Cost of housing sales 83.2% 90.6% 82.7% 88.5%
----- ----- ----- -----
Gross profit 16.8% 9.4% 17.3% 11.5%
Selling and marketing costs 11.3% 10.1% 11.2% 9.9%
G & A costs 5.9% 6.7% 5.3% 6.8%
---- ---- ---- ----
Operating Income/(Loss) (0.4%) (7.4%) 0.8% (5.2%)
==== ===== ===== =====
Number of homes closed 425 401 231 215
Number of homes sold 504 472 312 279
Backlog 273 222
Aggregate value of backlog $35,589 $29,379
</TABLE>
<PAGE>
Part I. Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND
APRIL 30, 1995
Housing sales for the three months ended April 30, 1996 were $31.6
million, an increase of $2.0 million or 6.9% from the three months
ended April 30, 1995. The revenues in fiscal 1996 represent 231
closings at an average sales price of $136,768 while the revenues
in fiscal 1995 represent 215 unit closings at an average sales
price of $137,429. The increase in unit closings is attributable
to the Company's concerted effort to sell as much of its inventory
in its older communities, as quickly as possible. The slight
decrease in average sales price per unit is primarily a function of
a difference in the mix of units sold, rather than any reduction in
the price of the units themselves.
Cost of housing sales remained steady at $26.1 million for both
the three months ended April 30, 1996, and April 30, 1995. However,
the cost of housing sales as a percentage of sales revenues
decreased from 88.5% for the three months ended April 30, 1995, to
82.7% for the three months ended April 30, 1996. The reason for
this reduction is attributable to three separate factors: (1) the
continuing efforts of the Company to reduce its construction costs
through direct dialogue with its sub-contractors; (2) the unit
closings for the three months ended April 30, 1996 containing a
larger percentage of high margin units than existed for the three
month period ended April 30, 1995; and (3) the increased profit
margins realized in some communities during the three months ended
April 30, 1996, which stems from the Company's application of FASB
121 in the fourth quarter of fiscal year 1995. It should also be
noted that, in general, the Company's cost of housing sales as a
percentage of housing sales is subject to significant fluctuations
between each of the Company's current communities. The reason for
this variation is solely attributable to differences in
construction costs per square foot and the cost of improved lots at
each community. Differences in construction costs per square foot
result from variations in product designs and specifications, local
building code requirements and the relative cost of labor.
Selling and marketing expenses were $3.5 million during the three
months ended April 30, 1996, an increase of $620,000 or 21.2% over
the same period during fiscal 1995, and an increase of $1,743 or
12.8% per unit closed over the same period during fiscal 1995.
These increases are the result of both the larger number of unit
closings in the three months ended April 30, 1996 (as compared to
the three months ended April 30, 1995), and the Company's
conscious effort to utilize slightly higher incentives as a
marketing tool to quickly sell some of its units in older
communities having weakened profit margins. Selling and marketing
expenses as a percentage of housing sales were 11.2% during the
three months ended April 30, 1996, as compared to 9.9% during the
same period in the prior year. The variable components of selling
expenses, incurred in connection with the sale of specific homes,
include escrow and title fees, sales agent commissions and sales
incentives provided to the buyer of the home.
General and administrative expense was $1,673,000 and $1,997,000
during the three months ended April 30, 1996 and 1995,
respectively. The 16.2% decrease can be attributed to a number of
factors, including a variety of decreases in employee costs and
office expenses resulting from on-going cost reduction programs
implemented by management. In addition, throughout the Fourth
Quarter of fiscal year 1995, and the First Quarter of fiscal year
1996, the Company carefully evaluated its operations and staffing
needs, in relation to its business projections, and was able to
further reduce the number of employees required to maintain and
grow the business in keeping with that business plan. The Company
intends to continue this evaluation process as a part of its on-
going cost reduction plan, as well as monitoring methods by which
it can become more efficient in the administration of the Company.
The Company's goal remains that of closely monitoring its general
and administrative expenses to ensure that those costs are incurred
in the most efficient and cost effective manner as is possible.
Interest income increased by $31,000, or 91.0%, during the three
months ended April 30, 1996, due to higher average cash balances
invested in interest bearing accounts in the current period.
Total interest incurred decreased from $2,054,000 for the three
months ended April 30, 1995 to $1,848,000 for the three months
ended April 30, 1996. Interest incurred and capitalized to
communities under development also decreased from $2,016,000 for
the three months ended April 30, 1995 to $ 1,848,000 for the three
months ended April 30, 1996. The decreases in interest incurred,
and interest incurred and capitalized, can be attributed to a
combination of (1) a $351,000 decrease in interest paid on the
senior notes outstanding, as well as a $19,000 decrease in the
amortized finance costs associated with the original issuance of
the senior notes; (2) a $67,000 increase in interest incurred in
relation to Other Notes; and (3) capitalizing $135,000 of costs
associated with the attainment of real estate loans used for
acquisition, development and construction purposes; a practice
which did not begin until this three month reporting period. Real
estate inventories increased slightly from $82,572,000 as of
October 31, 1995 to $84,040,000 as of April 30, 1996, while total
notes payable decreased from $60,925,000 as of October 31, 1995 to
$59,962,000 as of April 30, 1995. Since the Company's total
investment in properties under development has consistently
exceeded the amount of total Company indebtedness, substantially
all interest incurred has been allocated and capitalized to
properties under development based on the relative investment in
each property. Capitalized interest amortized to cost of housing
sales is based upon actual interest capitalized through the date of
sale plus estimated future interest to be capitalized to the
project. The amount of estimated future interest to be
capitalized is based upon Management's estimate of average future
cash investment in the property and the expected absorption rate
for the property.
Other income and expense was $50,000 and $(66,000) during the three
months ended April 30, 1996 and 1995, respectively. This change is
primarily attributable to the fact that in 1995, and not in the
current period, the Company took a charge-off of an earnest money
deposit on a parcel of land the Company elected not to purchase.
The current year income was principally comprised of management
fees charged to affiliates of the Company.
During the three months ending April 1996, the Company retired
another $1,500,000 in senior notes that had earlier been purchased
by its President, Mr. James Previti. Mr. Previti acquired these
notes, on behalf of the Company, on the open market at prevailing
market prices from unaffiliated third parties. The Company paid
Mr. Previti $1,020,000, for the notes, which represented his
$998,000 cost of acquiring the notes, plus $22,000 in accrued
interest through the date of purchase by the Company. After
charging off $51,000 in unamortized issuance costs, the Company
realized a net gain of $492,000 on this repurchase transaction
(See Note 4 & 6 of the Notes To Consolidated Financial Statements
for further information).
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND
APRIL 30, 1995:
Housing sales for the six months ended April 30, 1996 were $58.1
million, an increase of $3.7 million or 6.9% from the six months
ended April 30, 1995, while per unit revenues increased only 0.8%,
or $1,123 over that same six month period. The revenues in fiscal
1996 represent 425 closings at an average sales price of $136,714
while the revenues in fiscal 1995 represent 401 closings at an
average sales price of $135,591. The increase in unit closings is
attributable to the Company's concerted effort to sell as much of
its inventory in its older communities, as quickly as possible. The
increase in average sales price per unit continues to reflect a
larger number of sales being generated at new communities having a
much higher average selling price per unit. The increase in the
change from period to period reflects the success the Company has
had in reducing the number of its older communities which typically
sold at much lower average sales prices.
Cost of housing sales for the six months ended April 30, 1996 were
$48.3 million, a $947,000 or 1.9% decrease over the same six month
period in fiscal 1995. On a per unit basis, the cost of housing,
comparing the same six month periods, decreased more dramatically,
dropping by $9,163, or 7.4%. Cost of housing sales as a percentage
of housing sales decreased from 90.6% during the first six months
of fiscal 1995 to 83.2% during the same period in fiscal 1996.
The reasons for the decrease in cost of housing sales as a
percentage of housing sales during the six months ended April 30,
1996 are the same as those reasons discussed above, under the
three months ended April 30, 1996.
Selling and marketing expenses were $6.6 million during the six
months ended April 30, 1996, an increase of $1.1 million or 20.4%
over the same period during fiscal 1995. Due to the higher sales
volume in the six month period ended April 30, 1996 (as compared to
the six month period ended April 30, 1995), on a per unit basis,
the selling and marketing costs increased at a slightly lower rate
of $1,851 or 13.6%. In addition, selling and marketing expenses,
as a percentage of housing sales, was 11.3% during the six months
ended April 30, 1996, as compared to 10.1% during the same period
in the prior year. These increases are primarily attributable to
the Company's use of increased sales incentives throughout this
period to sell its remaining units in older community developments
(primarily in Southern California), as quickly as possible, without
significantly impacting the contribution margins of those units.
Management believes that although this practice will negatively
impact the contribution margins at those communities in which it is
practiced, the cost savings in sales staff expenses, model
maintenance, utilities, etc., realized through the earlier sell-out
of those communities, will more than off-set the cost of the
increased sales incentives.
General and administrative expense was $3,425,000 and $3,651,000
during the six month periods ended April 30, 1996 and 1995,
respectively. The decrease can be attributed to a number of
factors, including a variety of decreases in employee costs and
office expenses resulting from on-going cost reduction programs
implemented by management. In addition, throughout the Fourth
Quarter of fiscal year 1995, and the First Quarter of fiscal year
1996, the Company carefully evaluated its operations and staffing
needs, in relation to its business projections, and was able to
further reduce the number of employees required to maintain and
grow the business in keeping with that business plan. The Company
intends to continue this evaluation process as a part of its on-
going cost reduction plan, as well as monitoring methods by which
it can become more efficient in the administration of the Company.
The Company's goal remains that of closely monitoring its general
and administrative expenses to ensure that those costs are incurred
in the most efficient and cost effective manner as is possible.
Total interest incurred decreased from $4,188,000 for the six
months ended April 30, 1995, to $3,760,000 for the six months ended
April 30, 1996. Interest incurred and capitalized to communities
under development decreased from $4,106,000 for the six months
ended April 30, 1995 to $3,760,000 during the six months ended
April 30, 1996. The decreases in interest incurred, and interest
incurred and capitalized, can be attributed to the same factors
described above in the analyzation of the three months ended April
30, 1996.
Other income and expense was $115,000 and $232,000 during the six
month periods ended April 30, 1996 and 1995, respectively. The six
month period ending April 30, 1995 included a $300,000 developer's
fee relating to certain work some of the Company's employees
performed in the parcelization and development of an apartment
complex located in Galt, California (for more details, see note 4
to the consolidated financial statements contained in the Company's
10-Q for the period ending April 30, 1995) that was partially
offset by the charge-off of the earnest money deposit on a parcel
of land the Company elected not to purchase. The current year
amount principally represents the reduction in management fees
earned from affiliates which was discussed in the Company's 10-Q,
for the period ending April 30, 1995.
During the first six months of the fiscal year 1996, the Company
retired $5,315,000 of its own senior notes, $4,740,000 of which had
previously been purchased by its President, Mr. James Previti. In
retiring the notes held by Mr. Previti, the Company paid Mr.
Previti $3,241,000, which represented his $3,087,000 cost of
acquiring the notes, plus $ 154,000 in accrued interest from the
date of the Company's repurchase and retirement of those notes.
After charging-off $188,000 in unamortized issuance costs, the
Company realized a net gain of $1,876,000 on its repurchase
transaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend primarily upon sales volume,
asset turnover and land acquisitions. When liquidating inventory,
the Company generates cash. When building inventory, the Company
uses substantial amounts of cash which are generally obtained
through borrowings, cash flow from operations or partners
contributions to capital. During the six months ended April 30,
1996 , the Company increased its inventory by $1,468,000, and
increased its accounts payable and accrued expenses by $221,000.
These results provide evidence of the Company's success in
monitoring and controlling the growth of the Company's expansion in
each of its three divisions, and its success in controlling the
costs it incurs in producing the homes it builds. During the six
months ended April 30, 1996, the Company used $4,062,000 in cash
from operations, while acquiring a total of 348 new lots at a cost
of approximately $4.7 million.
As of April 30, 1996, the Company's principal sources of capital
were from the sale of homes and from existing or future financing
arrangements. As of April 30, 1996, the aggregate sales value of
homes in escrow to be sold (backlog) totaled approximately $35.6
million. The Company currently has several credit facilities with
financial institutions which cover existing indebtedness. Under
its primary credit facility, the bank has authorized a borrowing
limit of up to $20 million which can be used to fund land
acquisitions, development and/or construction in communities which
the bank pre-qualifies. As of April 30, 1996, the Company had $18.7
million in original loan commitments under this facility with
outstanding balances of $5.5 million, and undisbursed loan proceeds
of $209,000. Under another of its credit facilities, the lender
has approved a model home facility which allows the Company to
finance its model homes on an individual unit basis, at a 78 %
loan-to-value ratio, without any predefined maximum loan capacity.
As of April 30, 1996, the outstanding principal balance was a fully
disbursed $5.8 million. This lender also provided the Company with
four other separate revolver facilities which on April 30, 1996,
had a total committed limit of $12.9 million and an undisbursed
principal amount of $4.1 million. These facilities are for
development and construction purposes. As of April 30, 1996 , the
Company had three loans outstanding representing $5.9 million in
original loan commitments under this facility with outstanding
balances and undisbursed loan proceeds totaling $4.5 and $.3
million, respectively.
The Company also had a $3.0 million Acquisition and Development
facility operating with another financial institution that was
secured by one of its Arizona developments. This A&D facility had
an undisbursed sum of $88,000 against a committed loan amount of $3
million and an outstanding balance of $1.5 million as of April 30,
1996. Finally, the Company had three other A&D facilities, all
with one lender, that were secured by current land and development
in the Company's Northern California division. Under these
facilities, on April 30, 1996, the Company had an aggregate
outstanding principal balance of $4.2 million against a committed
sum of $7.5 million and undisbursed principal of $256,000.
The Indenture covering the senior notes includes several covenants
and restrictions which could, in the future, have an impact on the
Company's ability to obtain additional financing at favorable
prices. These covenants include a limitation of $15 million in
total recourse debt which the Company may incur unless, at the time
the debt is incurred, and after giving effect thereto, (including
those proceeds), the Company's "Coverage Ratio" , as defined in
the Indenture, is at least 2.0 to 1.0, and the Company's "Debt-to-
Equity Ratio", as defined in the Indenture, is no greater than 2.5
to 1.0. The Indenture also requires the Company to maintain a
minimum net worth of $25 million. As of April 30, 1996, the
Company's outstanding recourse debt was approximately $7.4 million.
As of that same date, despite the fact that the Company had met
both its net worth requirement and Debt-to-Equity ratio, it could
not have sought "recourse" debt above the $15 million limit, due to
the fact that it had not met its Coverage Ratio as of that same
date. The Company does not believe this will not have a material
affect upon its business operations, nor will it prevent the
Company from incurring additional debt, as needed, on a non-
recourse basis.
The Company's principal capital requirements are for the
construction of homes, the repayment and/or retirement of debt
(including interest) as it comes due or can be repurchased at
advantageous prices, and general and administrative costs. The
Company also needs to continue to purchase new land on which it can
construct homes. The amount of capital required for the
construction of homes is variable depending on the Company's sales
volume and the availability of favorable land transactions, and is
generally replenished within a short period of time through
proceeds from the sale of homes. Interest incurred on most of the
Company's secured debt is expected to be repaid through interest
reserve amounts included in the unfunded loan commitments.
Principal payments on debt secured by real estate are
generally made as units are sold, and in most cases the anticipated
closings should repay the loans prior to maturity. Interest on the
senior notes is payable in semi-annual installments which, in the
first six months of fiscal year 1996, totaled approximately $2.2
million. Based upon the retirement of the $4,346,000 of senior
notes since the December 1995 payment, the Company anticipates its
June 1996 semi-annual payment will be reduced to approximately $2.0
million. The Company will also continue to evaluate the
appropriate time to retire all or part of the $3,900,000, currently
held by Mr. Jim Previti, its President. This decision will, in
part, be determined by the availability of sufficient cash to
effect the repurchase, as well as the existence or foreseeablility
of any losses in the sale of land that could be used to off-set the
gain realized on the retirement of those senior notes.
The Company believes that its current capital resources are
sufficient to meet its capital requirements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) None
Item 2. Changes in Securities
(a) None
Item 3. Defaults upon Senior Securities
(a) Refer to note 5 of Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
(a) None
Item 5. Other Information
(a) None
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits attached to this report.
(b) The Company did not file any reports on Form 8-K during the
period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE FORECAST GROUP "Registered Tradename"L.P.
By:FORECAST "Registered Tradename"HOMES, INC.
---------------------------------------------
A California corporation
its General Partner
May 31, 1996 By:/s/ James P. Previti
Date ------------------------------
James P. Previti
President
By:/s/ James Toller
-------------------------------
James Toller
Principal Financial Officer
By: FORECAST "Registered Tradename"CAPITAL CORPORATION
May 31, 1996 By:/s/ James P. Previti
Date -----------------------------
James P. Previti
President
By:/s/ James Toller
----------------------------
James Toller
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 4995000
<SECURITIES> 0
<RECEIVABLES> 5723000
<ALLOWANCES> 0
<INVENTORY> 84040000
<CURRENT-ASSETS> 98439000
<PP&E> 1230000
<DEPRECIATION> 0
<TOTAL-ASSETS> 98439000
<CURRENT-LIABILITIES> 73300000
<BONDS> 34475000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 98439000
<SALES> 58103000
<TOTAL-REVENUES> 58103000
<CGS> 48315000
<TOTAL-COSTS> 58320000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29000
<INCOME-TAX> 29000
<INCOME-CONTINUING> 29000
<DISCONTINUED> 0
<EXTRAORDINARY> 1876000
<CHANGES> 0
<NET-INCOME> 1905000
<EPS-PRIMARY> 0
<EPS-DILUTED> 00
</TABLE>