-----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, BcqHb3v42AA6M95Feg7UzRsi3+DBVxnq7gcE4N8AjcDr+qDF7EXjXCO03bkbKdC2 Zu5+u0dyJTuar6kHTh7EwA== 0000915350-99-000013.txt : 19990906 0000915350-99-000013.hdr.sgml : 19990906 ACCESSION NUMBER: 0000915350-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990903 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: 99705883 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 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended July 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OR 1934 For the transition period from N/A --- Commission File Number 33-72106 -------- THE FORECAST GROUP "Registered Tradename", L.P. ----------------------------------------------- FORECAST "Registered Tradename" CAPITAL CORPORATION --------------------------------------------------- (Exact Name of Registrant as specified in its charter) California 33-0582072 - ---------- ---------- California 33-0582077 - ---------- ---------- (State of Organization) (IRS Employer Identification Number) 10670 Civic Center Drive, Rancho Cucamonga, California 91730 - ------------------------------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(909)987-7788 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - ------------------- ----------------------------------------- 11 3/8% Senior Notes Due 2000 None Securities Registered Pursuant to Section 12(g) of the Act: None Indicated by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO___ There was no voting stock held by non-affiliates of the Registrant at September 3, 1999. At September 3, 1999, Forecast "Registered Tradename" Capital Corporation had 2,500 shares of Common stock outstanding. THE FORECAST GROUP "Registered Tradename", L.P. CONSOLIDATED BLANCE SHEET (Amount's in 000's) July 31, 1999 October 31, 1998 (Unaudited) ------------- ---------------- Assets: - ------- Cash and Cash Equivalents $16,422 $16,193 Accounts Receivable 1,239 1,409 Accounts and Notes Receivable, Related Parties 7,588 10,427 Real Estate Inventory 131,368 84,152 Property and Equipment, Net 622 634 Other Assets 2,587 1,093 -------- -------- Total Assets $159,826 $113,908 ======== ======== Liabilities & Partners' Equity: - ------------------------------- Accounts Payable $22,071 $20,781 Other Liabilities 351 - Accrued Expenses 2,452 1,925 Notes Payable: Senior Notes at 11 3/8% due December 2000 19,700 19,700 Collateralized by Real Estate Inventory 68,862 35,536 Other Notes Payable 4,027 4,823 ------ ------ Total Notes Payable 92,589 60,059 ------ ------ Total Liabilities 117,463 82,765 Partners' Equity 42,663 31,443 Less: Capital Note Receivable From Partner (300) (300) -------- ------- Net Partners' Equity 42,363 31,143 -------- ------- Total Liabilities & Partners' Equity $159,826 $113,908 ======== ========
[FN] See notes to consolidated financial statements. THE FORECAST GROUP "Registered Tradename", L.P. CONSOLIDATED STATEMENTS OF INCOME AND PARTNERS' EQUITY FOR THE NINE AND THREE MONTHS ENDED JULY 31, 1999 AND 1998 (Unaudited) (Amount's in 000's) Nine Months Ended Three Months Ended July 31, July 31, ----------------- ------------------ 1999 1998 1999 1998 ----------------- ------------------ Homebuilding Revenues $185,192 $139,842 $81,226 $57,280 Cost of Homes Sold 151,797 117,359 66,572 47,207 -------- -------- ------- ------ Gross Profit 33,395 22,483 14,654 10,073 Land Sale Revenues 8,776 - 1,433 - Cost of Land Sold 9,361 - 1,580 - ------ ------ ----- ----- Income (Loss) on Land Sales (585) - (147) - Operating Expenses: - ------------------- Selling & Marketing Exp. 11,976 10,585 4,669 3,723 General & Admin. Exp. 11,104 7,722 4,427 3,205 Loss on Abandoned Land Options 196 126 50 34 ------ ------ ----- ----- Total Operating Expenses 23,276 18,433 9,146 6,962 ------ ------ ----- ----- Operating Income 9,534 4,050 5,361 3,111 Other Income (Expenses): - ------------------------ Interest Income 643 338 302 108 Interest Expense (9) (122) - (122) Other Income and (Exp.), net 1,052 1,174 10 934 ----- ----- --- --- Total Other Income(Exp.) 1,686 1,390 312 920 ----- ----- --- --- Income before Extraordinary Gain 11,220 5,440 5,673 4,031 Extraordinary Gain on Extinguishment of Senior Notes - 36 - - ------- ------ ------ ------ Net Income $11,220 $5,476 $5,673 $4,031 ======= ====== ====== ====== Partners' Equity at Beginning of Period $31,443 $21,426 $36,990 $22,407 Capital Distribution - (464) - - Net Income this Period 11,220 5,476 5,673 4,031 ------ ------- ----- ------ 42,663 26,438 42,663 26,438 Less: Capital Note Receivable From Partner (300) (300) (300) (300) ------- ------- ------- ------- Net Partners' Equity at End of Period $42,363 $26,138 $42,363 $26,138 ======= ======= ======= =======
[FN] See notes to consolidated financial statements. THE FORECAST "Registered Tradename" GROUP, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998 (Unaudited) (Amount's in 000's) 1999 1998 ----- ---- Operating Activities: - --------------------- Net Income $11,220 $5,476 Adjustments to Reconcile Net Income to Net Cash (Used For) Provided By Operating Activities Extraordinary Gain on Extinguishment of Senior Note - (36) Depreciation on Property and Equipment 288 312 Loss on Abandoned Land Options 196 126 Loss on Land Sales 585 - Loss(Gain)on Sale of Property and Equipment 33 (11) Decrease in Accounts Receivable 170 420 Increase in Real Estate Inventory (47,997) (9,041) (Increase) Decrease in Other Assets (1,951) 297 Increase in Accounts Payable and Accrued Expenses 1,817 5,728 Increase in Other Liabilities 351 - ------ ----- Net Cash (Used For) Provided By Operating Activities (35,288) 3,271 ------ ----- Investing Activities: - --------------------- Contribution to Joint Venture (7) (100) Distribution from Joint Venture 464 - Additions to Property and Equipment (309) (231) Proceeds from sale of property and equipment - 330 ----- ----- Net Cash Provided by (Used for) Investing Activities 148 (1) ----- ----- Financing Activities: - --------------------- Retirement of Senior Notes at 11 3/8% due December 2000 - (1,289) Decrease/(Increase) in Accounts and Notes Receivable, Related Parties 2,839 (3,894) Proceeds from Notes Payable Collateralized by Real Estate 169,611 88,935 Proceeds from Notes Payable, Other 244 1,357 Principal Payments on Notes Payable Collateralized by Real Estate (136,285) (84,416) Principal Payments on Notes Payable, Other (1,040) (813) ------ --- Net Cash Provided by (Used for) Financing Activities 35,369 (120) ------ --- Increase in Cash and Cash Equivalents 229 3,150 Cash and Cash Equivalents at Beginning of Period 16,193 13,550 ------ ------ Cash and Cash Equivalents at End of Period $16,422 $16,700 ======= =======
[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, 1998 (File No. 33-72106) as filed with the Securities and Exchange Commission. The results of operations for the nine months ended July 31, 1999 do not necessarily indicate the results that can be expected for the full fiscal year. The results of operations for the nine months ended July 31, 1999, and this Form 10-Q, also may be interpreted as, or actually contain, "forward looking" information, as that term is defined by the Securities and Exchange Commission. To the extent such forward looking information is contained in this filing, the Company intends to use these disclosures to take advantage of the "Safe Harbor" provisions set out in the rules and regulations of the Securities and Exchange Commission, and thus strongly recommends that prior to making an investment decision a prospective investor should carefully consider the factors mentioned in Form 10-K for the year ended October 31, 1998 in relation to that "forward looking" information, as well as other financial and business information that may be available from a variety of sources regarding the home building industry as a whole, including, but not limited to: - - Changes in national economic conditions such as interest rates, consumer confidence and job loss or formation statistics - - Change in economic conditions in the markets in which the Company operates - - Fluctuations in mortgage and federal fund interest rates - - Cost increases resulting from adverse weather conditions, shortages of labor and/or construction materials - - Changes in governmental regulations which may delay new home development or impose additional costs or fees. 2. Real Estate Held for Development and Sale and Related Notes Payable Real estate held for development and sale and related notes payable consist of the following: (Amount's in 000's) July 31, 1999 ---------------------------- Real Estate Notes Payable Inventory ----------- ------------- Land Held for Development $8,886 $0 Residential Projects in Process 121,549 68,862 Model Homes 933 - -------- ------- Total $131,368 $68,862 ======== ======= October 31, 1998 ---------------------------- Real Estate Notes Payable Inventory ----------- ------------- Land Held for Development $13,263 $0 Residential Projects in Process 65,623 33,525 Model Homes 5,266 2,011 ------- ------- Total $84,152 $35,536 ======= =======
During the nine months ending July 31, 1999, the Company entered into transactions for the sale and subsequent leaseback of model homes from unrelated third parties, and recorded $13,729,000 of sales revenue, $2,516,000 of gross profit and $2,354,000 of income related to these transactions. For the three months ended July 31, 1999, the Company recorded $4,202,000 of sales revenue, $882,000 of gross profit and $819,000 of income related to these model leaseback transactions. The Company entered into contract with a third party for profit participation on certain lots in Corona. The Company purchased these lots from an affiliated entity in which Mr. Previti and the third party each own a 50% interest. During the nine months ending July 31, 1999, the Company closed 15 lots and recorded a liability for the related profit participation of $351,000 which has been classified as Other Liabilities on the balance sheet. 3. Interest The following summarizes the components of interest incurred, capitalized, expensed and paid: (Amount in 000's) For the Nine Months For the Three Months Ended Ended July 31, July 31, -------------------- ------------------- 1999 1998 1999 1998 -------------------- ------------------- Interest incurred and capitalized $7,615 $5,196 $2,884 $1,693 Interest incurred and expensed 9 122 - 122 ------ ------ ------ ------ Total Interest Incurred $7,624 $5,318 $2,884 $1,815 ====== ====== ====== ====== Capitalized interest Amortized to cost of Homes Sold $5,457 $6,178 $2,522 $1,988 Interest paid $8,197 $6,143 $3,445 $2,593
4. Transactions With Affiliates From time to time, the Trust and/or Mr. Previti have guaranteed indebtedness of the Company in order to enable the Company to obtain financing on more favorable terms than would otherwise be available. There can be no assurances that the Trust and/or Mr. Previti will continue to provide such guarantees in the future. In 1993, Mr. Previti contributed to the Company, two undeveloped parcels of real property in Bullhead City, Arizona zoned, for multi-family use. In May 1995, the Company sold one of these parcels to an affiliate, Previti Realty Fund, in exchange for a note in the amount of $641,000 secured by the parcel. Previti Realty Fund developed the parcel as part of an adjacent existing multi-family operating property bringing the total units in that operating property to 204. The remaining parcel of undeveloped property held by the Company has a current book value of $1.6 million. Previti Realty Fund and the Company intend to sell the operating property owned by Previti Realty Fund and the undeveloped parcel owned by the Company, together as one parcel. In conjunction with this anticipated sale, Mr. Previti has pledged his interest in the net proceeds from the intended sale of the combined properties to ensure the Company will receive the carrying value for its undeveloped property. During the nine months ended July 31, 1999, the Company earned various management fees, including a $1,100,000 fee from an affiliated entity in which Mr. Previti owns a 50% interest, for development related rights and services associated with certain real property in Southern California, of which $500,000 is a receivable as of July 31, 1999. 5. Receivables From Affiliates During the nine months ended July 31, 1999, aggregate payments of approximately $2.8 million, net of additional borrowings, were received to reduce Accounts Receivables from Related Parties. The payments received included $1,600,000 from an affiliated entity, in which Mr. Previti is a 100% owner, for costs incurred by the Company, on behalf of the affiliate, for certain development activities on real property in Northern California. The payments received also included Mr. Previti's payment of a $589,000 note receivable for the purchase from the Company of 17 finished lots in Moreno Valley. As of July 31, 1999, the Company received a $1,000,000 fee earned by the Company as of October 31, 1998 and earned another $1,100,000 in fees, of which $500,000 is a receivable from an affiliated entity in which Mr. Previti owns a 50% interest, for development related rights and services associated with certain real property in Southern California. 6. 11 3/8% Senior Notes Due December 2000 In February 1994, the Company issued $50,000,000 in 11 3/8% Senior Notes through a public debt offering. At July 31, 1999 Senior Notes with a face value of $19,700,000 are held in names of investors other than the Company. The notes are joint and several senior obligations of the Company and Forecast "Registered Tradename" Capital Corporation ("Capital"), with interest only payments due semiannually on June 15 and December 15 of each year. The notes are senior unsecured obligations of the Company and rank pari passu in right of payment with all senior indebtedness of the Company. The Indenture governing the Senior Notes permits the Company to incur up to $15 million in recourse debt in addition to the $50 million of Senior Notes, and to incur additional recourse debt beyond this $15 million limitation if the Company maintains certain debt-to-equity and debt coverage ratios. As of July 31, 1999, the Company met both its debt-to-equity and debt coverage ratio tests thereby providing the Company with the flexibility to incur more than $15 million of recourse debt had it been necessary. The Company is not precluded from incurring additional debt on a non-recourse debt basis, without regard to any interest or debt coverage ratios. Despite this present ability to incur additional recourse debt, there is no assurance that the Company will continue to meet these ratio tests, and if not, that Mr. Previti and/or the Trust will be willing to guarantee such indebtedness. The Indenture also requires that the Company maintain a minimum net worth of $25 million. If the Company's net worth at the end of any two consecutive fiscal quarters (Trigger Dates) is less than $25 million, then the Company is required to make an offer ("Net Worth Offer") to all Senior Note holders to acquire, on a pro rata basis, Senior Notes in the aggregate principal amount of $5 million at a purchase price equal to 100% of the principal amount plus accrued interest ("Net Worth Offer"). The Company may credit against any such Net Worth Offer, the principal amount of Senior Notes previously acquired by the Company. As a result of the non-cash charge for the impairment of real estate inventory at the end of the first quarter of 1997, for the fiscal quarters ended January 31, April 30, July 31, and October 31, 1997, the Company was not in compliance with the minimum net worth requirement, which resulted in Trigger Dates occurring on April 30, 1997 and October 31, 1997. Despite the occurrence of these Trigger Dates, the Company's acquisition and retirement of over $20.9 million in Senior Notes prevented the need to make a Net Worth Offer of any kind. As of January 31, and April 30, 1998 the Company was still not in compliance with the minimum net worth requirement which resulted in the occurrence of another Trigger Date on April 30, 1998. Again, the Company's prior acquisition and retirement of Senior Notes remained sufficient to prevent the need to make a Net Worth Offer at April 30, 1998. Since July 31, 1998, the Company's net worth has been above the $25 million threshold, thereby bringing the Company's net worth into compliance with the net worth provisions of the Indenture. 7. Real Estate Held for Development and Sale In accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (Statement 121), when events or circumstances indicate that an impairment to assets to be held and used might exist, the expected future undiscounted cash flows from the affected asset or group of assets must be estimated and compared to the carrying value of the asset or group of assets. If the sum of the estimated future undiscounted cash flows, excluding interest charges, is less than the carrying value of the assets, an impairment loss must be recorded. The impairment loss is measured by comparing the estimated fair value of the assets with their carrying amount. Statement 121 also requires that long lived assets that are held for disposal be reported at the lower of the assets' carrying amount or fair value less costs of disposal. On an ongoing basis, management analyzes future undiscounted cash flows for all real estate projects where impairment indicators are present. Based upon such analysis, no provision for impairment loss was recorded for the nine months ended July 31, 1999 or 1998. 8. Extraordinary Item During the nine months ended July 31, 1998, the Company repurchased a portion of its Senior Notes having an aggregate face value of $1,325,000. Net of allocable issuance costs, the resultant income of $36,000 was reported as an extraordinary gain in the Company's financial statements for the nine months ended July 31, 1998. The Senior Notes were purchased from Mr. Previti and in the open markets and $21,400,000 of the total $50,000,000 of such Senior Notes have been retired. No such repurchases were made during the nine months ended July 31, 1999. As of July 31, 1999, approximately $4,027,000 was due on the margin account for the purchase of these Senior Notes and such amount has been classified as Other Notes Payable on the Company's balance sheet. FHI's Board of Directors has authorized management to repurchase additional Senior Notes, through affiliates at their cost plus accrued interest, or on the open market, when such transactions are deemed to be in the Company's best interests. As of July 31, 1999, affiliates of the Company did not own any additional Senior Notes. 9. Subsequent Events Subsequent to July 31, 1999, the Company entered into an agreement to sell its remaining unclosed land inventory of its Arizona division, consisting of approximately 780 lots. The agreement also provides the buyer with an option to acquire another 238 lots that the Company currently has under contract. The existing land inventory portion of this transaction is anticipated to close in September, 1999, with the option portion closing in mid-2000, if it is consummated. FORECAST "Registered Tradename" CAPITAL CORPORATION BALANCE SHEETS July 31, October 31, 1999 1998 (Unaudited) --------- ------------ Assets: - ------- Cash $800 $100 ---- ---- Total Assets $800 $100 ==== ==== Liabilities & Shareholders' - --------------------------- Deficit: - -------- Accounts Payable $300 $300 Accounts Payable, Related Parties 6,400 4,400 ----- ----- Total Liabilities 6,700 4,700 ----- ----- Common Stock, $1.00 par value: Authorized 10,000 shares Issued and Outstanding 2,500 shares 2,500 2,500 Accumulated Deficit (8,400) (7,100) ----- ----- Total Shareholders' Deficit (5,900) (4,600) ----- ----- Total Liabilities & Shareholders' Deficit $800 $100 ===== ====
[FN] See notes to financial statements. FORECAST "Registered Tradename" CAPITAL CORPORATION STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998 (Unaudited) Nine Months Ended Three Months Ended July 31, July 31, ----------------- ------------------ 1999 1998 1999 1998 ------------------ ------------------ General & Admin. Exp. $500 $0 $0 $0 Income Tax Expense 800 800 0 800 ------- ------ ---- ----- Net Loss ($1,300) ($800) $0 ($800) ======== ====== ==== ===== Shareholders' Equity at Beginning of Period ($7,100) ($3,600 $0 ($3,600) Net Loss this Period (1,300) (800) 0 (800) ------ ------ --- ------ Shareholders' Equity at End of Period ($8,400) ($4,400) $0 ($4,400) ====== ====== == ======
[FN] See notes to financial statements. FORECAST "Registered Tradename" CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Forecast "Registered Tradename" Capital Corporation (the "Company") was incorporated in California on September 20, 1993, and was formed solely for the purpose of serving as an Issuer of the Senior Notes for The Forecast Group "Registered Tradename", L.P. The authorized capital stock of the Company consists of 10,000 shares of common stock with a par value of $1.00 per share. The Company is a wholly-owned subsidiary of The Forecast Group "Registered Tradename", L.P., a California limited partnership that is engage in the residential real estate development business. The Company is financially dependent on The Forecast Group "Registered Tradename", L.P. to fund its continuing operations. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures contained in the Form 10K for the year ended October 31, 1998 (File No. 33-72106) as filed with the Securities and Exchange Commission. The results of operations for the nine months ended July 31, 1999 do not necessarily indicate the results that can be expected for the full fiscal year. 2. Income Taxes The Company is a "C" Corporation for federal and state income tax reporting purposes and accounts for income taxes in accordance with Financial Accounting Standards Board Statement No. 109 "Accounting for Income Taxes". Part I. Item 2. Results of Operations - --------------------- The following table sets forth, for the period indicated, certain income statement items as percentages of total home building sales and certain other data. This table excludes land sales revenue and cost of land sold. Percent of Percent of Housing Sales Housing Sales For the For the Nine Months Ended Three Months Ended July 31, July 31, ------------------- ------------------ 1999 1998 1999 1998 ------------------- ------------------ Homebuilding Revenues 100.0% 100.0% 100.0% 100.0% Cost of Homes Sold 82.0% 83.9% 82.0% 82.4% ----- ------ ----- ----- Gross Profit 18.0% 16.1% 18.0% 17.6% Operating Expenses: - ------------------- Selling & Marketing Exp. 6.5% 7.6% 5.7% 6.5% General & Admin. Exp. 6.0% 5.5% 5.5% 5.6% Loss on Abandoned Land Options 0.1% 0.1% 0.1% 0.1% ----- ----- ----- ----- Total Operating Exp. 12.6% 13.2% 11.3% 12.2% Operating Income 5.4% 2.9% 6.7% 5.4% ===== ===== ===== ==== Number of homes closed 1,042 872 431 345 Number of homes sold 1,371 875 489 357 Number of homes in backlog 562 292 Aggregate value of Backlog (in millions) $101.9 $46.6 ====== =====
Results of Operations For the Nine Months ended July 31, 1999 and July 31, 1998 Housing revenues for the nine months ended July 31, 1999 were $185.2 million, resulting from a record 1,042 closings, representing a 32.4% increase in revenues and a 19.5% increase in the number of closings from the nine months ended July 31, 1998. The increase in these numbers reflect a continued strengthening in the California housing market which translated into increased average sales prices in the Company's strongest submarkets, as well as an increase in overall sales and per community absorption rates throughout the Company's submarkets. The average sales price of the homes closed during the nine months ended July 31, 1999 was $177,727, or an increase of 10.8%, as compared to $160,369 for the same period a year earlier. Gross profit from housing sales increased by 48.5% to $33.4 million for the nine months ended July 31, 1999, as compared to $22.5 million for the nine months ended July 31, 1998. At the same time, gross profit per home increased by 24.3%, or $6,266 to $32,049 over the comparable period in 1998. Gross profit margin for the nine months ended July 31, 1999 increased by 11.8% to 18.0% as compared to 16.1% a year ago. The increase in gross margin was due primarily to overall increased prices in a number of the Company's submarkets where greater demand permitted the Company to adjust pricing upward, without adversely affecting absorption rates. During the nine months ended July 31, 1999, the Company sold six parcels of land, resulting in a book loss of $585,000. No land was sold in the comparable period in 1998. In addition, housing revenues and gross profit from housing sales for the nine months ended July 31, 1999 include $13,729,000 and $2,516,000, respectively, from sale leaseback transactions of model homes. There were no such transactions in the comparable prior year period. Due to the increased sales and construction volume during the nine months ended July 31, 1999, the Company's interest incurred increased 43.4% over the nine months ended July 31, 1998. The Company's interest amortized to cost of homes sold (as a percentage of revenue) decreased 33.3% to 2.9%, for the nine months ended July 31, 1999, from 4.4% for the same period a year ago, and is directly attributable to increased absorption rates, which produced increased rates of inventory turnover, resulting in lower capitalized interest amortized to cost of homes sold. Selling and advertising, as a percentage of revenue, decreased 14.5% to 6.5% as compared to 7.6% for the comparable period a year ago. This decrease is attributable to both the Company's higher closing volume during the period and the reduction in sales incentives needed to achieve desirable absorption rates. Selling and advertising expense increased 13.1%, to $12.0 million, for the nine months ended July 31, 1999, as compared to $10.6 million for the nine months ended July 31, 1998, and is directly attributable to the 19.5% increase in closing volume between the two comparable periods. General and administrative, as a percentage of revenues, was 6.0% as compared to 5.5% for the same period a year ago. The increase is attributable to an increase in personnel primarily arising from the start up of both the San Diego County and Los Angeles County Divisions, as well as increased management bonuses that resulted from the improved profitability of the Company, and the overall Company need for more personnel to adequately handle its larger volume of sales, construction, forward planning and closing activities. Due to the continued improvement in homebuying market conditions, and the strengthening of the California housing market in particular, income before extraordinary gain increased 106.2% to $11.2 million, during the nine months ended July 31, 1999, as compared to income before extraordinary gain of $5.4 million for the nine months ended July 31, 1998. Income before extraordinary gain, as a percentage of revenue, increased 53.8% to 6.0% as compared to 3.9% for the comparable period. Extraordinary gain for the nine months ended July 31,1998 was $36,000 related to the Company's repurchase of $1.3 million of its Senior Notes. There were no extraordinary gains in the nine months ended July 31, 1999. Results of Operations For the Three Months ended July 31, 1999 and July 31, 1998 Housing revenues for the three months ended July 31, 1999 were $81.2 million, resulting from a record 431 closings, representing a 41.8% increase in revenues and a 24.9% increase in the number of closings from the three months ended July 31, 1998. The increase in these numbers reflect a continued strengthening in the California housing market which translated into increased average sales prices in the Company's strongest submarkets, as well as an increase in overall sales and per community absorption rates throughout the Company's submarkets. The average sales prices of the homes closed during the three months ended July 31, 1999, was $188,459, or an increase of 13.5%, as compared to $166,029 for the same period a year earlier. Backlog of houses sold reached a record high of 562 as of July 31, 1999, a 92.5% increase as compared to 292 for the comparable prior year period. Gross profit from housing sales increased by 45.5% to $14.7 million for the three months ended July 31, 1999, as compared to $10.1 million for the three months ended July 31, 1998, which is directly attributable to the increase in home closings. Gross profit margin for the three months ended July 31, 1999 increased by 2.3% to 18.0% as compared to 17.6% for the same period a year ago. The increase in gross margin was due primarily to overall increased prices in a number of the Company's submarkets where greater demand permitted the Company to adjust pricing upward, without adversely affecting absorption rates. During the three months ended July 31, 1999, the Company sold a parcel of land, which resulted in a loss of $147,000. No land was sold in the comparable period in 1998. In addition, housing revenues and gross profit from housing sales for the three months ended July 31, 1999 include $4,202,000 and $882,000, respectively, from sale leaseback transactions of model homes. There were no such transactions in the comparable prior year period. Due to the increased sales and construction volume during the three months ended July 31, 1999, the Company's interest incurred increased 58.9% over the three months ended July 31, 1998, while the Company's interest amortized to cost of homes sold (as a percentage of revenue) decreased 11.4% to 3.1%, from 3.5% for the same period a year ago. These variances are directly attributable to increased absorption rates, which thereby produced increased rates of inventory turnover, and resulted in lower capitalized interest amortized to cost of homes sold. Selling and advertising, as a percentage of revenue, decreased 12.3% to 5.7% as compared to 6.5% for the comparable period a year ago. This decrease is attributable to both the Company's higher closing volume during the period and the reduction in sales incentives needed to achieve desirable absorption rates. Selling and advertising expense increased 25.4%, to $4.7 million, for the three months ended July 31, 1999, as compared to $3.7 million for the three months ended July 31, 1998, and is directly attributable to the 24.9% increase in closing volume between the two comparable periods. While in overall numbers general and administrative expenses increased 38.1%, to $4.4 million over the prior year period, general and administrative expenses, as a percentage of revenue, decreased to 5.5% as compared to 5.6% for the same period a year ago. The overall dollar increase is attributable to the addition of needed personnel stemming from the start up of the Los Angeles County Division, as well as increased management bonuses that resulted from the improved profitability of the Company, and the overall Company need for more personnel to adequately handle its larger volume of sales, construction, forward planning and closing activities. Due to the continued improvement in homebuying market conditions and the strengthening of the California housing market in particular, income before extraordinary gain was $5.7 million during the three months ended July 31, 1999, as compared to income before extraordinary gain of $4.0 million for the three months ended July 31, 1998. Income before extraordinary gain, as a percentage of revenue, was 7.0% for both comparable periods. Liquidity and Capital Resources The residential real estate development business is inherently capital intensive. Significant cash expenditures are typically needed to acquire and develop land, construct homes and establish marketing programs for lengthy periods of time in advance of revenue realization. The Company generally finances its operations with secured borrowings from commercial banks, financial institutions and private investors, unsecured borrowings in the capital markets, and with available cash flow from operations. The Company's financing needs depend primarily upon sales volume, asset turnover and land acquisition. When liquidating inventory through home closings, the Company generates cash. When building inventory, the Company uses substantial amounts of cash obtained through borrowings and cashflow from operations. The Company has had adequate liquidity throughout its operating history, despite recessionary periods, and historically the Company's liquidity needs have been met through the use of cash provided by a combination of closings and financing activities. At certain times during the past few years the Company has repurchased portions of its outstanding 11 3/8% Senior Notes due 2000, on the open market, at prices below par. The Company subsequently retired such repurchased 11 3/8% Senior Notes, reporting the resultant income as an extraordinary gain in the Company's consolidated financial statements. At times, these debt repurchases were utilized to cure certain unsatisfied minimum net worth covenant requirements in the Indenture for the 11 3/8% Senior Notes. At July 31, 1999, the Company had commitments for $131.4 million under several revolving credit facilities with commercial banks and financial institutions, of which $65.8 million was outstanding. In addition, at July 31, 1999, the Company had community specific facilities capable of providing aggregate fundings of $4.1 million, of which $2.6 million was outstanding. Borrowings under the credit facilities are secured by liens on specific real property owned by the Company, and carry varying levels of recourse against the Company. The Company also utilizes an unsecured borrowing line from time to time to meet its operational needs and objectives. The unsecured borrowing line has commitments of $2.4 million, of which $421,000 was outstanding as of July 31, 1999. On July 31, 1999, the aggregate outstanding principal balance under the Company's credit facilities was $68.8 million and the recourse to the Company from those borrowings was 19% of the total outstanding sums, or $13.1 million. To date, the Company has been able to obtain acceptable land acquisition and construction financing. Consistent with an industry trend, certain lenders require increased amounts of cash invested in a project by borrowers in connection with both new loans and the extension of existing loans. The Company currently intends to continue utilizing conventional bank financing for land acquisition and construction financing, and use its own cash to fund that portion of the total project costs and acquisition costs its Lenders require be supplied (in form of equity) in order to obtain construction or land acquisition financing. At times, in the past, the Company has failed to meet the debt-to- equity and debt coverage ratios that are set forth in the Indenture governing the 11 3/8% Senior Notes, thereby resulting in the Company being restricted in its ability to incur recourse indebtedness. In the past, to overcome the limitation and assist the Company in meeting its liquidity needs, Mr. Previti and/or the Previti Family Trust has guaranteed a portion of the Company's indebtedness. As of July 31, 1999, the Company met both its debt-to-equity and debt coverage ratio tests, thereby providing the Company with the flexibility to incur more than $15 million of recourse debt, had it been necessary. Despite this present ability to incur additional recourse debt, there is no assurance that the Company will continue to meet these ratio tests, and if not, that Mr. Previti and/or the Trust will be willing to guarantee such indebtedness. The Company considers its current relationship with its lenders to be good. In February 1994, the Company issued $50 million in Senior Notes through a public debt offering. As of July 31, 1999, the Company had repurchased and retired a total of $21,400,000 of the Senior Notes, with the remaining $28,600,000 having not been retired, (including $8,900,000 which were repurchased and are being held in the Company's name). The notes are due in December 2000, with interest at the rate of 11 3/8% per annum payable semi annually on June 15 and December 15 of each year. The Indenture governing the Senior Notes requires the Company to maintain a minimum net worth of $25 million. As of July 31, 1999 the Company was in compliance with the net worth provisions of the Indenture. There can be no assurance that the impact of market conditions affecting the demand for homes or the availability of debt financing will not adversely affect the Company's future needs for capital. However, the Company expects that available capital resources will be sufficient to meet its normal operating requirements over the near term. Impact of Year 2000 Some of the Company's older computer programs were written using two, rather than four, digits to define the applicable year. As a result, those computer programs have time-sensitive software that recognize a date using "00" as the year 1900, rather than the year 2000. This could cause a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has completed its internal assessment and testing of its IT and non-IT systems that are designed to function properly with respect to dates in the year 2000 and thereafter. The core operating system for the Company, JD Edwards, is in compliance with year 2000 standards. The last ancillary program for the Company will be year 2000 compliant by the end of the Company's fourth fiscal quarter ending October 31, 1999. The Company believes that with the modifications to existing software, the year 2000 will not pose significant operational problems for its computer system. The Company recognizes that there may be significant business disruptions involving year 2000 problems with its vendors and customers. To counteract this potential disruption to its business and earnings, the Company has undertaken, but not yet completed, an assessment of the readiness of such third parties, where the failure of such third parties to be year 2000 compliant could have a material impact on the Company. For instance, financial service providers to both the Company and the Company's customers may incur significant costs and even temporary shutdowns as a result of computer problems. Should those financial services providers not prove to be ready for compliance with the systems' needs associated with the year 2000, the ability of lenders to advance funds both for purchasers of the Company's homes and for financing that is associated with the Company's operations may be impacted negatively. Any such delay could have a material adverse effect on the Company and its results of operations. In the meantime, the Company is continuing to collect the written assurances it has delivered to its major vendors regarding their current and expected future readiness for the year 2000, and is developing contingency plans should any of its major vendors fail to be year 2000 compliant in time. These contingency plans range from finding alternative sources for these services, to training and readying the Company's employees and personal property so they are prepared (if needed) to function at current capacities and efficiencies until the non-complying vendors do in fact become year 2000 compliant. Although non-compliance could materially affect the Company's revenues and earnings, the Company anticipates that the likelihood of such an effect to be remote, and that the cost for the implementation of its contingency plans to be non-material to its revenues and earnings. 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 GROUP "Registered Tradename", L.P. ----------------------------------------------- By: FORECAST "Registered Tradename" HOMES, INC. ----------------------------------------------- A California Corporation its General Partner September 3, 1999 By: /s/ James P. Previti - ----------------- -------------------- Date James P. Previti President By: /s/ Richard B. Munkvold ----------------------- Richard B. Munkvold Vice President - Finance Principal Accounting Officer By: FORECAST "Registered Tradename" CAPITAL CORPORATION - ------------------------------------------------------- September 3, 1999 By: /s/ James P. Previti - ----------------- ---------------------- Date James P. Previti President By: /s/ Richard B. Munkvold ------------------------- Richard B. Munkvold Vice President - Finance Principal Accounting Officer EX-27 2
5 9-MOS OCT-31-1999 JUL-31-1999 16422000 0 8827000 0 131368000 159826000 622000 288000 159826000 24874000 19700000 0 0 0 0 159826000 185192000 193968000 151797000 184434000 (1695000) 0 9000 11220000 11220000 11220000 0 0 0 11220000 0 0
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