SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended October 31, 2000
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. and
FORECAST "Registered Tradename" CAPITAL CORPORATION
(Exact Name of Registrants as specified in their 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 None
Due 2000
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate 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 December 14, 2000.
At December 14, 2000 Forecast "Registered Tradename" Capital
Corporation had 2,500 shares of Common stock outstanding.
<PAGE>
PART I
ITEM 1 - BUSINESS
General
The Forecast Group "Registered Tradename", L.P.,
("Forecast" "Registered Tradename" or the "Company") currently
designs, builds and sells affordably-priced single family
detached homes primarily to entry-level and first time move-up
buyers in California. The Company operates in two distinct
geographic regions (Northern California and Southern California),
and is a leading homebuilder in its targeted submarkets (based on
the number of homes closed) with operations throughout most major
metropolitan areas and employment centers within these markets.
In September 1999, the Company sold nearly all of its lots in
Phoenix, Arizona to a national homebuilder. The Company is
presently developing a 245 lot community in Phoenix, Arizona and
is scheduled to commence new home sales in that market in early
2001.
The Company is the successor to the residential real
estate development business founded in 1971 by Mr. James P.
Previti, the Chairman of the Board and President of the general
partner of The Forecast Group "Registered Tradename" L.P. From
1971 through 1989, the Company's operations were focused on the
Southern California regions known as the Inland Empire and
Antelope Valley. In 1989, the Company expanded operations
into the Sacramento Valley region of Northern California.
Further diversification and expansion occurred in 1995 when the
Company expanded into northern San Diego County. Since 1976,
the Company has closed more that 15,970 homes, including 1,610
homes during the fiscal year ended October 31, 2000.
The financial and operational expectations the Company has
set out in this filing, for periods extending beyond October 31,
2000, are not actual results, nor guaranteed results. Rather,
they are assumptions that are based upon preliminary estimates
garnered from factors that the Company's management believes to
be reasonable at the time of this filing. The homebuilding
industry is extremely competitive, with pricing being determined
by a wide variety of factors, including the availability of land
and the state of the economy in any one or more regions in which
the Company builds. In addition, to any of the factors set out
in this filing which could present an operational and/or
financial risk to the Company, there are economic, competitive,
governmental and other factors which could also affect any or all
of the forward-looking statements contained in this filing.
Geographic Markets
The Company's operations service the metropolitan areas
surrounding Los Angeles, Orange County, San Diego, San Francisco
and Sacramento, California. The Company believes that each of
these areas represents an attractive homebuilding market with
significant growth opportunities, and that its geographic
diversity provides a greater balance for the Company's
earnings, thereby reducing the Company's exposure to potentially
adverse economic conditions in any one geographic area.
Diversity was a factor for the Company deciding to re-enter the
Phoenix, Arizona market. The Company also believes that each of
its local operations is well established in its respective
markets and that it has developed a reputation for building
superior quality homes at competitive prices. The Company
maintains the flexibility to tailor its product mix within a
given market depending upon market conditions.
Operating Strategy
The Company believes that its history of building high
quality entry-level and first-time move-up homes in California
and its conservative operating strategy, have enabled the
Company to successfully weather cyclical downturns and position
the Company to capitalize on the improving California market. The
Company's strategy has been to (i) select markets that exhibit
favorable demographic trends for the construction and sale of
affordably-priced, single family detached homes in the entrylevel
and first-time move-up market segment, (ii) provide its customers
with quality homes which reflects a superior value in comparison
to the prices of competitor's homes, and (iii) employ an
operating strategy designed to reduce the risks and costs
inherent in the homebuilding business, while also maximizing its
return on investment capital in relation to such risks.
Key elements of the Company's operating strategy include
the following:
Geographic Diversity and Growth Markets. The Company
competes in a variety of geographical markets and attempts to
react quickly to allocate capital to those markets which it
believes provide attractive growth characteristics and
opportunities for superior returns. The majority of the
Company's markets have experienced significant population and
employment growth in recent years. The Company strives to
maintain a strong competitive position in all of its submarkets
and generally is among the top single family homebuilders in its
submarkets. The Company, through its full time in-house research
and marketing staff, and through the selective use of thirdparty
sources, regularly conducts market research and demographics
analyses of both its existing and potential markets to predict
the depth and breadth of demand for affordably-priced houses.
Based on its current market research, the Company believes that
it has opportunities to expand in its existing markets and has
identified several new geographic markets, which possess
attractive characteristics well-suited to the Company's
homebuilding practices.
Focus on Entry-level and First-Time Move-up Home
Buyers. Throughout its history the Company has primarily focused
on entry-level and first time move-up home buyers because it
believes they represent the largest segment of the homebuilding
market, and also during cyclical downturns are the least affected
segment in terms of a reduction in the demand for homes. Also,
this segment includes first-time home buyers whose home purchases
are not dependent on the sale of an existing home. Affordably-
priced homes generally qualify for FHA/VA financing and other
state sponsored home buying financing programs, which permit
lower down payments and in some instances may provide lower
interest rates, thereby expanding the Company's customer base.
In select markets, the Company entered into the second-time move
up segment. The decision to build in the second-time move up
market is predicated on superior demand and unique demographic
trends in specific submarkets, and is undertaken with an eye to
minimizing the Company's overall operating and financial risks.
Commitment to Customer Satisfaction. The Company is
committed to providing customer satisfaction through quality
construction and customer service. Throughout the Company's
markets, customer satisfaction surveys indicate that more than
98% of those customers who purchased homes from the Company in
2000 were satisfied with their purchase and would recommend a
home built by the Company to a friend. The Company believes that
its long history of providing high quality affordably-priced
homes has resulted in many referral sales.
Build a Standardized Product that can be Constructed
Quickly, Efficiently and Cost Effectively. Each product line
built by the Company has several different elevations and
floorplans, but essentially consists of standardized features
that allow relatively quick, cost effective construction. Each
product line is periodically value engineered to identify
potential cost savings.
Experienced Management and Decentralized Operations.
The Company's senior corporate officers and division
presidents are highly-experienced and average over 20 years in
the homebuilding business. Mr. James P. Previti, Chairman of
the Board and President of the general partner of The Forecast
Group "Registered Tradename", L.P., founded the Company's
predecessors in 1971 and has played a prominent role in the
California Building Industry Association. Each division is run by
a local division president, who has in-depth familiarity with
the geographic area within which the division operates, and who
supervises area and district managers with specific profit and
loss responsibilities in their designated areas.
Use of Sophisticated Management Information Systems.
The Company employs an accounting and information system used by
many of the top homebuilders in the country to track costs and
construction activities in multiple communities. The
Company, on a real-time basis, can analyze production costs,
status of pending sales and inventory levels, lot premiums, homes
in escrow, homes closed and profit margins both for the Company
as a whole, for each individual community and for each individual
lot within each community. This system allows the Company to
closely monitor and control its level of completed but unsold
homes, detect trends early so it can more effectively deploy
capital and resources to respond to such trends and then adjust
its production capacity accordingly.
Conservative Land Policy. The Company seeks to
maximize its return on capital employed by limiting its
investment in land and by focusing on inventory turnover. To
implement this strategy and to reduce the risks associated with
investment in land, the Company's land acquisition process is
controlled through a formal corporate land approval committee to
help ensure that transactions meet the Company's standards for
financial performance and risk. In the ordinary course of its
homebuilding business, the Company utilizes both direct
acquisition and a variety of option contracts to control the
number of lots it maintains in inventory for use in the sale and
construction of homes. The choice of which methodology is used
is dependent on which vehicle the Company deems to be more
advantageous given the Company's profit objectives, return on
investment, and local market conditions. The Company also
generally seeks to close escrow on land only after all of the
necessary entitlements are received, thereby allowing
construction to commence within a relatively short time period
thereafter. By doing this, the Company is generally able to
maintain inventories of land that are expected to be developed
within two to three years or less in an effort to match land
costs with current market prices for finished homes.
Maintain Strict Cost Controls. The Company believes
that maintaining stringent cost controls is a key factor in
improving profitability. The Company controls costs and reduces
risk by: (i) generally purchasing land that is already entitled
for residential development; (ii) managing the construction
process to maintain low levels of unsold inventory and maximize
inventory turnover; (iii) utilizing high quality durable building
materials and standardized design plans; (iv) utilizing
experienced subcontractors, especially those with which the
Company has long-standing relationships; and (v) using its
competitive advantage in its submarkets to obtain volume
discounts on construction materials and favorable pricing from
subcontractors.
Require Home Buyers to Pre-Qualify Financially Prior to
Approving a Sales Contract. Prior to entering into a sales
contract with a prospective home buyer, the Company seeks to
have the mortgage company, typically its Forecast "Registered
Tradename" Home Mortgage, LLC ("Forecast Mortgage") affiliate,
confirm that the home buyer has the apparent ability to qualify
for the purchase of the home. Management believes this pre-sale
qualifying procedure results in sales that are more likely to
close, thereby reducing the cancellation rate.
Summary of Residential Projects
The following table presents information relating to the
Company's markets and communities in which construction is
either in progress or in the planning process. All homes are
single-family detached. As of October 31, 2000, the Company
owned 3,755 lots available for future home closings and had
another 7,103 building lots under its control through executed
acquisition contracts.
<TABLE>
-------------------------------------------------------------
No.
of Bldg. Bldg. Total Sales
Active Lots Lots Bldg. Backlog Sales
Market Communities Owned Under Lots as of Backlog
Contract Avail. 10/31/00 Value
(1) (2) (3)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Southern
California 10 2,211 4,200 6,411 132 $28,223,005
Northern 11 1,299 2,753 4,052 248 $55,724,815
California
Arizona - 245 150 395 - -
----------------------------------------------------------------
21 3,755 7,103 10,858 380 $83,947,820
================================================================
</TABLE>
(1) Building lots under contract include lots the
Company has the right to acquire under option provisions
in certain acquisition contracts; thus, there can be no
assurance the Company will actually acquire these lots.
(2) Sales backlog refers to sales contracts that
have not yet closed. There can be no assurance that
closings of homes will occur.
(3) Reflects base price, including any lot premiums
and buyer selected options, which vary from community
to community.
Land Acquisition
The Company initiates projects in markets that it believes
will exhibit satisfactory sales absorption rates at or above its
investment targets for its projected number of new homes. The
Company selects markets characterized by their proximity to
urban areas that have convenient access to local and regional
commuter corridors. The Company's homes are predominately
located within commuting distance to major employment centers.
Additional factors the Company considers before purchasing
land for the development of a new home community include:
proximity to existing developed areas; population growth
patterns; availability and quality of existing public services
such as water, gas, electricity, sewers and schools; employment
growth rates; the perceived sales absorption rates for new
housing; transportation availability; the estimated costs of
development; and the proximity of competing homebuilders. The
general policy of the Company is to complete a purchase of land
only after it has conducted a thorough feasibility study at no
financial risk to the Company, and when it can reasonably project
commencement of development and construction within a specified
period of time. Closing of the land purchase is, therefore,
generally made contingent upon satisfaction of conditions relating
to the property and to the Company's ability to obtain all requisite
entitlements from governmental agencies within a certain period of time.
The Company customarily acquires unimproved or improved land zoned
for residential use which appears suitable for the construction of
the number of homes the Company believes fits with its projected sales
absorption rates and expected demand within that market.
The Company has the capability to purchase and develop
unentitled land, but in doing so acts to minimize the risks
associated with such land by generally conditioning the closing
on the attainment of all necessary entitlements. "Entitled" land
is generally defined as land that has received all necessary land
use approvals for residential development from the appropriate
state, county and local governments, including any required tract
maps and subdivision approvals.
Although the Company's profitability is affected by changing
land prices, the Company attempts to minimize this risk by
acquiring land under terms that meet its operating schedules and
selling excess lots to other builders who do not compete at the
same price point as the Company. The Company has also utilized
rolling options and phased land purchases in order to control
larger amounts of land without the attendant financing and
carrying costs.
The amount of land purchased by the Company has fluctuated
substantially from period to period based on when entitlements
were obtained, prices, availability of financing, existing land
inventory, projected demand for homes and other factors. In
general, the Company's practice is to have a land inventory,
either owned or under contract, equal to approximately four years
of planned operations. As of October 31, 2000 the Company owned
3,755 lots, which the Company believes is adequate for
approximately 20 months of operations at current sales absorption
levels. In addition, the Company controls approximately 7,103
lots under binding and non-binding agreements which provide the
Company with the option to purchase such lots in the event that
the Company's targeted markets continue to exhibit increased
sales absorption levels. These lots controlled by the Company
would allow for an additional 38 months of operations based on
increased sales absorption levels.
Construction
The Company acts as the general contractor for
The construction of its communities. Virtually all construction
work for the Company is performed by subcontractors. The
Company's employees supervise the construction of each community,
coordinate the activities of subcontractors and suppliers,
subject their work to quality and cost controls and assure
compliance with zoning and building codes. The Company's
subcontractors follow design plans prepared by architects who are
retained by the Company and whose designs are geared to the local
market. Subcontractors typically are retained on a phase-byphase
basis to complete construction at a fixed price. During its
history, the Company has established long-term relationships with
a number of subcontractors, and sometimes negotiates price and
volume discounts with manufacturers and suppliers on behalf of
subcontractors in order to take advantage of its volume of
production. The Company is not dependent to any material extent
upon the services of any one subcontractor and believes that, if
necessary, it can generally retain sufficient qualified
subcontractors for each aspect of construction. The Company
believes that conducting its operations in this manner enables it
not only to readily and efficiently adapt to changes in housing
demand, but also to avoid fixed costs associated with retaining
construction personnel.
Sales, Marketing and Research
The Company makes extensive use of advertising and
other promotional activities, including newspaper and magazine
advertisements, brochures, direct mail and the placement
of strategically located sign boards in the immediate areas of
its communities. The Company's major media advertising
is done regionally. Because the Company usually offers
multiple communities within a single market area, it is able to
utilize multiple community advertising that highlights all
Company developments within that same market.
The Company normally builds, decorates, furnishes
and landscapes model homes for each community and maintains on
site sales offices, which typically are open seven days a
week. The Company believes that model homes play a particularly
important role in the Company's marketing efforts. Consequently,
the Company expends a significant effort in creating an
attractive atmosphere at its model homes. Interior decorations
vary among the Company's models and are carefully selected based
upon the lifestyles of targeted buyers. Structural changes in
design from the model homes are not generally permitted, but home
buyers may select various other optional construction and design
amenities, including floor coverings.
The Company sells nearly all of its homes through
Company sales representatives, who typically work from the sales
offices located at the model homes used in each subdivision or
in on-site sales trailers. The sales representatives are paid by
the Company on commission. To a lesser extent, the Company also
uses independent cooperative brokers to assist in selling its
homes. Company representatives are available to assist
prospective buyers by providing them with floor plans, price
information and tours of model homes and by assisting them with
the selection of options. Sales representatives attend periodic
meetings at which they are provided information regarding other
products in the area, the variety of financing programs
available, construction schedules and marketing and advertising
plans. The Company believes this effort results in a more
motivated sales force and higher absorption rate.
Customer Financing
The Company offers its customers mortgage financing through
Forecast "Registered Tradename" Home Mortgage. Forecast
"Registered Tradename" Home Mortgage is owned 50% by Wells Fargo
Home Mortgage, formally known as Norwest, Inc. (a nationally
recognized mortgage banker; "Wells Fargo") and 50% by Inland
Counties Mortgage, LLC, a California limited liability company
("Inland Counties Mortgage"). The Forecast Group "Registered
Tradename", L.P., owns a 98% share of Inland Counties Mortgage.
Forecast "Registered Tradename" Corporation (a limited partner of
The Forecast Group "Registered Tradename", L.P.) owns the other
2%. Through Forecast "Registered Tradename" Home Mortgage, the
Company seeks to assist its home buyers in obtaining financing
by offering to qualified buyers the variety of financing options
offered by Wells Fargo, and by making and processing the
loans in a timely and professional manner.
Customer Service and Relations
Each purchaser of a home from the Company is given an
information booklet describing area amenities and services, such
as schools, health services and emergency services. The Company's
Warranty Service Manual identifies the appliances, fixtures and
heating/cooling and other systems installed in the house, and
provides information on warranties, maintenance and manufacturer
information. The Company believes that these practices reinforce
the home buyer's sense of moving into a community. After
closing, the Company continues to communicate its image through a
variety of marketing techniques that are designed to enhance the
buying experiences of the home buyer.
Customer Warranties
The Company provides one year limited warranties on
purchases of its homes and by doing so seeks to ensure that the
Company will have any deficiencies that arise due to faulty
workmanship, defective materials, or significant construction
flaws in the structural components of the home or in the lot on
which the home is located, corrected. The warranty does not,
however, include items that are covered by manufacturer's
warranties (such as appliances and air conditioning) or items
that are not installed by employees or contractors of the Company
(such as flooring installed by an outside contractor employed by
the homeowner). Statutory requirements in the states in which
the Company does business may grant rights to home buyers in
addition to those provided by the Company. California law
establishes a ten-year statutory period and Arizona an eight-year
statutory period during which a home buyer may request the Company
to repair any latent defects in the architectural design or actual
construction of their home. The Company generally maintains reserves
with respect to units previously sold for the purpose of covering
estimated future warranty expenditures, and maintains insurance
coverage to minimize the impact any claims for latent defects would
otherwise have upon the Company.
Competition and Market Factors
The homebuilding industry is highly competitive, with
numerous other developers and homebuilders competing for
desirable properties, financing, raw materials and skilled labor.
The Company competes with national, regional and local
builders, many of whom have greater financial resources than the
Company. Moreover, sales of homes and land by competitors at
deeply discounted prices or with substantial customer incentives
could have a material adverse effect on the Company. The Company
competes primarily on the basis of quality, price, design,
service and location. The Company believes that its primary
competitive strength has been its consistent ability to offer
quality homes at affordable prices.
The homebuilding industry is cyclical and significantly
affected by consumer confidence levels, interest rates,
employment trends and other prevailing economic conditions. A
variety of other factors affect the homebuilding industry and
demand for new homes, including consumer preferences, demographic
trends, availability of mortgage financing and costs associated
with home ownership such as property taxes, assessments and
homeowner association fees.
Government Regulation and Environmental Matters
The housing industry is subject to increasing
environmental, building, zoning and real estate regulations that
are imposed by various federal, state and local authorities. Such
regulations affect homebuilding by specifying, among other
things, the type and quality of building material that must be
used, certain aspects of land use and building design, as well as
the manner in which homebuilders, such as the Company, may
conduct their sales activities and other dealings with their
home buyers. In developing a community, the Company must obtain
the approval of numerous governmental authorities regarding
such matters as permitted land uses, housing density, the
installation of utility services (such as water, sewer, gas,
electricity, telephone and cable television), and the dedication
of acreage for open space, parks, schools and other community
purposes. Furthermore, changes in prevailing local circumstances
or applicable laws, may require additional approvals, or
modifications of approvals previously obtained.
Environmental laws may cause the Company to incur
substantial compliance, mitigation and other costs, may restrict
or prohibit development in certain areas and may delay completion
of the Company's communities. As a result, the Company engages
outside professional consultants to evaluate any land prior to
its purchase by the Company. Although environmental laws have
not had a material adverse effect on the Company to date, and
management is not currently aware of any environmental compliance
issues that are expected to have a material adverse effect on the
Company, no assurance can be given that such laws will not have a
material adverse effect on the Company's operations in the future.
Employees
As of October 31, 2000, the Company employed approximately
264 persons, including corporate staff and other personnel
involved in sales, construction and customer service. Although
none of the Company's employees are covered by collective
bargaining agreements, some of the subcontractors and suppliers
engaged by the Company are represented by labor unions or are
subject to collective bargaining agreements. The Company
believes that relations with its employees, subcontractors and
suppliers are good.
ITEM 2 - PROPERTIES
The principal executive offices of the Company are located
at 10670 Civic Center Drive, Rancho Cucamonga, California 91730.
The telephone number is (909) 987-7788.
The Company leases approximately 15,500 square feet of
office space for its corporate headquarters in Rancho Cucamonga
and approximately 11,807 square feet of office space in
Sacramento, California. The Company's corporate headquarters
and Sacramento office are leased from affiliates of Mr. Previti.
See "Item 13 Certain Relationships and Related Transactions".
During the current fiscal year, the Company opened four modular
satellite offices for each geographic region in Southern
California, which has enhanced its management presence in each
area of operation.
ITEM 3 - LEGAL PROCEEDINGS
The Company is subject to routine litigation incidental to
its business. In the opinion of management, the resolution of
such claims will not have a material adverse effect on the
operating results or financial position of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the Company's fiscal year ended October 31, 2000.
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The registrant's common equity has not been registered
pursuant to Section 12(b) of the Act and is not traded.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data (except
operating and other data) are derived from the consolidated
financial statements of the Company, which have been audited by
Ernst & Young LLP, independent auditors. The selected
consolidated financial data should be read in conjunction with
the consolidated financial statements, related notes, and other
financial information included herein.
<TABLE>
------------------------------------------------------------
Year Ended October 31
------------------------------------
Note: $ are in 2000 1999 1998 1997 1996
thousands
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
---------------
Homes Delivered:
Number of
Homes Delivered 1,610 1,531 1,228 901 1,006
----- ----- ----- --- -----
Average Price of
Homes Delivered $203.5 $183.3 $161.3 $147.1 $140.8
Sales Backlog (1):
Number of Homes
in Sales Backlog 380 246 233 289 165
--- --- --- --- ---
Aggregate Value of
Homes in
Sales Backlog $83,948 $48,471 $38,179 $44,707 $22,659
Average Price of
Homes in
Sales Backlog $220.9 $197.0 $163.9 $154.7 $137.3
Statement of
Operations Data:
-----------------
Homebuilding
Revenues $327,617 $280,644 $198,074 $132,518 $141,652
Cost of
Homes Sold 259,218 228,859 164,335 112,278 117,702
Land Sales
Revenue 5,000 42,271 999 0 0
Cost of
Land Sold 5,000 40,958 999 0 0
Selling &
Marketing Exp. 16,820 17,165 14,384 13,929 15,215
General &
Admin. Exp. 21,361 16,064 11,397 7,397 7,006
Provision for
Losses on Real
Estate Inventory 0 0 0 6,635 0
Other Operating
Costs 1,362 223 202 726 3
-----------------------------------------------------------------
Operating Income
(Loss) 28,856 19,646 7,756 (8,447) 1,726
Interest Income 965 682 455 395 274
Interest Expense 0 0 264 0 0
Other Income 396 1,247 2,500 156 14
-----------------------------------------------------------------
Income (Loss) before
Income Taxes and
Extraordinary Gain 30,217 21,575 10,447 (7,896) 2,014
-----------------------------------------------------------------
Extraordinary Gain
on Extinguishment
of Senior Notes 0 0 34 1,634 1,876
-----------------------------------------------------------------
Net Income (Loss) $30,217 $21,575 $10,481 ($6,262) $3,890
=================================================================
Balance Sheet Data:
-------------------
Real Estate
Inventory $142,768 $110,800 $84,152 $71,012 $80,760
Total Assets 186,333 146,918 113,908 91,582 102,186
Debt 67,253 64,738 60,059 56,053 60,195
Net Partners'
Equity 81,200 52,718 31,143 20,662 26,924
Other Data:
-----------
Gross Margin % 20.9% 18.5% 17.0% 15.3% 16.9%
EBITDA (2) $39,411 $30,178 $19,018 $7,434 $9,453
Interest
Incurred(3) $9,877 $10,193 $7,123 $7,076 $7,884
Coverage
Ratio (4) 4.0 3.0 2.7 1.1 1.2
Debt to
Equity Ratio (5) 0.8 1.2 1.9 2.7 2.2
</TABLE>
(1) "Backlog" represents the number of homes subject to sales
contracts executed by buyers with respect to specific lots
and the aggregate dollar value of such sales contracts
outstanding at the end of the period.
(2) "EBITDA" means earnings before interest(including
previously capitalized interest included in cost of sales),
income taxes, depreciation and amortization, and has been
computed on a basis consistent with the terms of the
Indenture. EBITDA is not intended to represent cash flow or
any other measure of performance in accordance with
generally accepted accounting principles.
(3) Interest incurred includes all interest incurred during the
respective period, whether expensed or capitalized, and has
been computed on a basis consistent with the terms of the
Indenture.
(4) "Coverage Ratio" means the ratio of EBITDA to Interest
Incurred as calculated in accordance with the definition of
such term in the Indenture.
(5) "Debt-to-Equity Ratio" means the ratio of all
outstanding Debt to Net Worth (Partners' Equity) as
calculated in accordance with the definition of such term in
the Indenture.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's results of operations for any period are
affected by a number of factors including the number of
communities under construction, the length of the development
cycle of its communities, product mix, weather, availability of
financing, costs of materials and economic conditions in the
areas in which the Company operates. Product mix (both
product line and size of home) has a substantial effect on the
average sales price of homes and gross margin from home sales
because smaller homes generally have lower sales prices and gross
margins than larger homes. The average sales price of homes from
period to period fluctuates based on product line, home size,
geographic mix and changes in the market price of housing.
The Company's results of operations reflect the cyclical
nature of the homebuilding industry and the Company's historical
focus on the Southern California housing market. Following
approximately seven years of a regional economic downturn, those
markets in which the Company operates began to see a recovery in
the fourth quarter of 1997 which has continued throughout
fiscal year 2000.
During the fourth quarter of fiscal year 1999, the Company
sold all of its owned land in Arizona to a national homebuilder.
The total lots sold were 774. During the fourth quarter of
fiscal 2000, the Company exercised an option to purchase 245 lots
in Phoenix, Arizona. The building of this community will begin
in fiscal year 2001. The Company continues to provide warranty
work for previously closed homes in that market area, through a
third party vendor.
The following table sets forth certain information by
geographic region for the fiscal years 2000, 1999 and 1998. This
table excludes land sales revenue and cost of land sold.
<TABLE>
For the Year Ended October 31
--------------------------------------------------------------
Note: $ are in thousands 2000 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Number of Homes
Delivered:
-----------------
Southern California 807 711 539
Northern California 803 665 503
Arizona - 155 186
----------------------------
Total 1,610 1,531 1,228
============================
Housing Sales:
--------------
Southern California $157,878 $123,626 $84,433
Northern California 169,739 135,864 84,413
Arizona - 21,154 29,228
------------------------------
Total $327,617 $280,644 $198,074
===============================
Gross Profit:
-------------
Southern California $28,431 $20,134 $16,477
Northern California 40,370 27,927 12,892
Arizona (402) 3,724 4,370
------------------------------
Total $68,399 $51,785 $33,739
==============================
Gross Profit Margin:
--------------------
Southern California 18.0% 16.3% 19.5%
Northern California 23.8% 20.6% 15.3%
Arizona - 17.6% 15.0%
-----------------------------
Total 20.9% 18.5% 17.0%
=============================
</TABLE>
During the fiscal year ended October 31, 2000, the Company
reported home building revenues of $327.6 million and net income
of $30.2 million, on closings of 1,610 homes, all of which were
records. Based on the continued economic reports of increasing
job formation and low unemployment, management believes that
consumer confidence and homebuying in its market segment will
continue to be strong over the next few years.
Seasonality
The traditional annual operating cycle for the Company
generally starts with fewer customer orders from October through
December, followed by stronger customer orders from January
through June and moderate orders from June through September.
Because home deliveries usually trail customer orders by up to
120 days, the Company's revenues typically are lowest in its
first and second fiscal quarters due to seasonally slow customer
orders in the immediately preceding fiscal quarters.
Historically, the majority of the Company's revenues come in its
third and fourth quarters, as contracts for home sales entered
into in its second and third fiscal quarters are closed.
Backlog
The Company's backlog at October 31, 2000 and 1999,
respectively, were 380 homes with an average sales
price of $220,915 and 246 homes with an average sales price of
$197,000.
Results of Operations
A comparative summary of operating results for fiscal years
2000, 1999 and 1998 is presented in the following table:
<TABLE>
For the Year Ended October 31
-------------------------------
2000 1999 1998
-------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amounts as a Percentage
of Revenues:
-----------------------
Homebuilding Revenues 100.0% 100.0% 100.0%
Cost of Homes Sold 79.1% 81.5% 83.0%
----- ----- -----
Gross Profit 20.9% 18.5% 17.0%
----- ----- -----
Operating Expenses:
Selling & Marketing Exp. 5.1% 6.1% 7.3%
General & Admin. Exp. 6.5% 5.7% 5.8%
Other Operating Costs 0.4% 0.1% 0.1%
---- ---- ----
Total Operating Expenses 12.1% 11.9% 13.1%
---- ---- ----
Operating Income 8.8% 6.5% 3.9%
==== ==== ====
Average per Home Closed ($):
----------------------------
Homebuilding Revenues $203,489 $183,308 $161,298
Cost of Homes Sold 161,005 149,483 133,823
------- ------- --------
Gross Profit 42,484 33,825 27,475
------- ------- --------
Operating Expenses:
Selling & Marketing Exp. 10,447 11,212 11,713
General & Admin. Exp. 13,268 10,492 9,281
------ ------- ------
Total Operating Expenses 23,715 21,704 20,994
------- ------- ------
Operating Income $18,769 (1) 12,121 (1) 6,481 (1)
======= ====== ======
Other Data:
-----------
Number of Homes Closed 1,610 1,531 1,228
Number of Homes Sold 1,744 1,544 1,172
Number of Homes in
Sales Backlog 380 246 233
Aggregate Value of
Sales Backlog ($ millions) $83.9 $48.5 $38.2
</TABLE>
(1) Calculation does not include Other Operating Costs for
fiscal years ended October 31, 2000, 1999 and 1998, respectively.
Fiscal 2000 Compared to Fiscal 1999
Housing revenues for the fiscal year ended October 2000 were
a Company record $327.6 million, representing an increase of
$46.9 million or 16.7% from the fiscal year ended October 1999.
The revenues for fiscal year 2000 represent 1,610 closings, an
increase of 79 closings or 5.2% over fiscal year 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 submarkets. The average sales
price of the homes closed during fiscal 2000 was $203,489 as
compared to $183,308 for the same period a year ago,
representing an increase of 11.0%. The increase in average
sales price is due primarily to increasing prices in high demand
communities and no closings in Arizona, which had an average
sales price of $136,481 in fiscal year 1999.
Gross profit from housing sales was $68.4 million for the
fiscal year ended October 31, 2000, an increase of $16.6 million
or 32.1%, from fiscal year ended October 31, 1999. Gross profit
per home increased to $42,484 from $33,824 representing a
25.6% increase over the comparable period in 1999. Gross profit
margin for fiscal year ended October 31, 2000 was 20.9% as
compared to 18.5% a year ago. 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 and having no closings in Arizona, which had
a gross profit per home of $24,024 and a gross margin of 17.6% in
fiscal year 1999.
During the year ended October 31, 1999, the Company sold
and subsequently leased back 71 model homes and recorded sales
of $13,729,000 and gross profit of $2,354,000. There were no
similar transactions in fiscal year 2000.
During the fiscal year ended October 31, 2000, the Company
had land sales of $5.0 million, to a related party, and no gain
or loss was recorded from the sale. During the fiscal year ended
October 31, 1999, the Company had land sales of $42.3 million,
which resulted in a net gain from land sales of $1.3 million.
The fiscal year 1999 land sales included the sale of the
Company's Arizona real estate holdings for approximately $33.5
million and a net gain of $1.8 million.
For the fiscal year ended October 31, 2000, the Company's
interest incurred decreased $316,000 or 3.1% as compared to
fiscal year ended October 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 2.7% for
the fiscal year ended October 31, 2000, from 2.9% for the same
period a year ago. This decrease is attributable to increased
rates of capital turnover, thereby resulting in lower capitalized
interest costs.
Selling and marketing expenses decreased $345,000 or
2.0% during the fiscal year ended October 31, 2000 as compared
to the fiscal year ended October 31, 1999. This decrease is
attributable to maintaining cost controls on monthly selling and
marketing costs. Selling and marketing, as a percentage of
revenue, decreased to 5.1% from 6.1% for the comparable period in
1999. This decrease, as a percentage of revenue, is attributable
to both the higher closing volume and the reduction in sales
incentives necessary to achieve desirable absorption rates.
General and administrative expenses increased $5.3 million
during the fiscal year ended October 31, 2000, as compared to
the fiscal year ended October 31, 1999. The $5.3 million increase
is attributable to an increase in the number of employees in 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 and increased expenditures
associated with the Company's commitment to provide state-of-the art
training to its employees.
Net income for the fiscal year ended October 31, 2000
increased 40.1% to $30.2 million, as compared to net income of
$21.6 million in the fiscal year ended October 31, 1999 due
primarily to the overall improvement of market conditions and
the continued commitment to reduce costs.
Fiscal 1999 Compared to Fiscal 1998
Housing revenues for the fiscal year ended October 1999 were
$280.6 million, representing an increase of $82.6 million or
41.7% from the fiscal year ended October 1998. The revenues for
fiscal year 1999 represent 1,531 closings, an increase of 303
closings or 24.7% over fiscal year 1998. The increase reflects a
strengthening California housing market which resulted in
increased absorption rates and overall sales in the Company's
submarkets. The average sales price of the homes closed during
fiscal 1999 was $183,308 as compared to $161,298 for the same
period a year ago, representing an increase of 13.6%. The
increase in average sales price is due primarily to increases in
sales prices in each of the Company's strongest submarkets and
the increase in the percentage of closings in the Northern
California Division as compared to the Company's overall number
of closings.
Gross profit from housing sales was $51.8 million for the
fiscal year ended October 31, 1999, an increase of $18.0 million
or 53.5%, from fiscal year ended October 31, 1998. Gross profit
per home increased to $33,825 from $27,475 representing a
23.1% increase over the comparable period in 1998. Gross profit
margin for fiscal year ended October 31, 1999 was 18.5% as
compared to 17.0% a year ago. The increase in gross margin was
due primarily to year-over-year 34.5% higher gross margins in
the community closings in the Northern California Division, and
increased prices and lower costs in certain of the Company's
submarkets resulting from greater demand. The lower costs were
mainly a function of increasing inventory turnover and minimizing
standing inventory.
During the year ended October 31, 1999, the Company sold
and subsequently leased back 71 model homes and recorded sales of
$13,729,000 and gross profit of $2,354,000. There were no
similar transactions in the prior year.
During the fiscal year ended October 31, 1999, the Company
had land sales of $42.3 million, which resulted in a net gain
from land sales of $1.3 million. Land sales included the sale of
the Company's Arizona real estate holdings for approximately
$33.5 million and a net gain of $1.8 million.
For the fiscal year ended October 31, 1999, the Company's
interest incurred increased $3.1 million or 43.1% as compared to
fiscal year ended October 31, 1998. This increase is a result of
increased construction volume offset by pricing modifications in the
Company's loan terms. The Company's interest amortized to cost of
homes sold (as a percentage of revenue) decreased to 2.9% for
the fiscal year ended October 31, 1999, from 4.0% for the same period
a year ago. This decrease is directly attributable to increased
absorption rates, which produced increased rates of turnover resulting
in lower capitalized interest costs.
Selling and marketing expenses increased by $2.8 million or
19.3% during the fiscal year ended October 31, 1999 as
compared to the fiscal year ended October 31, 1998. This
increase is directly attributable to the higher volume of
closings during the period. Selling and marketing, as a
percentage of revenue, decreased to 6.1% from 7.3% for the
comparable period in 1998. This decrease, as a percentage of
revenue, is attributable to both the higher closing volume and
the reduction in sales incentives necessary to achieve desirable
absorption rates.
General and administrative expenses increased $4.7 million
during the fiscal year ended October 31, 1999, as compared to the
fiscal year ended October 31, 1998. The $4.7 million increase is
attributable to an increase in the number of employees in the Company
which was necessary to facilitate the Company's continued expansion
and active investigation of new land acquisition opportunities, as
well as an increase in management bonuses that resulted from the
improved profitability of the Company. However, general and
administrative expenses, as a percentage of revenue decreased to 5.7%
for the fiscal year ended October 31, 1999 from 5.8% for the fiscal
year ended October 31, 1998.
Income before extraordinary gain was $21.6 million during
the fiscal year ended October 31, 1999, as compared to a net
income before extraordinary gain of $10.4 million for the fiscal
year ended October 31, 1998, which is representative
of the overall improvement of market conditions in those
areas in which the Company operates.
Extraordinary gain for the fiscal year ended October 31,
1998 was $34,000 related to the Company's repurchase of a portion
of its 11 3/8% Senior Notes having an aggregate outstanding
principal amount of $9.4 million. There were no extraordinary
gains for the fiscal year ended October 31, 1999.
Net income for the fiscal year ended October 31, 1999
was $21.6 million, as compared to net income of $10.5 million
in the fiscal year ended October 31, 1998 due primarily to the
factors 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 periods of time in advance of
revenue realization. The Company generally finances its
operations with secured borrowings from commercial banks,
financial institutions (and, at times, private investors),
unsecured borrowings in the public market, 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, cash
flow from operations, and partners' contributions to capital. The
Company has had adequate liquidity throughout its operating
history, despite recessionary periods. At certain times during
the past few years the Company has repurchased a portion of its
11 3/8% Senior Notes on the open market at prices below par,
subsequently retired a large majority of such repurchased notes,
and then reported the resultant income as 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 set out in the Indenture
for the 11 3/8% Senior Notes.
At October 31, 2000, the Company had commitments for
$114.2 million under several revolving credit facilities with
commercial banks and financial institutions of which $39.1
million was outstanding. In addition, at October 31, 2000, the
Company had community specific facilities capable of
providing aggregate funding of $2.7 million of which $2.7 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 $4.2 million, of which $2.2
was outstanding as of October 31, 2000. On October 31, 2000,
the aggregate outstanding principal balance under the Company's
credit facilities was $44.0 million and the amount of such debt
that is recourse to the Company was $14.8 million.
To date, the Company has been able to obtain acceptable
land acquisition and construction financing. Consistent
with an industry trend, certain lenders require increased amounts
of cash invested in a project by borrowers in connection with
both new loans and the extension of existing loans. The Company
currently intends to continue utilizing conventional bank
financing for land acquisition and construction financing,
and under its present credit facilities is required to use its
own cash to fund a portion of the total development and
acquisition costs in order to obtain that financing. In the
past, the Company had 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
prior years, to overcome this limitation, and assist the Company
in meeting its liquidity needs, Mr. Previti and/or the Previti
Family Trust guaranteed a portion of the Company's indebtedness.
As of October 31, 2000 and 1999 the Company met both its debt-to-
equity and debt coverage ratio tests, thereby permitting it to
incur more than $15 million of recourse debt. 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. During the fiscal year
ended October 1998, the Company repurchased a portion of its
Senior Notes having an aggregate outstanding principal amount of
$9,375,000 in the open market. Net of allocable issuance costs,
the resultant income of $34,000 is reported as an extraordinary
gain in the Company's consolidated financial statements for the
fiscal year ended October 31, 1998. No repurchases occurred in
fiscal year 2000 or 1999. As of October 31, 2000, the Company
has repurchased and retired a total of $23,400,000 of the Senior
Notes and the remaining $26,600,000 have not been retired,
including $6,900,000 which were repurchased and are being held in
the Company's name. The notes are due on December 15, 2000, with
interest at the rate of 11 3/8% per annum payable semi-annually
on June 15 and December 15 of each year. On December 13, 2000,
the Company retired all of its remaining outstanding Senior Notes
relating to the $50 million of Senior notes obtained in 1994,
by utilizing existing revolving credit facilities and operating
cash flow.
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 did not experience any significant disruption in
mission critical information technology and non-information
technology systems. In addition, the Company did not have
significant expenses during 2000 in connection with any material
problems resulting from Year 2000 issues, whether with its
products, its internal systems, or the products and services of
third parties. The Company continues to monitor its mission
critical computer applications and those of its suppliers and
vendors to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company's market risks related to financial instruments
as defined in the Market Risk Disclosure Rules issued by
the Securities and Exchange Commission are considered to be
immaterial.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index to the consolidated financial statements,
Report of Independent Auditors and the Consolidated Financial
Statements, which appear beginning on page F-1 of this report and
are incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Forecast "Registered Tradename" is a limited partnership and has
no officer or directors. The sole general partner of Forecast
"Registered Tradename" is Forecast "Registered Tradename" Homes,
Inc. ("FHI"). FHI manages the business and affairs of Forecast
"Registered Tradename". Capital is a wholly-owned subsidiary of
Forecast "Registered Tradename". The directors and executive
officers of FHI and Capital are as follows:
Name Age Position
----------------- ----- --------------------------
James P. Previti* 54 Chairman of the Board,
Chief Executive Officer and
President
Frank Glankler 50 Executive Vice President,
Chief Operating Officer
Larry R. Day 51 Executive Vice President,
Chief Legal Officer
and Secretary
Richard B. Munkvold 35 Senior Vice President,
Financial Operations and
Principal Accounting Officer
Jack Firestone*** 79 Director
Steven Fowlkes* 46 Director
Peter T. Healy 49 Director
Leo Previti** 47 Director
* Member of the Compensation Committee
** Member of Audit Committee
*** Mr. Firestone retired from the Board on November 1,
2000 and was subsequently replaced with Mr. Jim
Ellis.
James P. Previti is the founder and organizer of the
predecessor of the Company. Mr. Previti has held the position of
Chairman of the Board, Chief Executive Officer and President of
each of the predecessor entities to the Company since their
formation and has controlled the management of the business of
the Company since 1976. Mr. Previti is the Chairman of the
Board, Chief Executive Officer and President of Forecast
Commercial Real Estate Services, Inc. and Inland Empire
Personnel ("IEP"), each of which are affiliates of the Company.
Frank Glankler has served as a Senior Vice President
and Chief Operating Officer since January 1996, after returning
to the company in July 1995 as Vice President of Operations.
Effective August 1, 1998, Mr. Glankler was elected to the
position of Operating Committee member of Forecast Home Mortgage,
the Company's mortgage affiliate. From July 1992 until October
1993 he served as President of the Company's Arizona Division,
and from October 1993 until July 1995, Mr. Glankler was
President of MFR Holdings. Mr. Glankler has over 17 years in the
homebuilding industry, including previous senior management
positions with U.S. Home Corporation. Mr. Glankler was the
former Chairman of the Arizona division of U.S. Home
Corporation, responsible for operations in Phoenix, Tucson and
New Mexico. Positions held by Mr. Glankler at U.S. Home include
President of the Louisiana, North Houston, East Houston and South
Houston divisions, respectively. He is former board member of
the Southern Arizona Homebuilders Association and holds a Class B
Arizona Contractors License and an Arizona Real Estate License.
Larry R. Day joined the Company's predecessor as Vice
President and General Counsel in December 1992 and now holds the
position of Chief Legal Officer and Executive Vice President. He
was elected to FHI's and Capital's boards of directors in
November 1993 and served in that capacity until January 1996.
Since March 1993, Mr. Day has also supervised the Company's human
resources, payroll and risk management departments. From 1989 to
1992, Mr. Day was in private practice specializing in real estate
finance and transactional matters. From 1988 to 1989, Mr. Day
was a Director, Vice President and General Counsel of Guardian
Savings and Loan. From 1985 to 1988, Mr. Day was Director of
Real Estate Legal Services for Taco Bell Corporation. Prior to
that, Mr. Day served 6 years as Vice President of Corporate and
Special Real Estate with First Interstate Bank. Mr. Day is
admitted to practice law in the States of California and Vermont,
and is a licensed California real estate broker.
Richard B. Munkvold joined the Company in 1995 as a
Division Controller of both the Southern California and Arizona
Divisions and now holds the position of Senior Vice President of
Financial Operations. Mr. Munkvold is responsible for
capital procurement, external financial reporting, internal
financial controls, and the Information Technology Department.
Prior to joining the Company, Mr. Munkvold held several financial
positions with the Ryland Group from 1989 through 1995 and last
served as Ryland Group's West Region Financial Analyst.
Jack Firestone, a private investor, became a Director of
the Company in January 1996. As of November 1, 2000, Jack
Firestone, retired from the Board of Directors for the Company.
Steven K. Fowlkes became a Director of the Company in
January 1996. Mr. Fowlkes is President and Chief Operating
Officer of R.W. Selby & Company, Inc., a real estate investment
and management firm in Los Angeles, California.
Peter T. Healy became a Director of the Company in
January 1996. Mr. Healy is a Senior Partner with the law firm of
O'Melveny & Myers LLP in their San Francisco, California office.
Leo Previti became a Director of the Company in January
1996. Mr. Previti has been an attorney with the firm of Brown,
Michael & Carroll in Atlantic City, New Jersey since 1996 and
prior thereto was Associate Counsel of International Game
Technology. Leo Previti is also a Certified Public Accountant
and is the brother of James P. Previti.
Jim Ellis became a Director of the Company in November of
2000. Since 1997, Mr. Ellis has held the position of
Associate Professor with the USC Marshall School of Business, in
the Department of Marketing. Prior to 1997, Mr. Ellis was the
CEO of Ports O"Call in Pasadena, and has held executive
marketing positions with retailers Miller's Outpost and The
Broadway Department Stores. Mr. Ellis holds an MBA from Harvard
Business School and an undergraduate degree from the University
of New Mexico.
The Board of Directors of FHI is elected annually by Mr.
Previti, the sole shareholder of FHI. Officers are elected
annually by the Board of Directors and serve at the discretion
of the Board of Directors. The Board of Directors of Capital is
elected annually by FHI on behalf of Forecast "Registered
Tradename" as the sole shareholder of Capital. Officers are
elected annually by the Board of Directors and serve at the
discretion of the Board of Directors.
The Boards of Directors of FHI and Capital meet three or
four times per year on a quarterly basis. The Boards of
Directors of FHI and Capital each have an Audit Committee of
which Mr. Leo Previti is a member. The Board of Directors of
FHI has a Compensation Committee of which Mr. Steven Fowlkes is a
member.
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth certain information with
respect to the compensation earned by the Chief Executive Officer
and each of the other most highly paid executive officers of FHI
and Capital (pursuant to Regulation S-K, Item 402, of the Securities
Act of 1933, Securities Exchange Act of 1934 and Energy Policy and
Conservation Act of 1975) whose total compensation for services
rendered during fiscal2000 exceeded $100,000 (collectively, the
"Named Executive Officers"):
<TABLE>
Summary Compensation Table
---------------------------------------------------------------
Annual Compensation
----------------------------
Name Principal Position Salary Bonus All Other
Compensation
----------------------------------------------------------------
<S> <C> <C> <C> <C>
James P. Previti Chairman of the
Board/Chief
Executive Officer/
President $250,000 $1,706,674 $0
Frank Glankler Executive Vice
President/Chief
Operating Officer 240,000 1,004,670 7,200
Larry Day Executive Vice
President/Chief
Legal Officer/
Secretary 200,000 341,335 7,200
Larry Young Northern Division -
President 180,000 871,616 7,200
James Rex Southern Division -
President 165,000 348,109 7,200
Richard Munkvold Sr. Vice President,
Financial Operations/
Principal Accounting
Officer 120,000 341,335 3,600
</TABLE>
Forecast "Registered Tradename" and Mr. Previti are
parties to an employment agreement whereby Mr. Previti's annual
compensation is $250,000 plus a quarterly bonus of up to five
percent of the pretax consolidated net income of the Company.
The Indenture allows amendments to such employment agreement,
and the renewal for successive periods of one year, at the
discretion of the Board of Directors. The new contract extends
through October 31, 2001.
The following table sets forth, as of November 1, 2000, the
beneficial ownership of the partnership interests in Forecast
"Registered Tradename" by (a) each of the directors of GP and
Capital, (b) the directors and officers of FHI and Capital as a
group, and (c) each person known to the Company to own
beneficially more than 5% of Forecast "Registered Tradename"'s
limited partnership interests or general partnership interests.
<TABLE>
% of
Profits/
Type of Losses/ % of
Name of Beneficial Owner[1] Interest Capital Class
-----------------------------------------------------------
<S> <C> <C> <C>
James P. Previti [2] General Partner 100.00% 100.00%
James P. Previti [3] Limited Partner 100.00% 100.00%
All directors and officers
as a group (9 persons) [2] General Partner 100.00% 100.00%
All directors and officers
as a group (9 persons) [3] Limited Partner 100.00% 100.00%
Forecast Homes, Inc. General Partner 1.00% 100.00%
Forecast Corporation Limited Partner 56.28% 56.85%
Forecast Mortgage Corporation Limited Partner 1.04% 1.05%
Forecast Development, L.P. Limited Partner 25.01% 25.26%
Inland Empire Personnel, Inc. Limited Partner 16.67% 16.84%
</TABLE>
[1] The address of each beneficial owner is: 10670 Civic Center
Drive, Rancho Cucamonga, California 91730.
[2] Reflects beneficial ownership resulting from status as sole
trustor and trustee of the Trust, which owns all of the
outstanding interests in each of the current limited
partners of Forecast "Registered Tradename".
[3] Reflects beneficial ownership resulting from status as sole
trustor and trustee of the Trust, which owns all of the
outstanding equity interests in each of the current limited
partners of Forecast "Registered Tadename".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships Among Mr. Previti, the Trust and the Company
The Company was formed in 1993 in connection with a
reorganization of the homebuilding businesses owned by the
James Previti Family Trust (the "Trust"). Forecast "Registered
Tradename" is the successor to substantially all the assets and
known liabilities of the residential real estate development
business of the Trust's affiliates. The Trust is a living,
revocable trust with James Previti as the sole trustor and
trustee.
Transactions With Affiliates
In 1994, the Board of Directors of FHI resolved that it would
be in the Company's best long-term interests to seek the
assistance of Mr. James Previti, the Company's President and
Chief Executive Officer, in acquiring the Company's 11 3/8%
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 of FHI 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 $20.4 million of the 11 3/8% Senior Notes all of
which were repurchased and retired prior to October 31, 1999. The
Company believes that these transactions were on terms at least
as favorable to the Company as a comparable transaction made on
an arm's length basis between unaffiliated parties.
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 two undeveloped parcels
of real property in Bullhead City, Arizona zoned for multi-family
use, to the Company. In May 1995, the Company sold one of these
parcels to Previti Realty Fund in exchange for a note for
$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 both the operating property
owned by Previti Realty Fund together with the undeveloped parcel
owned by the Company.
Land Acquisitions From Affiliates
In the fiscal year ended October 31, 2000, the Company
purchased 167 lots in Corona, California from entities owned or
controlled by James P. Previti with acquisition prices totaling
$6.7 million, which was equal to their book value. Over the
next 24 months, the Company anticipates purchasing another 2,268
lots, from related entities, located in Corona, Victorville,
Rancho Cucamonga, Folsom and Elk Grove, California. As of
October 31, 2000, deposits toward the purchase of the 2,268 lots
totaled $9.4 million.
Receivables From Affiliates
During the fiscal year ended October 31, 2000, Accounts
Receivables from Related Parties increased by $7.2 million. The
increase primarily relates from the Company making four new loans
to related parties. The first note is a $5.0 million unsecured
note receivable, relating to the sale by the Company of 296 lots
in Hemet, California to Forecast Corporation, a limited partner
in the Company. This note is due August 31, 2003 and bears
interest at 10.0%. The sale was recorded at cost and no gain or
loss was recorded on the sale. The second is a $1,125,000
unsecured, note receivable from an affiliated entity in which Mr.
Previti is a 50% owner. This note is due March 30, 2001 and
bears interest at 10.0%. The third 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 10.0%. The fourth 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%.
Management Services
The Company entered into management service agreements
with several affiliates as a part of the above described
reorganization in 1993. The agreements obligate the Company to
provide certain executive management, legal, tax, accounting,
human resources, payroll, environmental, risk management,
treasury and management information services to these affiliates,
in exchange for a fixed management fee specified in the
agreement. In fiscal year 2000, the Company charged $27,675 in
net management fees to affiliates.
Transactions with Mortgage Banking Company - Forecast
"Registered Tradename" Home Mortgage LLC
During fiscal year 1998, the Company entered into
negotiations with Norwest for the purpose of forming a
broaderbased mortgage services entity that would be better able
to attract and fulfill the mortgage needs of the Company's home
buyers, increase the Company's cash flow from its mortgage
business and take advantage of the standardization in the
mortgage industry. As of January 16, 1998, the Company began to
send its home buyers to Norwest for all of its mortgage needs. At
the same time, Norwest and the Company applied to conduct
business as "Forecast "Registered Tradename" Home Mortgage LLC"
("Forecast Mortgage"), a joint venture owned in equal shares by
Norwest and Inland Counties Mortgage. The Forecast Group
"Registered Tradename", L.P., owns a 98% share of Inland Counties
Mortgage. Forecast "Registered Tradename" Corporation owns the
other 2%. In July 1999, Wells Fargo purchased Norwest and
continues (through Wells Fargo Home Mortgage)to be a partner in
Forecast "Registered Tradename" Home Mortgage, LLC. Forecast
Mortgage provides the Company with the ability to control the
mortgage processing and funding of the loans its home buyers
obtained in their dealings with the Company, and has provided
the Company (through the consolidation of Inland Counties with
the Company) with income for fiscal year 2000 of $595,000,
generated through the origination of those mortgage loans to its
home buyers.
Insurance Brokerage Services
IEI, an affiliate of the Company that is owned by the
Trust, is a licensed insurance broker that does business
as Inland Southern Insurance Services, Inc. ("ISIS"). The
Company purchases various insurance policies through ISIS. Such
purchases are made on terms at least as favorable to the Company
as could be obtained through an unaffiliated insurance broker. In
addition, ISIS markets various forms of insurance to the
Company's home buyers. The vast majority of the business of ISIS
consists of home buyers referred by the Company. The Company
receives no referral fee from ISIS for such referrals or
providing its customer lists.
The Company purchases other insurance through independent
insurance brokers under an arrangement whereby ISIS receives a
commission as a co-broker on the insurance sold. ISIS performs
no services for the Company in obtaining the insurance and no
portion of such commission is rebated to the Company as a
referral fee. The Company believes that the aggregate cost of
the insurance coverage purchased pursuant to this arrangement is
no greater than the cost that would have been charged in an arms
length transaction with an unaffiliated party.
Office Leases
The Company leases from Previti Realty Fund, approximately
15,500 square feet of office space in Rancho Cucamonga for its
corporate and Southern California headquarters and approximately
11,807 in Sacramento. The Company presently pays $24,650 triple
net per month to lease its corporate headquarters and $16,179
full service per month for its Sacramento office. "Triple Net"
provisions require the Company to pay insurance, taxes and
operating expenses on the building while "Full Service"
provisions include such expenses in the monthly rent. The terms
and conditions of such leases, including rent payments by the
Company thereunder, are believed by the Company to be equivalent
to such as would be available on an arm's length, fair market
value basis.
Aircraft Charter
From time to time the Company charters aircraft from JP
Air Charter, Inc., an affiliate of the Company. In fiscal
2000 the Company paid that affiliate $48,823. All such charter
services are provided on terms equivalent to those offered to
unaffiliated third parties.
Loan Payable
From time to time, Mr. Firestone, a former director of the
Company, has made non-recourse loans to the Company to partially
fund the acquisition of specific communities. Those loans bear
interest at the rate of 10% per annum and are repaid at maturity.
As of October 31, 2000 the Company was obligated to Mr. Firestone
for $1,709,000 by way of such loans. The loans were made on terms
commensurate with those generally available for similar loans.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8 - K
(a) (1) and (a) (2) Financial Statements and Financial Statement
Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page F-1. All other
schedules are not applicable or not required and accordingly have
been omitted.
(a) (3) Exhibits
Exhibit Description
------- -----------
No.
----
1.1 Limited Partnership Agreement of The Forecast
Group "Registered Tradename", L.P. effective as of
September 30, 1993 by and among Forecast "Registered
Tradename" Homes, Inc., Forecast "Registered
Tradename" Mortgage Corporation, Forecast
"Registered Tradename" Corporation, Inland Empire
Personnel Inc. and Forecast "Registered Tradename"
Development, L.P.
1.2 Articles of Incorporation of Forecast "Registered
Tradename" Capital Corporation.
1.3 Bylaws of Forecast "Registered Tradename" Capital
Corporation.
2.1 Form of Indenture by and among The Forecast
Group "Registered Tradename", L.P., Forecast
"Registered Tradename" Capital Corporation and United
States Trust Company of New York, as Trustee.
2.2 Specimen of Note.
3.1 Employment Agreement by and between The Forecast
Group "Registered Tradename", L.P. and James P.
Previti dated as of November 1, 1993.
4.1 Subsidiaries of the Registrant.
_________
Each of the foregoing exhibits was filed as part of
the Company's Form S1 and Amendments thereto dated
November 24, 1993, January 18, 1994, February 7, 1994
and February 11, 1994 and are incorporated herein by
reference.
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 By: FORECAST "Registered
"Registered Tradename", L.P. Tradename" CAPITAL
CORPORATION.
By: FORECAST "Registered By: /s/ James P. Previti
Tradename" HOMES, INC. -------------------
A California corporation President
its General Partner
By: /s/ James P. Previti
--------------------
President
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., General Partner:
Name Title Date
-------------- --------------------- -----------------
/s/ James P. Previti
----------------
James P. Previti Chairman of the Board, December 14, 2000
President, Principal
Executive Officer
/s/ Richard B. Munkvold
-------------------
Richard B. Munkvold Senior Vice President, December 14, 2000
Financial Operations,
Principal Accounting
Officer
FORECAST "Registered Tradename" CAPITAL CORPORATION:
Name Title Date
--------------- ---------------------- ----------------
/s/ James P. Previti
----------------
James P. Previti Chairman of the Board, December 14, 2000
President, Principal
Executive Officer
/s/ Richard B. Munkvold
-------------------
Richard B. Munkvold Senior Vice President, December 14, 2000
Financial Operations,
Principal Accounting
Officer
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Forecast Group "Registered Tradename", L.P.
We have audited the accompanying consolidated balance
sheets of The Forecast Group "Registered Tradename", L.P. and
subsidiaries (the "Company") as of October 31, 2000 and 1999, and
the related consolidated statements of income and partners'
equity, and cash flows for each of the three years in the period
ended October 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of The Forecast Group "Registered
Tradename", L.P. and subsidiaries at October 31, 2000 and 1999,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended October
31, 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
December 4, 2000, except for Note 10,
as to which the date is December 14, 2000
<PAGE>
<TABLE>
The Forecast Group "Registered Tradename", L.P.
Consolidated Balance Sheets
(Amounts in 000's)
October 31
----------------------
2000 1999
-----------------------
<S> <C> <C>
Assets:
-------
Cash and Cash Equivalents $26,607 $22,594
Accounts Receivable 809 4,298
Accounts and Notes Receivable,
Related Parties 14,149 6,905
Real Estate Inventory 142,768 110,800
Property and Equipment, Net 435 551
Other Assets 1,565 1,770
-------- -------
Total Assets $186,333 $146,918
======== ========
Liabilities & Partners' Equity:
-------------------------------
Accounts Payable $31,382 $25,455
Accrued Expenses 6,498 4,007
Notes Payable:
Senior Notes at 11 3/8% due
December 2000 19,700 19,700
Collateralized by Real Estate
Inventory 44,028 40,932
Other Notes Payable 3,525 4,106
------- -------
Total Notes Payable 67,253 64,738
------- -------
Total Liabilities 105,133 94,200
Commitments and Contingencies (Note 9)
Partners' Equity 81,200 53,018
Less: Capital Notes Receivable
From Partners - (300)
------- ------
Net Partners' Equity 81,200 52,718
------- ------
Total Liabilities &
Partners' Equity $186,333 $146,918
======== ========
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
The Forecast Group "Registered Tradename", L.P.
Consolidated Statements of Income and Partner's Equity
(Amount in 000's)
For the Year Ended October 31
-----------------------------
2000 1999 1998
------------------------------
<S> <C> <C> <C>
Homebuilding Revenues $327,617 $280,644 $198,074
Cost of Homes Sold 259,218 228,859 164,335
-------- -------- --------
Gross Profit 68,399 51,785 33,739
-------- -------- --------
Land Sales Revenues 5,000 42,271 999
Cost of Land Sold 5,000 40,958 999
-------- -------- --------
Gain on Land Sales, net - 1,313 -
-------- -------- --------
Operating Expenses:
-------------------
Selling & Marketing Exp. 16,820 17,165 14,384
General & Admin. Exp. 21,361 16,064 11,397
Other Operating Costs 1,362 223 202
------- ------ ------
Total Operating Expenses 39,543 33,452 25,983
------- ------ ------
Operating Income 28,856 19,646 7,756
Other Income (Expenses):
-----------------------
Interest Income 965 682 455
Interest Expense - - (264)
Other Income and Expenses 396 1,247 2,500
----- ----- -----
Total Other Income (Exp.) 1,361 1,929 2,691
----- ----- -----
Income before
Extraordinary Gain 30,217 21,575 10,447
Extraordinary Gain on
Extinguishment of
Senior Notes - - 34
------- ------- -------
Net Income $30,217 $21,575 $10,481
======= ======= =======
Partners' Equity at
Beginning of Year $53,018 $31,443 $21,426
Capital Distributions, net (2,035) - (464)
Net Income 30,217 21,575 10,481
------- ------- -------
Subtotal 81,200 53,018 31,443
Less: Capital Notes
Receivable from Partners - (300) (300)
------- ------- ------
Net Partners' Equity at
End of Year $81,200 $52,718 $31,143
======= ======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
<TABLE>
The Forecast Group "Registered Tradename", L.P.
Consolidated Statements of Cash Flows
(Amount in 000's)
For the year Ended October 31
-----------------------------
2000 1999 1998
-----------------------------
<S> <C> <C> <C>
Operating Activities:
---------------------
Net Income $30,217 $21,575 $10,481
Adjustments to Reconcile
Net Income to Net Cash Provided
by Operating Activities
Extraordinary Gain on
Extinguishment of
Senior Notes - - (34)
Depreciation on Property
and Equipment 295 389 442
Loss (Gain) on Sale of Property
and Equipment 8 63 (11)
Gain on Land Sale - 1,313 -
Other Operating Costs 1,362 223 202
Equity Income of Unconsolidated
Joint Venture (595) (564) (588)
Decrease (Increase) in Accounts
Receivable 3,489 (2,889) (834)
Increase in Real Estate Inventory (33,330) (28,184) (13,342)
Decrease (Increase) in
Other Assets 408 (901) 1,176
Increase in Accounts Payable and
Accrued Expenses 8,418 6,756 7,839
------ ----- ------
Net Cash Provided By (Used For)
Operating Activities 10,272 (2,219) 5,331
------ ----- ------
Investing Activities:
---------------------
Contribution to Joint Venture (5) (7) (100)
Distribution from Joint Venture 397 795 180
Additions to Property and Equipment (216) (369) (359)
Proceeds from Sale of Property and
Equipment 29 - 330
------ ---- -----
Net Cash Provided by
Investing Activities 205 419 51
------ ---- -----
Financing Activities:
--------------------
Capital Distributions (2,035) - -
Payment received on Capital
Notes Receivable from Partner 300 - -
Retirement of Senior Notes at
11 3/8% due December 2000 - - (9,179)
(Increase) Decrease in Accounts
and Notes Receivable,
Related Parties (7,244) 3,522 (6,941)
Proceeds from Notes Payable,
Collateralized by Real Estate 219,694 220,310 125,691
Proceeds from Notes Payable,
Other 319 322 5,636
Principal Payments on Notes
Payable, Collateralized by
Real Estate (216,598) (214,914)(117,133)
Principal Payments on Notes
Payable, Other (900) (1,039) (813)
------- ------- -------
Net Cash (Used For) Provided
By Financing Activities (6,464) 8,201 (2,739)
------- ------- -------
Increase in Cash and
Cash Equivalents 4,013 6,401 2,643
Cash and Cash Equivalents at
Beginning of Year 22,594 16,193 13,550
------ ------- ------
Cash and Cash Equivalents at
End of Year $26,607 $22,594 $16,193
======= ======= =======
</TABLE>
[FN] See notes to consolidated financial statements.
<PAGE>
THE FORECAST GROUP "Registered Tradename", L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000
1. Basis of Presentation
The Forecast Group "Registered Tradename", L.P. is a
California limited partnership (the "Company") which was formed
in October 1993 to be the successor to substantially all the
assets and liabilities of the single-family residential real
estate development business of the James Previti Family Trust
(the "Trust") and its affiliates. The Trust is a living,
revocable trust with James Previti as Trustor. The Company's
sole general partner is Forecast "Registered Tradename" Homes,
Inc. "FHI"), a California corporation, which owns a 1%
interest in the profits, losses and capital of the Company.
Forecast "Registered Tradename" Capital Corporation ("Capital")
is a California corporation and a wholly-owned subsidiary of the
Company that was formed in 1993 solely to facilitate the
offering of 11 3/8% Senior Notes due in December 2000.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and it's majority-owned entities engaged in
single-family residential real estate development and related
businesses. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates
significantly in the near term.
Cash and Cash Equivalents
Cash and cash equivalents include unrestricted
deposit accounts at financial institutions, unrestricted
certificates of deposit with a maturity of less than 90 days and
certain funds not yet remitted and held in trust by escrow
companies on homes which have closed escrow. These escrow funds
are generally received within one to three days after the close
of escrow.
Real Estate Inventory and Recognition of Revenue
Real estate inventory consists of single-family
residential projects and land held for future development of
single-family communities and property zoned for multi-family
and commercial use. Interest and property taxes are capitalized
to inventories during periods of development and construction.
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 asset 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 years ended
October 31, 2000, 1999 and 1998.
Estimated fair value represents the estimated amount at
which an asset could be bought or sold by willing parties in a
current transaction. The estimation process involved in the
determination of fair value requires estimates as to future
events and conditions. Such future events and conditions
include economic, political and market conditions, the costs to
complete development, as well as the availability of
suitable financing to fund development and construction
activities, and the repayment or refinancing of existing
indebtedness. As the amount and timing of the realization of
cash flows from the Company's real estate projects is dependent
upon such future uncertain events and conditions, the ultimate
realization may be materially different from amounts presently
estimated in determining fair value.
Sales of single-family residences and other real estate
are generally recognized when title is conveyed to the buyer at
close of escrow and other conditions for profit recognition have
been met.
Selling expenses include escrow charges, commissions,
sales incentives, advertising, promotions, and the cost of model
home center operation and maintenance. These expenses are
generally charged to operations as incurred. Cost of homes
sold include direct and allocated costs for land and
construction including an estimate for future warranty costs.
The Company allocates the cost of land, common area development,
production overhead, capitalized sales center costs, interest,
and property taxes to homes within a particular community on a
pro-rata basis which approximates relative value of the property.
Property and Equipment
Property and equipment, consisting primarily of vehicles
and office furniture and equipment, is stated at cost.
Depreciation is provided using the straight-line method over the
estimated useful lives of three to seven years.
Investment in Joint Venture
The Company accounts for its 50% ownership interest in
Forecast "Registered Tradename" Home Mortgage, LLC under the
equity method of accounting.
Warranties
The Company provides one-year limited warranties to
purchasers of its homes. Statutory requirements in the states
in which the Company does business may grant rights to home
buyers in addition to those provided by the Company. Estimated
warranty costs are accrued at the time of sale of the homes.
Senior Note Offering Costs
Included in Other Assets as of October 31, 2000 and 1999
are costs associated with the issuance of Senior Notes in the
amount of $24,000 and $167,000 (which are reflected net of
accumulated amortization of $1,572,000 and $1,429,000,
respectively). The Company is amortizing these costs over seven
years and classifies the amortization as additional interest
incurred.
Income Taxes
The Company, as a partnership, is not subject to federal
and state income taxes since the results of its operations will
be allocated to the partners for inclusion in their respective
income tax returns.
Effect of New Accounting Standards
Effective November 1, 2000, the Company will adopt SFAS NO.
133, Accounting for Derivative Instruments and Hedging
Activities. The adoption of SFAS No. 133 is not anticipated to
have an impact on the Company's results of operations or
financial conditions as the Company holds no derivative financial
instruments and does not currently invest in derivative
investments or engage in hedging activities.
3. Accounts and Notes Receivable, Related Parties
Accounts and notes receivable, related parties, consist of
the following:
<TABLE>
October 31,
-------------------
2000 1999
-------------------
<S> <C> <C>
Unsecured Note receivable from
Forecast Corporation $5,000,000 -
Receivable from Previti Realty Fund 3,326,000 $2,746,000
Receivables from other affiliates, net 1,356,000 1,278,000
Note receivable from Corona Country
Club Estates, unsecured 1,125,000 -
Note receivable from Mr. Previti,
collateralized by a partnership
interestin River Road Ventures 1,083,000 1,083,000
Note receivable from Newport Murrieta
Land Co., secured by real property in
Flagstaff, Arizona 657,000 657,000
Note receivable from Previti Realty Fund
secured by real property in Mohave
County, Arizona 641,000 641,000
Note receivable from Previti Realty Fund,
unsecured 500,000 -
Management fees from Affiliates 161,000 500,000
Note receivable from Mr. Previti,
unsecured 300,000 -
----------- ----------
Total $14,149,000 $6,905,000
=========== ==========
</TABLE>
As of October 31, 2000, accounts and notes receivable
from related parties, includes a note receivable from an entity
in which Mr. Previti is the 100% owner in the amount of
$5,000,000 relating to the sale by the Company of 296 lots in
Hemet, California. This note is due August 31, 2003 and bears
interest at the rate of 10.0%.
The receivable from an entity in which Mr. Previti is the
100% owner in the amount of $3,326,000 relates to costs incurred
by the Company, on behalf of the affiliate, for certain
development activities on real property in Northern California.
The receivables from other affiliates are primarily
advances, which totaled $1,356,000 as of October 31, 2000.
The unsecured note receivable from an entity in which Mr.
Previti is a 50% owner in the amount of $1,125,000 is due March
30, 2001 and bears interest at 10.0%.
As of October 31, 2000 and 1999, amounts receivable from
related parties include a promissory note from Mr. Previti in
the amount of $1,083,000. The note, which is secured by Forecast
"Registered Tradename" Mortgage Corporation's partnership
interest in River Road Ventures (a California general partnership),
is due December 31, 2000 and bears interest at 10.5% per annum.
As of October 31, 2000 and 1999, amounts receivable
from related parties also includes $657,000 due on a note with an
original face amount of $844,000 that is due December 31, 2000,
and is secured by real property in Flagstaff, Arizona.
In 1993, Mr. Previti contributed two undeveloped parcels of
real property in Bullhead City, Arizona zoned for multi-family
use to the Company. In May 1995, the Company sold one of these
parcels to an affiliated entity in which Mr. Previti owns a 100%
interest, and took back a note receivable of $641,000 secured by
the parcel. The affiliated entity 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 is currently carried on
the Company's books at an amount of $1.6 million. Mr. Previti and
the Company now intend to sell both the operating property owned by
the affiliated entity together with the undeveloped parcel owned by
the Company. In conjunction with this anticipated sale Mr. Previti
has executed a pledge of his shareholder interest in the net proceeds
from the intended sale of the combined properties to ensure the Company
will receive the current book value for its undeveloped property.
The $500,000 unsecured note receivable is from an affiliated
entity in which Mr. Previti is the 100% owner. This note is due
December 31, 2000 and bears interest at 10.0%.
The $300,000 unsecured note receivable is from Mr. Previti.
This note is due December 31, 2000 and bears interest at the
rate of 10.0%.
For further discussion regarding these and other transactions
with affiliates, see Note 6.
4. Real Estate Inventory and Related Notes Payable
Real estate inventory and related notes payable consist of
the following:
<TABLE>
October 31, 2000
--------------------------------
Real Estate Notes Payable
Inventory
---------------------------------
<S> <C> <C>
Land Held for Development $3,232,000 $-
Residential Projects in Process 132,961,000 44,028,000
Model Homes 6,575,000 -
------------ -----------
Total $142,768,000 $44,028,000
============ ===========
October 31, 1999
-------------------------------
Real Estate Notes Payable
Inventory
--------------------------------
Land Held for Development $9,000,000 $-
Residential Projects in Process 100,720,000 40,932,000
Model Homes 1,080,000 -
------------- -----------
Total $110,800,000 $40,932,000
============= ===========
</TABLE>
During the year ended October 31, 1999, the Company sold and
subsequently leased back 71 model homes for a sales price of
$13,729,000 and gross profit of $2,354,000. The sales and
related profit were recorded in accordance with Statement of
Financial Accounting Standard No. 98 "Accounting for Leases".
Notes payable secured by real estate inventory bear interest
at rates ranging from the three month LIBOR rate (6.62% at
October 31, 2000) plus 2.10% to prime rate (9.50% at October 31,
2000) plus 1.0%. The interest rate on $22.9 million of the loans
outstanding at October 31, 2000 which bear interest at the LIBOR
rate plus 2.10% will increase to the prime rate plus .5% if the
Company fails to maintain average deposits with the lender of $10
million. At October 31, 2000, the Company's cash balance with
this LIBOR lender was in excess of $26.6 million. Principal
payments on notes payable collateralized by real estate held for
development and sale are generally due within eighteen months.
Notes payable collateralized by residential developments that are
in process are generally repaid as units in the related
communities are closed.
At October 31, 2000, the Company had commitments for $114.2
million under several revolving credit facilities with commercial
banks and financial institutions of which $39.1 million was
outstanding. In addition, at October 31, 2000, the Company had
community specific facilities capable of providing aggregate
funding of $2.7 million of which $2.7 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 $4.2 million, of which $2.2 was outstanding
as of October 31, 2000. On October 31, 2000, the aggregate
outstanding principal balance under the Company's credit
facilities was $44.0 million and the amount of such debt that is
recourse to the Company was $14.8 million. Approximately $0, and
$10,638,000 of the notes payable outstanding as October 31, 2000
and 1999, respectively, were guaranteed by Mr. Previti.
The following summarizes the components of interest expense
for all notes payable:
<TABLE>
For the Year Ended October 31
--------------------------------------
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
Interest Incurred and
Capitalized $9,877,000 $10,193,000 $6,859,000
Interest Incurred and
Expensed - - 264,000
---------- ----------- ----------
Total Interest Incurred $9,877,000 $10,193,000 $7,123,000
========== =========== ==========
Capitalized Interest
Amortized to Cost of
Homes Sold $8,899,000 $8,214,000 $7,865,000
Interest Paid $9,877,000 $10,193,000 $7,529,000
</TABLE>
The carrying amounts reported above for notes payable
secured by real estate approximate their fair value based upon
the indebtedness having short term maturities and variable
interest rates.
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. At October 31,
2000 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
Capital "Registered Tradename" Corporation ("Capital"), with
interest only payments due semi-annually on June 15 and December 15
of each year. The notes are senior unsecured obligations of the
Company and rank pari passu in right of payment with all senior
indebtedness of the Company. The fair value of the Company's
Senior Notes, held in the names of investors other than the Company,
is approximately $19,700,000 based on the market price as of
October 31, 2000.
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
October 31, 2000, the Company met the interest coverage and debt-
to-equity ratios, thereby permitting the Company to incur
additional recourse debt above the $15 million limit.
Notwithstanding the ability to incur recourse debt in excess of
$15 million at October 31, 2000, the Company only had outstanding
approximately $14.8 million of recourse debt. In addition, the
Company is not precluded from incurring additional debt on a non-
recourse debt basis, without regard to any interest or debt
coverage ratios.
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 each of any two consecutive fiscal quarters (Trigger
Dates) is less than $25 million, the Company is then 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 of 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.
During the year ended October 31, 1998 the Company
repurchased a portion of its Senior Notes having an aggregate
outstanding principal amount of $9,375,000 in the open market.
No repurchases occurred in fiscal year 2000 or 1999. As of
October 31, 2000, the Company has repurchased and retired a total
of $23,400,000 of the Senior Notes and the remaining $26,600,000
have not been retired, including $6,900,000 which were repurchased
and are being held in the Company's name. The notes are due on
December 15, 2000, with interest at the rate of 11 3/8% per annum
payable semi-annually on June 15 and December 15 of each year.
On December 13, 2000, the Company retired all of its remaining
outstanding Senior Notes relating to the $50 million of Senior
Notes obtained in 1994, by utilizing existing revolving credit
facilities and operating cash flow.
6. Related Party Transactions
The Company leases its corporate offices and certain of its
operating division offices from Mr. Previti or partnerships in
which Mr. Previti maintains at least a 50% ownership. These
leases are generally noncancelable and have expiration dates
ranging through 2004. Payments under these leases were
$486,000, $401,000 and $346,000 for the fiscal years ended
October 31, 2000, 1999 and 1998, respectively. See Note 9 of
Notes to Consolidated Financial Statements for aggregate
operating lease commitments of the Company.
Through January 15, 1998 mortgages for certain of the
Company's customers were provided by Rancho Mortgage "Registered
Tradename" Corporation ("Rancho Mortgage"), a corporation in
which Mr. Previti is the sole stockholder. During the normal
course of business, the Company had entered into certain
transactions with Rancho Mortgage "Registered Tradename" for loan
commitments under various governmental programs to facilitate
its customers ability to obtain financing. Commitment fees
paid to Rancho Mortgage "Registered tradename" were
approximately $502,000 for the fiscal year ended October 31, 1998.
As of January 16, 1998 the Company ceased doing business
with Rancho Mortgage "Registered Tradename" and started a
business relationship with Norwest, Inc. (a nationally
recognized mortgage banker, "Norwest"). On August 1, 1998 the
Company (through its limited partnership interest in Inland
Counties Mortgage, LLC ["Inland Counties"], an affiliated
entity of the Company) entered into a joint venture with Norwest
under the name Forecast "Registered Tradename" Home Mortgage, LLC
("Forecast Mortgage"). This new entity provides the Company
with the ability to influence the mortgage processing and
funding of the loans its home buyers obtained in their dealings
with the Company, and has provided the Company (through the
consolidation of Inland Counties with the Company) with
previously unavailable income generated through the origination of
those mortgage loans to its home buyers. The Company expects that
Forecast "Registered Tradename" Mortgage will be able to capture a
greater percentage of its home buyers than had its prior mortgage
provider due to the vastly larger mortgage products a company like
Norwest is able to offer. During fiscal year 2000, Wells Fargo
purchased Norwest and continued (through Wells Fargo Home Mortgage)
to be a partner in Forecast "Registered Tradename" Home Mortgage, LLC.
During the years ended October 31, 2000, 1999 and 1998, the Company
recognized $595,000 $564,000 and $588,000 of income from this
joint venture.
The Company has entered into management services
Agreements with several affiliates, whereby the Company provides
certain executive management, real estate development,
legal, tax, accounting, human resources, environmental, risk
management, treasury and management information services to these
affiliates, in exchange for a fixed management fee. The Company
charged $28,000, $1,178,000 and $1,781,000 in net management fees
to affiliates under these agreements for the fiscal years ended
October 31, 2000, 1999 and 1998, respectively.
Included in the management fees earned in the fiscal year
ended October 31, 1998 is a $1,100,000 fee earned by the Company
from an affiliated entity in which Mr. Previti owns a 50%
interest, for development related rights, licensing and services
associated with certain real property in Southern California. The
Company has management fee receivables from affiliates of
$161,000 and $500,000 as of October 31, 2000 and 1999, respectively.
Through the fiscal year ended October 31, 2000, the Company
incurred $8.6 million in site development costs on real property
in Northern California, on behalf of an affiliated entity in
which Mr. Previti is the 100% owner. The Company has been
reimbursed from the sale of Community Facilities District bonds
totaling $7.1 million, which leaves $1.5 million remaining to be
received from the City of Folsom.
In the fiscal year ended October 31, 2000, the Company
purchased 167 lots in Corona, California from entities owned or
controlled by James P. Previti totaling $6.7 million, which was
equal to their book value. Over the next 24 months, the Company
anticipates purchasing another 2,268 lots located in Corona,
Victorville, Rancho Cucamonga, Folsom and Elk Grove, California
from related parties. As of October 31, 2000, deposits toward the
purchase of the 2,268 lots totaled $9.4 million.
In May 1995, the Company sold, to an affiliate, a parcel
of land located in Bullhead City, Arizona that was approved for
the construction of 68 apartment units. The sales price of
$641,000 represented 105% of the book value of the parcel as of
the sale date, as was required by the Company's Indenture. As
consideration for the sale, the Company accepted a note
receivable of $641,000 from Previti Realty Fund, which remains
outstanding as of October 31, 2000, and is secured by the
property.
From time to time, Mr. Firestone, a member of the Board of
Directors, has made non-recourse loans to the Company. These
loans bear interest at the rate of 10% per annum and are repaid
at maturity. As of October 31, 2000 and 1999, the Company was
obligated to Mr. Firestone for $1,709,000 and $487,000,
respectively.
In March 1996, the Company sold a 8.1 acre parcel of land
located in Murietta, California, at its book value, to a
corporation controlled by Mr. Previti for total consideration of
approximately $2.5 million consisting of a note payable to the
Company for $844,000 and the assumption by the buyer of $1,679,000
of indebtedness related to the parcel sold. No gain or loss was
recognized on the sale. As of October 31, 2000, the principal balance
of that note was $657,000.
In August 2000, the Company sold 296 lots in Hemet,
California, at its book value, to a corporation owned 100% by Mr.
Previti for a total consideration of $5 million in the form of an
unsecured note due in August 2003. No gain or loss was recognized
on the sale.
During fiscal year 2000, the Company wrote-off $500,000 of
uncollectible receivables from affiliates.
From time to time the Company charters aircraft from JP Air
Charter, Inc., an affiliate of the Company. During the years
ended October 31, 2000, 1999 and 1998, the Company paid the
affiliate $48,823, $52,398 and $47,858, respectively.
For further discussion of these and other transactions
with affiliates see Note 3 of Notes to Consolidated Financial
Statements.
7. Extraordinary Item
During the year ended October 31, 1998, the Company
repurchased a portion of its Senior Notes having an aggregate
face value of $9,375,000. The Senior Notes were purchased from
Mr. Previti in the open market. Net of allocable issuance costs,
the resultant income of $34,000 is reported as an extraordinary
gain in the Company's financial statements for the year ended
1998. As of October 31, 2000, affiliates of the Company did not
control any additional Senior Notes.
8. Profit Sharing and Pension Plans
In fiscal 1995, the Company adopted a non-contributory
401(k) plan covering substantially all employees. In fiscal 1997,
the Company adopted a qualified matching program relating
to employees' contribution to their 401(k) plans, and created an
obligation for the Company to contribute 25% of any employee's
contribution to the 401(k) plan, up to the first 6% of any one
employees' contribution. In fiscal year 2000, the Company
modified its employer matching funds, to equal 100% of the first
3% of any employee's contribution to their 401(k) account.
Participating employees vest in the Company's matching
contribution over a five (5) year period, at 20% per year.
During 2000, 1999 and 1998, the Company paid $142,000, $95,000
and $30,000, respectively, to employees' accounts as a result of
this program.
9. Commitments and Contingencies
COMMITMENTS
The Company leases office facilities under noncancelable
operating leases expiring in 2000 and 2004. Aggregate rental costs
incurred under such leases were $583,000, $401,000 and $496,000 for
the years ended October 31, 2000, 1999 and 1998, respectively.
Future minimum annual rental payments of $237,000 and $140,000 for
its Corporate Office are due during 2001 and 2002, respectively.
Future minimum annual rental payments of $141,000, $144,000, $146,000
and $99,000 for its Sacramento office are due during 2001, 2002, 2003
and 2004, respectively. Future minimum annual rental payments of $38,000,
$17,000 and $14,000 for its four satellite offices in Southern
California are due during 2001, 2002 and 2003, respectively.
See Note 6 of Notes to Consolidated Financial Statements for
further discussion regarding leases with affiliates.
CONTINGENCIES
The Company is subject to routine litigation incidental to
its business. In the opinion of management, the resolution of
such claims will not have a material adverse effect on the
operating results or financial position of the Company.
In addition to the routine litigation, the Company's
contingent liabilities include warranty obligations and
other disputes arising from construction and sales of single
family homes in the ordinary course of business. In the opinion
of management, adequate reserves have been provided for warranty
obligations and ultimate outcome of any disputes on these other
matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations
or liquidity.
10. Subsequent Event
On December 13, 2000, the Company retired all of its remaining
$26,600,000 of outstanding Senior Notes relating to the $50 million
of Senior Notes obtained in 1994, by utilizing existing revolving
credit facilities and operating cash flow.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Forecast "Registered Tradename" Capital Corporation
We have audited the accompanying balance sheets of
Forecast "Registered Tradename" Capital Corporation (the
"Company") as of October 31, 2000 and 1999 and the related
statements of operations and shareholders' deficit, and cash
flows for each of the three years in the period ended October 31,
2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Forecast "Registered Tradename" Capital Corporation
at October 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period
ended October 31, 2000, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
December 4, 2000
<TABLE>
Forecast "Registered Tradename" Capital Corporation
Balance Sheets
October 31
-----------------
2000 1999
-----------------
<S> <C> <C>
Assets:
Cash $500 $800
---- ----
Total Assets $500 $800
==== ====
Liabilities & Shareholders' Deficit:
Accounts Payable $300 $300
Accounts Payable, Related Parties 7,300 6,400
------ ------
Total Liabilities $7,600 $6,700
------ ------
Common Stock, $1.00 par value:
Authorized 10,000 shares
Issued and Outstanding 2,500 shares 2,500 2,500
Accumulated Deficit (9,600) (8,400)
----- -----
Total Shareholders' Deficit (7,100) (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 Year Ended October 31
-----------------------------
2000 1999 1998
-----------------------------
<S> <C> <C> <C>
General & Administrative Expenses $400 $500 $200
Income Tax Expense 800 800 800
------ ------ ------
Net Loss ($1,200) ($1,300) ($1,000)
====== ====== ======
Shareholders' Deficit at
Beginning of Year ($5,900) ($4,600) ($3,600)
Net Loss ($1,200) ($1,300) ($1,000)
------ ------ ------
Shareholders' Deficit at
End of Year ($7,100) ($5,900) ($4,600)
====== ====== ======
</TABLE>
[FN] See notes to financial statements.
<TABLE>
Forecast "Registered Tradename" Capital
Corporation Statements of Cash Flows
For the year Ended October 31
-----------------------------
2000 1999 1998
-----------------------------
<S> <C> <C> <C>
Net Loss ($1,200) ($1,300) ($1,000)
Increase in Accounts Payable,
Related Parties 900 2,000 1,000
------ ------ ------
Increase (Decrease) in Cash
and Cash Equivalents ($300) $700 $0
Cash and Cash Equivalents at
Beginning of Year 800 100 100
------ ------ -----
Cash and Cash Equivalents at
End of Year $500 $800 $100
====== ====== ====
</TABLE>
[FN] See notes to financial statements.
<PAGE>
FORECAST "Registered Tradename" CAPITAL
CORPORATION NOTES TO FINANCIAL STATEMENTS
October 31, 2000
1. Organization and Operations
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.
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."
