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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                    October 31, 2002    

Commission file number              1-4372        

FOREST CITY ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

     
Ohio   34-0863886
 
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)
                                         
Terminal Tower     50 Public Square
     Suite 1100          Cleveland, Ohio		   44113
 
(Address of principal executive offices)   Zip Code
 
Registrant’s telephone number, including area code   216-621-6060
   

(Former name, former address and former fiscal year, if changed since last report).

     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 December 2, 2002
 
Class A Common Stock, $.33 1/3 par value
   35,520,067 shares
 
Class B Common Stock, $.33 1/3 par value
   14,130,592 shares

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security-Holders
Item 6. Exhibits and Reports on Form 8-K
CERTIFICATION

Table of Contents

FOREST CITY ENTERPRISES, INC.

Table of Contents

                         
                    Page No.
                   
PART I. FINANCIAL INFORMATION
     
        Item 1.   Financial Statements          
               
Forest City Enterprises, Inc. and Subsidiaries
        
               
Consolidated Balance Sheets — October 31, 2002
(Unaudited) and January 31, 2002
     3  
               
Consolidated Statements of Earnings
(Unaudited) — Three Months and Nine Months
Ended October 31, 2002 and 2001
     4  
               
Consolidated Statements of Comprehensive Income
(Unaudited) — Nine Months
Ended October 31, 2002 and 2001
     5  
               
Consolidated Statements of Shareholders’ Equity
(Unaudited) — Nine Months Ended
October 31, 2002 and 2001
     5  
               
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended October 31, 2002 and 2001
     6  
               
Notes to Consolidated Financial Statements (Unaudited)
     7 - 22  
        Item 2.  
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
     23 - 42  
        Item 3.  
Quantitative and Qualitative Disclosures about
Market Risk
     43 - 45  
        Item 4.  
Controls and Procedures
     46  
 
PART II. OTHER INFORMATION
 
        Item 1.  
Legal Proceedings
     46  
        Item 4.  
Submission of Matters to a Vote of Security-Holders
     46  
        Item 6.  
Exhibits and Reports on Form 8-K
     47 - 52  
Signatures     53  
Section 302 Certifications     54 - 55  

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

                     
        October 31, 2002   January 31, 2002
       
 
        (Unaudited)        
        (in thousands)
Assets
                
Real Estate
 
Completed rental properties
   $ 3,837,061     $ 3,458,756  
 
Projects under development
     518,495       461,204  
 
Land held for development or sale
     35,357       24,193  
 
    
     
 
   
Total Real Estate
     4,390,913       3,944,153  
 
Less accumulated depreciation
     (606,798 )     (537,325 )
 
    
     
 
   
Real Estate, net
     3,784,115       3,406,828  
 
Cash and equivalents
     41,651       50,054  
Restricted cash
     144,633       113,073  
Notes and accounts receivable, net
     265,613       276,000  
Inventories
     32,728       39,247  
Investments in and advances to real estate affiliates
     494,802       394,303  
Other assets
     136,236       138,141  
 
    
     
 
   
Total Assets
   $ 4,899,778     $ 4,417,646  
 
    
     
 
Liabilities and Shareholders’ Equity
                
Liabilities
                
Mortgage debt, nonrecourse
   $ 2,924,509     $ 2,620,598  
Notes payable
     59,167       64,554  
Long-term credit facility
     194,500       54,000  
Senior and subordinated debt
     220,400       220,400  
Accounts payable and accrued expenses
     492,857       499,722  
Deferred income taxes
     241,680       227,982  
 
    
     
 
 
Total Liabilities
     4,133,113       3,687,256  
 
Minority interest
     75,435       67,877  
 
    
     
 
Commitments and Contingencies
                
 
Shareholders’ Equity
                
Preferred stock — without par value
5,000,000 shares authorized; no shares issued
     —       —  
Common stock — $.33 1/3 par value
                
 
Class A, 96,000,000 shares authorized; 35,644,041 and 35,101,288 shares issued, 35,486,022 and 34,756,382 outstanding, respectively
     11,881       11,700  
 
Class B, convertible, 36,000,000 shares authorized; 14,581,787 and 15,124,540 shares issued, 14,164,637 and 14,707,390 outstanding, respectively
     4,861       5,042  
 
    
     
 
 
     16,742       16,742  
Additional paid-in capital
     231,808       228,263  
Retained earnings
     456,258       432,939  
 
    
     
 
 
     704,808       677,944  
Less treasury stock, at cost; 158,019 Class A and 417,150 Class B shares and 344,906 Class A and 417,150 Class B shares, respectively
     (4,469 )     (6,140 )
Accumulated other comprehensive loss
     (9,109 )     (9,291 )
 
    
     
 
 
Total Shareholders’ Equity
     691,230       662,513  
 
    
     
 
   
Total Liabilities and Shareholders’ Equity
   $ 4,899,778     $ 4,417,646  
 
    
     
 

See notes to consolidated financial statements.

3

Table of Contents

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings

                                     
        Three Months Ended October 31,   Nine Months Ended October 31,
       
 
        2002   2001   2002   2001
       
 
 
 
        (Unaudited)
        (in thousands, except per share data)
Revenues
                                
   
Rental properties
   $ 199,484     $ 195,608     $ 583,962     $ 535,928  
   
Lumber trading
     23,296       27,034       72,896       88,963  
   
Equity in earnings of unconsolidated entities
     10,735       10,019       31,493       29,716  
 
    
     
     
     
 
 
     233,515       232,661       688,351       654,607  
 
    
     
     
     
 
Expenses
                                
   
Operating expenses
     143,714       139,027       415,469       381,756  
   
Interest expense
     40,900       44,023       130,236       135,189  
   
Provision for decline in real estate
     957       7,452       957       7,452  
   
Depreciation and amortization
     31,723       24,271       86,907       71,418  
 
    
     
     
     
 
 
     217,294       214,773       633,569       595,815  
 
    
     
     
     
 
Gain (loss) on disposition of operating properties and other investments
     —       89,961       (116 )     91,224  
 
    
     
     
     
 
Earnings before income taxes
     16,221       107,849       54,666       150,016  
 
    
     
     
     
 
Income tax expense (benefit)
                                
   
Current
     (4,044 )     3,596       6,707       11,083  
   
Deferred
     11,053       40,864       13,996       48,714  
 
    
     
     
     
 
 
     7,009       44,460       20,703       59,797  
 
    
     
     
     
 
 
Earnings before minority interest, extraordinary loss and cumulative effect of change in accounting principle
     9,212       63,389       33,963       90,219  
 
Minority interest
     (57 )     3,209       (1,759 )     1,498  
 
    
     
     
     
 
Earnings before extraordinary loss and cumulative effect of change in accounting principle
     9,155       66,598       32,204       91,717  
 
Extraordinary loss, net of tax
     (214 )     (870 )     (444 )     (233 )
Cumulative effect of change in accounting principle, net of tax
     —       —       —       (1,202 )
 
    
     
     
     
 
Net earnings
   $ 8,941     $ 65,728     $ 31,760     $ 90,282  
 
    
     
     
     
 
Basic earnings per common share
                                
   
Earnings before extraordinary loss and cumulative effect of change in accounting principle
   $ .18     $ 1.42     $ .65     $ 2.01  
   
Extraordinary loss, net of tax
     —       (.02 )     (.01 )     (.01 )
   
Cumulative effect of change in accounting principle, net of tax
     —       —       —       (.03 )
 
    
     
     
     
 
Net earnings
   $ .18     $ 1.40     $ .64     $ 1.97  
 
    
     
     
     
 
Diluted earnings per common share
                                
   
Earnings before extraordinary loss and cumulative effect of change in accounting principle
   $ .18     $ 1.40     $ .64     $ 1.98  
   
Extraordinary loss, net of tax
     —       (.02 )     (.01 )     (.01 )
   
Cumulative effect of change in accounting principle, net of tax
     —       —       —       (.03 )
 
    
     
     
     
 
Net earnings
   $ .18     $ 1.38     $ .63     $ 1.94  
 
    
     
     
     
 

See notes to consolidated financial statements.

4

Table of Contents

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income

                     
        Nine Months Ended October 31,
       
        2002   2001
       
 
        (Unaudited)
        (in thousands)
Net earnings
   $ 31,760     $ 90,282  
 
    
     
 
Other comprehensive income (loss), net of tax:
                
 
Unrealized gains (losses) on investments in securities:
                
   
Unrealized loss on securities
     (512 )     (4,096 )
   
Reclassification adjustment for loss included in net earnings
     —       799  
 
Unrealized derivative gains (losses):
                
   
Cumulative effect of change in accounting principle — transition adjustment of interest rate contracts, net of minority interest
     —       (7,820 )
   
Change in unrealized gains and losses on interest rate contracts, net of minority interest
     694       (4,783 )
 
    
     
 
Other comprehensive income (loss), net of tax
     182       (15,900 )
 
    
     
 
Comprehensive income
   $ 31,942     $ 74,382  
 
    
     
 

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’Equity

                                                                                     
                Common Stock                                                        
         
                                                       
        Class A   Class B   Additional           Treasury Stock   Accumulated Other        
         
  Paid-In   Retained    
  Comprehensive    
        Shares   Amount   Shares   Amount   Capital   Earnings   Shares   Amount   Income (Loss) Total
       
 
 
 
 
 
 
 
 
        (Unaudited)
        (in thousands)
Nine Months Ended October 31, 2002
                                                                                
 
Balances at January 31, 2002
     35,101     $ 11,700       15,125     $ 5,042     $ 228,263     $ 432,939       762     $ (6,140 )   $ (9,291 )   $ 662,513  
 
Net earnings
                                             31,760                               31,760  
 
Other comprehensive income, net of tax