FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 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)
Californa 33-0582072
--------- ----------
Californa 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 nonaffiliates of the Registrant
at June 4, 1999. At June 4, 1999, Forecast "Registered Tradename"
Capital Corporation had 2,500 shares of Common stock outstanding.
<PAGE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED BALANCE SHEETS
(Amount's in 000's)
<TABLE>
April 30, 1999 OCTOBER 31, 1998
(Unaudited)
-------------- ----------------
<S> <C> <C>
Assets:
- -------
Cash and Cash Equivalents $17,573 $16,193
Accounts Receivable 1,895 1,409
Accounts and Notes Receivable,
Related Parties 8,019 10,427
Real Estate Inventory 128,762 84,152
Property and Equipment, Net 651 634
Other Assets 2,076 1,093
-------- -------
Total Assets $158,976 $113,908
======== ========
Liabilities & Partners' Equity:
- -------------------------------
Accounts Payable $29,157 $20,781
Accrued Expenses 2,398 1,925
Notes Payable:
Senior Notes at 11 3/8% due
December 2000 19,700 19,700
Collateralized by Real Estate
Inventory 66,576 35,536
Other Notes Payable 4,455 4,823
------ ------
Total Notes Payable 90,731 60,059
------ ------
Total Liabilities 122,286 82,765
Partners' Equity 36,990 31,443
Less: Capital Note Receivable
From Partner (300) (300)
------ ------
Net Partners' Equity 36,690 31,143
------ ------
Total Liabilities & Partners'
Equity $158,976 $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 SIX AND THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(Unaudited)
(Amount in 000's)
Six Months Ended Three Months Ended
April 30, April 30,
--------------- ------------------
1999 1998 1999 1998
--------------- ------------------
<S> <C> <C> <C> <C>
Homebuilding Revenues $103,966 $82,562 $65,802 44,113
Cost of Homes Sold 85,225 70,152 54,323 37,528
-------- ------- ------- ------
Gross Profit 18,741 12,410 11,479 6,585
-------- ------- ------- ------
Land Sale Revenues 7,343 - 75 -
Cost of Land Sold 7,781 - 67 -
----- ------ ------- ------
Income (Loss) on Land Sales (438) - 8 -
----- ------ ------- ------
Operating Expenses:
- -------------------
Selling & Marketing Exp. 7,307 6,862 4,260 3,339
General & Admin. Expenses 6,677 4,517 3,540 2,547
Loss on Abandoned
Land Options 146 92 77 83
------ ------ ---- -----
Total Operating Expenses 14,130 11,471 7,877 5,969
------ ------ ----- -----
Operating Income 4,173 939 3,610 616
Other Income Expenses):
- -----------------------
Interest Income 341 230 186 135
Interest Expense (9) - 65 -
Other Income and Exp., net 1,042 240 356 172
----- --- --- ---
Total Other Income (Exp.) 1,374 470 607 307
----- --- --- ---
Income before
Extraordinary Gain 5,547 1,409 4,217 923
Extraordinary Gain on
Extinguishment of
Senior Notes - 36 - -
------ ------ ------ ----
Net Income $5,547 $1,445 $4,217 $923
====== ====== ====== ====
Partners' Equity at
Beginning of Period $31,443 $21,426 $32,773 $21,484
Capital Distribution - (464) - -
Net Income this Period 5,547 1,445 4,217 923
------ ------ ------ ------
36,990 22,407 36,990 22,407
Less: Capital Note
Receivable from Partner (300) (300) (300) (300)
------ ------ ------ ------
Net Partners' Equity at
End of Period $36,690 $22,107 $36,690 $22,107
======= ====== ======= =======
</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, 1999 AND 1998
(Unaudited)
(Amount in 000's)
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
- --------------------
Net Income $5,547 $1,445
Adjustments to Reconcile Net Income to
Net Cash Used In Operating Activities
Extraordinary Gain on Extinguishment of
Senior Notes - (36)
Depreciation on Property and Equipment 190 202
Loss on Abandoned Land Options 146 92
Loss on Land Sales 438 -
Gain on Sale of Property and Equipment - (9)
Decrease in Accounts Receivable (486) 374
Increase in Real Estate Inventory (45,194) (5,967)
(Increase)/Decrease in Other Assets (1,440) 388
Increase in Accounts Payable and
Accrued Expenses 8,849 1,565
------ -----
Net Cash Used in Operating Activities (31,950) (1,946)
------ -----
Investing Activities:
- ---------------------
Contribution to Joint Venture (7) -
Distribution from Joint Venture 464 -
Additions to Property and Equipment (207) (150)
Proceeds from sale of property and
equipment - 17
---- ---
Net Cash Provided by(Used for)
Investing Activities 250 (133)
--- ----
Financing Activities:
- ---------------------
Retirement of Senior Notes at 11 3/8%
due December 2000 - (1,259)
Decrease/(Increase) in Accounts and Notes
Receivable, Related Parties 2,408 (2,278)
Proceeds from Notes Payable
Collateralized by Real Estate 103,306 46,805
Proceeds from Notes Payable, Other 166 1,981
Principal Payments on Notes Payable
Collateralized by Real Estate (72,267) (47,226)
Principal Payments on Notes Payable,
Other (533) (860)
----- ------
Net Cash Provided by(Used for)
Financing Activities 33,080 (2,837)
------ -----
Increase in Cash and Cash Equivalents 1,380 (4,916)
Cash and Cash Equivalents at Beginning
of Period 16,193 13,550
------ ------
Cash and Cash Equivalents at End
Of Period $17,573 $8,634
======= ======
</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 six months ended April 30,
1999 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,
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)
April 30, 1999
---------------------------
Real Estate Notes Payable
Inventory
-----------------------------
<S> <C> <C>
Land Held for Development $8,822 $0
Residential Projects in Process 116,197 65,617
Model Homes 3,743 959
-------- ------
Total $128,762 $66,576
======== ======
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>
In January, 1999, the Company entered into transactions for
the sale and subsequent leaseback of model homes, and recorded
deposits of $1,881,000 from the buyers. During the quarter ended
April 30, 1999, the Company completed these transactions and recorded
$6,272,000 of sales revenue, $1,001,000 of gross profit and
$937,000 of income related to these transactions.
The Company entered into additional model home sale leaseback
transactions during the quarter ended April 30, 1999 with two
unrelated parties and one related party and recorded $3,255,000 of
sales revenue, $633,000 of gross profit and $598,000 of income.
Included in these amounts were $760,000 of sales revenue, $118,000
of gross profit and $115,000 of income arising from the related
party transaction. The related party, which is a partnership
comprising of officers of the Company, sold the model homes, to
an unrelated third party, in May 1999.
3. Interest
The following summarizes the components of interest incurred,
capitalized, expensed and paid:
<TABLE>
(Amounts in 000's)
For the Six Months For the Three Months
Ended Ended
April 30, April 30,
------------------ --------------------
1999 1998 1999 1998
----------------- -------------------
<S> <C> <C> <C> <C>
Interest incurred
and capitalized $4,731 $3,503 $2,540 $1,783
Interest incurred and
expensed 9 - - -
------ ------ ------ ------
Total Interest Incurred $4,740 $3,503 $2,540 $1,783
====== ====== ====== ======
Capitalized interest
amortized to cost of
Homes Sold $2,935 $4,190 $1,789 $2,134
Interest paid $4,752 $3,550 $1,999 $925
</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 $641,00 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 six months ended April 30, 1999, the Company received
various management fees, including a $1,100,000 fee earned by the
Company 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.
5. Receivables From Affiliates
During the six months ended April 30,1999, aggregate
payments of approximately $2.4 million, net of additional
borrowings, were received to reduce Accounts Receivables from
Related Parties. The payments received included $1,000,000 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 and a $1,000,000 fee earned by
the Company as of October 31, 1998 and paid during the first
quarter of fiscal 1999 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 April 30, 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 semi annually 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 April 30,
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 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, 1999 or 1998.
8. Extraordinary Item
During the six months ended April 30, 1998, the Company
repurchased a portion of its Senior Notes having an aggregate
face value of $1,325,000. 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 six months ended April 30, 1999.
As of April 30, 1999 approximately $4,455,000 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. 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 six months ended
April 30, 1998. 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 April 30, 1999, affiliates of the Company
did not own any additional Senior Notes.
<PAGE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
April 30, 1999 October 31, 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 SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(Unaudited)
<TABLE>
Six Months Ended Three Months Ended
April 30, April 30,
---------------- -----------------
1999 1998 1999 1998
---------------- -----------------
<S> <C> <C> <C> <C>
General & Admin. Exp. $500 $0 $500 $0
Income Tax Expense 800 800 800 800
---- --- ---- ---
Net Loss ($1,300) ($800) ($1,300) ($800)
====== ==== ====== ===
Shareholders' Equity at
Beginning of Period ($4,600) ($3,600) ($4,600) ($3,600)
Net Loss this Period (1,300) (800) (1,300) (800)
----- ------ ------ ------
Shareholders' Equity at
End of Period ($5,900) ($4,400) ($5,900) ($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 engaged 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 six months ended April 30,
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
Six Months Ended Six Months Ended
April 30, April 30,
---------------- ----------------
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% 85.0% 82.6% 85.1%
----- ---- ----- ---
Gross Profit 18.0% 15.0% 17.4% 14.9%
Operating Expenses:
- -------------------
Selling & Marketing Exp. 7.0% 8.3% 6.5% 7.6%
General & Admin Exp. 6.4% 5.5% 5.4% 5.8%
Loss on Abandoned
Land Options 0.2% 0.1% 0.1% 0.2%
----- ----- ----- -----
Total Operating Exp. 13.6% 13.9% 12.0% 13.6%
Operating Income 4.4% 1.1% 5.4% 1.4%
==== ==== ==== ====
Number of homes closed 611 527 376 279
Number of homes sold 882 518 535 316
Number of homes in backlog 504 280
Aggregate value of Backlog
(in millions) $89.9 $46.5
===== =====
</TABLE>
Results of Operations
For the Six Months ended April 30, 1999 and April 30, 1998
Housing revenues for the six months ended April 30, 1999
were $104.0 million, resulting from 611 closings, representing a
25.9% increase in revenues and a 15.9% increase in the
number of closings from the six months ended April 30, 1998.
The increase in these numbers reflect a continued
strengthening in the California housing market which resulted
in increased absorption rates and overall sales in the Company's
submarkets. The average sales price of the homes closed
during the six months ended April 30, 1999 was $170,157, or
an increase of 8.6%, as compared to $156,664 for the same period
a year earlier. The increase in average sales price is due
primarily to increases in sales prices in each of the Company's
strongest submarkets and the continued strengthening of the
California housing market.
Gross profit from housing sales increased by 51.0% to $18.7
million for the six months ended April 30, 1999, as compared to
$12.4 million for the six months ended April 30, 1998. At the
same time, gross profit per home increased by 30.2%, or $7,125,
to $30,673 over the comparable period in 1998. Gross profit
margin for the six months ended April 30, 1999 increased by 20%
to 18.0% as compared to 15.0% 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 six months ended April 30, 1999, the Company sold
five parcels of land, resulting in a loss of $438,000. No
land was sold in the comparable period in 1998. In addition,
housing revenues and gross profit from housing sales for the six
months ended April 30, 1999 include $9,527,000 and $1,634,000
from sale leaseback transactions of model homes. There were no
such transactions in the comparable period.
Due to the increased sales and construction volume during the
six months ended April 30, 1999, the Company's interest incurred
increased 35.3% over the six months ended April 30, 1998. The
Company's interest amortized to cost of homes sold (as a percentage
of revenue) decreased 44.4% to 2.8%, for the six months ended
April 30, 1999, from 5.1% 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 amortized capitalized interest costs.
Selling and advertising, as a percentage of revenue,
decreased 15.7% to 7.0% as compared to 8.3% 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 5.8%, to $7.3
million, for the six months ended April 30, 1999, as compared to
$6.9 million for the six months ended April 30, 1998, and is
directly attributable to the 15.9% increase in closing volume
between the two comparable periods.
General and administrative expenses increased $2.2 million
during the six months ended April 30, 1999, as compared to the
six months ended April 30, 1998. 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 need for
more personnel to adequately handle the larger volume of sales,
construction, forward planning and closing activities of the
Company.
Other income increased $904,000 during the six months
ended April 30, 1999, as compared to the six months ended
April 30, 1998. The increase is attributable to various
management fees, including a $1,000,000 fee earned by the
Company 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.
Due to the continued improvement in homebuying market
conditions, and the strengthening of the California housing
market in particular, income before extraordinary gain increased
to $5.5 million, during the six months ended April 30,
1999, as compared to income before extraordinary gain of $1.4
million for the six months ended April 30, 1998.
Extraordinary gain for the six months ended April 30, 1998
was $36,000 related to the Company repurchase of $1.3 million of
its Senior Notes. There were no extraordinary gains in the six
months ended April 30, 1999.
Results of Operations
For the Three Months ended April 30, 1999 and April 30, 1998
Housing revenues for the three months ended April 30, 1999
were $65.8 million, resulting from 376 closings, representing
a 49.2% increase in revenues and a 34.8% increase in the number of
closings from the three months ended April 30, 1998. The
increase in these numbers reflect a strengthening in the
California housing market which resulted in increased absorption
rates and overall sales in the Company's submarkets. The average
sales prices of the homes closed during the three months ended
April 30, 1999 was $175,005, or an increase of 10.7%, as compared
to $158,111 for the same period a year earlier. The increase in
average sales price is due primarily to increases in sales prices
in each of the Company's strongest submarkets and the continued
strengthening of the California housing market.
Gross profit from housing sales increased by 74.3% to $11.5
million for the three months ended April 30, 1999, as compared to
$6.6 million for the three months ended April 30, 1998, which is
directly attributable to the increase in home closings. Gross
profit margin for the three months ended April 30, 1999 increased
by 16.5% to 17.4% as compared to 14.9% 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 April 30, 1999, the Company
sold a parcel of land, which resulting in income of $8,000.
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 April 30, 1999 include $9,527,000 and
$1,634,000 from the sale leaseback transactions of model homes.
There were no such transactions in the comparable period.
Due to the increased sales and construction volume during
the three months ended April 30, 1999, the Company's interest
incurred increased 42.5% over the three months ended April 30,
1998, while the Company's interest amortized to cost of homes
sold (as a percentage of revenue) decreased 43.8% to 2.7%, from
4.8% 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 14.4% 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
27.6%, to $4.3 million, for the three months ended April 30,
1999, as compared to $3.3 million for the three months ended
April 30, 1998, and is directly attributable to the 34.8%
increase in closing volume between the two comparable
periods.
General and administrative expenses increased $993,000
during the three months ended April 30, 1999, as compared to the
three months ended April 30, 1998. The increase is attributable
to an increase in personnel arising 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 need for more personnel to adequately handle the
larger volume of sales, construction, forward planning and closing
activities of the Company.
Other income increased $300,000 during the three months
ended April 30, 1999, as compared to the three months ended
April 30, 1998. The increase is attributable to various
management fees, including a $500,000 fee earned by the Company
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.
Due to the continued improvement in homebuying market
conditions and the strengthening of the California housing market
in particular, income before extraordinary gain was $4.2 million
during the three months ended April 30, 1999, as
compared to income before extraordinary gain of $923,000 for the
three months ended April 30, 1998.
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 cash
flow 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 in December 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 April 30, 1999, the Company had commitments for $109.2
million under several revolving credit facilities with
commercial banks and financial institutions, of which $61.9
million was outstanding. In addition, at April 30, 1999, the
Company had community specific facilities capable of providing
aggregate fundings of $7.5 million, of which $3.2 million was
outstanding. The Company also benefits from a line of credit
which is secured by certain of its model homes of which $959,000
was outstanding as of April 30, 1999. 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 $2.5 million, of which $500,000
was outstanding as of April 30, 1999. On April 30, 1999, the
aggregate outstanding principal balance under the Company's credit
facilities was $66.6 million and the recourse to the Company from
those borrowings was $13.8 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 April 30, 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 April 30, 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
April 30, 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 third fiscal quarter ending July 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 shut
downs 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
noncomplying 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
June 4, 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
-------------------------------------------------------
June 4, 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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