UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One)
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT Of 1934 | |
| For the quarterly period ended April 30, 2005 | ||
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT Of 1934 | |
| For the transition period from to |
Commission file number 1-4372
FOREST CITY ENTERPRISES, INC.
| Ohio | 34-0863886 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | 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 þ NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
YES þ NO o
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 June 3, 2005 | |
Class A Common Stock, $.33 1/3 par value
|
37,202,012 shares | |
Class B Common Stock, $.33 1/3 par value
|
13,248,480 shares |
(THIS PAGE INTENTIONALLY LEFT BLANK)
Forest City Enterprises, Inc. and Subsidiaries
Table of Contents
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Forest City Enterprises, Inc. and Subsidiaries |
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| 5-7 | ||||||||
| 8-21 | ||||||||
| 22-39 | ||||||||
| 40-42 | ||||||||
| 43 | ||||||||
| 43 | ||||||||
| 43 | ||||||||
| 44 | ||||||||
| 45-48 | ||||||||
| 49 | ||||||||
Certifications |
||||||||
| EX-10.17 Amend and Restate Form of Stock Option Agreement | ||||||||
| EX-10.18 Amend and Restated Form of Restricted Stock Agrmt | ||||||||
| EX-10.43 2nd Amendment to Credit Agrmt Dated 04/07/2005 | ||||||||
| EX-10.45 1st Amendment to Deferred Compensation Plan | ||||||||
| EX-10.46 2nd Amendment to Deferred Compensation Plan | ||||||||
| EX-10.47 4th Amendment to Deferred Compensation Plan | ||||||||
| EX-31.1 Principal Executive Officer Sectoin 302 Cert | ||||||||
| EX-31.2 Principal Financial Officer Section 302 Cert | ||||||||
| EX-32.1 Section 906 Certifications | ||||||||
PART I – FINANCIAL INFORMATION
Forest City Enterprises, Inc. and Subsidiaries
| April 30, 2005 | January 31, 2005 | |||||||
| (Unaudited) | ||||||||
| (in thousands) | ||||||||
Assets |
||||||||
Real Estate |
||||||||
Completed rental properties |
$ | 5,812,307 | $ | 5,708,558 | ||||
Projects under development |
733,971 | 634,441 | ||||||
Land held for development or sale |
87,734 | 94,907 | ||||||
Total Real Estate |
6,634,012 | 6,437,906 | ||||||
Less accumulated depreciation |
(900,260 | ) | (865,562 | ) | ||||
Real Estate, net |
5,733,752 | 5,572,344 | ||||||
Cash and equivalents |
211,058 | 276,492 | ||||||
Restricted cash |
338,440 | 347,267 | ||||||
Notes and accounts receivable, net |
201,754 | 212,868 | ||||||
Investments in and advances to affiliates |
416,472 | 415,234 | ||||||
Other assets |
511,087 | 497,880 | ||||||
Total Assets |
$ | 7,412,563 | $ | 7,322,085 | ||||
Liabilities and Shareholders’ Equity |
||||||||
Liabilities |
||||||||
Mortgage debt, nonrecourse |
$ | 4,847,987 | $ | 4,787,191 | ||||
Notes payable |
83,010 | 93,432 | ||||||
Senior and subordinated debt |
599,400 | 599,400 | ||||||
Accounts payable and accrued expenses |
614,092 | 587,274 | ||||||
Deferred income taxes |
362,619 | 354,490 | ||||||
Total Liabilities |
6,507,108 | 6,421,787 | ||||||
Minority Interest |
80,710 | 95,773 | ||||||
Commitments and Contingencies |
— | — | ||||||
Company-Obligated Trust Preferred Securities |
— | — | ||||||
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; 37,214,579 and 37,102,821
shares issued, 37,183,787 and 37,102,821 outstanding, respectively |
12,405 | 12,368 | ||||||
Class B, convertible, 36,000,000 shares authorized; 13,248,480
shares issued and outstanding |
4,416 | 4,416 | ||||||
| 16,821 | 16,784 | |||||||
Additional paid-in-capital |
247,670 | 243,885 | ||||||
Retained earnings |
569,289 | 552,106 | ||||||
| 833,780 | 812,775 | |||||||
Treasury stock, at cost; 30,792 and -0- Class A shares, respectively |
(1,945 | ) | — | |||||
Accumulated other comprehensive loss |
(7,090 | ) | (8,250 | ) | ||||
Total Shareholders’ Equity |
824,745 | 804,525 | ||||||
Total Liabilities and Shareholders’ Equity |
$ | 7,412,563 | $ | 7,322,085 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Forest City Enterprises, Inc. and Subsidiaries
| Three Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
| (in thousands except per share data) | ||||||||
Revenues from real estate operations |
$ | 309,303 | $ | 239,863 | ||||
Expenses |
||||||||
Operating expenses |
176,422 | 137,363 | ||||||
Interest expense |
69,619 | 56,899 | ||||||
Amortization of mortgage procurement costs |
3,266 | 2,486 | ||||||
Loss on early extinguishment of debt |
1,610 | — | ||||||
Provision for decline in real estate |
1,500 | — | ||||||
Depreciation and amortization |
43,974 | 36,976 | ||||||
| 296,391 | 233,724 | |||||||
Interest income |
6,969 | 1,839 | ||||||
Equity in earnings of unconsolidated entities |
20,036 | 6,244 | ||||||
Gain on disposition of other investments |
606 | — | ||||||
Earnings before income taxes |
40,523 | 14,222 | ||||||
Income tax expense |
||||||||
Current |
6,278 | 1,028 | ||||||
Deferred |
9,159 | 2,339 | ||||||
| 15,437 | 3,367 | |||||||
Earnings before minority interest, discontinued operations and
cumulative effect of
change in accounting principle |
25,086 | 10,855 | ||||||
Minority interest |
(2,870 | ) | (7,187 | ) | ||||
Earnings from continuing operations |
22,216 | 3,668 | ||||||
Discontinued operations, net of tax and minority interest |
||||||||
Operating earnings from Lumber Group |
— | 2,584 | ||||||
Operating earnings from rental properties |
— | 425 | ||||||
Gain on disposition of rental properties |
— | 11,787 | ||||||
| — | 14,796 | |||||||
Cumulative effect of change in accounting principle, net of tax |
— | (11,261 | ) | |||||
Net earnings |
$ | 22,216 | $ | 7,203 | ||||
Basic earnings per common share |
||||||||
Earnings from continuing operations |
$ | 0.44 | $ | 0.07 | ||||
Earnings from discontinued operations, net of tax and minority interest |
— | 0.30 | ||||||
Cumulative effect of change in accounting principle, net of tax |
— | (0.23 | ) | |||||
Net earnings |
$ | 0.44 | $ | 0.14 | ||||
Diluted earnings per common share |
||||||||
Earnings from continuing operations |
$ | 0.43 | $ | 0.07 | ||||
Earnings from discontinued operations, net of tax and minority interest |
— | 0.29 | ||||||
Cumulative effect of change in accounting principle, net of tax |
— | (0.22 | ) | |||||
Net earnings |
$ | 0.43 | $ | 0.14 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Forest City Enterprises, Inc. and Subsidiaries
| Three Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
| (in thousands) | ||||||||
Net earnings |
$ | 22,216 | $ | 7,203 | ||||
Other comprehensive income, net of tax: |
||||||||
Unrealized
(losses) gains on investments in securities: |
||||||||
Unrealized
(loss) gain on securities, net of minority interest |
(166 | ) | 770 | |||||
Unrealized derivative gains: |
||||||||
Change in unrealized gains on interest rate contracts, net of minority interest |
1,326 | 2,865 | ||||||
Other comprehensive income, net of tax |
1,160 | 3,635 | ||||||
Comprehensive income |
$ | 23,376 | $ | 10,838 | ||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Retained | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Shares | Amount | (Loss) Income | Total | |||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||
Three
Months Ended April 30, 2005 |
||||||||||||||||||||||||||||||||||||||||
Balances at January 31, 2005 |
37,103 | $ | 12,368 | 13,249 | $ | 4,416 | $ | 243,885 | $ | 552,106 | — | $ | — | $ | (8,250 | ) | $ | 804,525 | ||||||||||||||||||||||
Net earnings |
22,216 | 22,216 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
1,160 | 1,160 | ||||||||||||||||||||||||||||||||||||||
Dividends $.10 per share |
(5,033 | ) | (5,033 | ) | ||||||||||||||||||||||||||||||||||||
Exercise of stock options |
67 | 22 | 1,690 | 1,712 | ||||||||||||||||||||||||||||||||||||
Income tax benefit from stock option
exercises and vesting of restricted stock |
1,537 | 1,537 | ||||||||||||||||||||||||||||||||||||||
Restricted stock issued |
45 | 15 | (15 | ) | — | |||||||||||||||||||||||||||||||||||
Amortization of unearned compensation |
573 | 573 | ||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock |
31 | (1,945 | ) | (1,945 | ) | |||||||||||||||||||||||||||||||||||
Balances at April 30, 2005 |
37,215 | $ | 12,405 | 13,249 | $ | 4,416 | $ | 247,670 | $ | 569,289 | 31 | $ | (1,945 | ) | $ | (7,090 | ) | $ | 824,745 | |||||||||||||||||||||
Three
Months Ended April 30, 2004 |
||||||||||||||||||||||||||||||||||||||||
Balances at January 31, 2004 |
36,510 | $ | 12,170 | 13,716 | $ | 4,572 | $ | 235,398 | $ | 496,537 | 239 | $ | (1,752 | ) | $ | 1,986 | $ | 748,911 | ||||||||||||||||||||||
Net earnings |
7,203 | 7,203 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
3,635 | 3,635 | ||||||||||||||||||||||||||||||||||||||
Dividends $.09 per share |
(4,498 | ) | (4,498 | ) | ||||||||||||||||||||||||||||||||||||
Conversion of Class B to Class A shares |
100 | 33 | (100 | ) | (33 | ) | — | |||||||||||||||||||||||||||||||||
Exercise of stock options |
448 | (39 | ) | 290 | 738 | |||||||||||||||||||||||||||||||||||
Income tax benefit from stock option exercises |
505 | 505 | ||||||||||||||||||||||||||||||||||||||
Amortization of unearned compensation |
308 | 308 | ||||||||||||||||||||||||||||||||||||||
Balances at April 30, 2004 |
36,610 | $ | 12,203 | 13,616 | $ | 4,539 | $ | 236,659 | $ | 499,242 | 200 | $ | (1,462 | ) | $ | 5,621 | $ | 756,802 | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Forest City Enterprises, Inc. and Subsidiaries
| Three Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
| (in thousands) | ||||||||
Cash Flows from Operating Activities |
||||||||
Rents and other revenues received |
$ | 258,376 | $ | 208,996 | ||||
Interest received |
6,312 | 1,826 | ||||||
Cash distributions from operations of unconsolidated entities |
11,412 | 7,610 | ||||||
Proceeds from land sales |
62,199 | 27,387 | ||||||
Land development expenditures |
(31,347 | ) | (23,824 | ) | ||||
Operating expenditures |
(173,709 | ) | (130,867 | ) | ||||
Interest paid |
(65,423 | ) | (42,172 | ) | ||||
Change in Lumber Group – assets held for sale |
— | (34,851 | ) | |||||
Lumber Group
earnings impact on operating activities |
— | 4,133 | ||||||
Net cash provided by operating activities |
67,820 | 18,238 | ||||||
Cash Flows from Investing Activities |
||||||||
Capital expenditures |
(221,313 | ) | (233,854 | ) | ||||
Proceeds from disposition of rental properties and
other investments |
16,805 | 26,521 | ||||||
Change in investments in and advances to affiliates |
7,387 | (11,715 | ) | |||||
Net cash used in investing activities |
(197,121 | ) | (219,048 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Proceeds from issuance of senior notes |
— | 100,000 | ||||||
Payment of senior notes issuance costs |
— | (3,620 | ) | |||||
Payments on long-term credit facility |
— | (56,250 | ) | |||||
Proceeds from nonrecourse mortgage debt |
143,011 | 222,149 | ||||||
Principal payments on nonrecourse mortgage debt |
(83,825 | ) | (69,277 | ) | ||||
Proceeds from notes payable |
273 | 5,482 | ||||||
Payments on notes payable |
(10,695 | ) | (20,953 | ) | ||||
Change in restricted cash and book overdrafts |
49,475 | (48,000 | ) | |||||
Payment of deferred financing costs |
(11,170 | ) | (4,211 | ) | ||||
Exercise of stock options |
1,712 | 738 | ||||||
Purchase of treasury stock |
(1,945 | ) | — | |||||
Dividends paid to shareholders |
(5,036 | ) | (4,500 | ) | ||||
Decrease (increase) in minority interest |
(17,933 | ) | 6,154 | |||||
Change in Lumber Group – assets held for sale |
— | 33,322 | ||||||
Net cash provided by financing activities |
63,867 | 161,034 | ||||||
Net decrease in cash and equivalents |
(65,434 | ) | (39,776 | ) | ||||
Cash and equivalents at beginning of period |
276,492 | 107,491 | ||||||
Cash and equivalents at end of period |
$ | 211,058 | $ | 67,715 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
| Three Months Ended April 30, | ||||||||
| 2005 | 2004 | |||||||
| (in thousands) | ||||||||
Reconciliation of Net Earnings to Cash Provided by Operating Activities |
||||||||
Net Earnings |
$ | 22,216 | $ | 7,203 | ||||
Minority interest |
2,870 | 7,187 | ||||||
Depreciation |
38,562 | 32,186 | ||||||
Amortization |
5,412 | 4,790 | ||||||
Amortization of mortgage procurement costs |
3,266 | 2,486 | ||||||
Equity in earnings of unconsolidated entities |
(20,036 | ) | (6,244 | ) | ||||
Cash distributions from operations of unconsolidated entities |
11,412 | 7,610 | ||||||
Deferred income taxes |
7,371 | 4,066 | ||||||
Gain on disposition of other investments |
(606 | ) | — | |||||
Provision for decline in real estate |
1,500 | — | ||||||
Loss on early extinguishment of debt |
1,610 | — | ||||||
Discontinued operations: |
||||||||
Loss on early extinguishment of debt |
— | 238 | ||||||
Depreciation |
— | 1,460 | ||||||
Amortization |
— | (183 | ) | |||||
Amortization of mortgage procurement costs |
— | 315 | ||||||
Gain on disposition of operating properties |
— | (19,499 | ) | |||||
Minority interest |
— | 141 | ||||||
Cumulative effect of change in accounting principle |
— | 18,628 | ||||||
Decrease (increase) in land included in projects under development |
13,090 | (1,283 | ) | |||||
Decrease (increase) in land held for development or sale |
7,173 | (2,727 | ) | |||||
Decrease (increase) in notes and accounts receivable |
11,114 | (9,065 | ) | |||||
Increase in other assets |
(47,885 | ) | (604 | ) | ||||
Increase in accounts payable and accrued expenses |
10,751 | 6,384 | ||||||
Change in Lumber Group – assets held for sale |
— | (34,851 | ) | |||||
Net cash provided by operating activities |
$ | 67,820 | $ | 18,238 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Supplemental Non-Cash Disclosures:
There were no non-cash transactions for the three months ended April 30, 2005. The table below represents the effect of the following non-cash transactions for the three months ended April 30, 2004:
| &nb |