-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, II0yfZitL8vy2/5IJxgTLahCURXrwfp9xje0ju/q/5XGx7wMD4u5MImpf8Ns9fys Qxk33lWYoN9q0bMpFmE3yA== 0000915350-98-000008.txt : 19980528 0000915350-98-000008.hdr.sgml : 19980528 ACCESSION NUMBER: 0000915350-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980527 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORECAST GROUP LP CENTRAL INDEX KEY: 0000915350 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 330582072 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-72106 FILM NUMBER: 98631913 BUSINESS ADDRESS: STREET 1: 10670 CIVIC CENTER DR CITY: RANCHO CUCAMONGA STATE: CA ZIP: 91730 BUSINESS PHONE: 9099877788 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 5(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended April 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OR 1934 For the transition period from N/A Commission File Number 33-72106 THE FORECAST GROUP "Registered Tradename", L.P. FORECAST "Registered Tradename" CAPITAL CORPORATION (Exact Name of Registrant as specified in its Charter) California 33-0582072 California 33-0582077 (State of Organization) (IRS Employer Identification Number) 10670 Civic Center Drive, Rancho Cucamonga,California 91730 (Address of principal executive offices) (Zip Code) Registrant's telephone number,including area code:(909)9877788 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered 11 3/8% Senior Notes Due 2000 None Securities Registered Pursuant to Section 12(g) of the Act: None Indicated by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO There was no voting stock held by nonaffiliates of the Registrant at May 27, 1998. At May 27, 1998, Forecast "Registered Tradename" Capital Corporation had 2,500 shares of Common stock outstanding. THE FORECAST GROUP, "Registered Tradename", L.P. CONSOLIDATED BALANCE SHEET (Amount in 000's) April 30, 1998 October 31, 1997 (Unaudited) -------------- ---------------- Assets: - ------- Cash and Cash Equivalents $8,634 $13,550 Accounts Receivable 201 575 Accounts and Notes Receivable, Related Parties 5,764 3,486 Real Estate Inventory 76,887 71,012 Property and Equipment, Net 975 1,036 Other Assets 1,505 1,923 ------- ------- Total Assets $93,966 $91,582 ======= ======= Liabilities & Partners' Equity: - ------------------------------- Accounts Payable $13,807 $12,294 Accrued Expenses 2,625 2,573 Notes Payable: Senior Notes at 11 3/8% due December 2000 27,750 29,075 Collateralized by Real Estate Inventory 26,556 26,978 Other Notes Payable 1,121 - ------ ------ Total Notes Payable 55,427 56,053 ------ ------ Total Liabilities 71,859 70,920 Partners' Equity 22,407 21,426 Less: Capital Notes Receivable From Partners (300) (764) ------ ------ Net Partners' Equity 22,107 20,662 ------ ------ Total Liabilities & Partners' Equity $93,966 $91,582 ======= =======
[FN] See notes to consolidated financial statements. THE FORECAST GROUP "Registered Tradename", L.P. CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY FOR THE SIX AND THREE MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited) (Amount in 000's) Six Months Ended Three Months Ended April 30, April 30, ---------------- ----------------- 1998 1997 1998 1997 ----------------- ----------------- Homebuilding Revenues $82,562 $53,731 $44,113 $28,888 Cost of Homes Sold 70,152 45,536 37,528 23,918 ------- ------- ------ ------ Gross Profit 12,410 8,195 6,585 4,970 ------ ----- ----- ----- Operating Expenses: - --------------------- Selling & Marketing Exp. 6,862 6,537 3,339 3,361 General & Admin. Expenses 4,517 3,738 2,547 1,606 Non-Cash Charge for Impairment of Real Estate Inventory - 6,635 - - Loss on Aband.Land Options 92 - 83 - ------ ------- ------ ----- Total Operating Expenses 11,471 16,910 5,969 4,967 ------ ------ ----- ----- Operating Income (Loss) 939 (8,715) 61 3 Other Income (Expenses): - ------------------------ Interest Income 230 196 135 65 Other Income and Exp., net 240 83 172 44 ---- --- --- --- Total Other Income(Exp.) 470 279 307 109 ---- --- --- --- Income (Loss) before Extraordinary Gain 1,409 (8,436) 923 112 Extraordinary Gain on Extinguishment of Senior Notes 36 1,634 - - ----- ----- ---- ---- Net Income (Loss) $1,445 ($6,802) $923 $112 ====== ======= ==== ==== Partners' Equity at Beginning of Period $21,426 $27,688 $21,484 $20,774 Capital Contribution/ (Distribution) (464) - - - Net Income (Loss) this Period 1,445 (6,802) 923 112 ----- ------ ---- --- Subtotal 22,407 20,886 22,407 20,886 Less: Capital Notes Rec. from Partners (300) (764) (300) (764) ------ ------ ------- ----- Net Partners' Equity at End of Period $22,107 $20,122 $22,107 $20,122 ======= ======= ======= =======
[FN] See notes to consolidated financial statements. THE FORECAST GROUP "Registered Tradename", L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited) (Amount in 000's) 1998 1997 ---- ---- Operating Activities: - --------------------- Net Income (Loss) $1,445 ($6,802) Adjustments to Reconcile Net Income (Loss) to Net Cash Generated from (Used for) Operating Activities Non-Cash Charge for Impairment of Real Estate Inventory - 6,635 Loss on Abandoned Land Options 92 - Extraordinary Gain on Extinguishment of Senior Notes (36) (1,634) Depreciation and Amortization on Property and Equipment 202 146 Loss (Gain) on Sale of Property and Equipment (9) - Decrease (Increase) in Accounts Receivable 374 (193) Decrease (Increase) in Real Estate Inventory (5,967) 2,833 Decrease (Increase) in Other Assets 388 21 Increase (Decrease) in Accounts Payable and Accrued Expenses 1,565 (5,672) ----- ----- Net Cash Generated from(Used for) Operating Activities (1,946) (4,666) ------- ------- Investing Activities: - -------------------- Additions to Property and Equipment (150) (55) Proceeds from sale of property and equipment 17 - --- --- Net Cash Generated from(Used for) Investing Activities (133) (55) ----- ---- Financing Activities: - --------------------- Retirement of Senior Notes at 11 3/8% due December 2000 (1,259) (3,612) Decrease (Increase) in Accounts and Notes Receivable, Related Parties (2,278) 1,197 Proceeds from Notes Payable 46,805 27,812 Proceeds from Notes Payable, Other 1,981 1,700 Principal Payments on Notes Payable (47,226) (30,016) Principal Payments on Notes Payable, Other (860) (1,700) ------ ------- Net Cash Generated from (Used for) Financing Activities (2,837) (4,619) ------ ------- Increase (Decrease) in Cash and Cash Equivalents (4,916) (9,340) Cash and Cash Equivalents at Beginning of Period 13,550 12,350 ------ ------ Cash and Cash Equivalents at End of Period $8,634 $3,010 ====== ======
[FN] See notes to consolidated financial statements. THE FORECAST GROUP "Registered Tradename", L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures contained in the Form 10-K for the year ended October 31, 1997 (File No. 33-72106) as filed with the Securities and Exchange Commission. The results of operations for the six months ended April 30, 1998 do not necessarily indicate the results that can be expected for the full fiscal year. The results of operations for the six months ended April 30, 1998, and this Form 10-Q, also may be interpreted as, or actually contain, "forward looking" information, as that term is defined by the Securities and Exchange Commission. To the extent such forward looking information is contained in this filing, the Company intends to use these disclosures to take advantage of the "Safe Harbor" provisions set out in the rules and regulations of the Securities and Exchange Commission, and thus strongly recommends that prior to making an investment decision a prospective investor should carefully consider the factors mentioned in Form 10-K for the year ended October 31, 1997 in relation to that "forward looking" information, as well as other financial and business information that may be available from a variety of sources regarding the home building industry as a whole, including, but not limited to: - - Changes in national economic conditions such as interest rates, consumer confidence and job loss or formation statistics - - Change in economic conditions in the markets in which the Company operates - - Fluctuations in mortgage interest rates - - Cost increases resulting from adverse weather conditions, shortages of labor and/or construction materials - - Changes in governmental regulations which may delay new home development or impose additional costs or fees. 2. Real Estate Held for Development and Sale and Related Notes Payable Real estate held for development and sale and related notes payable consist of the following: (Amount in 000's) April 30, 1998 ------------------------------- Real Estate Notes Payable Inventory ------------ ------------- Land Held for Development $15,572 $0 Residential Projects in Process 56,832 25,089 Model Homes 4,483 1,467 ------- ------ Total $76,887 $26,556 ======= ======= Real Estate Notes Payable Inventory ------------ ------------ Land Held for Development $15,223 $0 Residential Projects in Process 49,638 23,610 Model Homes 6,151 3,368 ------- ------ Total $71,012 $26,978 ======= =======
3. Interest Expense The following summarizes the components of interest expense incurred, capitalized, expensed and paid: (Amount's in 000's) For the Six Months For the Three Months Ended Ended ------------------ -------------------- 1998 1997 1998 1997 ------------------ -------------------- Interest incurred and Capitalized $3,503 $3,684 $1,783 $1,765 Capitalized interest amortized to cost of homes sold $4,190 $3,362 $2,134 $1,892 Interest paid $3,550 $3,913 $925 $939
4. Transactions With Affiliates The Board of Directors of Forecast "Registered Tradename" Homes, Inc., resolved that it would be in the Company's best longterm interests to seek the assistance of Mr. James Previti, the Company's President and Chief Executive Officer, in acquiring the Company's Senior Notes on the open market, if he could acquire them at a favorable discount from their stated face value. At the same time, the Board of Directors agreed that the Company would repurchase the notes from Mr. Previti at his cost basis, plus interest, at such time as the Company had sufficient financial resources. Acting upon this authorization, Mr. Previti did acquire $20,350,000 of Senior Notes all of which were repurchased and retired prior to October 31, 1997. The Company believes that the transactions discussed above were on terms at least as favorable to the Company as a comparable transaction made on an arms length basis between unaffiliated parties. During the six months ended April 30, 1998, Accounts Receivables from Related Parties increased $2.3 million, primarily due to Mr. Previti purchasing from the Company a parcel of land in Moreno Valley that was transferred at book value, in consideration for a note secured by other land having a fair market value in excess of $1.7 million. No loss or gain will be realized as a result of this transaction. The balance of the increase was due to costs associated with the development of a community in Northern California that will produce home closings for the Company in fiscal years 1998, 1999, and 2000. 5. 11 3/8% Senior Notes Due December 2000 In February 1994, the Company issued $50,000,000 in 11 3/8% Senior Notes through a public debt offering. The notes are joint and several obligations of the Company and Forecast "Registered Tradename" Capital Corporation, with interest only payments due semiannually on June 15 and December 15 of each year. The notes are unsecured obligations of the Company and rank pari passu in right of payment with all senior indebtedness of the Company. In November of 1997, the Company purchased on margin in the open market an additional $1,325,000 of Senior Notes, which have not been retired. As of April 30, 1998, the Company had retired a total of $20,925,000 of the Senior Notes. Senior Notes totaling $29,075,000 have not been retired with $27,770,000 of those notes not controlled by the Company. The Indenture governing the Senior Notes requires the Company to maintain a minimum net worth of $25 million. If the Company's net worth at the end of any two consecutive fiscal quarters (the last day of such second consecutive fiscal quarter being referred to as the "Trigger Date") is less than $25 million, then the Company is required to make an offer to all Senior Note holders to acquire, on a pro rata basis, Senior Notes in the aggregate principal amount of $5 million (the "Net Worth Offer") at a purchase price equal to 100% of the principal amount plus accrued interest ("Net Worth Offer"). The Company may credit against any such Net Worth Offer, the principal amount of Senior Notes previously acquired by the Company. For the fiscal quarters ended October 31, 1995 and January 31, 1996, the Company was not in compliance with the minimum net worth requirement. However, the Company had purchased or redeemed a sufficient amount of Senior Notes necessary to meet repurchase obligations resulting from its failure to satisfy the minimum net worth requirement. For the fiscal quarters ended July 31, and October 31, 1996, the Company's net worth was again above the $25 million threshold, thereby preventing the occurrence of a second Trigger Date. As a result of the non-cash charge for the impairment of real estate inventory at the end of the first quarter of 1997, for the fiscal quarters ended January 31, April 30, July 31, and October 31, 1997, the Company was again not in compliance with the minimum net worth requirement, which resulted in Trigger Dates occurring on April 30, 1997 and October 31, 1997. The Company's acquisition and retirement of over $20.9 million in Senior Notes prevented the need to make a Net Worth Offer. For the six months ended April 30, 1998, the Company's net worth was still not in compliance with the minimum net worth requirement, thereby resulting in another Trigger Date on April 30, 1998. Using the to-date amount of retired Senior Notes, management believes it can prevent the occurrence of any Net Worth Offer up through October 31, 1998. 6. Real Estate Held for Development and Sale In accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to Be Disposed Of" (Statement 121), when events or circumstances indicate that an impairment to an assets to be held and used might exist, the expected future undiscounted cash flows from the affected asset or group of assets must be estimated and compared to the carrying value of the asset or group of assets. If the sum of the estimated future undiscounted cash flows, excluding interest charges, is less than the carrying value of the assets, an impairment loss must be recorded. The impairment loss is measured by comparing the estimated fair value of the assets with their carrying amount. Statement 121 also requires that longlived assets that are held for disposal be reported at the lower of the assets' carrying amount or fair value less costs of disposal. On an ongoing basis, management analyzes future undiscounted cash flows for all real estate projects where impairment indicators are present. Based upon such analysis, no provision for impairment loss was recorded for the six months ended April 30, 1998. Using the same analysis for the first six months of fiscal 1997, the Company concluded that certain real estate projects were impaired, and recorded a resulting impairment loss of $6,635,000. 7. Extraordinary Item During the six months ended April 30, 1998, the Company repurchased a portion of its Senior Notes having an aggregate outstanding principal balance of $1,325,000. The Senior Notes purchased during the six months ended April 30, 1998 were acquired on the open market and on margin for a total expenditure of $1,317,000. As of April 30, 1998, $607,000 was due on the margin account. Net of allocable issuance costs, the resultant income of $36,000 was reported as extraordinary gains in the Company's financial statements for the six months period ending April 30, 1998. During the six months ended April 30, 1998, Mr. Carman tendered his interest in the Company to Forecast by effecting a cancellation of his capital contribution that was reflected by a note in the amount of $464,000. This transaction reduced both the Company's gross equity and related notes receivable, resulting in no impact on equity. FORECAST "REGISTERED TADENAME" CAPITAL CORPORATION BALANCE SHEET April 30, 1998 October 31, 1997 (unaudited) -------------- ---------------- Assets: - ------- Cash $100 $100 ---- ---- Total Assets $100 $100 ==== ==== Liabilities & Shareholders' Deficit: - ----------------------- Accounts Payable $300 $300 Accounts Payable, Related Parties 4,200 3,400 ----- ----- Total Liabilities 4,500 3,700 Common Stock, $1.00 par value: Authorized 10,000 shares Issued and Outstanding 2,500 shares 2,500 2,500 Accumulated Deficit (6,900) (6,100) ------- ------- Total Shareholders' Deficit (4,400) (3,600) ------- ------- Total Liabilities & Shareholders' Deficit $100 $100 ==== ====
[FN] See notes to consolidated financial statements. FORECAST "Registered Tradename" CAPITAL CORPORATION STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY FOR THE SIX AND THREE MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited) Six Months Ended Three Months Ended April 30, April 30, ---------------- ------------------ 1998 1997 1998 1997 ---------------- ------------------ General & Admin. Exp. $0 $0 $0 $0 Income Tax Expense 800 800 800 800 --- --- --- --- Net Income (Loss) ($800) ($800) ($800) ($800) ==== ==== ==== ==== Shareholders' Equity at Beginning of Period ($3,600) ($2,400) ($3,600) ($2,400) Net Income (Loss) This Period (800) (800) (800) (800) ------- ------ ------ ------ Shareholders' Equity at End of Period ($4,400) ($3,200) ($4,400) ($3,200) ====== ====== ====== ======
[FN] See notes to consolidated financial statements. 1. Basis of Presentation Forecast "Registered Tradename" Capital Corporation was incorporated in California on September 20, 1993. The Company is a wholly-owned subsidiary of The Forecast "Registered Tradename" Group, L.P., a California limited partnership that is engaged in the residential real estate development business. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures contained in the Form 10K for the year ended October 31, 1997 (File No. 33-72106) as filed with the Securities and Exchange Commission. The results of operations for the six months ended April 30, 1998 do not necessarily indicate the results that can be expected for the full fiscal year. 2. Income Taxes The Company is a "C" Corporation for federal and state income tax reporting purposes and accounts for income taxes in accordance with Financial Accounting Standards Board Statement No. 109 "Accounting for Income Taxes". Part I. Item 2. Results of Operations - --------------------- The following table sets forth, for the period indicated, certain income statement items as percentages of total home building sales and certain other data: Percent of Percent of Housing Sales Housing Sales For the Six For the Three Months Ended Months Ended April 30, April 30, ------------- -------------- 1998 1997 1998 1997 ----- -------- --- ---------- Homebuilding Revenues 100.0% 100.0% 100.0% 100.0% Cost of Homes Sold 85.0% 84.7% 85.1% 82.8% ----- ----- ----- ----- Gross Profit 15.0% 15.3% 14.9% 17.2% Operating Expenses: - ------------------- Selling & Marketing Ex. 8.3% 12.2% 7.6% 11.6% General & Admin. Ex. 5.5% 7.0% 5.8% 5.6% Non-Cash Charge for Impairment of Real Estate Inventory 0.0% 12.3% 0.0% 0.0% Loss on Aband. Land Options 0.1% 0.0% 0.2% 0.0% ----- ----- ----- ----- Total Operating Expenses 13.9% 31.5% 13.6% 17.2% Operating Income (Loss) 1.1% (16.2%) 1.4% 0.0% ===== ======= ===== ==== Number of homes closed 527 369 279 194 Number of homes sold 518 419 316 282 Number of Homes in backlong 280 215 Aggregate value of backlog in millions $46,544 $30,930 ======= =======
Results of Operations for the Six Months ended April 30, 1998 and April 30, 1997 Housing revenues for the six months ended April 30, 1998 were $82.6 million, representing an increase of $28.8 million or 53.6% from the six months ended April 30, 1997. The revenues for fiscal 1998 represent 527 closings, an increase of 42.8% from the six months ended April 30, 1997. The average sales price for the six months ended April 30, 1998 was $156,664 as compared to $145,614 for the same period a year ago, representing an increase of 7.6%. The increase in average sales price is due primarily to increases in sales prices in the Company's strongest markets. Gross profit from housing sales was $12.4 million for the six months ended April 30, 1998, an increase of $4.2 million or 51.4%, from the six months ended April 30,1997. Gross profit percentage for the six months ended April 30, 1998 was 15.0% as compared to 15.3% a year ago. The gross profit percentage, as compared to the same period a year ago, decreased based upon the close-out of two of the Company's most profitable communities in the 1997 reporting period. Gross profit dollar margin per house increased 6.0% to $23,547 during the same comparison period. The higher gross margins are attributable to the increasing sales prices, as mentioned above and continued monitoring of production costs and delivery times. Selling and marketing expenses increased by $325,000 or 5.0% during the six months ended April 30, 1998, as compared to the six months ended April 30, 1997. This increase is directly attributable to the higher volume of closings during the period. Selling and marketing, as a percentage of revenue, decreased to 8.3% from 12.2% for the comparable periods in 1998 and 1997, respectively. This decrease, as a percentage of revenue, is attributable to both the higher closing volume and the reduction in incentives necessary in order to achieve absorption levels that are acceptable to the Company. General and administrative expenses increased $779,000 during the six months ended April 30, 1998, as compared to the six months ended April 30, 1997. The increase is attributable to an increase in the number of employees in the Company, which were necessary to facilitate the Company's expansion and active investigation of new land acquisition opportunities. These costs were 5.5% and 7.0%, as a percentage of revenue, for the six months ended April 30, 1998 and 1997, respectively. This decrease is attributable to the higher volume of closings during the period. Income before extraordinary gain was $1,409,000 during the six months ended April 30, 1998, as compared to a net loss before extraordinary gain of $8,436,000 for the six months ended April 30, 1997. The income for the six months ended April 30, 1998, is representative of the overall improvement of market conditions. The loss during the first six months of fiscal year 1997 is directly attributable to the Company recording a $6.6 million provision for impairment of real estate inventory as a result of the application of FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Extraordinary Gain for the six months ended April 30, 1998 was $36,000, as the Company repurchased a portion of its Senior Notes having an aggregate outstanding principal amount of $1,325,000. In 1997, the Company repurchased $5,400,000 of its Senior Notes resulting in an extraordinary gain of $1,634,000 being recorded in the six months ended April 30, 1997. Net income for the six months ended April 30, 1998 was $1.4 million as compared to a net loss of $6.8 million in the six months ended April 30, 1997 that was the direct result of the $6.6 million non-cash charge for impairment of real estate inventory as discussed above. Results of Operations for the Three Months ended April 30, 1998 and April 30, 1997 Housing revenues for the three months ended April 30, 1998 were $44.1 million, representing an increase of $15.2 million or 52.7% from the three months ended April 30, 1997. The revenues for the three months ended April 30, 1998 represent 279 closings, an increase of 43.8% from the three months ended April 30, 1997. The average sales price for the three months ended April 30, 1998, was $158,112 as compared to $148,911 for the same period a year ago, representing an increase of 6.2%, that is primarily due to increases in sales prices in the Company's strongest markets. Gross profit from housing sales was $6.6 million for the three months ended April 30, 1998, an increase of $1.6 million or 32.5%, from the three months ended April 30, 1997. Gross profit percentage for the three months ended April 30, 1998 was 14.9% as compared to 17.2% a year ago. The gross profit percentage, as compared to the same period a year ago, decreased based upon the close-out of two of the Company's most profitable communities in the 1997 reporting period. Selling and marketing expenses decreased by $22,000 or 0.6% during the three months ended April 30, 1998, as compared to the three months ended April 30, 1997. This decrease is directly attributable to lower customer incentives used during the most current period. Selling and marketing, as a percentage of revenue, decreased in the three month period ended April 30, 1998, to 7.6% from 11.6% for the comparable period in 1997. This decrease, as a percentage of revenue, is attributable to both the higher closing volume and the reduction of incentives necessary in order to achieve absorption levels that are acceptable to the Company. General and administrative expenses increased $941,000 or 58.6% during the three months ended April 30, 1998, as compared to the three months ended April 30, 1997. The increase is attributable to an increase in the number of employees in the Company, which were necessary to facilitate the Company's expansion and active investigation of the new land acquisition opportunities. These costs were 5.8% and 5.6%, as a percentage of revenue, for the three months ended April 30, 1998 and 1997, respectively. Net income for the three months ended April 30, 1998 was $923,000 as compared to a net income of $112,000 for the three months ended April 30, 1997. Net income, as a percentage of revenue, increased to 2.1% for the three months ended April 30, 1998, as compared to 0.4% for the same period a year ago. The increase in net profits is attributable to an increase in closings and the strengthening of the California market, which created an opportunity for price increases and lower customer incentives as discussed above. Liquidity and Capital Resources The residential real estate development business is inherently capital intensive. Significant cash expenditures are typically needed to acquire and develop land, construct homes and establish marketing programs for lengthy periods of time in advance of revenue realization. The Company generally finances its operations with secured borrowings from commercial banks, financial institutions and private investors, unsecured borrowings in the public market, and with available cash flow from operations. At April 30, 1998, the Company had commitments for $60.6 million under several revolving credit facilities with commercial banks and financial institutions, of which $20.4 million was outstanding. In addition, at April 30, 1998, the Company had community specific facilities capable of providing aggregate fundings of $7.7 million, against which $4.7 million was outstanding at that time. The Company also benefits from a line of credit which is secured by some of its model homes for an amount not to exceed $5.8 million of which $1.5 million was outstanding as of April 30, 1998. Borrowings under the credit facilities are secured by liens on specific real property owned by the Company, and carry varying levels of recourse against the Company. As a result, on April 30, 1998, the aggregate outstanding principal balance under the Company's credit facilities was $26.6 million and the recourse to the Company from those borrowings was $5.7 million. For the six months ended April 30, 1998, the Company's interest incurred and capitalized decreased 4.9% as compared to the six months ended April 30, 1997. This decrease represents the continued negotiations with lenders to reduce financing rates, which will enable the Company to continue to improve gross margins. The Company's interest amortized-to-cost of homes sold increased 24.6% to $4.2 million for the six months ended April 30, 1998, as compared to the same period a year ago, and is directly attributable to an increase in the number of homes closed during the six months ended April 30, 1998. The Indenture governing the Senior Notes limits total outstanding recourse debt to $15 million unless, at the time the recourse debt is incurred and after giving effect to the proceeds therefrom, certain threshold tests are met for interest coverage and debt to equity ratios, as defined in the Indenture. At April 30, 1998, the Company's outstanding recourse debt was approximately $5.7 million, thus approximately $9.3 million in additional "recourse" debt could have been incurred. As of April 30, 1998, the Company did not meet the threshold tests for interest coverage or debt-to-equity ratios. However, the Company is not precluded from incurring debt on a non-recourse basis, and believes the financing currently in place is sufficient to meet the Company's business objectives for the foreseeable future. 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. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE FORECAST "Registered Tradename" GROUP, L.P. ----------------------------------------------- By: FORECAST "Registered Tradename" HOMES, INC. ----------------------------------------------- A California Corporation its General Partner May 27, 1998 By: /s/ James P. Previti - ------------ --------------------------- Date James P. Previti President By: /s/ Richard B. Munkvold ----------------------------- Richard B. Munkvold Vice President Corporate Controller Principal Accounting Officer By: FORECAST "Registered Tradename" CAPITAL CORPORATION -------------------------------------------------- May 27, 1998 By: /s/ James P. Previti - ------------ ---------------- Date James P. Previti President By: /s/ Richard B. Munkvold ------------------- Richard B. Munkvold Vice President Corporate Controller Principal Accounting Officer EX-27 2
5 6-MOS OCT-31-1998 APR-30-1998 8634000 0 5965000 0 76887000 93966000 975000 202000 93966000 71859000 27750000 0 0 0 0 93966000 82562000 82560000 70152000 81623000 (470000) 0 0 1445000 1445000 1445000 0 36000 0 1445000 0 0
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