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, 2000
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 1, 2000.
At September 1, 2000, Forecast "Registered Tradename" Capital
Corporation had 2,500 shares of Common stock outstanding.
<TABLE>
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED BALANCE SHEETS
(Amount's in 000's)
July 31, 2000 October 31, 1999
(Unaudited)
------------- ----------------
<S> <C> <C>
Assets:
-------
Cash and Cash Equivalents $24,284 $22,594
Accounts Receivable 782 4,298
Accounts and Notes Receivable,
Related Parties 8,812 6,905
Real Estate Inventory 146,525 110,800
Property and Equipment, Net 498 551
Other Assets 1,073 1,770
-------- --------
Total Assets $181,974 $146,918
======== ========
Liabilities & Partners' Equity:
------------------------------
Accounts Payable $22,544 $25,455
Accrued Expenses 5,586 4,007
Notes Payable:
Senior Notes at 11 3/8% due
December 2000 19,700 19,700
Collateralized by Real Estate
Inventory 62,957 40,932
Other Notes Payable 3,445 4,106
------ ------
Total Notes Payable 86,102 64,738
-------- -------
Total Liabilities $114,232 $94,200
Partners' Equity 67,742 53,018
Less: Capital Note Receivable
From Partner - (300)
-------- --------
Net Partners' Equity 67,742 52,718
-------- --------
Total Liabilities &
Partners' Equity $181,974 $146,918
======== ========
</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, 2000 AND 1999
(Unaudited)
(Amount's in 000's)
Nine Months Three Months
Ended Ended
July 31, July 31,
--------------- ----------------
2000 1999 2000 1999
--------------- ----------------
<S> <C> <C> <C> <C>
Homebuilding Revenues $213,288 185,192 $83,202 $81,226
Cost of Homes Sold 169,719 151,797 66,027 66,572
-------- ------- ------- -------
Gross Profit 43,569 33,395 17,175 14,654
Land Sale Revenues - 8,776 - 1,433
Cost of Land Sold - 9,361 - 1,580
------ ------ ------ ------
Loss on Land Sales - (585) - (147)
------ ------ ------ ------
Operating Expenses:
-------------------
Selling & Marketing Exp. 11,884 11,976 3,885 4,669
General & Admin. Exp. 14,895 11,104 5,636 4,427
Other Operating Costs 1,343 196 1 50
------ ------ ----- -----
Total Operating Exp. 28,122 23,276 9,522 9,146
------ ------ ----- -----
Operating Income 15,447 9,534 7,653 5,361
Other Income (Expenses):
------------------------
Interest Income 757 643 275 302
Interest Expense - (9) - -
Other Income and Exp., net 555 1,052 117 10
------- ------- ------ ------
Total Other Income
(Expenses) 1,312 1,686 392 312
------- ------- ------ ------
Net Income $16,759 $11,220 $8,045 $5,673
======= ======= ====== ======
Partners' Equity at
Beginning of Period $53,018 $31,443 $59,707 $36,990
Capital Distribution (2,035) - (10) -
Net Income this Period $16,759 11,220 8,045 5,673
------- ------- ------- -------
67,742 42,663 67,742 42,663
Less: Capital Note Rec.
from Partner - (300) - (300)
------- ------- ------- -------
Net Partners' Equity at
End of Period $67,742 $42,363 $67,742 $42,363
======= ======= ======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
THE FORECAST GROUP "Registered Tradename", L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2000 AND 1999
(Unaudited)
(Amount in 000's)
<TABLE>
For the Nine Months Ended
July 31,
------------------------
2000 1999
------------------------
<S> <C> <C>
Operating Activities:
---------------------
Net Income $16,759 $11,220
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation on Property and Equipment 211 288
Loss on Sale of Property and Equipment 1 33
Loss on Land Sale - 585
Other Operating Costs 1,343 196
Equity Income of Unconsolidated
Joint Venture 376 360
Decrease in Accounts Receivable 3,516 170
Increase in Real Estate Inventory (37,068) (47,997)
Increase in Other Assets (71) (2,311)
Decrease/(Increase) in Accounts
Payable and Accrued Expenses (1,332) 2,168
------ ------
Net Cash Used for
Operating Activities (16,265) (35,288)
------ ------
Investing Activities:
---------------------
Contribution to Joint Venture (5) (7)
Distribution from Joint Venture 397 464
Additions to Property and Equipment (188) (309)
Proceeds from Sale of Property and Equipment 29 -
---- ----
Net Cash Provided by
Investing Activities 233 148
Financing Activities:
---------------------
Capital Distributions (2,035) -
Decrease in Capital Note Receivable
From Partner 300 -
(Increase)/Decrease in Accounts and
Notes Receivable, Related Parties (1,907) 2,839
Proceeds from Notes Payable,
Collateralized by Real Estate 154,374 169,611
Proceeds from Notes Payable, Other 240 244
Principal Payments on Notes Payable,
Collateralized by Real Estate (132,350) (136,285)
Principal Payments on Notes Payable,
Other (900) (1,040)
------- ------
Net Cash Provided by
Financing Activities 17,722 35,369
------- ------
Increase (Decrease) in Cash
and Cash Equivalents 1,690 229
Cash and Cash Equivalents at
Beginning of Period 22,594 16,193
------- -------
Cash and Cash Equivalents at
End of Period $24,284 $16,422
======= =======
</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, 1999 (File No. 33-72106) as filed with the Securities
and Exchange Commission.
The results of operations for the nine months ended July 31,
2000 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,
2000, 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, 1999 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, 2000
----------------------------
Real Estate
Inventory Notes Payable
----------------------------
<S> <C> <C>
Land Held for Development $11,973 $ -
Residential Projects in Process 128,170 62,957
Model Homes 6,382
-------- -------
Total $146,525 $62,957
======== =======
October 31, 1999
-----------------------------
Real Estate
Inventory Notes Payable
-----------------------------
Land Held for Development $9,000 $ -
Residential Projects in Process 100,720 40,932
Model Homes 1,080 -
--------- --------
Total $110,800 $40,932
======== =======
</TABLE>
3. Interest
The following summarizes the components of interest incurred,
capitalized, expensed and paid:
<TABLE>
(Amount's in 000's)
For the For the
Nine Months Three Months
July 31, July 31,
---------------- --------------
2000 1999 2000 1999
---------------- ---------------
<S> <C> <C> <C> <C>
Interest incurred and
capitalized $7,647 $7,615 $2,397 $2,884
Interest incurred and
expensed - 9 - -
------ ------ ------ ------
Total Interest Incurred $7,647 $7,624 $2,397 $2,884
====== ====== ====== ======
Capitalized interest
amortized to cost of
homes sold $5,743 $5,457 $2,187 $2,522
Interest paid $8,207 $8,197 $2,957 $3,445
</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.
As of July 31, 2000 a management fee receivable of $530,000
was owed to 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. Another management fee receivable of $22,000 is due
the Company, from an affiliated entity in which Mr. Previti owns
an 87.5% interest, for development related rights and services
associated with certain real property in Arizona.
During the nine months ended July 31, 2000, distributions to
partners totaled $2.0 million, of which $300,000 was paid to
Forecast Homes Inc. Forecast Homes, Inc. then paid off its
capital note payable to the Company.
5. Receivables From Affiliates
During the nine months ended July 31, 2000, accounts and
notes receivable from related parties increased $1.9 million.
The increase primarily results from the Company making three new
loans to related parties. The first note is a $1,035,000 unsecured,
note receivable from an affiliated entity in which Mr. Previti is
a 50% owner. The note is due March 30, 2001 and bears interest at
10.0%. The second loan is a $500,000 unsecured, note receivable
from an affiliated entity in which Mr. Previti is a 100% owner.
This note is due December 31, 2000 and bears interest at 10%. The
third note is a $300,000 unsecured, note receivable from Mr. Previti.
This note is due December 31, 2000 and bears interest at the rate
of 10.0%.
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, 2000,
there remain Senior Notes with a face value of $19,700,000 that
are held in the 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 parsi 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
original $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, 2000, the Company met both its debt-to-equity and debt
coverage ratio tests. 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 Company believes that through cashflow from operations
and secured borrowings, sufficient funds will be available for
the retirement of the remaining Senior Notes on or before December 15,
2000. Between the date of this report and the Senior Notes repayment
date, the Company will determine the repayment sources and plans for
the actual retirement of those notes.
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, 2000 or 1999.
FORECAST "Registered Tradename" CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
July 31, 2000 October 31, 1999
(Unaudited)
------------- ----------------
<S> <C> <C>
Assets:
-------
Cash $500 $800
---- ----
Total Assets $500 $800
==== ====
Liabilities & Shareholders'
---------------------------
Deficit:
--------
Accounts Payable $300 $300
Accounts Payable, Related Parties 7,400 6,400
------ ------
Total Liabilities $7,700 $6,700
------ ------
Common Stock, $1.00 par value:
Authorized 10,000 shares
Issued and Outstanding
2,500 shares 2,500 2,500
Accumulated Deficit (9,700) (8,400)
------- -----
Total Shareholders' Deficit (7,200) (5,900)
------- -----
Total Liabilities &
Shareholders' Deficit $500 $800
======= =====
</TABLE>
[FN] See notes to financial statements.
<TABLE>
FORECAST "Registered Tradename" CAPITAL CORPORATION
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT
FOR THE NINE AND THREE MONTHS ENDED JULY 31, 2000 AND 1999
(Unaudited)
Nine Months Three Months
Ended Ended
July 31, July 31,
------------- --------------
2000 1999 2000 1999
------------- --------------
<S> <C> <C> <C> <C>
General & Admin. Exp. $500 $500 $200 $0
Income Tax Expense 800 800 0 0
------ ------ ---- ---
Net Loss ($1,300) ($1,300) ($200) $0
====== ====== ==== ===
Shareholders' Equity at
Beginning of Period ($5,900) ($7,100) ($7,000) ($5,900)
Net Loss this Period (1,300) (1,300) (200) 0
------ ------ ------ ------
Shareholders' Equity at
End of Period ($7,200) ($8,400) ($7,200) ($5,900)
====== ====== ====== ======
</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, 1999 (File No. 33-72106) as filed with the Securities
and Exchange Commission.
The results of operations for the nine months ended July 31,
2000 do not necessarily indicate the results that can be expected
for the full fiscal year.
THE FORECAST GROUP "Registered Tradename, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Three Months
Ended Ended
July 31, July 31,
------------ -------------
2000 1999 2000 1999
------------ -------------
<S> <C> <C> <C> <C>
Homebuilding Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Homes Sold 79.6% 82.0% 79.4% 82.0%
----- ---- ---- -----
Gross Profit 20.4% 18.0% 20.6% 18.0%
Operating Expenses:
-------------------
Selling & Marketing Exp. 5.6% 6.5% 4.7% 5.7%
General & Admin. Exp. 7.0% 6.0% 6.8% 5.5%
Other Operating Costs 0.6% 0.1% 0.0% 0.1%
---- ---- ---- ----
Total Operating Exp. 13.2% 12.6% 11.5% 11.3%
Operating Income 7.2% 5.4% 9.1% 6.7%
=== === === ===
Number of homes closed 1,070 1,042 406 431
Number of homes sold 1,252 1,371 452 489
Number of homes in backlog 428 562
Aggregate value of
backlog (in millions) $89.5 $101.9
===== ======
</TABLE>
Results of Operations
For the Nine Months ended July 31, 2000 and July 31, 1999
Housing revenues of $213.3 million, set a Company record for
the period ending July 31, 2000, representing an increase of
$28.1 million or 15.2% from the nine months ended July 31, 1999.
The revenues for the nine months ending July 31, 2000 represent
a record of 1,070 closings, an increase of 28 closings or 2.7% over
the nine months ending July 31, 1999. The increase reflects the
continued strengthening of the California housing market which
resulted in increased absorption rates and overall sales in the
Company's California submarkets. Sales for the nine months were
1,252 versus 1,371 a year ago. Prior year number of homes sold are
higher than the current year number due to the inclusion of the sale
of 226 homes in our Arizona Division, which sold the majority of its
remaining lots in the Phoenix marketplace, to a national homebuilder,
in the fourth quarter of the Company's 1999 fiscal year. Excluding
the 226 home sales in Arizona, the Company increased sales 9.3% as
compared to a year ago. The average sales price of the homes closed
during the nine months ended July 31, 2000 was $199,335 as compared
to $177,727 for the same period a year ago, representing an increase
of 12.2%. The increase in average sales price is due primarily to
increasing prices in high demand communities and a shift in closings
towards higher priced communities.
Gross profit from housing sales was $43.6 million for the
nine months ended July 31, 2000, representing an increase of
$10.2 million, or 30.5%, from the nine months ended July 31,
1999. During the same nine month period, gross profit per home
increased to $40,719, from $32,049, representing a 27.1% increase
over the comparable period in 1999. Gross profit margin for the
nine months ended July 31, 2000 rose to 20.4% versus 18.0% for
the same period one year earlier. The increase in gross profit
per home was primarily attributable to the continued strength of
the California market. The increase in gross profit and gross
margin was due primarily to a higher concentration of sales in our
higher sales priced communities in the Northern California Division.
During the nine months ended July 31, 1999, the Company sold
six parcels of land, which resulted in a net loss of $585,000.
No land was sold in the comparable nine month period of 2000.
The Company's interest amortized to cost of homes sold (as a
percentage of revenue) decreased to 2.7%, for the nine months
ended July 31, 2000, from 2.9% for the same period a year ago.
This decrease is directly attributable to the Company's record
level of closings experienced in the first nine months of fiscal
year 2000, which produced increased rates of capital turnover,
thereby resulting in lower capitalized interest costs.
Selling and marketing expenses decreased by $92,000 or 0.8%
during the nine months ended July 31, 2000, as compared to the
nine months ended July 31, 1999. This decrease is attributable to
a slightly lower sales volume as compared to a year ago.
Selling and marketing, as a percentage of revenue, decreased to 5.6%
from 6.5% for the comparable period in 1999. This decrease, as a
percentage of revenue, is attributable to the higher closing
volume, higher average sales prices, and lower incentives required
to achieve the desired sales absorptions.
General and administrative expenses increased $3.8 million
during the nine months ended July 31, 2000 as compared to the
nine months ended July 31, 1999. The $3.8 million increase is
attributable to an increase in the number of employees of the
Company which was necessary to facilitate the Company's continued
expansion and active investigation of new land acquisition
opportunities in order to achieve the Company's Three-Year Business
Plan, an increase in the bonuses paid to the Company's employees
due to the record profits realized in the nine months ended
July 31, 2000, and increased expenditures associated with the
Company's commitment to provide state-of-the-art training to its
employees.
Other operating costs increased $1.1 million during the nine
months ended July 31, 2000 as compared to the nine months ended
July 31, 1999, due to the expensing of carrying costs of one
community in Fontana that had been held for future development.
Net income was $16.8 million during the nine months ended
July 31, 2000, as compared to a net income of $11.2 million for
the nine months ended July 31, 1999. Net income, as a percentage
of revenue, increased 29.7%, to 7.9% as compared to 6.1% a year
ago. This increase was primarily attributable to increased
closings and the overall improvement of market conditions in those
areas in which the Company operates.
During the nine months ended July 31, 2000, distributions to
partners totaled $2.0 million, of which $300,000 was to Forecast
Homes Inc., which it used to pay off its capital note payable to
the Company.
Results of Operations
For the Three Months ended July 31, 2000 and July 31, 1999
For the third consecutive fiscal quarter, housing revenues
set a record, which for the three months ended July 31, 2000 was
$83.2 million, or an increase of $2.0 million or 2.4% from the
three months ended July 31, 1999. The revenues for the three
months ending July 31, 2000, represent 406 closings, which was a
decrease of 25 closings, or 5.8%, over the three months ending
July 31, 1999. Excluding the 38 closings the Company realized in
Arizona for the three months ended July 31, 1999, the Company
realized a 3.3% increase in the number of closings for the three
months ended July 31, 2000. The increase reflects the continued
strength of the California housing market which resulted in
increased absorption rates and overall sales in the Company's
California submarkets. Sales for the current quarter were 452
compared to 489 a year ago. Prior year number of homes sold are
higher than the current year number due to the inclusion of 65
sales in the Arizona Division, which sold the majority of its
remaining lots in the Phoenix marketplace, to a national
homebuilder, in the fourth quarter of the Company's 1999 fiscal
year. Excluding the sales in Arizona, the Company realized a
6.6% increase in sales for the three months ended July 31, 2000.
The average sales price of the homes closed, during the three
months ended July 31, 2000, was $204,931, as compared to $188,459
for the same period a year ago, representing an increase of 8.7%.
The higher average sales price was attributable to increasing
prices in high demand communities.
Gross profit from housing sales was $17.2 million for the
three months ended July 31, 2000, representing an increase of
$2.5 million, or 17.2%, from the three months ended July 31, 1999.
During the same three month period, gross profit per home
increased to $42,303, from $34,000, representing a 24.4% increase
over the comparable period in 1999. Gross profit margin for the
three months ended July 31, 2000 rose to 20.6% versus 18.0% for
the same period one year earlier. The increase in gross profit
per home and gross margin was primarily attributable to the continued
strength of the California market and to a higher concentration of
sales in our higher sales priced communities in the Northern
California Division.
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 three month period of 2000.
For the three months ended July 31, 2000, the Company's
interest incurred decreased 16.9% as compared to the three months
ended July 31, 1999. This decrease is a result of higher liquidity
produced through higher gross margins achieved from home closings,
which reduced the dependence on bank debt, as compared to a year ago.
The Company's interest amortized to cost of homes sold (as a percentage
of revenue) decreased to 2.6%, for the three months ended July 31, 2000,
from 3.1% for the same period a year ago. This decrease is attributable
to the Company's increased level of gross profits per home closed in the
third quarter of fiscal year 2000, which produced increased rates of
capital turnover, thereby resulting in lower capitalized interest costs.
Selling and marketing expenses decreased by $784,000 or
16.8% during the three months ended July 31, 2000, as compared to
the three months ended July 31, 1999. This decrease is attributable
to the lower volume of home sales during the period, as compared to
a year ago. Selling and marketing, as a percentage of revenue,
decreased to 4.7% from 5.7% for the comparable period in 1999. This
decrease, as a percentage of revenue, is attributable to a reduction in
incentives required to achieve desired sales absorptions.
General and administrative expenses increased $1.2 million
during the three months ended July 31, 2000 as compared to the
three months ended July 31, 1999. The $1.2 million increase is
attributable to an increase in the number of employees of the
Company which was necessary to facilitate the Company's continued
expansion and active investigation of new land acquisition
opportunities in order to achieve the Company's Three-Year Business
Plan, an increase in the bonuses paid to the Company's employees
due to the record profits realized in the three months ended
July 31, 2000, and increased expenditures associated with the Company's
commitment to provide state-of-the-art training to its employees.
Net income was $8.0 million during the three months ended
July 31, 2000, as compared to a net income of $5.7 million for
the three months ended July 31, 1999. Net income, as a percentage of
revenue, increased 38.4%, to 9.7%, as compared to 7.0% a year ago.
This increase was primarily attributable to increased gross profit
realized from each home closed, and the overall improvement of market
conditions in those areas in which the Company operates.
During the three months ended July 31, 2000, distributions to
partners totaled $10,000.
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 cash flow from operations, secured borrowings
from commercial banks, financial institutions and private
investors and with unsecured borrowings in the capital markets.
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, 2000, the Company had commitments for $89.5
million under several revolving credit facilities with
commercial banks and financial institutions, of which $56.4
million was outstanding. In addition, at July 31, 2000, the
Company had community specific facilities capable of providing
aggregate fundings of $5.8 million, of which $4.5 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 unsecured borrowing lines from time-to-time
to meet its operational needs and objectives. The unsecured
borrowing lines have commitments of $4.1 million, of which $2.1
was outstanding as of July 31, 2000. On July 31, 2000, the
aggregate outstanding principal balance under all of the
Company's credit facilities was $63.0 million and the recourse to
the Company from those borrowings was 20.0% of the total
outstanding sums, or $12.5 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 certain
levels of 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, 2000, 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. Despite this
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, 2000, the
Company had repurchased and retired a total of $23,400,000 of the
Senior Notes, with the remaining $26,600,000 having not been
retired, (including $6,900,000 which were repurchased and are
being held on margin 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 Company believes that through cashflow from operations and
secured borrowings, sufficient funds will be available for paying
off the Senior Notes on December 15, 2000. Between the date of
this report and the Senior Notes repayment date, the Company will
determine the repayment sources and plans for the actual retirement
of those notes.
The Indenture governing the Senior Notes requires the
Company to maintain a minimum net worth of $25 million. As of
July 31, 2000 the Company was in compliance with the net worth
provision 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
In prior years, the Company discussed the nature and progress
of its plans to become Year 2000 ready. In late 1999, the
Company completed its remediation and testing of systems. As a
result of those planning and implementation efforts, the Company
has not experienced any significant disruption in mission
critical information technology and non-information technology
systems and believes those systems successfully responded to the
Year 2000 date change. In addition, the Company did not have
significant expenses during 1999 in connection with remediating
its systems, and the Company is not aware of an material
problems resulting from Year 2000 issues, whether with its
products, its internal systems, or the products and services of
third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and
vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
<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) None
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 1, 2000 By: /s/ James P. Previti
----------------- ----------------------
Date James P. Previti
----------------
President
By: /s/ Richard B. Munkvold
-----------------------------
Richard B. Munkvold
Senior Vice President -
Financial Operations
Principal Accounting Officer
By: FORECAST "Registered Tradename CAPITAL CORPORATION
September 1, 2000 By: /s/ James P. Previti
----------------- -------------------------
Date James P. Previti
President
By: /s/ Richard B. Munkvold
----------------------------
Richard B. Munkvold
Senior Vice President -
Financial Operations
Principal Accounting Officer
