SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For Quarter Ended | July 31, 2002 | ||
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| Commission file number | 1-4372 | ||
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FOREST CITY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
| Ohio | 34-0863886 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| Terminal Tower Suite 1100 |
50 Public Square Cleveland, Ohio |
44113 | ||||
| (Address of principal executive offices) | Zip Code | |||||
| Registrant’s telephone number, including area code | 216-621-6060 | |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at August 26, 2002 | |
| Class A Common Stock, $.33 1/3 par value | 35,468,753 shares | |
| Class B Common Stock, $.33 1/3 par value | 14,181,906 shares |
FOREST CITY ENTERPRISES, INC.
Table of Contents
| Page No. | |||||||
PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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Forest City Enterprises, Inc. and Subsidiaries |
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Consolidated Balance Sheets — July 31, 2002
(Unaudited) and January 31, 2002 |
3 | ||||||
Consolidated Statements of Earnings
(Unaudited) — Three Months and Six Months
Ended July 31, 2002 and 2001 |
4 | ||||||
Consolidated Statements of Comprehensive Income
(Unaudited) — Six Months
Ended July 31, 2002 and 2001 |
5 | ||||||
Consolidated Statements of Shareholders’ Equity
(Unaudited) — Six Months Ended
July 31, 2002 and 2001 |
5 | ||||||
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended July 31, 2002 and 2001 |
6 | ||||||
Notes to Consolidated Financial Statements (Unaudited) |
7-20 | ||||||
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
21-38 | ||||||
Item 3. Quantitative and Qualitative Disclosures about
Market Risk |
39-41 | ||||||
Item 4. Controls and Procedures |
42 | ||||||
PART II. OTHER INFORMATION |
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Item 1. Legal Proceedings |
42 | ||||||
Item 4. Submission of Matters to a Vote of Security-Holders |
42 | ||||||
Item 6. Exhibits and Reports on Form 8-K |
43-48 | ||||||
Signatures |
49 | ||||||
Section 302 Certifications |
50-51 | ||||||
2
PART I — FINANCIAL INFORMATION
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| July 31, 2002 | January 31, 2002 | |||||||||
| (Unaudited) | ||||||||||
| (in thousands) | ||||||||||
Assets |
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Real Estate |
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Completed rental properties |
$ | 3,776,618 | $ | 3,458,756 | ||||||
Projects under development |
466,999 | 461,204 | ||||||||
Land held for development or sale |
32,536 | 24,193 | ||||||||
Real Estate, at cost |
4,276,153 | 3,944,153 | ||||||||
Less accumulated depreciation |
(581,452 | ) | (537,325 | ) | ||||||
Total Real Estate |
3,694,701 | 3,406,828 | ||||||||
Cash and equivalents |
33,210 | 50,054 | ||||||||
Restricted cash |
110,937 | 113,073 | ||||||||
Notes and accounts receivable, net |
267,760 | 276,000 | ||||||||
Inventories |
38,587 | 39,247 | ||||||||
Investments in and advances to real estate affiliates |
426,272 | 394,303 | ||||||||
Other assets |
141,471 | 138,141 | ||||||||
Total Assets |
$ | 4,712,938 | $ | 4,417,646 | ||||||
Liabilities and Shareholders’ Equity |
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Liabilities |
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Mortgage debt, nonrecourse |
$ | 2,803,017 | $ | 2,620,598 | ||||||
Notes payable |
66,655 | 64,554 | ||||||||
Long-term credit facility |
161,750 | 54,000 | ||||||||
Senior and subordinated debt |
220,400 | 220,400 | ||||||||
Accounts payable and accrued expenses |
470,467 | 499,722 | ||||||||
Deferred income taxes |
230,847 | 227,982 | ||||||||
Total Liabilities |
3,953,136 | 3,687,256 | ||||||||
Minority Interest |
74,644 | 67,877 | ||||||||
Commitments and Contingencies |
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Shareholders’ Equity |
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Preferred stock – convertible, without par value
5,000,000 shares authorized; no shares issued |
– | – | ||||||||
Common stock – $.33 1/3 par value |
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Class A, 96,000,000 shares authorized; 35,626,772 and 35,101,288
shares issued, 35,465,753 and 34,756,382 outstanding, respectively |
11,876 | 11,700 | ||||||||
Class B, convertible, 36,000,000 shares authorized; 14,599,056 and 15,124,540
shares issued, 14,181,906 and 14,707,390 outstanding, respectively |
4,866 | 5,042 | ||||||||
| 16,742 | 16,742 | |||||||||
Additional paid-in capital |
231,610 | 228,263 | ||||||||
Retained earnings |
450,294 | 432,939 | ||||||||
| 698,646 | 677,944 | |||||||||
Less treasury stock, at cost; 161,019 Class A and 417,150 Class B shares
and 344,906 Class A and 417,150 Class B shares, respectively |
(4,496 | ) | (6,140 | ) | ||||||
Accumulated other comprehensive loss |
(8,992 | ) | (9,291 | ) | ||||||
Total Shareholders’ Equity |
685,158 | 662,513 | ||||||||
Total Liabilities and Shareholders’ Equity |
$ | 4,712,938 | $ | 4,417,646 | ||||||
See notes to consolidated financial statements.
3
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
| Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||
Revenues |
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Rental properties |
$ | 206,004 | $ | 180,334 | $ | 384,478 | $ | 340,320 | |||||||||||||
Lumber trading |
23,337 | 36,016 | 49,600 | 61,929 | |||||||||||||||||
Equity in earnings of unconsolidated entities |
10,564 | 13,913 | 20,758 | 19,697 | |||||||||||||||||
| 239,905 | 230,263 | 454,836 | 421,946 | ||||||||||||||||||
Expenses |
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Operating expenses |
144,006 | 134,030 | 271,755 | 242,729 | |||||||||||||||||
Interest expense |
46,000 | 45,774 | 89,336 | 91,166 | |||||||||||||||||
Depreciation and amortization |
28,148 | 24,040 | 55,184 | 47,147 | |||||||||||||||||
| 218,154 | 203,844 | 416,275 | 381,042 | ||||||||||||||||||
(Loss) gain on disposition of operating properties
and other investments |
– | (329 | ) | (116 | ) | 1,263 | |||||||||||||||
Earnings before income taxes |
21,751 | 26,090 | 38,445 | 42,167 | |||||||||||||||||
Income tax expense |
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Current |
3,785 | 5,489 | 10,751 | 7,487 | |||||||||||||||||
Deferred |
3,164 | 3,848 | 2,943 | 7,850 | |||||||||||||||||
| 6,949 | 9,337 | 13,694 | 15,337 | ||||||||||||||||||
Earnings before minority interest, extraordinary (loss) gain
and cumulative effect of change in accounting principle |
14,802 | 16,753 | 24,751 | 26,830 | |||||||||||||||||
Minority interest |
2,119 | 1,281 | 1,702 | 1,711 | |||||||||||||||||
Earnings before extraordinary (loss) gain and
cumulative effect of change in accounting principle |
12,683 | 15,472 | 23,049 | 25,119 | |||||||||||||||||
Extraordinary (loss) gain, net of tax |
– | – | (230 | ) | 637 | ||||||||||||||||
Cumulative effect of change in accounting principle, net of tax |
– | – | – | (1,202 | ) | ||||||||||||||||
Net earnings |
$ | 12,683 | $ | 15,472 | $ | 22,819 | $ | 24,554 | |||||||||||||
Basic earnings per common share |
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Earnings before extraordinary (loss) gain and cumulative
effect of change in accounting principle |
$ | .26 | $ | .34 | $ | .47 | $ | .55 | |||||||||||||
Extraordinary (loss) gain, net of tax |
– | – | (.01 | ) | .01 | ||||||||||||||||
Cumulative effect of change in accounting principle, net of tax |
– | – | – | (.02 | ) | ||||||||||||||||
Net earnings |
$ | .26 | $ | .34 | $ | .46 | $ | .54 | |||||||||||||
Diluted earnings per common share |
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Earnings before extraordinary (loss) gain and cumulative
effect of change in accounting principle |
$ | .25 | $ | .34 | $ | .46 | $ | .55 | |||||||||||||
Extraordinary (loss) gain, net of tax |
– | – | (.01 | ) | .01 | ||||||||||||||||
Cumulative effect of change in accounting principle, net of tax |
– | – | – | (.02 | ) | ||||||||||||||||
Net earnings |
$ | .25 | $ | .34 | $ | .45 | $ | .54 | |||||||||||||
See notes to consolidated financial statements.
4
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
| Six Months Ended July 31, | ||||||||||
| 2002 | 2001 | |||||||||
| (in thousands) | ||||||||||
Net earnings |
$ | 22,819 | $ | 24,554 | ||||||
Other comprehensive income (loss), net of tax: |
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Unrealized losses on investments in securities: |
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Unrealized loss on securities |
(627 | ) | (3,449 | ) | ||||||
Unrealized derivative gains (losses): |
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Cumulative effect of change in accounting principle — transition
adjustment of interest rate contracts, net of minority interest |
– | (7,820 | ) | |||||||
Change in unrealized losses on interest rate contracts,
net of minority interest |
926 | (633 | ) | |||||||
Other comprehensive income (loss), net of tax |
299 | (11,902 | ) | |||||||
Comprehensive income |
$ | 23,118 | $ | 12,652 | ||||||
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(Unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||||||||