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, 1999
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 September 3, 1999.
At September 3, 1999, Forecast "Registered Tradename" Capital
Corporation had 2,500 shares of Common stock outstanding.
<PAGE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED BLANCE SHEET
(Amount's in 000's)
<TABLE>
July 31, 1999 October 31, 1998
(Unaudited)
------------- ----------------
<S> <C> <C>
Assets:
- -------
Cash and Cash Equivalents $16,422 $16,193
Accounts Receivable 1,239 1,409
Accounts and Notes Receivable,
Related Parties 7,588 10,427
Real Estate Inventory 131,368 84,152
Property and Equipment, Net 622 634
Other Assets 2,587 1,093
-------- --------
Total Assets $159,826 $113,908
======== ========
Liabilities & Partners' Equity:
- -------------------------------
Accounts Payable $22,071 $20,781
Other Liabilities 351 -
Accrued Expenses 2,452 1,925
Notes Payable:
Senior Notes at 11 3/8% due
December 2000 19,700 19,700
Collateralized by Real Estate
Inventory 68,862 35,536
Other Notes Payable 4,027 4,823
------ ------
Total Notes Payable 92,589 60,059
------ ------
Total Liabilities 117,463 82,765
Partners' Equity 42,663 31,443
Less: Capital Note Receivable
From Partner (300) (300)
-------- -------
Net Partners' Equity 42,363 31,143
-------- -------
Total Liabilities &
Partners' Equity $159,826 $113,908
======== ========
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF INCOME AND PARTNERS' EQUITY
FOR THE NINE AND THREE MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited)
(Amount's in 000's)
Nine Months Ended Three Months Ended
July 31, July 31,
----------------- ------------------
1999 1998 1999 1998
----------------- ------------------
<S> <C> <C> <C> <C>
Homebuilding Revenues $185,192 $139,842 $81,226 $57,280
Cost of Homes Sold 151,797 117,359 66,572 47,207
-------- -------- ------- ------
Gross Profit 33,395 22,483 14,654 10,073
Land Sale Revenues 8,776 - 1,433 -
Cost of Land Sold 9,361 - 1,580 -
------ ------ ----- -----
Income (Loss) on
Land Sales (585) - (147) -
Operating Expenses:
- -------------------
Selling & Marketing Exp. 11,976 10,585 4,669 3,723
General & Admin. Exp. 11,104 7,722 4,427 3,205
Loss on Abandoned Land
Options 196 126 50 34
------ ------ ----- -----
Total Operating Expenses 23,276 18,433 9,146 6,962
------ ------ ----- -----
Operating Income 9,534 4,050 5,361 3,111
Other Income (Expenses):
- ------------------------
Interest Income 643 338 302 108
Interest Expense (9) (122) - (122)
Other Income
and (Exp.), net 1,052 1,174 10 934
----- ----- --- ---
Total Other Income(Exp.) 1,686 1,390 312 920
----- ----- --- ---
Income before
Extraordinary Gain 11,220 5,440 5,673 4,031
Extraordinary Gain on
Extinguishment of
Senior Notes - 36 - -
------- ------ ------ ------
Net Income $11,220 $5,476 $5,673 $4,031
======= ====== ====== ======
Partners' Equity at
Beginning of Period $31,443 $21,426 $36,990 $22,407
Capital Distribution - (464) - -
Net Income this Period 11,220 5,476 5,673 4,031
------ ------- ----- ------
42,663 26,438 42,663 26,438
Less: Capital Note
Receivable From Partner (300) (300) (300) (300)
------- ------- ------- -------
Net Partners' Equity at
End of Period $42,363 $26,138 $42,363 $26,138
======= ======= ======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
THE FORECAST "Registered Tradename" GROUP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited)
(Amount's in 000's)
1999 1998
----- ----
<S> <C> <C>
Operating Activities:
- ---------------------
Net Income $11,220 $5,476
Adjustments to Reconcile Net Income to
Net Cash (Used For) Provided By
Operating Activities
Extraordinary Gain on
Extinguishment of Senior Note - (36)
Depreciation on Property and Equipment 288 312
Loss on Abandoned Land Options 196 126
Loss on Land Sales 585 -
Loss(Gain)on Sale of Property and Equipment 33 (11)
Decrease in Accounts Receivable 170 420
Increase in Real Estate Inventory (47,997) (9,041)
(Increase) Decrease in Other Assets (1,951) 297
Increase in Accounts Payable and
Accrued Expenses 1,817 5,728
Increase in Other Liabilities 351 -
------ -----
Net Cash (Used For)
Provided By Operating Activities (35,288) 3,271
------ -----
Investing Activities:
- ---------------------
Contribution to Joint Venture (7) (100)
Distribution from Joint Venture 464 -
Additions to Property and Equipment (309) (231)
Proceeds from sale of property and equipment - 330
----- -----
Net Cash Provided by
(Used for) Investing Activities 148 (1)
----- -----
Financing Activities:
- ---------------------
Retirement of Senior Notes at 11 3/8%
due December 2000 - (1,289)
Decrease/(Increase) in Accounts and
Notes Receivable, Related Parties 2,839 (3,894)
Proceeds from Notes Payable
Collateralized by Real Estate 169,611 88,935
Proceeds from Notes Payable, Other 244 1,357
Principal Payments on Notes Payable
Collateralized by Real Estate (136,285) (84,416)
Principal Payments on Notes Payable,
Other (1,040) (813)
------ ---
Net Cash Provided by
(Used for) Financing Activities 35,369 (120)
------ ---
Increase in Cash and Cash Equivalents 229 3,150
Cash and Cash Equivalents at
Beginning of Period 16,193 13,550
------ ------
Cash and Cash Equivalents at
End of Period $16,422 $16,700
======= =======
</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, 1998 (File No. 33-72106) as filed with the Securities
and Exchange Commission.
The results of operations for the nine months ended July 31,
1999 do not necessarily indicate the results that can be expected
for the full fiscal year.
The results of operations for the nine months ended July 31,
1999, 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, 1998 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 and federal fund 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's in 000's)
July 31, 1999
----------------------------
Real Estate Notes Payable
Inventory
----------- -------------
<S> <C> <C>
Land Held for Development $8,886 $0
Residential Projects in Process 121,549 68,862
Model Homes 933 -
-------- -------
Total $131,368 $68,862
======== =======
October 31, 1998
----------------------------
Real Estate Notes Payable
Inventory
----------- -------------
Land Held for Development $13,263 $0
Residential Projects in Process 65,623 33,525
Model Homes 5,266 2,011
------- -------
Total $84,152 $35,536
======= =======
</TABLE>
During the nine months ending July 31, 1999, the Company
entered into transactions for the sale and subsequent leaseback
of model homes from unrelated third parties, and recorded
$13,729,000 of sales revenue, $2,516,000 of gross profit
and $2,354,000 of income related to these transactions.
For the three months ended July 31, 1999, the Company recorded
$4,202,000 of sales revenue, $882,000 of gross profit and
$819,000 of income related to these model leaseback transactions.
The Company entered into contract with a third party for
profit participation on certain lots in Corona. The Company
purchased these lots from an affiliated entity in which Mr.
Previti and the third party each own a 50% interest. During the
nine months ending July 31, 1999, the Company closed 15 lots and
recorded a liability for the related profit participation of
$351,000 which has been classified as Other Liabilities on the
balance sheet.
3. Interest
The following summarizes the components of interest
incurred, capitalized, expensed and paid:
<TABLE>
(Amount in 000's)
For the Nine Months For the Three Months
Ended Ended
July 31, July 31,
-------------------- -------------------
1999 1998 1999 1998
-------------------- -------------------
<S> <C> <C> <C> <C>
Interest incurred and
capitalized $7,615 $5,196 $2,884 $1,693
Interest incurred and
expensed 9 122 - 122
------ ------ ------ ------
Total Interest Incurred $7,624 $5,318 $2,884 $1,815
====== ====== ====== ======
Capitalized interest
Amortized to cost of
Homes Sold $5,457 $6,178 $2,522 $1,988
Interest paid $8,197 $6,143 $3,445 $2,593
</TABLE>
4. Transactions With Affiliates
From time to time, the Trust and/or Mr. Previti have
guaranteed indebtedness of the Company in order to enable the
Company to obtain financing on more favorable terms than would
otherwise be available. There can be no assurances that the
Trust and/or Mr. Previti will continue to provide such guarantees
in the future.
In 1993, Mr. Previti contributed to the Company, two
undeveloped parcels of real property in Bullhead City, Arizona
zoned, for multi-family use. In May 1995, the Company sold one
of these parcels to an affiliate, Previti Realty Fund, in
exchange for a note in the amount of $641,000 secured by the
parcel. Previti Realty Fund developed the parcel as part of an
adjacent existing multi-family operating property bringing the
total units in that operating property to 204. The remaining
parcel of undeveloped property held by the Company has a current
book value of $1.6 million. Previti Realty Fund and the Company
intend to sell the operating property owned by Previti Realty
Fund and the undeveloped parcel owned by the Company, together as
one parcel. In conjunction with this anticipated sale, Mr.
Previti has pledged his interest in the net proceeds from the
intended sale of the combined properties to ensure the Company
will receive the carrying value for its undeveloped property.
During the nine months ended July 31, 1999, the Company earned
various management fees, including a $1,100,000 fee from an
affiliated entity in which Mr. Previti owns a 50% interest, for
development related rights and services associated with certain
real property in Southern California, of which $500,000 is a
receivable as of July 31, 1999.
5. Receivables From Affiliates
During the nine months ended July 31, 1999, aggregate payments
of approximately $2.8 million, net of additional borrowings,
were received to reduce Accounts Receivables from Related
Parties. The payments received included $1,600,000 from an
affiliated entity, in which Mr. Previti is a 100% owner, for
costs incurred by the Company, on behalf of the affiliate, for
certain development activities on real property in Northern
California.
The payments received also included Mr. Previti's payment of
a $589,000 note receivable for the purchase from the Company of
17 finished lots in Moreno Valley. As of July 31, 1999, the
Company received a $1,000,000 fee earned by the Company as of
October 31, 1998 and earned another $1,100,000 in fees, of which
$500,000 is a receivable from an affiliated entity in which Mr.
Previti owns a 50% interest, for development related rights and
services associated with certain real property in Southern
California.
6. 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. At July 31, 1999
Senior Notes with a face value of $19,700,000 are held in names
of investors other than the Company. The notes are joint and
several senior obligations of the Company and Forecast
"Registered Tradename" Capital Corporation ("Capital"), with
interest only payments due semiannually on June 15 and December
15 of each year. The notes are senior 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 permits the Company
to incur up to $15 million in recourse debt in addition to the
$50 million of Senior Notes, and to incur additional recourse
debt beyond this $15 million limitation if the Company maintains
certain debt-to-equity and debt coverage ratios. As of July 31,
1999, the Company met both its debt-to-equity and debt coverage
ratio tests thereby providing the Company with the flexibility to
incur more than $15 million of recourse debt had it been
necessary. The Company is not precluded from incurring
additional debt on a non-recourse debt basis, without regard to
any interest or debt coverage ratios. Despite this present
ability to incur additional recourse debt, there is no assurance
that the Company will continue to meet these ratio tests, and if
not, that Mr. Previti and/or the Trust will be willing to
guarantee such indebtedness.
The Indenture also requires that the Company maintain a
minimum net worth of $25 million. If the Company's net worth at
the end of any two consecutive fiscal quarters (Trigger Dates) is
less than $25 million, then the Company is required to make an
offer ("Net Worth Offer") to all Senior Note holders to acquire,
on a pro rata basis, Senior Notes in the aggregate principal
amount of $5 million 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.
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 not in compliance with the
minimum net worth requirement, which resulted in Trigger Dates
occurring on April 30, 1997 and October 31, 1997. Despite the
occurrence of these Trigger Dates, the Company's acquisition and
retirement of over $20.9 million in Senior Notes prevented the
need to make a Net Worth Offer of any kind.
As of January 31, and April 30, 1998 the Company was still
not in compliance with the minimum net worth requirement which
resulted in the occurrence of another Trigger Date on April 30,
1998. Again, the Company's prior acquisition and retirement of
Senior Notes remained sufficient to prevent the need to make a
Net Worth Offer at April 30, 1998.
Since July 31, 1998, the Company's net worth has been above
the $25 million threshold, thereby bringing the Company's net
worth into compliance with the net worth provisions of the
Indenture.
7. 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 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 long
lived 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 nine months ended July
31, 1999 or 1998.
8. Extraordinary Item
During the nine months ended July 31, 1998, the Company
repurchased a portion of its Senior Notes having an aggregate
face value of $1,325,000. Net of allocable issuance costs, the
resultant income of $36,000 was reported as an extraordinary gain
in the Company's financial statements for the nine months ended
July 31, 1998. The Senior Notes were purchased from Mr. Previti
and in the open markets and $21,400,000 of the total $50,000,000
of such Senior Notes have been retired. No such repurchases were
made during the nine months ended July 31, 1999. As of July 31,
1999, approximately $4,027,000 was due on the margin account for
the purchase of these Senior Notes and such amount has been
classified as Other Notes Payable on the Company's balance sheet.
FHI's Board of Directors has authorized management to repurchase
additional Senior Notes, through affiliates at their cost plus
accrued interest, or on the open market, when such transactions
are deemed to be in the Company's best interests. As of July 31,
1999, affiliates of the Company did not own any additional Senior
Notes.
9. Subsequent Events
Subsequent to July 31, 1999, the Company entered into an
agreement to sell its remaining unclosed land inventory of its
Arizona division, consisting of approximately 780 lots. The
agreement also provides the buyer with an option to acquire
another 238 lots that the Company currently has under contract.
The existing land inventory portion of this transaction is
anticipated to close in September, 1999, with the option portion
closing in mid-2000, if it is consummated.
<PAGE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
July 31, October 31,
1999 1998
(Unaudited)
--------- ------------
<S> <C> <C>
Assets:
- -------
Cash $800 $100
---- ----
Total Assets $800 $100
==== ====
Liabilities & Shareholders'
- ---------------------------
Deficit:
- --------
Accounts Payable $300 $300
Accounts Payable, Related Parties 6,400 4,400
----- -----
Total Liabilities 6,700 4,700
----- -----
Common Stock, $1.00 par value:
Authorized 10,000 shares
Issued and Outstanding
2,500 shares 2,500 2,500
Accumulated Deficit (8,400) (7,100)
----- -----
Total Shareholders' Deficit (5,900) (4,600)
----- -----
Total Liabilities &
Shareholders' Deficit $800 $100
===== ====
</TABLE>
[FN] See notes to financial statements.
FORECAST "Registered Tradename" CAPITAL CORPORATION
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited)
<TABLE>
Nine Months Ended Three Months Ended
July 31, July 31,
----------------- ------------------
1999 1998 1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
General & Admin. Exp. $500 $0 $0 $0
Income Tax Expense 800 800 0 800
------- ------ ---- -----
Net Loss ($1,300) ($800) $0 ($800)
======== ====== ==== =====
Shareholders' Equity at
Beginning of Period ($7,100) ($3,600 $0 ($3,600)
Net Loss this Period (1,300) (800) 0 (800)
------ ------ --- ------
Shareholders' Equity at
End of Period ($8,400) ($4,400) $0 ($4,400)
====== ====== == ======
</TABLE>
[FN] See notes to financial statements.
<PAGE>
FORECAST "Registered Tradename" CAPITAL
CORPORATION NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Forecast "Registered Tradename" Capital Corporation (the
"Company") was incorporated in California on September 20, 1993,
and was formed solely for the purpose of serving as an Issuer of
the Senior Notes for The Forecast Group "Registered Tradename",
L.P. The authorized capital stock of the Company consists of
10,000 shares of common stock with a par value of $1.00 per
share. The Company is a wholly-owned subsidiary of The
Forecast Group "Registered Tradename", L.P., a California
limited partnership that is engage in the residential real
estate development business. The Company is financially
dependent on The Forecast Group "Registered Tradename", L.P. to
fund its continuing operations.
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, 1998 (File No. 33-72106) as filed with the Securities
and Exchange Commission.
The results of operations for the nine months ended July 31,
1999 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. This table excludes land
sales revenue and cost of land sold.
<TABLE>
Percent of Percent of
Housing Sales Housing Sales
For the For the
Nine Months Ended Three Months Ended
July 31, July 31,
------------------- ------------------
1999 1998 1999 1998
------------------- ------------------
<S> <C> <C> <C> <C>
Homebuilding Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Homes Sold 82.0% 83.9% 82.0% 82.4%
----- ------ ----- -----
Gross Profit 18.0% 16.1% 18.0% 17.6%
Operating Expenses:
- -------------------
Selling & Marketing Exp. 6.5% 7.6% 5.7% 6.5%
General & Admin. Exp. 6.0% 5.5% 5.5% 5.6%
Loss on Abandoned
Land Options 0.1% 0.1% 0.1% 0.1%
----- ----- ----- -----
Total Operating Exp. 12.6% 13.2% 11.3% 12.2%
Operating Income 5.4% 2.9% 6.7% 5.4%
===== ===== ===== ====
Number of homes closed 1,042 872 431 345
Number of homes sold 1,371 875 489 357
Number of homes in backlog 562 292
Aggregate value of Backlog
(in millions) $101.9 $46.6
====== =====
</TABLE>
Results of Operations
For the Nine Months ended July 31, 1999 and July 31, 1998
Housing revenues for the nine months ended July 31, 1999 were
$185.2 million, resulting from a record 1,042 closings,
representing a 32.4% increase in revenues and a 19.5% increase in
the number of closings from the nine months ended July 31, 1998.
The increase in these numbers reflect a continued strengthening
in the California housing market which translated into increased
average sales prices in the Company's strongest submarkets, as
well as an increase in overall sales and per community absorption
rates throughout the Company's submarkets. The average sales
price of the homes closed during the nine months ended July 31,
1999 was $177,727, or an increase of 10.8%, as compared to
$160,369 for the same period a year earlier.
Gross profit from housing sales increased by 48.5% to $33.4
million for the nine months ended July 31, 1999, as compared to
$22.5 million for the nine months ended July 31, 1998. At the
same time, gross profit per home increased by 24.3%, or $6,266 to
$32,049 over the comparable period in 1998. Gross profit margin
for the nine months ended July 31, 1999 increased by 11.8% to
18.0% as compared to 16.1% a year ago. The increase in gross
margin was due primarily to overall increased prices in a number
of the Company's submarkets where greater demand permitted the
Company to adjust pricing upward, without adversely affecting
absorption rates.
During the nine months ended July 31, 1999, the Company sold
six parcels of land, resulting in a book loss of $585,000. No
land was sold in the comparable period in 1998. In addition,
housing revenues and gross profit from housing sales for the nine
months ended July 31, 1999 include $13,729,000 and $2,516,000,
respectively, from sale leaseback transactions of model homes.
There were no such transactions in the comparable prior year
period.
Due to the increased sales and construction volume during the
nine months ended July 31, 1999, the Company's interest incurred
increased 43.4% over the nine months ended July 31, 1998. The
Company's interest amortized to cost of homes sold (as a
percentage of revenue) decreased 33.3% to 2.9%, for the nine
months ended July 31, 1999, from 4.4% for the same period a year
ago, and is directly attributable to increased absorption rates,
which produced increased rates of inventory turnover, resulting
in lower capitalized interest amortized to cost of homes sold.
Selling and advertising, as a percentage of revenue,
decreased 14.5% to 6.5% as compared to 7.6% for the comparable
period a year ago. This decrease is attributable to both the
Company's higher closing volume during the period and the
reduction in sales incentives needed to achieve desirable
absorption rates. Selling and advertising expense increased
13.1%, to $12.0 million, for the nine months ended July 31, 1999,
as compared to $10.6 million for the nine months ended July 31,
1998, and is directly attributable to the 19.5% increase in
closing volume between the two comparable periods.
General and administrative, as a percentage of revenues, was
6.0% as compared to 5.5% for the same period a year ago. The
increase is attributable to an increase in personnel primarily
arising from the start up of both the San Diego County and Los
Angeles County Divisions, as well as increased management bonuses
that resulted from the improved profitability of the Company, and
the overall Company need for more personnel to adequately handle
its larger volume of sales, construction, forward planning and
closing activities.
Due to the continued improvement in homebuying market
conditions, and the strengthening of the California housing
market in particular, income before extraordinary gain increased
106.2% to $11.2 million, during the nine months ended July 31,
1999, as compared to income before extraordinary gain of $5.4
million for the nine months ended July 31, 1998. Income before
extraordinary gain, as a percentage of revenue, increased 53.8%
to 6.0% as compared to 3.9% for the comparable period.
Extraordinary gain for the nine months ended July 31,1998
was $36,000 related to the Company's repurchase of $1.3 million
of its Senior Notes. There were no extraordinary gains in the
nine months ended July 31, 1999.
Results of Operations
For the Three Months ended July 31, 1999 and July 31, 1998
Housing revenues for the three months ended July 31, 1999
were $81.2 million, resulting from a record 431 closings,
representing a 41.8% increase in revenues and a 24.9% increase in
the number of closings from the three months ended July 31, 1998.
The increase in these numbers reflect a continued strengthening
in the California housing market which translated into increased
average sales prices in the Company's strongest submarkets, as
well as an increase in overall sales and per community absorption
rates throughout the Company's submarkets. The average sales
prices of the homes closed during the three months ended July 31,
1999, was $188,459, or an increase of 13.5%, as compared to
$166,029 for the same period a year earlier. Backlog of houses
sold reached a record high of 562 as of July 31, 1999, a 92.5%
increase as compared to 292 for the comparable prior year period.
Gross profit from housing sales increased by 45.5% to $14.7
million for the three months ended July 31, 1999, as compared to
$10.1 million for the three months ended July 31, 1998, which is
directly attributable to the increase in home closings. Gross
profit margin for the three months ended July 31, 1999 increased
by 2.3% to 18.0% as compared to 17.6% for the same period a year
ago. The increase in gross margin was due primarily to overall
increased prices in a number of the Company's submarkets where
greater demand permitted the Company to adjust pricing upward,
without adversely affecting absorption rates.
During the three months ended July 31, 1999, the Company sold
a parcel of land, which resulted in a loss of $147,000. No land
was sold in the comparable period in 1998. In addition, housing
revenues and gross profit from housing sales for the three months
ended July 31, 1999 include $4,202,000 and $882,000,
respectively, from sale leaseback transactions of model homes.
There were no such transactions in the comparable prior year
period.
Due to the increased sales and construction volume during the
three months ended July 31, 1999, the Company's interest incurred
increased 58.9% over the three months ended July 31, 1998, while
the Company's interest amortized to cost of homes sold (as a
percentage of revenue) decreased 11.4% to 3.1%, from 3.5% for the
same period a year ago. These variances are directly
attributable to increased absorption rates, which thereby
produced increased rates of inventory turnover, and resulted in
lower capitalized interest amortized to cost of homes sold.
Selling and advertising, as a percentage of revenue,
decreased 12.3% to 5.7% as compared to 6.5% for the comparable
period a year ago. This decrease is attributable to both the
Company's higher closing volume during the period and the
reduction in sales incentives needed to achieve desirable
absorption rates. Selling and advertising expense increased
25.4%, to $4.7 million, for the three months ended July 31, 1999,
as compared to $3.7 million for the three months ended July 31,
1998, and is directly attributable to the 24.9% increase in
closing volume between the two comparable periods.
While in overall numbers general and administrative expenses
increased 38.1%, to $4.4 million over the prior year period,
general and administrative expenses, as a percentage of revenue,
decreased to 5.5% as compared to 5.6% for the same period a year
ago. The overall dollar increase is attributable to the addition
of needed personnel stemming from the start up of the Los Angeles
County Division, as well as increased management bonuses that
resulted from the improved profitability of the Company, and the
overall Company need for more personnel to adequately handle its
larger volume of sales, construction, forward planning and
closing activities.
Due to the continued improvement in homebuying market
conditions and the strengthening of the California housing market
in particular, income before extraordinary gain was $5.7 million
during the three months ended July 31, 1999, as compared to
income before extraordinary gain of $4.0 million for the three
months ended July 31, 1998. Income before extraordinary gain,
as a percentage of revenue, was 7.0% for both comparable periods.
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 capital markets, and with available cash flow
from operations.
The Company's financing needs depend primarily upon sales
volume, asset turnover and land acquisition. When liquidating
inventory through home closings, the Company generates cash. When
building inventory, the Company uses substantial amounts of cash
obtained through borrowings and cashflow from operations.
The Company has had adequate liquidity throughout its operating
history, despite recessionary periods, and historically the
Company's liquidity needs have been met through the use of cash
provided by a combination of closings and financing activities.
At certain times during the past few years the Company has
repurchased portions of its outstanding 11 3/8% Senior Notes due
2000, on the open market, at prices below par. The Company
subsequently retired such repurchased 11 3/8% Senior Notes,
reporting the resultant income as an extraordinary gain in the
Company's consolidated financial statements. At times, these
debt repurchases were utilized to cure certain unsatisfied
minimum net worth covenant requirements in the Indenture for the
11 3/8% Senior Notes.
At July 31, 1999, the Company had commitments for $131.4
million under several revolving credit facilities with
commercial banks and financial institutions, of which $65.8
million was outstanding. In addition, at July 31, 1999, the
Company had community specific facilities capable of providing
aggregate fundings of $4.1 million, of which $2.6 million was
outstanding. 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. The
Company also utilizes an unsecured borrowing line from time to
time to meet its operational needs and objectives. The unsecured
borrowing line has commitments of $2.4 million, of which $421,000
was outstanding as of July 31, 1999. On July 31, 1999, the
aggregate outstanding principal balance under the Company's
credit facilities was $68.8 million and the recourse to the
Company from those borrowings was 19% of the total outstanding
sums, or $13.1 million.
To date, the Company has been able to obtain acceptable land
acquisition and construction financing. Consistent with an
industry trend, certain lenders require increased amounts of cash
invested in a project by borrowers in connection with both new
loans and the extension of existing loans. The Company currently
intends to continue utilizing conventional bank financing for
land acquisition and construction financing, and use its own cash
to fund that portion of the total project costs and acquisition
costs its Lenders require be supplied (in form of equity) in
order to obtain construction or land acquisition financing. At
times, in the past, the Company has failed to meet the debt-to-
equity and debt coverage ratios that are set forth in the
Indenture governing the 11 3/8% Senior Notes, thereby resulting
in the Company being restricted in its ability to incur recourse
indebtedness. In the past, to overcome the limitation and assist
the Company in meeting its liquidity needs, Mr. Previti and/or
the Previti Family Trust has guaranteed a portion of the
Company's indebtedness. As of July 31, 1999, the Company met
both its debt-to-equity and debt coverage ratio tests, thereby
providing the Company with the flexibility to incur more than $15
million of recourse debt, had it been necessary. Despite this
present ability to incur additional recourse debt, there is no
assurance that the Company will continue to meet these ratio
tests, and if not, that Mr. Previti and/or the Trust will be
willing to guarantee such indebtedness. The Company considers
its current relationship with its lenders to be good.
In February 1994, the Company issued $50 million in Senior
Notes through a public debt offering. As of July 31, 1999, the
Company had repurchased and retired a total of $21,400,000 of the
Senior Notes, with the remaining $28,600,000 having not been
retired, (including $8,900,000 which were repurchased and are
being held in the Company's name). The notes are due in December
2000, with interest at the rate of 11 3/8% per annum payable semi
annually on June 15 and December 15 of each year.
The Indenture governing the Senior Notes requires the
Company to maintain a minimum net worth of $25 million. As of
July 31, 1999 the Company was in compliance with the net worth
provisions of the Indenture.
There can be no assurance that the impact of market
conditions affecting the demand for homes or the availability of
debt financing will not adversely affect the Company's future
needs for capital. However, the Company expects that available
capital resources will be sufficient to meet its normal operating
requirements over the near term.
Impact of Year 2000
Some of the Company's older computer programs were written
using two, rather than four, digits to define the applicable
year. As a result, those computer programs have time-sensitive
software that recognize a date using "00" as the year 1900,
rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has completed its internal assessment and testing
of its IT and non-IT systems that are designed to function
properly with respect to dates in the year 2000 and thereafter.
The core operating system for the Company, JD Edwards, is in
compliance with year 2000 standards. The last ancillary program
for the Company will be year 2000 compliant by the end of the
Company's fourth fiscal quarter ending October 31, 1999. The
Company believes that with the modifications to existing
software, the year 2000 will not pose significant operational
problems for its computer system.
The Company recognizes that there may be significant business
disruptions involving year 2000 problems with its vendors and
customers. To counteract this potential disruption to its
business and earnings, the Company has undertaken, but not yet
completed, an assessment of the readiness of such third parties,
where the failure of such third parties to be year 2000 compliant
could have a material impact on the Company. For instance,
financial service providers to both the Company and the Company's
customers may incur significant costs and even temporary
shutdowns as a result of computer problems. Should those
financial services providers not prove to be ready for compliance
with the systems' needs associated with the year 2000, the
ability of lenders to advance funds both for purchasers of the
Company's homes and for financing that is associated with the
Company's operations may be impacted negatively. Any such delay
could have a material adverse effect on the Company and its
results of operations. In the meantime, the Company is
continuing to collect the written assurances it has delivered to
its major vendors regarding their current and expected future
readiness for the year 2000, and is developing contingency plans
should any of its major vendors fail to be year 2000 compliant in
time. These contingency plans range from finding alternative
sources for these services, to training and readying the
Company's employees and personal property so they are prepared
(if needed) to function at current capacities and efficiencies
until the non-complying vendors do in fact become year 2000
compliant. Although non-compliance could materially affect the
Company's revenues and earnings, the Company anticipates that the
likelihood of such an effect to be remote, and that the cost for
the implementation of its contingency plans to be non-material to
its revenues and earnings.
<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
September 3, 1999 By: /s/ James P. Previti
- ----------------- --------------------
Date James P. Previti
President
By: /s/ Richard B. Munkvold
-----------------------
Richard B. Munkvold
Vice President - Finance
Principal Accounting Officer
By: FORECAST "Registered Tradename" CAPITAL CORPORATION
- -------------------------------------------------------
September 3, 1999 By: /s/ James P. Previti
- ----------------- ----------------------
Date James P. Previti
President
By: /s/ Richard B. Munkvold
-------------------------
Richard B. Munkvold
Vice President - Finance
Principal Accounting Officer
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