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 July 31, 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 August 28, 1996.
At August 28, 1996, Forecast "Registered Tradename" Capital
Corporation had 2,500 shares of Common stock outstanding.
<PAGE>
<TABLE>
THE FORECAST GROUP "Registered Tradename"
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in 000's)
July 31, October 31,
1996 1995
------ -----
<S> <C> <C>
Assets
Cash and cash equivalents..... $6,980 $8,090
Accounts receivable........... 611 665
Accounts and notes receivable,
related parties.............. 4,289 2,531
Real estate held for development
and sale..................... 85,747 82,572
Property and equipment, net... 1,178 1,234
Other assets.................. 2,502 2,185
----- -----
Total assets.................. $101,307 $97,277
======== =======
Liabilities and partners' equity
Accounts payable.............. $11,938 $9,584
Accounts payable,
related parties.............. --- 36
Accrued expenses.............. 2,484 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............... 26,540 21,117
Other Notes Payable...... --- 18
------ ------
Total notes payable........... 61,015 60,925
------ ------
Total liabilities............. 75,437 74,043
Partners' equity 26,634 23,998
Less capital notes receivable
from partners................ (764) (764)
------ ------
Total partners' equity........ 25,870 23,234
------ ------
Total liabilities and
partners' equity............. $101,307 $97,277
======== =======
</TABLE>
[FN] See accompanying notes.
<PAGE>
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
For the nine and three months ended July 31, 1996 and 1995
(Unaudited)
(Amounts in 000's)
Nine Months ended Three Months ended
July 31 July 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Housing sales.............. $97,006 $85,789 $38,903 $31,416
Cost of housing sales...... 80,623 77,725 32,308 28,463
Selling & marketing expenses 10,382 8,099 3,802 2,632
General & admin. expenses.. 5,291 5,590 1,866 1,939
Loss on Abandoned Land Options 3 139 3 22
------ ------ ------ ------
Operating income (loss).... 707 (5,764) 924 (1,640)
Interest income............ 187 148 56 47
Interest and fee expense... -- (119) -- (37)
Other income and expenses.. 66 455 (49) 106
---- ---- ----- ----
Income/(Loss) before
extraordinary gain ...... 960 (5,280) 931 (1,524)
Extraordinary gain on debt extinguishment.
(Note 6)................... 1,876 1,971 -- --
----- ----- ---- ------
Net Income/(Loss)......... $2,836 $(3,309) $931 $(1,524)
====== ======= ===== ========
Partners' Equity at
Beginning of Period..... $23,998 $27,786 $25,903 $26,001
Capital Contribution/(Distribution)
.......................... (200) 1,299 (200) 1,299
Net Income/(Loss) this Period
.......................... 2,836 (3,309) 931 (1,524)
----- ----- ---- -----
Subtotal........... 26,634 25,776 26,634 25,776
Less: Capital Notes Receivable
from Partners...... (764) (764) (764) (764)
----- ----- ----- -----
Partners' Equity at
End of Period.......... $25,870 $25,012 $25,870 $25,012
======= ======= ======= =======
</TABLE>
[FN] See accompanying notes.
<PAGE>
<TABLE>
THE FORECAST GROUP" Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended July 31, 1996 and 1995
(Unaudited)
(Amounts in 000's)
1996 1995
---- ----
<S> <C> <C>
Operating activities
Net Income/(Loss)................ $2,836 $(3,309)
Adjustments to reconcile net
income/(loss) to net cash
used in operating activities:
Extraordinary Gain on Extinguishment
of Senior Notes.............. (1,876) (1,971)
Depreciation and amortization.. 202 167
Loss (Gain) on sale of
property and equipment...... 5 69
Changes in operating assets and liabilities:
(Increase) decrease in
accounts receivable.......... 54 469
(Increase)/Decrease in accounts and
notes receivable, related parties (1,958) 117
(Increase)/Decrease in
real estate inventory........ (3,175) (140)
(Increase)/Decrease in other assets (505) 127
Increase (decrease) in accounts
payable and accrued expenses. 1,304 (3,876)
Increase (decrease) in
Other Liabilities............ -- 50
----- -----
Net cash used in operating activities (3,113) (8,297)
Investing activities
Additions to property and equipment (154) (269)
Proceeds from sale of
property and equipment........ 3 22
--- ---
Net cash used in investing activities (151) (247)
Financing activities
Retirement of 11 3/8% Senior Notes
due 2000...................... (3,251) (4,208)
Borrowings on notes payable
collateralized by real estate. 51,932 25,528
Borrowings on notes payable,
related parties............... 2,221 1,594
Repayments of notes payable....... (46,527) (21,387)
Repayments of notes payable,
related parties............... (2,221) (1,816)
------ -----
Net cash provided by
financing activities.......... 2,154 289
----- ----
Decrease in cash and cash equivalents (1,110) (8,833)
Cash and cash equivalents
at beginning of year.......... 8,090 13,252
----- ------
Cash and cash equivalents at July 31 $6,980 $4,419
====== ======
</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 nine months ended July 31,
1996 do not necessarily indicate the results that can be expected for
the full fiscal year.
The results of operations for the three and nine months ended July 31,
1996, and this Form 10-Q, also may be interpreted as, or actually
contain, "forward looking" information, as that term is defined by the
Securities and Exchange Commission. To the extent such forward looking
information is contained in this filing, the company intends to use
these disclosures to take advantage of the "Safe Harbor" provisions set
out in the rules and regulations of the Securities and Exchange
Commission, and thus strongly recommends that prior to making an
investment decision a prospective investor should carefully consider
the following factors in relation to that "forward looking"
information, as well as other financial and business information that
may be available from a variety of sources regarding the home building
industry as a whole. Some of the risks a prudent investor should
review are:
Macroeconomic Conditions; Interest Rates; Mortgage Financing
The residential real estate development and home building industry is
cyclical and highly sensitive to changes in general economic
conditions, such as levels of employment, consumer confidence and
income, availability of financing for acquisitions, construction and
operating capital, interest rates and demand for housing. In addition
to the impact of national macroeconomic conditions, the Company is also
subject to the particular economic conditions of the specific markets
in which it operates.
Housing demand is particularly sensitive to changes in interest rates.
If mortgage interest rates increase, the corresponding affect those
increases have upon a prospective buyers' ability to qualify and obtain
affordable financing for their home purchase, can have an adverse
effect upon the Company's sales, gross margins and net income. In
addition, the availability of FHA and VA mortgage financing is an
important factor in the Company's ability to market a majority of its
homes. Therefore, any restrictions or limitations on the availability
of such financing could have an adverse impact upon the Company's
sales, gross margins and net income.
Variability of Results
Historically, the Company has experienced variability in its level of
home sales from quarter-to-quarter, with the third and fourth quarters
(May through October) traditionally producing the highest level of
sales and percentage of revenues. The Company expects this trend to
continue. In addition to seasonal variability, the Company's results
may vary from period to period from, among other things, the timing of
the Company's sales and marketing efforts, weather, delays in the
receipt of regulatory approvals, the availability of finished lots, and
the fluctuations in mortgage interest rates.
Home Building Industry Risks; Governmental Regulation
The Company is subject to certain risks associated with the home
building industry, including among other things, increased costs
resulting from unanticipated weather conditions and shortages of labor
and/or construction materials. The Company is also subject to risks
associated with changes in governmental regulations, including
increases in real estate taxes and other fees, and local, state and
federal statutes, ordinances, rules and regulations which can or may
affect land use and building designs, each of which could delay
development of new homes, thereby increasing the Company's costs to
build those homes. The Company is also subject to zoning regulations
that may restrict the density of any particular community, and to
assessments imposed by governmental entities to defray their costs of
providing certain services to developing areas. Furthermore,
environmental laws may delay development of specific communities, or
lead to the Company incurring additional costs to mitigate an
environmental danger or to bring the development into compliance with
the regulatory rules relating to the specific environmental concern.
Any of these events would have an adverse economic effect upon the
sales and revenues of the Company.
Competition
The residential real estate development and home building industries
are highly competitive, with developers and home builders competing for
desirable land, financing, raw materials and skilled labor. As such,
the Company competes with national, regional and local builders, many
of whom have greater financial resources than the Company, which could
result in the Company losing certain land and/or sales opportunities to
its competitors, thereby reducing anticipated sales, revenues and net
income.
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) July 31, 1996
Real Estate Held Notes Payable
---------------- -------------
<S> <C> <C>
Land held for development and sale $13,217 $1,679
Residential projects in process 64,880 19,050
Model homes 7,650 5,811
------- ------
$85,747 $26,540
======= =======
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 NINE MONTHS ENDED FOR THREE MONTHS ENDED
JULY 31, JULY 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest incurred and
expensed.............. -- $119 -- $37
Interest incurred and
capitalized........... $5,591 $6,095 $1,831 $1,989
------ ------ ------ ------
TOTAL INTEREST INCURRED $5,591 $6,214 $1,831 $2,026
====== ====== ====== ======
Capitalized interest amortized to
cost of housing sales. $4,802 $3,450 $1,977 $1,271
Interest paid............ $6,798 $7,696 $2,829 $3,187
</TABLE>
4. Transactions With Affiliates
In January of 1995, and again in June of 1996, the board of directors
of Forecast "Registered Tradname" 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 and felt it best suited the business interests of
the Company to repurchase those same notes. 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 $6,350,000 in face
value of senior notes, on margin, throughout the nine month period
ended July 31, 1996, for a purchase price of $4,157,000, plus accrued
interest. As of July 31, 1996, the Company had re-purchased
$4,740,000 of the aggregate $10,140,000 of these notes from Mr.
Previti and retired them.
The purchase price paid by the Company, for the notes held by Mr.
Previti throughout the first nine months, was $2,920,000, plus accrued
interest of $321,000. During the first nine months ending July 31,
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 $6,350,000 of the senior notes on margin, and did advance
$2,211,000 for Mr. Previti to in fact acquire those senior notes in
this nine month 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 October 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 July 31, 1996, Mr. Previti still owned, either
directly or through a beneficial interest, $5,400,000 in face value of
notes which were acquired on December 12, 1994, March 12, 1996 and July
15, 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.
In addition, during the three month period ending July 31, 1996, the
Company made a capital distribution to a partner of a note receivable
from an affiliate.
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. As of July 31, 1996, the
Company had retired a total of $15,525,000 of the senior notes, leaving
$34,475,000 of senior notes still outstanding.
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 and July 31, 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 January 31, 1997. Furthermore,
because the Company had retired over $15 million of Senior Notes as of
July 31, 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 nine months ended July 31, 1996, the Company repurchased a
portion of its Senior Notes having an aggregate outstanding principal
amount of $5,315,000. The Senior Notes purchased from Mr. Jim Previti
(the Company's President) during the nine month period ended July 31,
1996, were acquired at his cost (plus accrued interest as of the
repurchase date), for a total expenditure of $3,241,000 over the nine
month period. No notes were acquired from Mr. Previti during the three
month period ending as of July 31, 1996. Net of allocable issuance
costs, the resultant income of $1,876,000 was reported as extraordinary
gains in the Company's financial statements for the nine month period
ending on July 31, 1996.
<PAGE>
<TABLE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
BALANCE SHEET
as of July 31, 1996 and October 31, 1995
(Unaudited)
July 31, 1996 October 31, 1995
(unaudited)
------------- ----------------
<S> <C> <C>
ASSETS
Cash........................ $ -- $ 100
------ ------
Total Assets.............. $ -- $ 100
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY:
Accounts Payable............ $ 300 $ --
Accounts Payable, related parties 1,800 700
------ ------
Total Liabilities......... $2,100 $ 700
Shareholder's Equity
Common Stock, $1.00 par value: Authorized
Shares - 10,000; Issued and Outstanding
Shares - 2,500.......... 2,500 2,500
Accumulated Deficit....... (4,600) (3,100)
------ ------
Total Shareholders' Equity/(Deficit)(2,100) ( 600)
====== ======
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY/(DEFICIT)......... $ --- $ 100
====== ======
</TABLE>
[FN] See accompanying notes to Financial Statements.
<PAGE>
<TABLE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
(Unaudited)
For The Nine Months Ended For The Three Months Ended
July 31, July 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
General & Administrative
Expense........... $700 $200 $700 $200
Income Tax Expense.. 800 800 --- ---
---- ---- ---- ----
Net Loss............ (1,500) (1,000) (700) (200)
====== ====== ===== =====
Shareholder's Equity/Deficit at
Beginning of Period ($600) $400 ($1,400) ($400)
Net Loss this Period (1,500) (1,000) (700) (200)
----- ----- ----- -----
Shareholders' Equity/Deficit at
End of Period..... ($2,100) ($600) ($2,100) ($600)
======= ====== ======= =====
</TABLE>
[FN] See accompanying notes to Financial Statements.
<PAGE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(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
and nine month periods ended July 31, 1996, was the General and
Administrative Expense relating to the performance of tax related
accounting services for the Company by an outside accounting firm, and
an Income Tax expense of $800 that was paid in the three month period
ended April 30, 1996. The Company is a wholly-owned subsidiary of The
Forecast Group "Registered Tradename" L.P., a California limited
partnership that is engaged in the residential real estate development
business.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and related disclosures
contained in the Form 10K for the year ended October 31, 1995 (File No.
33-72106) as filed with the Securities and Exchange Commission.
The results of operations for the nine months ended July 31, 1996 do
not necessarily indicate the results that can be expected for the full
fiscal year.
2. Income Taxes
The Company is a "C" Corporation for federal and state income tax
reporting purposes and accounts for income taxes in accordance with
Financial Accounting Standards Board Statement No. 109 "Accounting for
Income Taxes".
<PAGE>
THE FORECAST GROUP "Registered Tradename", L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the period indicated, certain
income statement items as percentages of total home building sales and
certain other data:
<TABLE>
($'s in 000's) Percentage of Percentage of
Housing Sales Housing Sales
For the nine months For the three months
ended ended
July 31, July 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Housing sales................. 100.0% 100.0% 100.0% 100.0%
Cost of housing sales......... 83.1% 90.6% 83.1% 90.6%
----- ----- ----- -----
Gross profit.................. 16.9% 9.4% 16.9% 9.4%
Selling and marketing costs... 10.7% 9.4% 9.8% 8.4%
General and administrative costs 5.5% 6.5% 4.8% 6.1%
Loss on Abandoned Land Options --- 0.2% --- 0.1%
---- ---- ---- ----
Operating Income/(Loss)....... 0.7% (6.7%) 2.3% (5.2%)
===== ===== ===== =====
Number of homes closed....... 701 625 276 224
Number of homes sold......... 751 718 247 250
Backlog....................... 248 248
Aggregate value of backlog.... $33,707 $32,200
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months ended July 31, 1996 and July
31, 1995:
Housing sales for the three months ended July 31, 1996 were $38.9
million, an increase of $7.5 million or 23.8% from the three months
ended July 31, 1995. The revenues in fiscal 1996 represent 276
closings at an average sales price of $140,953 while the revenues in
fiscal 1995 represent 224 unit closings at an average sales price of
$140,252. The increase in unit closings is attributable to a
combination of the Company's concerted effort to sell as much of its
inventory in its older communities, as quickly as possible, and the
increased level of closings in some of the Company's newer communities
as a percentage of the overall closings which are attributable to the
home buying public's acceptance of the Company's product and design.
The slight increase in average sales price per unit is primarily a
function of a difference in the mix of units sold, rather than any
increase in the price of the units themselves.
Cost of housing sales increased by $3.8 million, or 13.5%, for the
three months ended July 31, 1996, as compared to the three months ended
July 31, 1995, as a result of the increase in sales over that period.
In addition, the cost of housing sales as a percentage of sales
revenues decreased from 90.6% for the three months ended July 31, 1995,
to 83.1% for the three months ended July 31, 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 July 31, 1996 containing a larger percentage
of high margin units than existed for the three month period ended July
31, 1995; and (3) the increased profit margins realized in some
communities during the three months ended July 31, 1996, which stem
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 $3.8 million during the three
months ended July 31, 1996, an increase of $1.2 million over the same
period during fiscal 1995, and an increase of $2,025 or 17.2% per unit
closed over the same period during fiscal 1995. In addition, the
selling and marketing expenses, as a percentage of housing sales,
increased 0.9% during the three months ended July 31, 1996, as compared
to the same period in the prior year. These increases are primarily
the result of the larger number of unit closings in the three months
ended July 31, 1996 (as compared to the three months ended July 31,
1995), with the remaining portion of the increase being attributable to
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.
General and administrative expenses were $1.87 million and $1.94
million during the three months ended July 31, 1996 and 1995,
respectively. The $73,000 or 3.8% 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 current fiscal
year, the Company has continued to carefully evaluate 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 $9,000, or 19.2%, during the three months
ended July 31, 1996, due to higher average cash balances invested in
interest bearing accounts in the current period.
Total interest incurred decreased $195,000, from $2.0 million for the
three months ended July 31, 1995 to $1.8 million for the three months
ended July 31, 1996. Conversely, the capitalized interest amortized to
cost of housing sales increased $706,000, from $1.3 million for the
three months ended July 31, 1995 to $2.0 million for the three months
ended July 31, 1996. The decreases in interest incurred, and interest
incurred and capitalized, can be attributed to a combination of (1) a
$282,000 decrease in interest paid on the senior notes outstanding, as
well as a $16,000 decrease in the amortized finance costs associated
with the original issuance of the senior notes; and (2) an increase of
$171,000 in costs capitalized that are associated with the attainment
of real estate related loans used for acquisition, development and
construction purposes.
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 each community.
Other income and expenses were ($49,000) and $106,000 during the three
months ended July 31, 1996 and 1995, respectively. This variance of
$155,000 is primarily attributable to the write-off of costs related to
the computer conversion to the J.D.Edwards system.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months ended July 31, 1996 and
July 31, 1995:
Housing sales for the nine months ended July 31, 1996 were $97.0
million, an increase of $11.2 million or 13.1% from the nine months
ended July 31, 1995, while per unit revenues increased only 0.8%, or
$1,121 over that same nine month period. The revenues in fiscal 1996
represent 701 closings at an average sales price of $138,383 while the
revenues in fiscal 1995 represent 625 closings at an average sales
price of $137,262. 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, and the increased level of
closings in some of the Company's newer communities as a percentage of
the overall closings which are attributable to the home buying public's
acceptance of the Company's product and design. The increase in
average sales price per unit continues to reflect a larger number of
sales being generated in newer communities having a 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 lower average sales
prices.
Cost of housing sales for the nine months ended July 31, 1996 were
$80.6 million, a $2.9 million or 3.7% increase over the same nine month
period in fiscal 1995. On a per unit basis, the cost of housing,
comparing the same nine month periods, decreased more dramatically,
dropping by $9,346, or 7.5%. Cost of housing sales as a percentage of
housing sales decreased from 90.6% during the first nine months of
fiscal 1995 to 83.1% during the same period in fiscal 1996. The
reasons for the decrease in cost of sales as a percentage of housing
sales during the nine months ended July 31, 1996 are the same as those
reasons discussed above, under the three months ended July 31, 1996.
Selling and marketing expenses were $10.4 million during the nine
months ended July 31, 1996, an increase of $2.3 million or 28.1% over
the same period during fiscal 1995. Due to the higher sales volume in
the nine month period ended July 31, 1996 (as compared to the nine
month period ended July 31, 1995), on a per unit basis, the selling and
marketing costs increased at a slightly lower rate (as compared to
volume) of $1,852 or 14.3%. In addition, selling and marketing
expenses, as a percentage of housing sales, was 10.7% during the nine
months ended July 31, 1996, as compared to 9.4% 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 expenses were $5.3 million and $5.6 million
during the nine month periods ended July 31, 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 current fiscal year, the
Company has continued to carefully evaluate 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 10.0% , or $623,000, from $6.2
million for the nine months ended July 31, 1995, to $5.6 million for
the nine months ended July 31, 1996. Conversely, capitalized interest
amortized to cost of housing sales increased from $3.5 million for the
nine months ended July 31, 1995 to $4.8 million during the nine months
ended July 31, 1996. The noted decrease and increase can be attributed
to the same factors described above in the analyzation of the three
months ended July 31, 1996.
Other income and expenses were $66,000 and $455,000 during the nine
month periods ended July 31, 1996 and 1995, respectively. The nine
month period ending July 31, 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). The current year reflects a variance that is
primarily attributable to the write-off of costs related to the
Company's computer conversion to the J.D. Edwards system.
During the first nine 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 nine months ended July 31, 1996 , the Company
increased its inventory by $3,175,000, and increased its accounts
payable and accrued expenses by $1,304,000. These results provide
evidence of the Company's success in monitoring and continuing the
growth of the Company's expansion in each of its three divisions, as
well as its success in controlling the costs it incurs in producing the
homes it builds. During the nine months ended July 31, 1996, the
Company used $3,113,000 in cash from operations, while acquiring a
total of 511 new lots at a cost of approximately $8.1 million. The
majority of the acquisition costs incurred during the nine month period
ending July 31, 1996, were obtained through a variety of borrowings,
principally through Tokai Bank of California, Housing Capital
Corporation and Construction Lending Corporation of America.
As of July 31, 1996, the Company's principal sources of capital were
from the sale of homes and from existing or future financing
arrangements. As of July 31, 1996, the aggregate sales value of homes
in escrow to be sold (backlog) totaled approximately $33.7 million.
The Company currently has several credit facilities with financial
institutions which cover existing indebtedness. Under its primary
credit facility, the bank has authorized borrowings which can be used
to fund land acquisitions, development and/or construction expenditures
in communities which the bank pre-qualifies. As of July 31, 1996, the
Company had $21.2 million in original loan commitments under this
facility with outstanding balances of $4.9 million, and undisbursed
loan proceeds of $4.8 million. 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 July 31, 1996, the outstanding principal balance
against this facility was a fully disbursed $5.8 million. This lender
also provided the Company with five other separate project specific
facilities, which on July 31, 1996, had a total committed limit of
$17.0 million, an outstanding principal balance of $5.4 million, and an
undisbursed principal amount of $10.7 million. These facilities are
for both development and construction purposes.
The Company also had a $4.0 million Acquisition and Development
facility operating with another lender that was secured by one of its
Arizona developments. On July 31, 1996, this A&D facility was fully
disbursed and had an outstanding balance of $1.9 million. Finally,
the Company had four other loan facilities, all with one lender, that
were secured by current land and development in the Company's Northern
California division. Under these facilities, on July 31, 1996, the
Company had an aggregate outstanding principal balance of $3.6 million
against a committed sum of $10.5 million and undisbursed principal of
$2.5 million.
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 July 31, 1996, the Company's outstanding recourse debt was
approximately $6.8 million, or $8.2 million less than the maximum
recourse limit allowed by the Company's Indenture. Therefore, had the
Company sought more than $8.2 million of additional "recourse" debt, it
would not have been able to obtain it due to the fact that on July 31,
1996, the Company had not met the Coverage Ratio covenant contained
within the Indenture. All other covenants had been met. Despite this
fact, the Company does not believe this will 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 in order to meet
its current and future sales and closing projections. 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 nine months
of fiscal year 1996, totaled approximately $4.2 million. Based upon the
retirement of the $4,346,000 of senior notes since the December 1995
payment, and without calculating any further retirement of senior notes
by the Company, the Company anticipates its December 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 $5,400,000, 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
August 28, 1996 By:
- --------------- -----------------------
Date James P. Previti
President
By:
-----------------------
James Toller
Principal Financial Officer
By: FORECAST "Registered Tradename" CAPITAL CORPORATION
---------------------------------------------------
August 28, 1996 By:
- --------------- -----------------------
Date James P. Previti
President
By:
-----------------------
James Toller
Principal Financial Officer
<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
August 28, 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
----------------------------------------------------
August 28, 1996 By: /s/ James P. Previti
- --------------- ---------------------------
Date James P. Previti
President
By: /s/ James Toller
---------------------------
James Toller
Principal Financial Officer
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<PERIOD-END> JUL-31-1996
<CASH> 6980000
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<INVENTORY> 85747000
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