FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 200549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended January 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, R. 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 non-affiliates of the
Registrant at March 5, 1999.
At March 5, 1999, Forecast "Registered Tradename" Capital
Corporation had 2,500 shares of Common stock outstanding.
<PAGE>
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's)
January 31, 1999 October 31, 1998
(unaudited)
---------------- ----------------
<S> <C> <C>
Assets:
- --------
Cash and Cash Equivalents $12,548 $16,193
Accounts Receivable 5,219 1,409
Accounts and Notes Receivable,
Related Parties 7,914 10,427
Real Estate Inventory 113,825 84,152
Property and Equipment, Net 624 634
Other Assets 2,440 1,093
-------- --------
Total Assets $142,570 $113,908
======== ========
Liabilities & Partners' Equity:
- -------------------------------
Accounts Payable $18,322 $20,781
Accrued Expenses 1,422 1,925
Notes Payable:
Senior Notes at 11 3/8% due
December 2000 19,700 19,700
Collateralized by
Real Estate Inventory 65,342 35,536
Other Notes Payable 4,374 4,823
------ ------
Total Notes Payable 89,416 60,059
------ ------
Total Liabilities 109,160 82,765
Partners' Equity 33,710 31,443
Less: Capital Notes Rec.
From Partners (300) (300)
------ ------
Net Partners' Equity 33,410 31,143
------ ------
Total Liabilities
& Partners' Equity $142,570 $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 THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
(Unaudited)
(Amounts in 000's)
For the Three Months Ended
January 31,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Homebuilding Revenues $44,436 $38,449
Cost of Homes Sold 36,173 32,624
------- -------
Gross Profit 8,263 5,825
------- -------
Land Sale Revenues 7,268 -
Cost of Land Sold 7,714 -
------- -------
Loss on Land Sales (446) -
------- -------
Operating Expenses:
- -------------------
Selling & Marketing Expenses 3,111 3,523
General & Administrative Expenses 3,137 1,970
Loss on Abandoned Land Options 69 -
------ ------
Total Operating Expenses 6,317 5,493
------ ------
Operating Income 1,500 332
Other Income (Expenses):
- ------------------------
Interest Income 90 95
Interest Expense (9) -
Other Income and Expenses 686 59
--- ---
Total Other Income (Expenses) 767 154
--- ---
Income before Extraordinary Gain 2,267 486
Extraordinary Gain on
Extinguishment of Senior Notes - 36
------ ---
Net Income $2,267 $522
====== ====
Partners' Equity at
Beginning of Period $31,443 $21,426
Capital Distributions, net - (464)
Net Income this Period 2,267 522
------- -------
Subtotal 33,710 21,484
Less: Capital Notes Receivable
from Partners (300) (300)
Net Partners' Equity at
End of Period $33,410 $21,184
======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
(Unaudited)
(Amounts in 000's)
For the Three Months Ended
January 31,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Operating Activities:
- ---------------------
Net Income $2,267 $522
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 86 100
Gain on Sale of Property and Equipment - (2)
Loss on Abandoned Land Options 69 -
Loss on Land Sales 446 -
Equity Income of unconsolidated
joint venture 80 -
Increase in Accounts Receivable (3,810) (140)
Increase in Real Estate Inventory (30,188) (4,512)
(Increase)/Decrease in Other Assets (1,632) 133
Decrease in Accounts Payable and
Accrued Expenses (2,962) (895)
------ -----
Net Cash Used in Operating Activities (35,644) (4,830)
------ -----
Investing Activities:
- ---------------------
Contribution to Joint Venture (7) -
Distribution from Joint Venture 212 -
Additions to Property and Equipment (76) (97)
Proceeds from Sale of Property and Equip. - 10
---- ---
Net Cash Provided by (Used for)
Investing Activities 129 (87)
---- --
Financing Activities:
- --------------------
Retirement of Senior Notes at 11 3/8% due
December 2000 - (1,259)
Decrease/(Increase) in Accounts and Notes
Receivable, Related Parties 2,513 (2,696)
Proceeds from Notes Payable,
Collateralized by Real Estate 58,281 22,506
Proceeds from Notes Payable, Other 85 1,953
Principal Payments on Notes Payable,
Collateralized by Real Estate (28,475) (22,927)
Principal Payments on Notes Payable, Other (534) (658)
------ -----
Net Cash Provided by (Used for)
Financing Activities 31,870 (3,081)
------ -----
Decrease in Cash and Cash Equivalents (3,645) (7,998)
Cash and Cash Equivalents at
Beginning of Period 16,193 13,550
------ ------
Cash and Cash Equivalents at
End of Period $12,548 $5,552
======= ======
</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 three months ended January
31, 1999 do not necessarily indicate the results that can be
expected for the full fiscal year.
The results of operations for the three months ended January
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>
(Amounts in 000's)
January 31, 1999
--------------------------
Real Estate Notes Payable
Inventory
--------------------------
<S> <C> <C>
Land Held for Development $8,747 $0
Residential Projects in Process 102,871 63,628
Model Homes 2,207 1,714
-------- -------
Total $113,825 $65,342
======== =======
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 three months ended January 31, 1999, the Company
sold and leased back 34 homes from private investors. The term
life of the leases range from 4 to 20 months.
3. Interest
The following summarizes the components of interest incurred,
capitalized, expensed and paid:
<TABLE>
(Amount in 000's)
For the Three Months
Ended
January 31
---------------------
1999 1998
----------------------
<S> <C> <C>
Interest Incurred and Capitalized $2,191 $1,720
Interest Incurred and Expensed 9 -
------ ------
Total Interest Incurred $2,200 $1,720
====== ======
Capitalized Interest Amortized to
Cost of Homes Sold $1,336 $2,056
Interest Paid $2,754 $2,625
</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 conjuction with this anticipated sale, Mr. Previti
has pledged his shareholder 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.
As of January 31, 1999, the Company received 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. On an ongoing basis the
Company also receives a monthly management fee of $20,000 for
the construction oversight and project management of this project.
5. Receivables From Affiliates
During the three months ended January 31, 1999, aggregate
payments of approximately $2.5 million were received to reduce
Accounts Receivable from Related Parties. The payments received
include $1,000,000 from an affiliated entity in which Mr. Previti
is a 100% owner, related to 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 January 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 January
31, 1999, the Company did not meet the interest coverage or debt-
to-equity ratios and had outstanding approximately $12.9 million
of recourse debt. The Company is not precluded from incurring
additional debt on a non-recourse debt basis, without regard to
any interest or debt coverage ratios. Mr. Previti and/or the
Previti Family Trust have guaranteed a portion of the Company's
indebtedness in order to assist the Company in meeting its liquidity
needs when the Company did not meet the debt-to-equity and/or
interest coverage ratios. Despite the Company's present ability
to incur a limited amount of additional recourse debt, there is no
assurance that Mr. Previti and/or the trust will be willing to
guarantee such indebtedness if these ratios are not met in the future.
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 three months ended
January 31, 1999 or 1998.
8. Extraordinary Item
During the three months ended January 31, 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 three months ended January 31, 1999.
As of January 31, 1999 approximately $4,374,000 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 three months ended January 31, 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 January 31, 1999, affiliates of the Company did not control
any additional Senior Notes.
<PAGE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
January 31, 1999 October 31,1998
(unaudited)
---------------------------------
<S> <C> <C>
Assets:
- -------
Cash $100 $100
---- ----
Total Assets $100 $100
==== ====
Liabilities &
Shareholders'Deficit:
- ----------------------
Accounts Payable $300 $300
Accounts Payable, Related Parties 4,400 4,400
------ ------
Total Liabilities $4,700 $4,700
------ ------
Common Stock, $1.00 par value:
Authorized 10,000 shares
Issued and Outstanding
2,500 shares 2,500 2,500
Accumulated Deficit (7,100) (7,100)
----- -----
Total Shareholders' Deficit (4,600) (4,600)
----- -----
Total Liabilities &
Shareholders' Deficit $100 $100
===== ====
</TABLE>
[FN] See notes to financial statements.
FORECAST "Registered Tradename" CAPITAL CORPORATION
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED JANUARY 31,1999 AND 1998
(Unaudited)
<TABLE>
Three Months Ended
January 31,
-------------------
1999 1998
-------------------
<S> <C> <C>
General & Administrative Expenses $0 $0
Income Tax Expense - -
--- --
Net Loss $0 $0
=== ==
Shareholders' Deficit
at Beginning of Period ($4,600) ($3,600)
Net Loss this Period $0 $0
----- -----
Shareholders' Deficit
at end of Period ($4,600) ($3,600)
====== ======
</TABLE>
[FN] See notes to financial statements.
<PAGE>
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 three months ended January
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 Housing Sales
For the Three Months Ended
January 31,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Amounts as a Percentage of
Revenues:
- --------------------------
Homebuilding Revenues 100.0% 100.0%
Cost of Homes Sold 81.4% 84.9%
------ ------
Gross Profit 18.6% 15.1%
Operating Expenses:
Selling & Marketing Expenses 7.0% 9.2%
General & Administrative Expenses 7.1% 5.1%
Loss on Abandoned Land Options 0.2% 0.0%
----- -----
Total Operating Expenses 14.2% 14.3%
----- -----
Operating Income 4.4% 0.8%
===== =====
Number of Homes Closed 269 248
Number of Homes Sold 347 202
Number of Homes in Sales Backlog 311 243
Aggregate Value of Sales Backlog ($ millions) $52.0 $39.0
===== =====
</TABLE>
<PAGE>
Results of Operations for the Three Months ended January 31,
1999 and January 31, 1998
Housing revenues for the three months ended January 31, 1999
were $44.4 million, resulting from 269 closings, representing a
15.6% increase in revenues and a 8.5% increase in the number of
closings from the three months ended January 31, 1998. The
increase in these amounts reflects a strengthening California
housing market which resulted in an increased absorption rate and
overall sales in the Company's submarkets. The average sales
prices of the homes closed during the three months ended January
31, 1999 was $165,190, or an increase of 6.5%, as compared to
$155,036 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 overall
strengthening of the California housing market.
Gross profit from housing sales increased by 41.8% to $8.3
million for the three months ended January 31, 1999, as compared
to $5.8 million for the three months ended January 31, 1998. At
the same time, gross profit per home increased by 30.8%, or
$7,229, to $30,717 over the comparable period in 1998. Gross
profit margin for the three months ended January 31, 1999
increased 3.5% to 18.6% as compared to 15.1% a year ago. The
increase in gross margin was due primarily to overall increased
prices in certain of the Company's submarkets resulting from
greater demand.
During the three months ended January 31, 1999, the Company
sold four parcels of land, which resulted in a net loss of
$466,000.
Due to the increased sales and construction volume during the
three months ended January 31, 1999, the Company's interest
incurred increased 27.9% over the three months ended January 31,
1998. The Company's interest amortized to cost of homes sold (as
a percentage of revenue) decreased 43.4% to 3.0%, for the three
months ended January 31, 1999, from 5.3% 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 costs.
Selling and advertising expenses decreased 11.7% to $3.1
million for the three months ended January 31, 1999, as compared
to $3.5 million for the three months ended January 31, 1998.
These expenses, as a percentage of revenue, decreased 23.9% to
7.0% as compared to 9.2% for the comparable period a year ago.
These decreases are attributable to both the Company's higher
closing volume during the period and the reduction in sales
incentives needed to achieve desirable absorption rates.
General and administrative expenses increased $1.2 million
during the three months ended January 31, 1999, as compared to
the three months ended January 31, 1998. The $1.2 million
increase is attributable to an increase in personnel arising from
the Company's increase in each aspect of its business volume, the
start up of the San Diego and Los Angeles Divisions, and
management bonuses that resulted from the improved profitability
of the Company.
Due to the overall improvement in homebuying market
conditions and the strengthening of the California housing market
in particular, income before extraordinary gain was $2.3 million
during the three months ended January 31, 1999, as compared to
income before extraordinary gain of $486,000 for the three months
ended January 31, 1998.
Extraordinary gain for the three months ended January 31,
1998 was $36,000 related to the Company repurchase $1.3 million of
its Senior Notes.
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 a combination of
cash provided by operations and financing activities. At certain
times during the past few years the Company has repurchased a
portion 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, and
the resultant income was reported 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 January 31, 1999, the Company had commitments for $107.7
million under several revolving credit facilities with commercial
banks and financial institutions, of which $59.8 million was
outstanding. In addition, at January 31, 1999, the Company had
community specific facilities capable of providing aggregate
fundings of $9.1 million, of which $3.8 million was outstanding.
The Company also benefits from a line of credit which is secured
by certain of its model homes of which $1.7 million was
outstanding as of January 31, 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. On January 31, 1999, the aggregate outstanding
principal balance under the Company's credit facilities was $65.3
million and the recourse to the Company from those borrowings was
$12.9 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 under its present credit facilities is required to
use its own cash to fund a portion of the total project costs and
acquisition costs in order to obtain construction or land
acquisition financing. 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 October 31, 1998,
the Company had met both of these ratios, as of January
31, 1999, the Company did not meet either its debt-to-equity or
debt coverage ratio tests, thus limiting its recourse debt, as of
January 31, 1999, to $15 million. There is no assurance that Mr.
Previti will be willing to guarantee such indebtedness in the
future should the Company reach its $15 million recourse
limitation and at the same time fail to meet both its interest
coverage and debt-to-equity covenant ratios. 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 January 31, 1999,
the Company has repurchased and retired a total of $21,400,000 of
the Senior Notes and the remaining $28,600,000 have 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
January 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 second fiscal quarter ending April 30, 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 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
March 5, 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
-------------------------------------------------------
March 5, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 12548000
<SECURITIES> 0
<RECEIVABLES> 13133000
<ALLOWANCES> 0
<INVENTORY> 113825000
<CURRENT-ASSETS> 142570000
<PP&E> 624000
<DEPRECIATION> 86000
<TOTAL-ASSETS> 142570000
<CURRENT-LIABILITIES> 109160000
<BONDS> 19700000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 142570000
<SALES> 44436000
<TOTAL-REVENUES> 51704000
<CGS> 36173000
<TOTAL-COSTS> 50204000
<OTHER-EXPENSES> (776000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9000
<INCOME-PRETAX> 2267000
<INCOME-TAX> 2267000
<INCOME-CONTINUING> 2267000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2267000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
