FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 5(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 1998
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)9877788
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 nonaffiliates of the
Registrant at May 27, 1998.
At May 27, 1998, Forecast "Registered Tradename" Capital
Corporation had 2,500 shares of Common stock outstanding.
<PAGE>
<TABLE>
THE FORECAST GROUP, "Registered Tradename", L.P.
CONSOLIDATED BALANCE SHEET
(Amount in 000's)
April 30, 1998 October 31, 1997
(Unaudited)
-------------- ----------------
<S> <C> <C>
Assets:
- -------
Cash and Cash Equivalents $8,634 $13,550
Accounts Receivable 201 575
Accounts and Notes Receivable,
Related Parties 5,764 3,486
Real Estate Inventory 76,887 71,012
Property and Equipment, Net 975 1,036
Other Assets 1,505 1,923
------- -------
Total Assets $93,966 $91,582
======= =======
Liabilities & Partners' Equity:
- -------------------------------
Accounts Payable $13,807 $12,294
Accrued Expenses 2,625 2,573
Notes Payable:
Senior Notes at 11 3/8% due
December 2000 27,750 29,075
Collateralized by Real Estate
Inventory 26,556 26,978
Other Notes Payable 1,121 -
------ ------
Total Notes Payable 55,427 56,053
------ ------
Total Liabilities 71,859 70,920
Partners' Equity 22,407 21,426
Less: Capital Notes Receivable
From Partners (300) (764)
------ ------
Net Partners' Equity 22,107 20,662
------ ------
Total Liabilities & Partners'
Equity $93,966 $91,582
======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY FOR
THE SIX AND THREE MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
(Amount in 000's)
Six Months Ended Three Months Ended
April 30, April 30,
---------------- -----------------
1998 1997 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Homebuilding Revenues $82,562 $53,731 $44,113 $28,888
Cost of Homes Sold 70,152 45,536 37,528 23,918
------- ------- ------ ------
Gross Profit 12,410 8,195 6,585 4,970
------ ----- ----- -----
Operating Expenses:
- ---------------------
Selling & Marketing Exp. 6,862 6,537 3,339 3,361
General & Admin. Expenses 4,517 3,738 2,547 1,606
Non-Cash Charge for
Impairment of
Real Estate Inventory - 6,635 - -
Loss on Aband.Land Options 92 - 83 -
------ ------- ------ -----
Total Operating Expenses 11,471 16,910 5,969 4,967
------ ------ ----- -----
Operating Income (Loss) 939 (8,715) 61 3
Other Income (Expenses):
- ------------------------
Interest Income 230 196 135 65
Other Income and Exp., net 240 83 172 44
---- --- --- ---
Total Other Income(Exp.) 470 279 307 109
---- --- --- ---
Income (Loss) before
Extraordinary Gain 1,409 (8,436) 923 112
Extraordinary Gain on
Extinguishment of
Senior Notes 36 1,634 - -
----- ----- ---- ----
Net Income (Loss) $1,445 ($6,802) $923 $112
====== ======= ==== ====
Partners' Equity at
Beginning of Period $21,426 $27,688 $21,484 $20,774
Capital Contribution/
(Distribution) (464) - - -
Net Income (Loss)
this Period 1,445 (6,802) 923 112
----- ------ ---- ---
Subtotal 22,407 20,886 22,407 20,886
Less: Capital Notes Rec.
from Partners (300) (764) (300) (764)
------ ------ ------- -----
Net Partners' Equity at
End of Period $22,107 $20,122 $22,107 $20,122
======= ======= ======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
(Amount in 000's)
1998 1997
---- ----
<S> <C> <C>
Operating Activities:
- ---------------------
Net Income (Loss) $1,445 ($6,802)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Generated from (Used for)
Operating Activities
Non-Cash Charge for Impairment of
Real Estate Inventory - 6,635
Loss on Abandoned Land Options 92 -
Extraordinary Gain on Extinguishment
of Senior Notes (36) (1,634)
Depreciation and Amortization on
Property and Equipment 202 146
Loss (Gain) on Sale of Property and
Equipment (9) -
Decrease (Increase) in Accounts Receivable 374 (193)
Decrease (Increase) in Real Estate Inventory (5,967) 2,833
Decrease (Increase) in Other Assets 388 21
Increase (Decrease) in Accounts
Payable and Accrued Expenses 1,565 (5,672)
----- -----
Net Cash Generated from(Used for)
Operating Activities (1,946) (4,666)
------- -------
Investing Activities:
- --------------------
Additions to Property and Equipment (150) (55)
Proceeds from sale of property and equipment 17 -
--- ---
Net Cash Generated from(Used for)
Investing Activities (133) (55)
----- ----
Financing Activities:
- ---------------------
Retirement of Senior Notes at 11 3/8% due
December 2000 (1,259) (3,612)
Decrease (Increase) in Accounts and Notes
Receivable, Related Parties (2,278) 1,197
Proceeds from Notes Payable 46,805 27,812
Proceeds from Notes Payable, Other 1,981 1,700
Principal Payments on Notes Payable (47,226) (30,016)
Principal Payments on Notes Payable, Other (860) (1,700)
------ -------
Net Cash Generated from (Used for)
Financing Activities (2,837) (4,619)
------ -------
Increase (Decrease) in Cash and Cash
Equivalents (4,916) (9,340)
Cash and Cash Equivalents at
Beginning of Period 13,550 12,350
------ ------
Cash and Cash Equivalents at End of Period $8,634 $3,010
====== ======
</TABLE>
[FN] See notes to consolidated financial statements.
<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, 1997 (File No. 33-72106) as filed with the Securities
and Exchange Commission.
The results of operations for the six months ended April 30,
1998 do not necessarily indicate the results that can be expected
for the full fiscal year.
The results of operations for the six months ended April 30,
1998, 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 factors
mentioned in Form 10-K for the year ended October 31, 1997 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,
including, but not limited to:
- - Changes in national economic conditions such as interest
rates, consumer confidence and job loss or formation
statistics
- - Change in economic conditions in the markets in which
the Company operates
- - Fluctuations in mortgage interest rates
- - Cost increases resulting from adverse weather conditions,
shortages of labor and/or construction materials
- - Changes in governmental regulations which may delay new home
development or impose additional costs or fees.
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>
(Amount in 000's)
April 30, 1998
-------------------------------
Real Estate Notes Payable
Inventory
------------ -------------
<S> <C> <C>
Land Held for Development $15,572 $0
Residential Projects in Process 56,832 25,089
Model Homes 4,483 1,467
------- ------
Total $76,887 $26,556
======= =======
Real Estate Notes Payable
Inventory
------------ ------------
Land Held for Development $15,223 $0
Residential Projects in Process 49,638 23,610
Model Homes 6,151 3,368
------- ------
Total $71,012 $26,978
======= =======
</TABLE>
3. Interest Expense
The following summarizes the components of interest expense
incurred, capitalized, expensed and paid:
<TABLE>
(Amount's in 000's)
For the Six Months For the Three Months
Ended Ended
------------------ --------------------
1998 1997 1998 1997
------------------ --------------------
<S> <C> <C> <C> <C>
Interest incurred and
Capitalized $3,503 $3,684 $1,783 $1,765
Capitalized interest
amortized to cost of
homes sold $4,190 $3,362 $2,134 $1,892
Interest paid $3,550 $3,913 $925 $939
</TABLE>
4. Transactions With Affiliates
The Board of Directors of Forecast "Registered Tradename"
Homes, Inc., resolved that it would be in the Company's best
longterm interests to seek the assistance of Mr. James Previti,
the Company's President and Chief Executive Officer, 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. Acting upon this
authorization, Mr. Previti did acquire $20,350,000 of Senior
Notes all of which were repurchased and retired prior to October
31, 1997.
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.
During the six months ended April 30, 1998, Accounts
Receivables from Related Parties increased $2.3 million,
primarily due to Mr. Previti purchasing from the Company a parcel
of land in Moreno Valley that was transferred at book value, in
consideration for a note secured by other land having a fair
market value in excess of $1.7 million. No loss or gain will be
realized as a result of this transaction. The balance of the
increase was due to costs associated with the development of a
community in Northern California that will produce home closings
for the Company in fiscal years 1998, 1999, and 2000.
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, with interest only payments due
semiannually 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.
In November of 1997, the Company purchased on margin in the open
market an additional $1,325,000 of Senior Notes, which have not
been retired. As of April 30, 1998, the Company had retired a
total of $20,925,000 of the Senior Notes. Senior Notes totaling
$29,075,000 have not been retired with $27,770,000 of those notes
not controlled by 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") is less than $25
million, then the Company is required to make an offer to all
Senior Note holders to acquire, on a pro rata basis, Senior Notes
in the aggregate principal amount of $5 million (the "Net Worth
Offer") at a purchase price equal to 100% of the principal amount
plus accrued interest ("Net Worth Offer"). The Company may
credit against any such Net Worth Offer, the principal amount of
Senior Notes previously acquired by the Company.
For the fiscal quarters ended October 31, 1995 and January
31, 1996, the Company was not in compliance with the minimum net
worth requirement. However, the Company had purchased
or redeemed a sufficient amount of Senior Notes necessary to
meet repurchase obligations resulting from its failure to satisfy
the minimum net worth requirement.
For the fiscal quarters ended July 31, and October 31,
1996, the Company's net worth was again above the $25 million
threshold, thereby preventing the occurrence of a second Trigger
Date. As a result of the non-cash charge for the impairment of
real estate inventory at the end of the first quarter of 1997,
for the fiscal quarters ended January 31, April 30, July 31, and
October 31, 1997, the Company was again not in compliance with
the minimum net worth requirement, which resulted in Trigger
Dates occurring on April 30, 1997 and October 31, 1997. The
Company's acquisition and retirement of over $20.9 million in
Senior Notes prevented the need to make a Net Worth Offer.
For the six months ended April 30, 1998, the Company's net
worth was still not in compliance with the minimum net
worth requirement, thereby resulting in another Trigger Date on
April 30, 1998. Using the to-date amount of retired Senior
Notes, management believes it can prevent the occurrence of
any Net Worth Offer up through October 31, 1998.
6. Real Estate Held for Development and Sale
In accordance with FASB Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long Lived Assets to
Be Disposed Of" (Statement 121), when events or circumstances
indicate that an impairment to an assets to be held and used
might exist, the expected future undiscounted cash flows from the
affected asset or group of assets must be estimated and compared
to the carrying value of the asset or group of assets. If the
sum of the estimated future undiscounted cash flows, excluding
interest charges, is less than the carrying value of the assets,
an impairment loss must be recorded. The impairment loss is
measured by comparing the estimated fair value of the assets with
their carrying amount. Statement 121 also requires that longlived
assets that are held for disposal be reported at the lower of the
assets' carrying amount or fair value less costs of disposal.
On an ongoing basis, management analyzes future undiscounted
cash flows for all real estate projects where impairment
indicators are present. Based upon such analysis, no provision
for impairment loss was recorded for the six months ended April
30, 1998. Using the same analysis for the first six months of
fiscal 1997, the Company concluded that certain real estate
projects were impaired, and recorded a resulting impairment loss
of $6,635,000.
7. Extraordinary Item
During the six months ended April 30, 1998, the Company
repurchased a portion of its Senior Notes having an aggregate
outstanding principal balance of $1,325,000. The Senior Notes
purchased during the six months ended April 30, 1998 were
acquired on the open market and on margin for a total expenditure
of $1,317,000. As of April 30, 1998, $607,000 was due on the
margin account. Net of allocable issuance costs, the resultant
income of $36,000 was reported as extraordinary gains in the
Company's financial statements for the six months period ending
April 30, 1998.
During the six months ended April 30, 1998, Mr. Carman
tendered his interest in the Company to Forecast by effecting a
cancellation of his capital contribution that was reflected by a
note in the amount of $464,000. This transaction reduced
both the Company's gross equity and related notes receivable,
resulting in no impact on equity.
<PAGE>
FORECAST "REGISTERED TADENAME" CAPITAL CORPORATION
BALANCE SHEET
<TABLE>
April 30, 1998 October 31, 1997
(unaudited)
-------------- ----------------
<S> <C> <C>
Assets:
- -------
Cash $100 $100
---- ----
Total Assets $100 $100
==== ====
Liabilities &
Shareholders' Deficit:
- -----------------------
Accounts Payable $300 $300
Accounts Payable,
Related Parties 4,200 3,400
----- -----
Total Liabilities 4,500 3,700
Common Stock, $1.00 par value:
Authorized 10,000 shares
Issued and Outstanding
2,500 shares 2,500 2,500
Accumulated Deficit (6,900) (6,100)
------- -------
Total Shareholders' Deficit (4,400) (3,600)
------- -------
Total Liabilities &
Shareholders' Deficit $100 $100
==== ====
</TABLE>
[FN] See notes to consolidated financial statements.
FORECAST "Registered Tradename" CAPITAL CORPORATION
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
FOR THE SIX AND THREE MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
<TABLE>
Six Months Ended Three Months Ended
April 30, April 30,
---------------- ------------------
1998 1997 1998 1997
---------------- ------------------
<S> <C> <C> <C> <C>
General & Admin. Exp. $0 $0 $0 $0
Income Tax Expense 800 800 800 800
--- --- --- ---
Net Income (Loss) ($800) ($800) ($800) ($800)
==== ==== ==== ====
Shareholders' Equity at
Beginning of Period ($3,600) ($2,400) ($3,600) ($2,400)
Net Income (Loss)
This Period (800) (800) (800) (800)
------- ------ ------ ------
Shareholders' Equity at
End of Period ($4,400) ($3,200) ($4,400) ($3,200)
====== ====== ====== ======
</TABLE>
[FN] See notes to consolidated financial statements.
<PAGE>
1. Basis of Presentation
Forecast "Registered Tradename" Capital Corporation was
incorporated in California on September 20, 1993. The Company
is a wholly-owned subsidiary of The Forecast "Registered
Tradename" Group, 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, 1997 (File No. 33-72106) as filed with the Securities
and Exchange Commission.
The results of operations for the six months ended April 30,
1998 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".
Part I. Item 2.
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>
Percent of Percent of
Housing Sales Housing Sales
For the Six For the Three
Months Ended Months Ended
April 30, April 30,
------------- --------------
1998 1997 1998 1997
----- -------- --- ----------
<S> <C> <C> <C> <C>
Homebuilding Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Homes Sold 85.0% 84.7% 85.1% 82.8%
----- ----- ----- -----
Gross Profit 15.0% 15.3% 14.9% 17.2%
Operating Expenses:
- -------------------
Selling & Marketing Ex. 8.3% 12.2% 7.6% 11.6%
General & Admin. Ex. 5.5% 7.0% 5.8% 5.6%
Non-Cash Charge for
Impairment of Real Estate
Inventory 0.0% 12.3% 0.0% 0.0%
Loss on Aband. Land Options 0.1% 0.0% 0.2% 0.0%
----- ----- ----- -----
Total Operating Expenses 13.9% 31.5% 13.6% 17.2%
Operating Income (Loss) 1.1% (16.2%) 1.4% 0.0%
===== ======= ===== ====
Number of homes closed 527 369 279 194
Number of homes sold 518 419 316 282
Number of Homes in backlong 280 215
Aggregate value of backlog
in millions $46,544 $30,930
======= =======
</TABLE>
<PAGE>
Results of Operations for the Six Months ended April 30,
1998 and April 30, 1997
Housing revenues for the six months ended April 30, 1998 were
$82.6 million, representing an increase of $28.8 million or 53.6%
from the six months ended April 30, 1997. The revenues for
fiscal 1998 represent 527 closings, an increase of 42.8% from the
six months ended April 30, 1997. The average sales price for the
six months ended April 30, 1998 was $156,664 as compared to
$145,614 for the same period a year ago, representing an increase
of 7.6%. The increase in average sales price is due primarily to
increases in sales prices in the Company's strongest markets.
Gross profit from housing sales was $12.4 million for the
six months ended April 30, 1998, an increase of $4.2 million or
51.4%, from the six months ended April 30,1997. Gross profit
percentage for the six months ended April 30, 1998 was 15.0% as
compared to 15.3% a year ago. The gross profit percentage, as
compared to the same period a year ago, decreased based upon the
close-out of two of the Company's most profitable communities in
the 1997 reporting period. Gross profit dollar margin per
house increased 6.0% to $23,547 during the same comparison
period. The higher gross margins are attributable to the
increasing sales prices, as mentioned above and continued
monitoring of production costs and delivery times.
Selling and marketing expenses increased by $325,000 or
5.0% during the six months ended April 30, 1998, as compared to
the six months ended April 30, 1997. This increase is directly
attributable to the higher volume of closings during the period.
Selling and marketing, as a percentage of revenue, decreased to
8.3% from 12.2% for the comparable periods in 1998 and 1997,
respectively. This decrease, as a percentage of revenue, is
attributable to both the higher closing volume and the reduction
in incentives necessary in order to achieve absorption levels
that are acceptable to the Company.
General and administrative expenses increased $779,000
during the six months ended April 30, 1998, as compared to the
six months ended April 30, 1997. The increase is attributable to
an increase in the number of employees in the Company, which were
necessary to facilitate the Company's expansion and active
investigation of new land acquisition opportunities. These costs
were 5.5% and 7.0%, as a percentage of revenue, for the six
months ended April 30, 1998 and 1997, respectively. This decrease
is attributable to the higher volume of closings during the
period.
Income before extraordinary gain was $1,409,000 during the
six months ended April 30, 1998, as compared to a net loss
before extraordinary gain of $8,436,000 for the six months ended
April 30, 1997. The income for the six months ended April 30,
1998, is representative of the overall improvement of market
conditions. The loss during the first six months of fiscal year
1997 is directly attributable to the Company recording a $6.6
million provision for impairment of real estate inventory as a
result of the application of FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of.
Extraordinary Gain for the six months ended April 30, 1998
was $36,000, as the Company repurchased a portion of its Senior
Notes having an aggregate outstanding principal amount of
$1,325,000. In 1997, the Company repurchased $5,400,000 of its
Senior Notes resulting in an extraordinary gain of $1,634,000 being
recorded in the six months ended April 30, 1997.
Net income for the six months ended April 30, 1998 was $1.4
million as compared to a net loss of $6.8 million in the six
months ended April 30, 1997 that was the direct result of the
$6.6 million non-cash charge for impairment of real estate
inventory as discussed above.
Results of Operations for the Three Months ended April 30, 1998
and April 30, 1997
Housing revenues for the three months ended April 30, 1998
were $44.1 million, representing an increase of $15.2 million or
52.7% from the three months ended April 30, 1997. The revenues
for the three months ended April 30, 1998 represent 279 closings,
an increase of 43.8% from the three months ended April 30, 1997.
The average sales price for the three months ended April 30,
1998, was $158,112 as compared to $148,911 for the same period a
year ago, representing an increase of 6.2%, that is primarily
due to increases in sales prices in the Company's strongest
markets.
Gross profit from housing sales was $6.6 million for the
three months ended April 30, 1998, an increase of $1.6 million or
32.5%, from the three months ended April 30, 1997. Gross profit
percentage for the three months ended April 30, 1998 was 14.9% as
compared to 17.2% a year ago. The gross profit percentage, as
compared to the same period a year ago, decreased based upon the
close-out of two of the Company's most profitable communities in
the 1997 reporting period.
Selling and marketing expenses decreased by $22,000 or
0.6% during the three months ended April 30, 1998, as compared to
the three months ended April 30, 1997. This decrease is
directly attributable to lower customer incentives used during
the most current period. Selling and marketing, as a percentage
of revenue, decreased in the three month period ended April 30,
1998, to 7.6% from 11.6% for the comparable period in 1997.
This decrease, as a percentage of revenue, is attributable to
both the higher closing volume and the reduction of incentives
necessary in order to achieve absorption levels that are
acceptable to the Company.
General and administrative expenses increased $941,000 or
58.6% during the three months ended April 30, 1998, as compared
to the three months ended April 30, 1997. The increase is
attributable to an increase in the number of employees in the
Company, which were necessary to facilitate the Company's
expansion and active investigation of the new land acquisition
opportunities. These costs were 5.8% and 5.6%, as a percentage
of revenue, for the three months ended April 30, 1998 and 1997,
respectively.
Net income for the three months ended April 30, 1998 was
$923,000 as compared to a net income of $112,000 for the three
months ended April 30, 1997. Net income, as a percentage of
revenue, increased to 2.1% for the three months ended April 30,
1998, as compared to 0.4% for the same period a year ago.
The increase in net profits is attributable to an increase in
closings and the strengthening of the California market, which
created an opportunity for price increases and lower customer
incentives as discussed above.
Liquidity and Capital Resources
The residential real estate development business is
inherently capital intensive. Significant cash expenditures are
typically needed to acquire and develop land, construct homes and
establish marketing programs for lengthy periods of time in
advance of revenue realization. The Company generally finances
its operations with secured borrowings from commercial banks,
financial institutions and private investors, unsecured
borrowings in the public market, and with available
cash flow from operations.
At April 30, 1998, the Company had commitments for $60.6
million under several revolving credit facilities with
commercial banks and financial institutions, of which $20.4
million was outstanding. In addition, at April 30, 1998, the
Company had community specific facilities capable of providing
aggregate fundings of $7.7 million, against which $4.7
million was outstanding at that time. The Company also benefits
from a line of credit which is secured by some of its model homes
for an amount not to exceed $5.8 million of which $1.5 million
was outstanding as of April 30, 1998. Borrowings under the
credit facilities are secured by liens on specific real property
owned by the Company, and carry varying levels of recourse
against the Company. As a result, on April 30, 1998, the
aggregate outstanding principal balance under the Company's
credit facilities was $26.6 million and the recourse to the
Company from those borrowings was $5.7 million.
For the six months ended April 30, 1998, the Company's
interest incurred and capitalized decreased 4.9% as compared to
the six months ended April 30, 1997. This decrease represents
the continued negotiations with lenders to reduce financing
rates, which will enable the Company to continue to improve gross
margins. The Company's interest amortized-to-cost of homes sold
increased 24.6% to $4.2 million for the six months ended April
30, 1998, as compared to the same period a year ago, and is
directly attributable to an increase in the number of homes
closed during the six months ended April 30, 1998.
The Indenture governing the Senior Notes limits total
outstanding recourse debt to $15 million unless, at the time the
recourse debt is incurred and after giving effect to the proceeds
therefrom, certain threshold tests are met for interest coverage
and debt to equity ratios, as defined in the Indenture. At April
30, 1998, the Company's outstanding recourse debt was
approximately $5.7 million, thus approximately $9.3 million in
additional "recourse" debt could have been incurred. As of April
30, 1998, the Company did not meet the threshold tests for
interest coverage or debt-to-equity ratios. However, the Company
is not precluded from incurring debt on a non-recourse basis, and
believes the financing currently in place is sufficient to meet
the Company's business objectives for the foreseeable future.
<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 "Registered Tradename" GROUP, L.P.
-----------------------------------------------
By: FORECAST "Registered Tradename" HOMES, INC.
-----------------------------------------------
A California Corporation
its General Partner
May 27, 1998 By: /s/ James P. Previti
- ------------ ---------------------------
Date James P. Previti
President
By: /s/ Richard B. Munkvold
-----------------------------
Richard B. Munkvold
Vice President
Corporate Controller
Principal Accounting Officer
By: FORECAST "Registered Tradename" CAPITAL CORPORATION
--------------------------------------------------
May 27, 1998 By: /s/ James P. Previti
- ------------ ----------------
Date James P. Previti
President
By: /s/ Richard B. Munkvold
-------------------
Richard B. Munkvold
Vice President
Corporate Controller
Principal Accounting Officer
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