Back to GetFilings.com
1
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 1-4372
FOREST CITY ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-0863886
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
10800 BROOKPARK ROAD
CLEVELAND, OHIO 44130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 216-267-1200
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
Class A Common Stock ($.33 1/3 par value) American Stock Exchange
Class B Common Stock ($.33 1/3 par value) American Stock Exchange
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 4, 1997 the aggregate market value of the voting stock held by
non-affiliates of the registrant amounted to $210,541,403 and $67,584,666 for
Class A and Class B common stock, respectively.
The number of shares of registrant's common stock outstanding on March 4, 1997
was 7,702,308 and 5,409,668 for Class A and Class B common stock, respectively.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held June 10, 1997 are incorporated by reference into Part III of this Form
10-K.
================================================================================
2
FOREST CITY ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
JANUARY 31, 1997
TABLE OF CONTENTS
PAGE
------
PART I
Item 1. Business................................................................... 1
Item 2. Properties................................................................. 4
Item 3. Legal Proceedings.......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........................ 8
Item 4A. Executive Officers of the Registrant....................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 9
Item 6. Selected Financial Data.................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 21
Item 8. Financial Statements and Supplementary Data................................ 22
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................. 46
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 46
Item 11. Executive Compensation..................................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 46
Item 13. Certain Relationships and Related Transactions............................. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 46
Signatures................................................................. 51
i
3
PART I
ITEM 1. BUSINESS
Founded 77 years ago and publicly traded since 1960, Forest City
Enterprises, Inc. (with its Subsidiaries, the "Company" or "Forest City") is one
of the leading real estate development companies in the United States. It
develops, acquires, owns and manages commercial and residential real estate
projects in 20 states and the District of Columbia. At January 31, 1997, the
Company had $2.7 billion in consolidated assets, of which approximately $2.5
billion was invested in commercial and residential real estate.
The Company operates through its four principal business groups:
- The Commercial Group, which develops, acquires, owns and operates
shopping centers, office buildings and mixed-use projects including
hotels.
- The Residential Group, which develops, acquires, owns and operates the
Company's multi-family properties.
- The Land Group, which owns and develops raw land into master planned
communities and other residential developments for resale.
- The Lumber Trading Group, which operates the Company's lumber wholesaling
business.
Each group operates autonomously and each of the Commercial Group and the
Residential Group has its own development, acquisition, leasing, property and
financial management functions. As a result, each of these groups is able to
perform all of the tasks necessary to develop and maintain a property from
selecting a project site to financing the project to managing the completed
project. The Company's "corporate" activities relate to its investments in, and
advances to, affiliates, and general corporate items.
The following table sets forth, by type of property, a summary of the
Company's operating portfolio of commercial, residential and land projects as of
January 31, 1997.
NUMBER OF REPRESENTATIVE PRINCIPAL
TYPE OF PROPERTY PROPERTIES TOTAL SIZE METROPOLITAN REGIONS
- ---------------------------------- ----------- ----------------- ----------------------------------
COMMERCIAL GROUP
Shopping Centers................ 30 14.3 million New York City (4); California (4);
square feet Cleveland (3); Akron, OH (3); Las
Vegas (2); Tucson (2)
Office Buildings................ 20 6.4 million Cleveland (9); New York City (5);
leasable square Cambridge, MA (3); Pittsburgh (2)
feet
Hotels.......................... 5 1,530 rooms Cleveland (2); Pittsburgh (1);
Charleston, WV (1); Detroit (1)
RESIDENTIAL GROUP
Apartment Communities (1)....... 114 31,441 units Cleveland (20); California (7);
Washington, D.C. (5); Detroit (4);
Cambridge, MA (1); Las Vegas (1)
LAND GROUP
Land held for improvement and
sale.......................... -- 5,920 acres Ft. Lauderdale; Las Vegas;
Cleveland; Tucson
- ---------------
(1) Includes 9,402 syndicated senior citizen units in 57 apartment communities
developed under Federal subsidy programs in which the Company holds a
residual interest, none of which are reflected under the caption
"Representative Principal Metropolitan Regions."
During 1996, the Company opened six new shopping centers with an aggregate
of 1.4 million square feet of gross leaseable area ("GLA"), acquired a new
apartment complex with 419 apartment units, and opened 336 additional apartment
units at four existing projects.
1
4
The following table sets forth certain information regarding these
properties.
COMPANY'S
DEVELOPED (D) DATE TOTAL COST SHARE OF TOTAL
OR OPENED/ COMPANY AT 100% COST SQUARE GLA(1)/
PROPERTY LOCATION ACQUIRED (A) ACQUIRED OWNERSHIP (%) (IN MIL.) (IN MIL.) FEET NO. OF UNITS
- ----------------- ----------------- ------------- -------- ------------- ---------- --------- --------- ------------
COMMERCIAL GROUP
Shopping Centers
Galleria at
Sunset.......... Henderson, NV D Feb-96 60% $ 82.0 $ 49.2 892,000 294,000
Hunting Park..... Philadelphia, PA D Apr-96 70 14.9 10.4 144,000 144,000
Bruckner
Boulevard....... Bronx, NY D Sep-96 70 15.1 10.6 114,000 114,000
Marketplace at
Riverpark....... Fresno, CA D Sep-96 50 26.5 13.3 453,000 284,000
Atlantic
Center.......... Brooklyn, NY D Nov-96 75 75.2 56.4 391,000 391,000
Showcase......... Las Vegas, NV D Dec-96 20 76.9 15.4 189,000 189,000
------ ------ --------- ---------
Subtotal...... $290.6 $ 155.3 2,183,000 1,416,000
========= =========
------ ------
RESIDENTIAL GROUP
Tam-A-Rac(2)..... Willoughby, OH D Feb-96 50% 3.3 1.7 64
Cherry Tree(2)... Strongsville, OH D Apr-96 50 6.9 3.5 132
Big Creek(2)..... Parma Hts., OH D May-96 50 4.3 2.2 72
Emerald Palms.... Miami, FL A May-96 100 21.8 21.8 419
Pebble
Creek(2)........ Twinsburg, OH D Sep-96 50 3.4 1.7 68
------ ------ ---------
Subtotal...... $ 39.7 $ 30.9 755
=========
------ ------
Total...... $330.3 $ 186.2
====== ======
- ---------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
(2) Part of a phased construction process.
COMMERCIAL GROUP
The Company has developed retail projects for more than 50 years and
office, mixed-use and hotel projects for more than 30 years, and today the
Commercial Group owns a diverse portfolio in both urban and suburban locations
in 12 states. The Commercial Group targets densely populated locations where it
uses its expertise to develop complex projects, often employing public/private
partnerships. As of January 31, 1997, the Commercial Group owned interests in 55
completed projects, including 30 retail properties, 20 office properties and
five hotels.
The Company opened its first strip shopping center in 1948, and its first
enclosed regional mall in 1962. Since then, it has developed urban retail
centers, entertainment based centers, community centers and power centers
focused on "big box" retailing (collectively, "Specialty Retail Centers"), as
well as regional malls. As of January 31, 1997, the Commercial Group's shopping
center portfolio consisted of 14 regional malls with a total GLA of 4.3 million
square feet and 16 Specialty Retail Centers with a total GLA of 3.4 million
square feet.
Malls are generally developed in collaboration with anchor stores that
usually own their own facilities as integral parts of the mall structure and
environment and which do not generate significant direct payments to the
Company. In contrast, anchor stores at specialty retail and power centers
generally are tenants under long-term leases which contribute significant rental
payments to the Company.
While the Company continues to develop regional malls in strong markets,
the Company recently has pioneered the concept of bringing "big box" retailing
to urban locations previously ignored by major retailers. With high population
densities and disposable income levels at or near those of the suburbs, urban
development is proving to be economically advantageous for the Company, for the
tenants who realize high sales per square foot and for the cities, which benefit
from the new jobs created in the urban locations.
The Company's existing portfolio of office/mixed-use and hotel projects
consists of 20 office buildings containing 6.4 million square feet, including
mixed-use projects with an aggregate of 164,000 gross leasable square feet of
retail space and five hotels with 1,530 rooms.
2
5
In its office development activities, Forest City is primarily a
build-to-suit developer which works with tenants to meet their highly
specialized requirements. The Company's office development has focused primarily
on mixed-use projects in urban developments, often built in conjunction with
hotels and shopping centers or as part of a major office campus. As a result of
this focus on new urban developments, 50% of the Company's office buildings were
built within the last seven years and are concentrated in four new urban
developments located in Brooklyn, Cleveland, Cambridge and Pittsburgh.
RESIDENTIAL GROUP
The Company's Residential Group develops, acquires, owns, leases and
manages residential rental property in 16 states and the District of Columbia.
The Company has been engaged in apartment community development for over 50
years, beginning in northeast Ohio, and gradually expanding nationally. Its
portfolio includes mature middle-market apartments in geographically attractive
suburbs, newer and higher end apartments in unique urban locations and newer
apartments in the suburbs. The Residential Group, which focuses on large
apartment complexes, does not develop or operate single-family housing or
condominium projects.
The Residential Group's portfolio consists of 31,441 units in which Forest
City has an ownership interest, including 9,402 units of syndicated senior
citizen subsidized housing that the Company manages and in which it owns a
residual interest.
LAND GROUP
The Company has been in the land business since the 1930's. The Land Group
acquires and sells both raw land and developed lots to residential, commercial
and industrial customers. The Land Group projects attract national, regional and
local builders. The Land Group develops raw land into master planned
communities, mixed-use and other residential developments and currently owns
more than 5,920 acres of undeveloped land for this purpose. The Company
currently has major land development projects in five states.
Historically, the Land Group's activities focused on land development
projects in northeast Ohio. Over time, the Group's activities expanded to
larger, more complex projects, and regional expansion into western New York
State. In the last ten years, the Group has extended its activities on a
national basis, first in Arizona, and more recently in Florida and Nevada.
In addition to the sales activities of the Land Group, the Company also
sells land acquired by its Commercial Group and Residential Group adjacent to
their respective projects. Proceeds from such land sales are included in the
revenues and assets of such Groups.
LUMBER TRADING GROUP
The Company's original business was selling lumber to homebuilders. The
Company expanded this business in 1969 through its acquisition of Forest City
Trading Group, Inc., which is a lumber wholesaler to customers in all 50 states
and in all Canadian provinces. Through ten strategically located independent
trading companies in the United States and Canada, employing 343 traders, Forest
City sold the equivalent of seven billion board feet of lumber in 1996, with a
gross sales volume of nearly $3 billion, making the Company one of the largest
lumber wholesalers in North America.
The Lumber Trading Group currently has offices in 11 states, the District
of Columbia, Vancouver, British Columbia and Toronto, Ontario. The Company opens
offices in response to the changing demands of the lumber industry. In 1996, the
Lumber Trading Group opened offices in Utah and Texas. The new Houston, Texas
office is part of the Lumber Trading Group's strategic initiative to increase
its participation in the southern pine market, which is growing in popularity as
logging restrictions limit production in the Pacific Northwest.
The Lumber Trading Group's core business is supplying lumber for new home
construction and to the repair and remodeling markets. Approximately 60% of the
Lumber Trading Group's sales involve back-to-back trades in which the Company
brings together a buyer and seller for an immediate purchase and sale. The
3
6
balance of transactions are trades in which the Company takes a short-term
ownership position and is at risk for lumber market fluctuations.
COMPETITION
The real estate industry is highly competitive in all major markets. With
regard to the Commercial and Residential Groups, there are numerous other
developers, managers and owners of commercial and residential real estate that
compete with the Company nationally, regionally and/or locally in seeking
management and leasing revenues, land for development, properties for
acquisition and disposition and tenants for properties, some of whom may have
greater financial resources than the Company. There can be no assurance that the
Company will successfully compete for new projects or have the ability to react
to competitive pressures on existing projects caused by factors such as
declining occupancy rates or rental rates. In addition, tenants at the Company's
retail properties face continued competition in attracting customers from
retailers at other shopping centers, catalogue companies, warehouse stores,
large discounters, outlet malls, wholesale clubs and direct mail and
telemarketers. The existence of competing developers, managers and owners and
competition to the Company's tenants could have a material adverse effect on the
Company's ability to lease space in its properties and on the rents charged or
concessions granted, could materially and adversely affect the Company's results
of operations and cash flows, and could affect the realizable value of assets
upon sale.
With regard to the Lumber Trading Group, the lumber wholesaling business is
highly competitive. Competitors in the lumber brokerage business include
numerous brokers and in-house sales departments of lumber manufacturers, many of
which are larger and have greater resources than the Company.
Forest City was incorporated in Ohio in 1960 as a successor to a business
started in 1921.
NUMBER OF EMPLOYEES
The Company had 3,384 employees as of January 31, 1997, of which 2,525 were
full-time and 859 were part-time.
SEGMENTS OF BUSINESS
Financial information about industry segments required by this item is
included in Item 8. Financial Statements and Supplementary Data, page 37, Note I
"Segment Information."
ITEM 2. PROPERTIES
The Corporate headquarters of Forest City Enterprises is located in
Cleveland, Ohio and is owned by the Company. Forest City Trading Group maintains
its headquarters in Portland, Oregon with twenty-three administrative and sales
offices and one processing plant located in eleven states and the District of
Columbia and two sales offices in Canada. The following table lists the shopping
centers, office buildings, hotels, and apartments in which Forest City Rental
Properties Corporation has an interest:
4
7
PROPERTIES
The following tables provide summary information concerning the Company's
real estate portfolio as of January 31, 1997.
SHOPPING CENTERS -- EXISTING PORTFOLIO
YEAR
COMPLETED/ RETAIL SQ. FT.
DATE OF LAST COMPANY INCLUDING
NAME RENOVATION OWNERSHIP(%) LOCATION MAJOR ANCHORS DEPT. STORES GLA
- ----------------- ------------ ---------- ----------------- -------------------------------------- -------------- ---------
REGIONAL MALLS
Antelope Valley
Mall............ 1990 40.0% Palmdale, CA Sears Roebuck and Co.; JC Penney's; 839,000 287,000
Gottshalk's; Harris; Mervyn's
The Avenue at
Tower City...... 1990/1996 100.0 Cleveland, OH Dillard's 368,000 368,000
Ballston
Common.......... 1986/1995 100.0 Arlington, VA Hecht's; JC Penney's 490,000 221,000
Boulevard Mall... 1962/1996 50.0 Amherst, NY Jenss; JC Penney's; Kaufmann's 772,000 261,000
Canton Centre.... 1981/1988 100.0 Canton, OH Kaufmann's; JC Penney's; Montgomery 680,000 254,000
Ward
Chapel Hill
Mall............ 1966/1995 50.0 Akron, OH Kaufmann's; JC Penney's; Sears Roebuck 882,000 321,000
and Co.
Charleston Town
Center.......... 1983/1994 50.0 Charleston, WV Kaufmann's; JC Penney's; Sears Roebuck 897,000 360,000
and Co.; Montgomery Ward
Courtland
Center.......... 1968 100.0 Flint, MI Crowley's; JC Penney's; Mervyn's 460,000 239,000
Galleria at
Sunset.......... 1996 60.0 Henderson, NV Dillard's; Robinson-May; Mervyn's; JC 892,000 294,000
Penney's
Manhattan Town
Center.......... 1987 37.5 Manhattan, KS Dillard's; JC Penney's; Sears Roebuck 380,000 185,000
and Co.
Rolling Acres
Mall............ 1975 80.0 Akron, OH Kaufmann's; JC Penney's; Sears Roebuck 1,014,000 365,000
and Co.; Dillard's; Target
South Bay
Galleria........ 1985 50.0 Redondo Beach, CA May Co.; Mervyn's; Nordstrom's 953,000 385,000
Summit Park
Mall............ 1972 100.0 Wheatfield, NY Bon-Ton; Jenss; Sears Roebuck and Co. 695,000 309,000
Tucson Mall...... 1982/1992 67.5 Tucson, AZ Broadway's; Foley's; Dillard's; 1,293,000 408,000
Mervyn's; JC Penney's; Sears Roebuck
and Co.
---------- ---------
Subtotal...... 10,615,000 4,257,000
---------- ---------
SPECIALTY RETAIL CENTERS
Atlantic
Center.......... 1996 75.0% Brooklyn, NY Caldor; The Sports Authority; 391,000 391,000
Pathmark; OfficeMax
Bowling Green
Mall............ 1966 50.0 Bowling Green, KY Kroger; Quality Big Lots 242,000 242,000
Bruckner
Boulevard....... 1996 70.0 Bronx, NY Pergament; Seaman's; Young World; Old 114,000 114,000
Navy
Chapel Hill
Suburban........ 1969 50.0 Akron, OH Value City; Petzazz 112,000 112,000
Courtyard........ 1990 50.0 Flint, MI V.G.'s Market; Home Depot; OfficeMax 233,000 124,000
Flatbush
Avenue.......... 1995 80.0 Brooklyn, NY Caldor 90,000 90,000
Gallery at
MetroTech....... 1990 80.0 Brooklyn, NY Toys "R" Us 163,000 163,000
Golden Gate...... 1958/1996 50.0 Mayfield Hts., OH OfficeMax; Old Navy; Koenig; 260,000 260,000
Michael's; Home Place
Hunting Park..... 1996 70.0 Philadelphia, PA Caldor; US Kidz; Payless Shoes 144,000 144,000
Marketplace at
Riverpark....... 1996 50.0 Fresno, CA Best Buy; Target; Marshall's; JC 453,000 284,000
Penney's
Midtown Plaza.... 1961 50.0 Parma, OH Hills 256,000 256,000
Newport Plaza.... 1977 50.0 Newport, KY IGA 157,000 157,000
The Plaza at
Robinson Town
Center.......... 1989 50.0 Pittsburgh, PA T.J. Maxx; IKEA; Hills; Marshall's; 455,000 455,000
Sears Roebuck and Co.
Showcase......... 1996 20.0 Las Vegas, NV Coca-Cola(R); All Star Cafe 189,000 189,000
South Bay
Southern........ 1978 100.0 Redondo Beach, CA CompUSA; General Cinema 160,000 160,000
Tucson Place..... 1989 100.0 Tucson, AZ Wal-Mart; Homelife; OfficeMax; 276,000 276,000
Smitty's
---------- ---------
Subtotal...... 3,695,000 3,417,000
---------- ---------
Shopping Centers at January 31, 1997 14,310,000 7,674,000
========== =========
Shopping Centers at January 31, 1996 13,422,000 6,938,000
========== =========
5
8
OFFICE BUILDINGS -- EXISTING PORTFOLIO
LEASABLE
YEAR COMPLETED COMPANY SQUARE
NAME OR ACQUIRED OWNERSHIP (%) LOCATION MAJOR TENANTS FEET
- -------------------------- --------------- -------------- ---------------------- ---------------------------- -----------
METROTECH CENTER
Eleven MetroTech
Center................ 1995 65.0% Brooklyn, NY E-911 -- City of New York 216,000
One MetroTech........... 1991 65.0 Brooklyn, NY Brooklyn Union Gas; Bear 932,000
Stearns & Co., Inc.
One Pierrepont Plaza.... 1988 85.0 Brooklyn, NY Morgan Stanley & Co. 672,000
Incorporated; Goldman,
Sachs & Co.; U.S. Attorney
Ten MetroTech Center.... 1991 80.0 Brooklyn, NY Internal Revenue Service 409,000
Two MetroTech........... 1990 65.0 Brooklyn, NY Securities Industry 521,000
Automation Corp.
-----------
Subtotal..............
2,750,000
-----------
TOWER CITY CENTER
Chase Financial Tower... 1991 95.0% Cleveland, OH Chase Financial 119,000
M.K. Ferguson 1990
Plaza(1).............. 1.0 Cleveland, OH M.K. Ferguson; Chase 482,000
Financial
Skylight Office Tower... 1991 85.0 Cleveland, OH Ernst & Young, L.L.P 321,000
Terminal Tower.......... 1983 100.0 Cleveland, OH Forest City Enterprises, 583,000
Inc.
-----------
Subtotal..............
1,505,000
-----------
MIT
Clark Building.......... 1989 50.0% Cambridge, MA Oravax 122,000
Jackson Building........ 1987 100.0 Cambridge, MA Ariad Pharmaceuticals 99,000
Richards Building....... 1990 100.0 Cambridge, MA Genzyme Tissue Repair; 126,000
Alkermes
-----------
Subtotal..............
347,000
-----------
OTHER
Chagrin Plaza I & II.... 1969 66.7% Beachwood, OH National City Bank 116,000
Emery-Richmond.......... 1991 50.0 Warrensville Hts., OH All State Insurance 5,000
Halle Building.......... 1986 75.0 Cleveland, OH Sealy, Inc.; North American 379,000
Refractories Co.
Liberty Center.......... 1986 50.0 Pittsburgh, PA Federated Investors 526,000
San Vicente............. 1983 25.0 Brentwood, CA Foote, Cone; Needham, Harper 469,000
Signature Square I...... 1986 50.0 Beachwood, OH Ciuni & Panichi 79,000
Signature Square II..... 1989 50.0 Beachwood, OH Sterling Software 81,000
Station Square.......... 1994 25.0 Pittsburgh, PA Woodsons; Grand Concourse 144,000
-----------
Subtotal..............
1,799,000
-----------
Office Buildings at January 31, 1997 and 1996 6,401,000
=========
HOTELS -- EXISTING PORTFOLIO
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP (%) LOCATION ROOMS
- ----------------------------------------- ----------- ------------- ------------------ -----
Budgetel................................. 1982 28.4% Mayfield Hts., OH 102
Charleston Marriott...................... 1983 95.0 Charleston, WV 354
DoubleTree at Liberty Center............. 1986 50.0 Pittsburgh, PA 616
DoubleTree at Millender Center(1)........ 1985 4.0 Detroit, MI 250
Ritz-Carlton............................. 1990 95.0 Cleveland, OH 208
-----
Hotel Rooms at January 31, 1997 and 1996 1,530
=====
- ---------------
(1) Syndicated.
6
9
APARTMENTS -- EXISTING PORTFOLIO
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP (%) LOCATION UNITS
- ---------------------------------------------------- ---------- --------------- ---------------------- ------
Bayside Village I, II & III......................... 1988-1989 50.0% San Francisco, CA 862
Big Creek........................................... 1996 50.0 Parma Hts., OH 72
Boot Ranch.......................................... 1991 50.0 Tampa, FL 236
Boulevard Towers.................................... 1969 50.0 Amherst, NY 402
Camelot............................................. 1967 50.0 Parma, OH 150
Chapel Hill Towers.................................. 1969 50.0 Akron, OH 402
Cherry Tree......................................... 1996 50.0 Strongsville, OH 132
Chestnut Lake....................................... 1969 50.0 Strongsville, OH 789
Clarkwood........................................... 1963 50.0 Warrensville Hts., OH 568
Classic Residence by Hyatt.......................... 1990 50.0 Chevy Chase, MD 339
Classic Residence by Hyatt.......................... 1989 50.0 Teaneck, NJ 221
Copper Creek........................................ 1992 20.0 Houston, TX 300
Deer Run I & II..................................... 1987-1989 43.0 Twinsburg, OH 562
Emerald Palms....................................... 1996 100.0 Miami, FL 419
Fenimore Court(1)................................... 1982 0.5 Detroit, MI 144
Fort Lincoln II..................................... 1979 45.0 Washington, D.C. 176
Fort Lincoln III & IV............................... 1981 24.9 Washington, D.C. 306
Granada Gardens..................................... 1966 50.0 Warrensville Hts., OH 940
Greenbriar.......................................... 1992 20.0 Houston, TX 400
Hamptons............................................ 1969 50.0 Beachwood, OH 649
Highlands I & II.................................... 1988-1990 100.0 Grand Terrace, CA 556
Hunter's Hollow..................................... 1990 50.0 Strongsville, OH 208
Independence Place I................................ 1976 50.0 Parma Hts., OH 202
Kennedy Lofts(1).................................... 1990 0.5 Cambridge, MA 142
Knolls(1)........................................... 1995 1.0 Orange, CA 260
Laurels............................................. 1995 100.0 Justice, IL 520
Lenox Club(1)....................................... 1991 0.5 Arlington, VA 385
Lenox Park(1)....................................... 1992 0.5 Silver Spring, MD 406
Liberty Hills....................................... 1979-1986 50.0 Solon, OH 396
Metropolitan........................................ 1989 100.0 Los Angeles, CA 270
Midtown Towers...................................... 1969 50.0 Parma, OH 635
Millender Center(1)................................. 1985 4.0 Detroit, MI 339
Noble Towers........................................ 1979 50.0 Pittsburgh, PA 133
Oaks................................................ 1994 100.0 Bryan, TX 248
One Franklintown.................................... 1988 100.0 Philadelphia, PA 335
Palm Villas......................................... 1991 100.0 Henderson, NV 350
Panorama Towers..................................... 1978 99.0 Los Angeles, CA 154
Parmatown........................................... 1972-1973 100.0 Parma, OH 412
Pavilion(1)......................................... 1992 0.5 Chicago, IL 1,115
Pebble Creek........................................ 1995-1996 50.0 Twinsburg, OH 148
Peppertree.......................................... 1993 100.0 College Station, TX 208
Pine Ridge Valley................................... 1967-1974 50.0 Willoughby, OH 1,147
Queenswood(1)....................................... 1990 0.7 Corona, NY 296
Regency Towers...................................... 1994 100.0 Jackson, NJ 372
Shippan Avenue...................................... 1980 100.0 Stamford, CT 148
Studio Colony....................................... 1986 80.0 Los Angeles, CA 450
Surfside Towers..................................... 1970 50.0 Eastlake, OH 246
Tam-A-Rac I, II & III............................... 1990-1996 50.0 Willoughby, OH 392
Toscana............................................. 1991-1992 100.0 Irvine, CA 563
Trolley Plaza....................................... 1981 100.0 Detroit, MI 351
Trowbridge.......................................... 1988 53.3 Southfield, MI 304
Twin Lakes Towers................................... 1966 50.0 Denver, CO 254
Village Green....................................... 1994-1995 25.0 Beachwood, OH 360
Vineyards........................................... 1995 100.0 Broadview Hts., OH 336
Waterford Village(1)................................ 1994 1.0 Indianapolis, IN 520
White Acres......................................... 1966 50.0 Richmond Hts., OH 473
Woodforest Glen..................................... 1992 20.0 Houston, TX 336
------
Subtotal........................................ 22,039
Senior Citizens Apartments(2)....................... 9,402
------
Apartments at January 31, 1997 31,441
======
Apartments at January 31, 1996 30,686
======
- ---------------
(1) Syndicated.
(2) Syndicated, subsidized units in 57 communities in which the Company holds a
residual interest only.
7
10
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its
business. The Company's General Counsel is of the opinion that none of these
claims and lawsuits will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following list is included as an unnumbered Item in Part I of this
Report in lieu of being included in the Proxy Statement for the Annual Meeting
of Shareholders to be held on June 10, 1997.
The names, ages and positions held by the executive officers of the Company
are presented in the following list. Each individual has been appointed to serve
for the period which ends with the Annual Meeting of Shareholders scheduled for
June 10, 1997.
NAME AND POSITION(S) HELD DATE APPOINTED AGE
- --------------------------------------------------------------------- -------------- ---
ALBERT B. RATNER
Co-Chairman of the Board of Directors of the Company since June 1995,
Vice Chairman of the Board of the Company from June 1993 to June
1995, Chief Executive Officer prior to July 1995 and President prior
to July 1993......................................................... 6-13-95 69
SAMUEL H. MILLER
Co-Chairman of the Board of Directors of the Company since June 1995,
Chairman of the Board of the Company from June 1993 to June 1995 and
Vice Chairman of the Board, Chief Operating Officer of the Company
prior to June 1993, Treasurer of the Company since December 1992..... 6-13-95 75
NATHAN SHAFRAN
Vice Chairman of the Board of Directors, Officer of various
subsidiary corporations.............................................. 3-11-87 83
CHARLES A. RATNER
President of the Company since June 1993, Chief Executive Officer of
the Company since June 1995, Chief Operating Officer from June 1993
to June 1995 and Executive Vice President prior to June 1993,
Director............................................................. 6-13-95 55
JAMES A. RATNER
Executive Vice President, Director, Officer of various subsidiary
corporations......................................................... 3-09-88 52
RONALD A. RATNER
Executive Vice President, Director, Officer of various subsidiary
corporations......................................................... 3-09-88 50
THOMAS G. SMITH
Senior Vice President, Chief Financial Officer, Secretary, Officer of
various subsidiary corporations...................................... 9-03-85 56
WILLIAM M. WARREN
Senior Vice President, General Counsel and Assistant Secretary....... 5-16-72 68
BRIAN J. RATNER
Senior Vice President -- Development since January 1997, Vice
President -- Urban Entertainment from June 1995 to December 1996,
Vice President from May 1994 to June 1995 and an officer of various
subsidiaries......................................................... 1-01-97 39
LINDA M. KANE
Vice President and Corporate Controller since April 1995, Asset
Manager -- Commercial Group from July 1992 to April 1995 and
Financial Analyst -- Residential Group from October 1990 to July
1992................................................................. 4-01-95 39
- ---------------
Note: Nathan Shafran is the uncle of Charles A. Ratner, James A. Ratner and
Ronald A. Ratner, who are brothers, and is the uncle of Albert B. Ratner.
Albert B. Ratner is the father of Brian J. Ratner and Deborah Ratner
Salzberg and is first cousin to Charles A. Ratner, James A. Ratner and
Ronald A. Ratner.
8
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is included in Item 8. Financial
Statements and Supplementary Data, page 43, "Quarterly Consolidated Financial
Data (Unaudited)."
There were no sales by the Company of its equity securities during the
fiscal year ended January 31, 1997 that were not registered under the Securities
Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
For the Years Ended January 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands, except per share data)
OPERATING RESULTS
Revenues.................................. $610,449 $529,433 $522,608 $519,379 $474,469
======== ======== ======== ======== ========
Net earnings (loss) before extraordinary
gain(1)
Operating earnings (loss), net of
tax(2)............................... $ 6,986 $ 13,490 $ 6,774 $ 718 $ (4,712)
Provision for decline in real estate,
net of tax........................... (7,413) (6,073) (4,986) -- (5,705)
Gain (loss) on disposition of
properties, net of tax............... 9,598 (478) (20,321) 1,494 23,104
-------- -------- -------- -------- --------
$ 9,171 $ 6,939 $(18,533) $ 2,212 $ 12,687
======== ======== ======== ======== ========
Earnings before depreciation, amortization
and deferred taxes(1)
Operating earnings (loss), net of
tax(2)............................... $ 6,986 $ 13,490 $ 6,774 $ 718 $ (4,712)
Adjustments related to real estate
operations(3)
Depreciation and amortization........ 70,221 63,557 63,956 63,901 57,896
Deferred income taxes................ 13,197 4,974 10,532 10,865 19,021
Accrued interest of a rental property
not paid........................... -- -- -- 5,495 4,870
-------- -------- -------- -------- --------
Real estate adjustments............ 83,418 68,531 74,488 80,261 81,787
-------- -------- -------- -------- --------
$ 90,404 $ 82,021 $ 81,262 $ 80,979 $ 77,075
======== ======== ======== ======== ========
Per common share
Net earnings (loss) before extraordinary
gain(1)(4)........................... $ .70 $ .51 $ (1.37) $ .16 $ .94
======== ======== ======== ======== ========
Cash dividends declared(4)
Class A................................. $ .27 $ .17 $ .13 $ -- $ --
Class B................................. $ .27 $ .17 $ .13 $ -- $ --
9
12
SELECTED FINANCIAL DATA (CONT'D)
January 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands)
FINANCIAL POSITION
Consolidated assets................ $2,741,405 $2,631,046 $2,584,734 $2,668,057 $2,625,404
Real estate portfolio, at cost..... $2,520,179 $2,425,083 $2,322,136 $2,405,066 $2,310,970
Long-term debt, including mortgage
debt............................. $1,993,351 $1,945,120 $1,881,917 $2,026,451 $1,972,160
FOREST CITY RENTAL PROPERTIES CORPORATION -- REAL ESTATE ACTIVITY
Total real estate -- end of year
Completed rental properties,
before depreciation........... $2,227,859 $2,085,284 $1,995,629 $2,101,528 $2,045,946
Projects under development....... 215,960 246,240 230,802 214,111 188,187
---------- ---------- ---------- ---------- ----------
2,443,819 2,331,524 2,226,431 2,315,639 2,234,133
Accumulated depreciation......... (387,733) (338,216) (293,465) (272,518) (232,905)
---------- ---------- ---------- ---------- ----------
Rental properties, net of
depreciation................ $2,056,086 $1,993,308 $1,932,966 $2,043,121 $2,001,228
========== ========== ========== ========== ==========
Activity during the year
Completed rental properties
Additions..................... $ 160,690 $ 89,028 $ 77,265 $ 50,384 $ 200,440
Acquisitions.................. 22,264 28,587 32,811 5,198 --
Dispositions.................. (40,379) (27,960) (215,975) -- (32,888)
---------- ---------- ---------- ---------- ----------
142,575 89,655 (105,899) 55,582 167,552
---------- ---------- ---------- ---------- ----------
Projects under development
New development............... 98,403 58,798 49,585 54,317 39,045
Transferred to completed
rental properties........... (128,683) (43,360) (32,894) (28,393) (167,629)
---------- ---------- ---------- ---------- ----------
(30,280) 15,438 16,691 25,924 (128,584)
---------- ---------- ---------- ---------- ----------
Increase (decrease) in rental
properties, at cost.............. $ 112,295 $ 105,093 $ (89,208) $ 81,506 $ 38,968
========== ========== ========== ========== ==========
- ---------------
(1) Excludes the extraordinary gain, net of tax, of $2,900,000, $1,847,000 and
$60,449,000 for the years ended January 31, 1997, 1996 and 1995,
respectively.
(2) Excludes the provision for decline in real estate and gain (loss) on
disposition of properties, net of tax.
(3) These adjustments represent amounts related to the Company's real estate
operations in Rental Properties only.
(4) Adjusted for three-for-two stock split effective February 17, 1997.
10
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, acquires, owns and manages commercial and residential
real estate properties in 20 states and the District of Columbia. The Company
owns a portfolio that is diversified both geographically and by property types
and operates through four principal business groups: Commercial Group,
Residential Group, Land Group and the Lumber Trading Group.
The Company uses an additional measure, along with net earnings (loss), to
report its operating results. This measure, referred to as Earnings Before
Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of
operating results or cash flows from operations as defined by generally accepted
accounting principles. However, the Company believes that EBDT provides
additional information about its operations and, along with net earnings (loss),
is necessary to understand its operating results. The Company believes that EBDT
is also an indicator of the Company's ability to generate cash to meet its
funding requirements. EBDT is defined and discussed in detail under "Results of
Operations-- EBDT."
The Company's EBDT grew by 10.2% (or 13.0% per share) in 1996 to
$90,404,000, or $6.87 per share of common stock, from $82,021,000, or $6.08 per
share of common stock in 1995. This increase in EBDT was primarily the result of
the addition of new retail properties, improved operating results from the
Company's existing portfolio, acquisition of apartment projects, sales of land
by the Commercial and Land Groups, strong lumber trading activity and favorable
interest rates. EBDT grew by 0.9% (or 1.0% per share) in 1995 from $81,262,000,
or $6.03 per share of common stock in 1994, with the positive impact of new
project openings offset by the effect of the disposition of Park LaBrea Towers,
a 2,825-unit apartment community in Los Angeles, California.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal
business groups as it believes such reporting provides the most meaningful
understanding of the Company's financial performance.
The major components of EBDT are Revenues, Operating Expenses and Interest
Expense, each of which is discussed below. Net Operating Income ("NOI") is
defined as Revenues less Operating Expenses. See Note I to the Consolidated
Financial Statements and information in the table "Three Year Summary of
Earnings Before Depreciation, Amortization and Deferred Taxes" at the end of
this section.
NET OPERATING INCOME FROM REAL ESTATE OPERATIONS
NOI from the combined Commercial Group and Residential Group for 1996 was
$196,456,000 compared to $199,651,000 in 1995, a 1.6% decrease. NOI in 1996 and
1995 was affected by the following items, which the Company believes are
non-recurring: (1) an increase of $5,863,000 in development expenses in 1996
over 1995, which includes write-offs of abandoned projects in excess of normal
levels, and (2) a decrease of $6,565,000 in the EBDT, resulting from an
unusually low cost basis in the land sold in 1995 (on comparable sales revenues)
compared to 1996. See "-- Commercial Group -- Operating and Interest Expenses."
Adjusting for these items, NOI would have been $202,319,000 and $193,086,000 for
1996 and 1995, respectively, a 4.8% increase. Comparable NOI (for properties in
operation throughout both periods) increased 2.5% from 1995 to 1996 and 6.1%
from 1994 to 1995. Eliminating asset dispositions and the non-recurring
development expenses discussed above, and including the expected NOI during the
initial twelve months after stabilization for the 11 properties that were opened
or acquired in 1996 and annualizing the ground rent received in 1996 from a
project under construction, would result in total NOI of approximately
$209,964,000.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group increased by $15,593,000 (or
5.3%) to $309,834,000 in 1996 from $294,241,000 in 1995. This increase was
primarily the result of the opening of the Galleria at
11
14
Sunset in Henderson, Nevada ($5,578,000), improved performance from existing
properties ($6,412,000) and the benefit of a full year of operating results from
properties that opened in 1995 ($5,403,000). These increases were offset by a
reduction in revenues due to the dispositions of Beachwood Place ($786,000) and
Victor Village ($438,000) (see "-- Other Transactions -- Gain (Loss) on
Disposition of Properties") and the loss of revenue from ten leases rejected by
Handy Andy which went bankrupt in 1996 ($1,109,000).
Revenues of the Commercial Group in 1995 increased by $35,275,000 (or
13.6%) from $258,966,000 in 1994. This increase was primarily attributable to
the sale of a five acre parcel of land at Tower City Center in Cleveland, Ohio
to the Federal government ($18,300,000) and outlot sales in Henderson, Nevada
($1,708,000). In addition, 1995 revenues increased from the openings in 1995 of
Eleven MetroTech ($3,200,000) and Flatbush Avenue ($1,200,000), and from a full
year of operations at Station Square in Pittsburgh, Pennsylvania ($1,268,000).
Lastly, the Company acquired an additional 31% interest in Liberty Center, a
mixed-use property in Pittsburgh ($8,800,000). In 1994, commercial outlot sales
of $7,176,000 were recorded in the Land Group. Commercial outlot sales have been
recorded in the Commercial Group since 1995.
OPERATING AND INTEREST EXPENSES. In 1996, operating and interest expenses
for the Commercial Group increased $22,126,000 and $2,103,000 (or 15.1% and
2.4%), respectively, over 1995 to $168,466,000 and $88,149,000, respectively.
The increase in operating expenses was primarily attributable to the decrease in
the EBDT ($6,565,000) resulting from an unusually low cost basis in the land
sold in 1995 (on comparable sales revenues), increased development expenses
($5,726,000) and the opening of new properties ($5,089,000). At January 31,
1997, the Company's property level expenses for properties open since 1994 had
increased at a compounded annual rate of only 0.1%, reflecting the Company's
emphasis on controlling costs. The increase in interest expense was attributable
to the financing of new properties.
Operating and interest expenses increased $8,757,000 and $19,015,000 in
1995 (or 6.4% and 28.4%), respectively, from $137,583,000 and $67,031,000,
respectively, in 1994. The increase in operating expense was primarily the
result of the acquisition of Station Square and an additional 31% interest in
Liberty Center ($6,475,000) and the opening of new properties in New York
($1,491,000). The increase in interest expense was due to the financing of new
properties ($1,804,000), the acquisition of Station Square, the additional 31%
interest in Liberty Center and the additional 50% interest in Ballston Common
($6,733,000), higher outstanding principal balances on nonrecourse mortgages
resulting from refinancings to fund development projects ($4,420,000) and an
increase in interest rates ($6,094,000).
NET OPERATING INCOME. Commercial Group NOI for 1996 was $141,368,000,
compared to $147,901,000 in 1995, a 4.4% decrease. NOI increased 0.9% from 1995
to 1996 for Commercial Group properties in operation throughout both years and
6.2% from 1994 to 1995 for Commercial Group properties in operation throughout
both years. Adjusting for the items discussed above under "-- Net Operating
Income from Real Estate Operations," Commercial Group NOI would be $147,094,000
and $141,336,000 for 1996 and 1995 respectively, a 4.1% increase. Eliminating
asset dispositions and the items discussed above under "-- Net Operating Income
from Real Estate Operations," and including the expected NOI during the initial
twelve months after stabilization for the six Commercial Group properties that
were opened or acquired in 1996 and annualizing the ground rent received in 1996
from a Commercial Group project under construction would result in total NOI of
approximately $157,861,000.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $10,776,000 (or
10.2%) to $116,525,000 in 1996, from $105,749,000 in 1995. This increase
reflected a full year of performance from the 1995 acquisitions of Laurels, a
520-unit apartment complex in Justice, Illinois ($2,701,000), and the Vineyards,
a 336-unit apartment community in Cleveland, Ohio ($1,887,000). Revenues in 1996
were also favorably impacted by the addition of 336 units added to four
developments in Cleveland ($874,000) and the acquisition of Emerald Palms, a
419-unit apartment community in Miami, Florida ($2,563,000). Average monthly
rental rates increased in 1996, generating an additional $3,240,000 in annual
revenues over 1995. Average occupancy in
12
15
1996 remained at 96%, consistent with the 1995 level. These revenue increases
were offset, in part, by the disposition of Vineyard Village, a 152-unit
apartment building in Ontario, California ($1,079,000).
Revenues for the Residential Group in 1995 decreased by $22,375,000 (or
17.5%) from $128,124,000 in 1994. Excluding the revenues of Park LaBrea Towers,
which was sold in 1994 (see "-- Other Transactions -- Gain (Loss) on Disposition
of Properties"), revenues increased by $5,796,000 (or 5.8%). This increase
reflected a full year of operations at Regency Towers, a 372-unit apartment
community in Jackson, New Jersey, and Oaks, a 248-unit apartment complex in
Bryan, Texas ($3,200,000). Average monthly rental rates increased in 1995,
generating an additional $2,868,000 in annual revenues over 1994. Average
occupancy in 1995 remained at 96%, the same level as in 1994.
OPERATING AND INTEREST EXPENSES. Operating and interest expenses for the
Residential Group increased by $7,438,000 and $2,420,000 (or 13.8% and 7.9%),
respectively, to $61,437,000 and $32,947,000, respectively, in 1996 from
$53,999,000 and $30,527,000, respectively, in 1995. The majority of the increase
in operating and interest expense reflected the expenses and debt service
associated with the addition of Laurels, the Vineyards and 336 new units at
existing properties in Cleveland, Ohio discussed above. During the fiscal years
ended January 31, 1995, 1996 and 1997, average comparable operating expenses
increased at a compounded annual rate of 2.2%.
Operating and interest expenses in 1995 decreased by $15,466,000 and
$6,166,000 (or 22.3% and 16.8%), respectively, from $69,465,000 and $36,693,000,
respectively, in 1994. Excluding Park LaBrea Towers, which was sold in 1994,
operating and interest expenses increased by $1,449,000 and $6,386,000 (or 2.8%
and 26.5%), respectively, from $52,550,000 and $24,141,000, respectively, in
1994. The increase in operating and interest expenses was primarily due to the
full year of operations for Regency Towers and Oaks, which were acquired in 1994
and the 1995 acquisition of Laurels. In addition, interest expense in 1995 was
also affected by increased interest rates.
NET OPERATING INCOME. Residential Group NOI for 1996 was $55,088,000,
compared to $51,750,000 in 1995, a 6.5% increase. NOI increased 6.7% from 1995
to 1996 for Residential Group properties in operation throughout both years and
6.0% from 1994 to 1995 for Residential Group properties in operation throughout
both years. Eliminating asset dispositions and including the expected NOI during
the initial twelve months after stabilization for the five Residential Group
properties that were opened or acquired in 1996 would result in total NOI of
approximately $52,103,000.
LAND GROUP
REVENUES. Revenues for the Land Group increased by $10,999,000 (or 25.6%)
in 1996, from $42,889,000 in 1995 to $53,888,000 in 1996. This increase
reflected income from the sale of a parcel of land in Miami, Florida
($9,029,000) and increased sales at the Company's Silver Lakes development in
Fort Lauderdale, Florida ($2,343,000). Revenues decreased by $6,005,000 (or
12.3%) in 1995 from $48,894,000 in 1994. The decrease was primarily the result
of two large commercial outlot sales in 1994 totaling $7,176,000. Commercial
outlot sales have been recorded in the Commercial Group since 1995.
OPERATING AND INTEREST EXPENSES. Operating expenses increased by
$9,966,000 and interest expense decreased by $1,151,000 (or 32.0% and 14.5%),
respectively, to $41,068,000 and $6,813,000, respectively, in 1996 from
$31,102,000 and $7,964,000, respectively, in 1995. Operating expenses decreased
by $7,262,000 and interest expense increased $724,000 (or 18.9% and 10.0%),
respectively, in 1995 from $38,364,000 and $7,240,000, respectively, in 1994.
The fluctuation in operating expenses primarily reflected the sales volume in
each year. The decrease in interest expense in 1996 compared to 1995 resulted
from a reduction in interest-bearing debt. The increase in interest expense in
1995 compared to 1994 was primarily due to the financing of new land
acquisitions.
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group increased by $43,398,000
(or 53.5%) from $81,093,000 in 1995 to $124,491,000 in 1996. Of this increase,
$26,708,000 reflected the consolidation of the revenues of Forest City/Babin, a
wholesaler of major appliances, cabinets and hardware to housing
13
16
contractors, for the first time. At the end of 1995, the Company acquired the
remaining 50% interest in Forest City/Babin and now consolidates this wholly
owned subsidiary. The Company previously accounted for its 50% interest in
Forest City/Babin using the equity method. The remaining increase was primarily
due to an increase in the Lumber Trading Group's margins as a result of
increased housing starts. Revenues of the Lumber Trading Group in 1995 were
relatively flat compared to 1994.
OPERATING AND INTEREST EXPENSES. Operating and interest expenses in the
Lumber Trading Group increased in 1996 by $40,170,000 and $88,000 (or 57.2% and
1.7%), respectively, from $70,189,000 and $5,078,000, respectively, in 1995. A
significant portion of this increase ($25,844,000 and $572,000 in operating and
interest expenses, respectively), was the result of the Forest City/Babin
acquisition described above. The remaining $14,326,000 increase in operating
expenses reflected the increase in variable expenses due to increased sales
volume. The remaining $484,000 decrease in interest expense was the result of
reduced inventory and a reduced rate of interest on the Lumber Trading Group's
lines of credit. Operating and interest expenses were flat in 1995 compared to
1994.
CORPORATE ACTIVITIES
REVENUES. Revenues of the Corporate Activities increased $250,000 (or
4.6%) in 1996 to $5,711,000 from $5,461,000 in 1995. Corporate Activities
revenues decreased $573,000 (or 9.5%) in 1995 from $6,034,000 in 1994. Corporate
Activities revenues consist primarily of interest income on advances made by the
Company on behalf of its partners, and vary from year to year depending on
interest rates and the amount of advances outstanding.
OPERATING AND INTEREST EXPENSES. Operating expenses increased $2,375,000
(or 37.4%) in 1996 to $8,723,000 from $6,348,000 in 1995, primarily due to a
favorable adjustment of $1,247,000 for a self-insurance accrual in 1995 that did
not recur in 1996 and increased general corporate expenses in 1996. Operating
expenses decreased $3,288,000 (or 34.1%) in 1995 from $9,636,000 in 1994. This
decrease was primarily the result of the favorable insurance adjustment noted
above and certain asset management costs that were charged to Corporate
Activities in 1994 and prior years. Beginning in 1995, these asset management
costs were being reported by each principal business group as part of its
operating expenses. Interest expense, which consists primarily of interest
expense on the Term Loan and Revolving Credit Facility that had not been
allocated to a principal business group, remained essentially flat for 1996,
1995, and 1994.
OTHER TRANSACTIONS
PROVISION FOR DECLINE IN REAL ESTATE. The Company's provision for decline
in real estate totaled $12,263,000, $9,581,000 and $10,133,000, in 1996, 1995
and 1994, respectively. In 1996, the Company entered into a joint venture
agreement with MGM to develop a casino/retail project which substantially
changed the scope of the Company's original development of the project. The 1996
provision for decline in real estate includes $5,104,000 of development costs
incurred by the Company which management determined to write-off as a result of
the change in scope of the project. In addition, the Company recorded a
provision for decline in real estate relating to the land acquired for Enclave,
a 633-unit apartment complex in San Jose, California. This provision for decline
in real estate resulted from an adjustment of $5,583,000 to write down the land
to its fair market value. The 1995 provision primarily reflected the write-off
of development costs of $7,242,000 associated with future phases of Toscana, a
563-unit apartment complex in Irvine, California discussed below under
"-- Recent Developments," based on management's determination that the Company
would not pursue future development. Also in 1995, the provision for decline in
real estate included an adjustment of $1,404,000 relating to the write down of
parcels of land to fair market value which were originally acquired for the
Enclave project and deeded back to the original land owner. The 1994 provision
reflected an adjustment to fair market value of Laurel Plaza, a Los Angeles,
California shopping center which was sold in 1995.
GAIN (LOSS) ON DISPOSITION OF PROPERTIES. The gain (loss) on disposition
of properties totaled a gain of $17,574,000, a loss of $754,000 and a loss of
$30,835,000, respectively, in 1996, 1995 and 1994. The 1996 gain primarily
reflects the disposition of the Company's 18.63% interest in Beachwood Place, a
regional shopping center in Cleveland, Ohio ($17,788,000) and the disposition of
Victor Village, a California strip shopping
14
17
center ($499,000). The 1995 loss was primarily the result of the disposition of
Vineyard Village, as described above, ($650,000). The 1994 loss is primarily the
result of the disposition of Park LaBrea Towers, as described above.
EXTRAORDINARY GAIN. Extraordinary gain, net of tax, totaled $2,900,000,
$1,847,000 and $60,449,000, respectively, in 1996, 1995 and 1994 representing
extinguishment of nonrecourse debt and related accrued interest relating to
Enclave and Clark Building in Cambridge, Massachusetts in 1996, to Liberty
Center in 1995, and to Park LaBrea Towers in 1994. See Note N to the Company's
Consolidated Financial Statements.
INCOME TAXES. Income tax expense (benefit) totaled $12,951,000,
$10,623,000 and ($5,964,000), respectively in 1996, 1995 and 1994. At January
31, 1997, the Company had a tax net operating loss carryforward ("NOL") of
$88,868,000 (generated primarily over time in the ordinary course of business
from the significant impact of depreciation expense from real estate properties
on the Company's net earnings) which will expire in the years ending January 31,
2005 through January 31, 2011 and general business credit carryovers of
$3,601,000 which will expire in the years ending January 31, 2003 through
January 31, 2011. The Company's policy is to utilize its NOL before it expires
and will consider a variety of strategies to implement that policy. Federal,
state and local income taxes paid (refunded) totaled $830,000, ($888,000) and
$3,244,000 in 1996, 1995 and 1994, respectively. In 1996, the Company paid no
regular Federal corporate income tax and paid $570,000 in Federal alternative
minimum tax.
NET EARNINGS. In 1996, the Company's net earnings grew to $12,071,000, or
$.92 per share of common stock, from $8,786,000, or $.65 per share of common
stock in 1995. Excluding the 1994 Park LaBrea Towers transaction discussed under
"-- Other Transactions -- Gain (Loss) on Disposition of Properties," net
earnings in 1995 increased from 1994 net earnings of $4,635,000, or $0.34 per
share of common stock.
EBDT. The Company defines Earnings Before Depreciation, Amortization and
Deferred Taxes ("EBDT") as net earnings from operations before depreciation,
amortization and deferred taxes on income, and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary gains.
The Company excludes depreciation and amortization expense from EBDT because
they are non-cash items and the Company believes the values of its properties
have appreciated over time in excess of their original cost. Deferred income
taxes are excluded because they are a non-cash item. Payment of current income
taxes has not been historically significant and is not expected to be
significant in the foreseeable future. The provision for the decline in real
estate is excluded from EBDT because it is typically a non-cash item that varies
from year to year based on factors unrelated to the Company's overall financial
performance. The Company excludes gain (loss) on the disposition of properties
from EBDT because it develops and acquires properties for long-term investment,
as opposed to short-term trading gains. As a result, the Company views
dispositions of properties other than commercial outlots or land held by the
Land Group as nonrecurring items. Extraordinary gains are generally the result
of the restructuring of nonrecourse debt obligations and are not considered to
be a component of the Company's operating results.
RECENT DEVELOPMENTS
During February 1997, the Company settled litigation with the original land
owner of Toscana, a 563-unit apartment complex in Irvine, California, and sold
the project back to the original land owner. As a result, the Company had
litigation settlement proceeds of $15,000,000 (the after-tax amount of which
will be included in EBDT for the first quarter of fiscal 1997); a pre-tax loss
on disposition of the property of $35,505,000; and a pre-tax extraordinary gain
of $18,272,000 related to the extinguishment of a portion of the nonrecourse
mortgage debt. The net result of these transactions to the Company was a pre-tax
loss of $2,233,000. Revenues, operating expenses, interest expense and asset
cost for 1996 related to Toscana were $7,218,000, $2,791,000, $4,097,000 and
$78,271,000, respectively.
FINANCIAL CONDITION AND LIQUIDITY
The Company believes that its sources of liquidity and capital are adequate
to meet its needs in the foreseeable future. The Company's principal sources of
funds are cash provided by operations, the Revolving
15
18
Credit Facility and refinancings of existing properties. The Company's principal
use of funds are the financing of new developments, capital expenditures and
payments on nonrecourse mortgage debt on real estate.
The Lumber Trading Group is financed separately from the rest of the
Company's principal business groups, and the financing obligations of the Lumber
Trading Group are nonrecourse to the Company. Accordingly, the liquidity of the
Lumber Trading Group is discussed separately below under "-- Lumber Trading
Group Liquidity."
1996 AND 1995 MORTGAGE REFINANCINGS
In 1996, the Company refinanced $482,428,000 of mortgage indebtedness with
$525,370,000 of new nonrecourse mortgage indebtedness. In 1995, the Company
refinanced $361,421,000 of mortgage indebtedness with $366,842,000 of new
nonrecourse mortgage indebtedness.
OUTLOOK FOR 1997. As of January 31, 1997, the Company had $288,915,000
million of nonrecourse mortgage indebtedness due and payable in 1997. Of this
amount, as of March 31, 1997, the Company had already refinanced $40,000,000 and
discharged $67,800,000 with proceeds from the sale of Toscana (see "-- Recent
Developments"). The Company anticipates that the remaining $181,115,000 of
mortgage indebtedness will either be refinanced with new nonrecourse mortgage
indebtedness or extended.
LONG-TERM DEBT
At January 31, 1997, the Company had recourse debt of $93,000,000
outstanding, comprised of $45,000,000 under a $70,000,000 Term Loan maturing
July 1, 2001 and $48,000,000 under an $80,000,000 Revolving Credit Facility
maturing July 25, 1998. The Company is required to make quarterly principal
payments of $2,500,000 under the Term Loan. The Company has entered into an
interest rate swap agreement to fix $87,000,000 of the Term Loan and Revolving
Credit Facility for the period February 1, 1997 through February 1, 1998. The
Term Loan and Revolving Credit Facility and the Company's Guaranty require
Forest City Rental Properties Corporation (a wholly owned subsidiary of the
Company -- see Note M to the Consolidated Financial Statements) and the Company
to maintain certain levels of cash flow and require the Company to maintain a
specified level of net worth and restrict the payment of dividends by the
Company to $10,000,000 per year. At March 31, 1997, the Company had $15,000,000
of borrowings available under the Revolving Credit Facility, which is the
Company's principal source of temporary borrowings.
INTEREST RATE EXPOSURE
At January 31, 1997, the Company had $994,957,000 in fixed-rate and
$903,471,000 in variable-rate nonrecourse mortgages outstanding, with a weighted
average interest rate of 7.25%. At January 31, 1997, the Company's fixed-rate
debt carried a weighted average interest rate of 7.96%. Its weighted average
variable-rate taxable interest rate was 7.38%. Of the variable-rate debt,
$134,302,000 are tax-exempt financings which carried a weighted average interest
rate of 4.38% at January 31, 1997. Its weighted average interest rate on UDAG
loans and other government subsidized financing was 2.60%. The Company generally
does not hedge tax-exempt debt because of the low base rate on this type of
financing. With respect to taxable variable-rate debt, the Company generally
attempts to obtain interest rate protection for such debt with a maturity in
excess of one year. Of the $769,169,000 in taxable variable-rate debt
outstanding at February 1, 1997, $330,385,000 was protected by interest rate
swaps with a weighted average rate of 7.79% and an average remaining term of 2.3
years, effectively reducing the Company's interest rate exposure from the
taxable variable-rate debt to $438,784,000. In addition, $40,969,000 of
variable-rate debt was protected by interest rate caps, of which $19,139,000
extends for more than one year.
At January 31, 1997, a 100 basis point increase in taxable interest rates
would have increased the pre-tax interest cost of the Company's taxable
variable-rate debt by approximately $4.4 million. Although tax-exempt interest
rates generally increase in an amount that is smaller than corresponding changes
in taxable interest rates, a 100 basis point increase in tax-exempt interest
rates would have increased the pre-tax interest cost of the Company's tax-exempt
variable-rate debt by approximately $1.3 million.
16
19
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two lines of credit
and an accounts receivable sale program, which are not recourse to the Company.
The Lumber Trading Group has in place two lines of credit totaling
$46,000,000. These credit lines are secured by the assets of the Lumber Trading
Group, and are used by the Lumber Trading Group to finance its working capital
needs. At January 31, 1997, the Lumber Trading Group had $26,554,000 of
available credit under these facilities.
The Lumber Trading Group also has sold an undivided ownership interest in a
pool of accounts receivable of up to a maximum of $90,000,000. The Lumber
Trading Group uses this program to finance its working capital needs. At January
31, 1997, $34,000,000 had been sold under this accounts receivable program.
The Company believes that the amounts available under these credit
facilities, together with the accounts receivable sale program, will be
sufficient to meet the Lumber Trading Group's liquidity needs in 1997.
CASH FLOWS
Net cash provided by operating activities was $62,227,000, $72,509,000 and
$132,305,000 in 1996, 1995 and 1994, respectively. The decrease in cash provided
by operating activities in 1996 from 1995 is primarily the result of an increase
in inventories for the Lumber Trading Group ($5,346,000), a decrease in deferred
profit on contract sales ($6,484,000) and an increase in interest paid
($2,545,000), offset in part by an increase in rents and other revenues
received. The decrease in cash provided by operating activities in 1995 from
1994 was primarily due to an increase in interest paid ($13,436,000), the
increase in other assets for lease procurement costs and restricted cash
($18,721,000) and 1994 activity which did not recur in 1995: (1) the decrease in
inventories for the Lumber Trading Group ($26,456,000), and (2) the increase in
accounts payable and accrued expenses for the Land Group ($6,703,000). The
additional increases in operating expenses in 1996 and 1995 were offset by rents
and other revenues received during those years.
Net cash used in investing activities totaled $134,903,000, $112,848,000
and $132,305,000 in 1996, 1995 and 1994, respectively. Capital expenditures,
other than development and acquisition activities, totaled $32,007,000
(including both recurring and investment capital expenditures) in 1996 and were
financed primarily with cash provided by operating activities. In 1996, net cash
used in investing activities reflected the Company's use of $120,667,000 of
funds for acquisition and development activities, which were financed with
$117,202,000 in new mortgage indebtedness (see below for discussion of Cash
Flows from Financing Activities) and the remainder from cash provided by
operating activities. Net cash used in investing activities in 1996 also
includes the gross proceeds from the dispositions of Beachwood Place
($15,427,000) and Victor Village ($10,613,000).
Capital expenditures, other than development and acquisition activities,
totaled $29,954,000 (including both recurring and investment capital
expenditures) in 1995 and were financed primarily with cash provided by
operating activities. In 1995, the Company used $87,385,000 of funds for
acquisition and development activities, which were financed with $68,146,000 in
new mortgage indebtedness (see below for discussion of Cash Flows from Financing
Activities), and the remainder from cash provided by operating activities. Net
cash used in investing activities in 1995 also includes proceeds from the
dispositions of Vineyard Village($7,450,000) and Laurel Plaza ($8,500,000) for
$15,950,000.
In 1994, capital expenditures, other than development and acquisition
activities, totaled $39,206,000 (including both recurring and investment capital
expenditures) and were financed primarily with cash provided by operating
activities. The Company used $82,396,000 of funds in 1994 for acquisition and
development activities, which were financed with $66,205,000 in new mortgage
indebtedness and the remainder from cash provided by operating activities. Net
cash used in investing activities in 1994 also includes proceeds from the sale
of Park LaBrea Towers ($15,264,000).
Capital expenditures for 1997, other than development and acquisition
activities, are estimated to total $34,816,000. In 1997, the Company anticipates
expending $91,839,000 in acquisition and development
17
20
activities. The Company anticipates that approximately one-half of these capital
expenditures will be financed with nonrecourse mortgage indebtedness, and that
the remaining portion with cash from operations and borrowings under the
Revolving Credit Facility.
Net cash provided by financing activities totaled $74,833,000, $33,006,000
and $24,680,000 in 1996, 1995 and 1994, respectively. The Company's refinancing
of mortgage indebtedness is discussed above in "-- 1996 and 1995 Mortgage
Refinancings" and borrowings under new mortgage indebtedness for acquisition and
development activities is included in the preceding paragraphs discussing net
cash used in investing activities. In addition, net cash provided by financing
activities in 1996 reflected $15,200,000 of restricted cash pledged for the
financing of Enclave, a 633 unit apartment community in San Jose, California
currently under construction, $6,080,000 of common stock repurchases and the
payment of $2,797,000 of dividends. Net cash provided by financing activities in
1995 reflected, in addition to the refinancing of mortgage indebtedness and
borrowing under new mortgage indebtedness, $2,509,000 in common stock
repurchases and the payment of $2,248,000 of dividends. Net cash provided by
financing activities in 1994 reflected, in addition to new indebtedness for
acquisition and development activities, refinancing of existing mortgages
indebtedness and the payment of $1,798,000 of dividends.
SHELF REGISTRATION
On March 4, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the potential offering on a delayed basis
of up to $250 million in debt or equity securities.
STOCK SPLIT, DIVIDENDS AND AUTHORIZED SHARES
The Board of Directors approved a three-for-two stock split of both the
Company's Class A and Class B Common Stock, which became effective February 17,
1997 to shareholders of record at the close of business on February 3, 1997. The
stock split was effected as a stock dividend.
The Board of Directors of the Company recently announced that they intend
to pay cash dividends on a quarterly basis in the future, whereas cash dividends
in 1995 and 1996 were paid on an annual basis. A quarterly cash dividend of $.06
per share (post-split) on shares of both Class A and Class B Common Stock was
paid on March 17, 1997. The $.06 quarterly dividend per share equates to an
annual pre-split dividend of $.36 per share and represents a 12.5% increase over
the annual dividend declared in 1996. The second 1997 quarterly dividend of $.06
per share on shares of both Class A and Class B Common Stock will be paid on
June 16, 1997 to shareholders of record at the close of business on June 2,
1997. Purchasers of Class A Common Stock in this Offering who hold shares of
Class A Common Stock on the record date will be entitled to this dividend.
The Company's current authorized shares are comprised of 16,000,000 shares
of Class A Common Stock, 6,000,000 shares of Class B Common Stock and 1,000,000
shares of Preferred Stock. The Board of Directors has approved for submission to
shareholders at the Company's 1997 Annual Meeting amendments to the Company's
Articles of Incorporation to increase the Company's authorized shares to
48,000,000 shares of Class A Common Stock, 18,000,000 shares of Class B Common
Stock and 5,000,000 shares of Preferred Stock.
INFLATION
The Commercial Group's exposure to increases in costs and operating
expenses resulting from inflation is minimized due to the provisions of its
leases with its tenants that require tenants to reimburse the Company for the
majority of its operating expenses. Also, many of the Company's leases provide
for payments based on a percentage of the rental income of the tenants, which
generally increases in periods of inflation. The Residential Group's risk in a
period of inflation is minimized by the annual turnover of tenant leases, which
allow for immediate market rate increases. The Land and the Lumber Trading
Groups may be affected by inflation by the availability of buyers of new housing
to obtain mortgage financing when interest rates are high.
18
21
NEW ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 121 " Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121 establishes accounting standards for the review of impairment of a
long-lived asset whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The Company has adopted the
provisions of SFAS 121, which has no material effect on the financial position
or results of operations of the Company.
During 1996, the Company granted options under its Stock Option Plan. The
Company recognizes compensation cost in accordance with the provisions of
Accounting Principles Board Opinion No. 25 and related Interpretations. The
Company has not adopted the recognition provisions of SFAS 123 "Accounting for
Stock-Based Compensation," but the disclosures required by SFAS 123 have been
included in the Notes to the Consolidated Financial Statements.
In February 1997, FASB issued SFAS 128 "Earnings per Share," which is
effective for fiscal years ending after December 15, 1997. This Statement
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. The Company will adopt the provisions
of SFAS 128 for its fiscal year ending January 31, 1998, but does not expect
such adoption to have a material impact on EPS.
19
22
FOREST CITY ENTERPRISES, INC.
THREE YEAR SUMMARY OF EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED
TAXES
LUMBER
TRADING
COMMERCIAL GROUP RESIDENTIAL GROUP LAND GROUP GROUP
---------------------------- ---------------------------- ------------------------- --------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
Revenues................... $309,834 $294,241 $258,966 $116,525 $105,749 $128,124 $53,888 $42,889 $48,894 $124,491
Operating expenses,
including depreciation and
amortization for non-real
estate Groups............. 168,466 146,340 137,583 61,437 53,999 69,465 41,068 31,102 38,364 110,359
Interest expense........... 88,149 86,046 67,031 32,947 30,527 36,693 6,813 7,964 7,240 5,166
Income tax provision....... (2,970) 7,026 (1,980) (2,464) 581 (5,120) 2,078 (358) 368 3,913
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
253,645 239,412 202,634 91,920 85,107 101,038 49,959 38,708 45,972 119,438
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT).................... $ 56,189 $ 54,829 $ 56,332 $ 24,605 $ 20,642 $ 27,086 $ 3,929 $ 4,181 $ 2,922 $ 5,053
======== ======== ======== ======== ======== ======== ======= ======= ======= ========
Reconciliation to net
earnings:
Earnings before
depreciation, amortization
and deferred taxes
(EBDT)....................
Depreciation and
amortization -- real
estate Groups.............
Deferred taxes -- real
estate Groups.............
Provision for decline in
real estate, net of tax...
Gain (loss) on disposition
of properties, net of
tax.......................
Extraordinary gain, net of
tax.......................
Net earnings...............
CORPORATE ACTIVITIES TOTAL
------------------------ ----------------------------
1995 1994 1996 1995 1994 1996 1995 1994
------- ------- ------- ------ ------- -------- -------- --------
Revenues................... $81,093 $80,590 $ 5,711 $5,461 $ 6,034 $610,449 $529,433 $522,608
Operating expenses,
including depreciation and
amortization for non-real
estate Groups............. 70,189 70,312 8,723 6,348 9,636 390,053 307,978 325,360
Interest expense........... 5,078 5,372 289 386 485 133,364 130,001 116,821
Income tax provision....... 2,823 2,268 (3,929) (639) 3,629 (3,372) 9,433 (835)
------- ------- ------ ------ ------ -------- -------- --------
78,090 77,952 5,083 6,095 13,750 520,045 447,412 441,346
------- ------- ------ ------ ------ -------- -------- --------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT).................... $ 3,003 $ 2,638 $ 628 $ (634) $(7,716) $ 90,404 $ 82,021 $ 81,262
======= ======= ====== ====== ====== ======== ======== ========
Reconciliation to net
earnings:
Earnings before
depreciation, amortization
and deferred taxes
(EBDT).................... $ 90,404 $ 82,021 $ 81,262
Depreciation and
amortization -- real
estate Groups............. (70,221) (63,557) (63,956)
Deferred taxes -- real
estate Groups............. (13,197) (4,974) (10,532)
Provision for decline in
real estate, net of tax... (7,413) (6,073) (4,986)
Gain (loss) on disposition
of properties, net of
tax....................... 9,598 (478) (20,321)
Extraordinary gain, net of
tax....................... 2,900 1,847 60,449
-------- -------- --------
Net earnings............... $ 12,071 $ 8,786 $ 41,916
======== ======== ========
20
23
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Annual Report, together with other statements and information publicly
disseminated by the Company, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements reflect
management's current views with respect to financial results related to future
events and are based on assumptions and expectations which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial or otherwise, may differ from the results
discussed in the forward-looking statements. Risks and other factors that might
cause differences, some of which could be material, include, but are not limited
to, the effect of economic and market conditions on a nation-wide basis as well
as regionally in areas where the Company has a geographic concentration of
properties; failure to consummate financing arrangements; development risks,
including lack of satisfactory financing, construction and lease-up delays and
cost overruns; the level and volatility of interest rates; financial stability
of tenants within the retail industry, which may be impacted by competition and
consumer spending; the rate of revenue increases versus expenses increases; the
cyclical nature of the lumber wholesaling business; as well as other risks
listed from time to time in the Company's reports filed with the Securities and
Exchange Commission. The Company has no obligation to revise or update any
forward-looking statements as a result of future events or new information.
Readers are cautioned not to place undue reliance on such forward-looking
statements.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable until fiscal year ending January 31, 1999.
21
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGES
-----
Financial Reports:
Report of Independent Accountants......................................... 23
Consolidated Financial Statements:
Consolidated Balance Sheets............................................... 24
Consolidated Statements of Earnings....................................... 25
Consolidated Statements of Shareholders' Equity........................... 26
Consolidated Statements of Cash Flows..................................... 27
Notes to Consolidated Financial Statements................................ 29
Supplementary Data:
Quarterly Consolidated Financial Data (Unaudited)......................... 43
Financial Statement Schedules:
II. Valuation and Qualifying Accounts.................................... 44
III. Real Estate and Accumulated Depreciation............................. 45
All other schedules are omitted because they are not applicable or the
required information is presented in the consolidated financial statements
or the notes thereto.
22
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Forest City Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Forest City
Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1997 and financial
statement schedules listed in the Index of Item 8 of this Form 10-K. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of Forest City
Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 13, 1997
23
26
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
-----------------------
1997 1996
---------- ----------
(dollars in thousands)
ASSETS
Real Estate
Completed rental properties.......................................... $2,247,393 $2,101,564
Projects under development........................................... 220,137 246,240
Land held for development or sale.................................... 52,649 77,279
---------- ----------
2,520,179 2,425,083
Less accumulated depreciation........................................ (399,830) (347,912)
---------- ----------
Total Real Estate................................................. 2,120,349 2,077,171
Cash................................................................... 41,302 39,145
Notes and accounts receivable, net..................................... 204,959 168,177
Inventories............................................................ 48,769 41,186
Investments in and advances to affiliates.............................. 145,242 145,238
Other assets........................................................... 180,784 160,129
---------- ----------
$2,741,405 $2,631,046
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse............................................. $1,898,428 $1,832,059
Accounts payable and accrued expenses.................................. 378,230 342,511
Notes payable.......................................................... 37,041 19,856
Long-term debt......................................................... 94,923 113,061
Deferred income taxes.................................................. 115,488 105,111
Deferred profit........................................................ 25,317 28,859
---------- ----------
Total Liabilities................................................. 2,549,427 2,441,457
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value;
1,000,000 shares authorized; no shares issued........................ -- --
Common stock - $.33 1/3 par value
Class A, 16,000,000 shares authorized; 7,932,358 and 7,906,990 shares
issued, 7,696,408 and 7,903,990 outstanding, respectively......... 2,643 2,635
Class B, convertible, 6,000,000 shares authorized; 5,554,618 and
5,580,431 shares issued, 5,415,568 and 5,467,931 outstanding,
respectively...................................................... 1,851 1,859
---------- ----------
4,494 4,494
Additional paid-in capital............................................. 43,996 44,014
Retained earnings...................................................... 152,077 143,590
---------- ----------
200,567 192,098
Less treasury stock, at cost; 1997: 235,950 Class A and 139,050 Class B
shares, 1996: 3,000 Class A and 112,500 Class B shares............... (8,589) (2,509)
---------- ----------
Total Shareholders' Equity........................................ 191,978 189,589
---------- ----------
$2,741,405 $2,631,046
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
24
27
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands, except per share
data)
Revenues.................................................. $610,449 $529,433 $522,608
-------- -------- --------
Operating expenses........................................ 386,970 305,819 323,736
Interest expense.......................................... 133,364 130,001 116,821
Provision for decline in real estate...................... 12,263 9,581 10,133
Depreciation and amortization............................. 73,304 65,716 65,580
-------- -------- --------
605,901 511,117 516,270
-------- -------- --------
Gain (loss) on disposition of properties.................. 17,574 (754) (30,835)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES....................... 22,122 17,562 (24,497)
-------- -------- --------
INCOME TAX EXPENSE (BENEFIT)
Current................................................. 1,935 370 6,057
Deferred................................................ 11,016 10,253 (12,021)
-------- -------- --------
12,951 10,623 (5,964)
-------- -------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN............. 9,171 6,939 (18,533)
Extraordinary gain, net of tax............................ 2,900 1,847 60,449
-------- -------- --------
NET EARNINGS.............................................. $ 12,071 $ 8,786 $ 41,916
======== ======== ========
NET EARNINGS PER COMMON SHARE
Net earnings (loss) before extraordinary gain, net of
tax.................................................. $ .70 $ .51 $ (1.37)
Extraordinary gain, net of tax.......................... .22 .14 4.48
-------- -------- --------
NET EARNINGS PER COMMON SHARE............................. $ .92 $ .65 $ 3.11
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
28
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK
------------------------------
CLASS A CLASS B ADDITIONAL TREASURY STOCK
-------------- -------------- PAID-IN RETAINED ---------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ------ ------ ---------- -------- ------ ------- --------
(in thousands, except per share data)
BALANCES AT JANUARY 31, 1994, AS PREVIOUSLY
REPORTED.................................. 5,146 $1,715 3,846 $1,282 $ 45,511 $96,934 -- $ -- $145,442
Three-for-two stock split effective
February 17, 1997 applied
retroactively........................... 2,573 857 1,922 640 (1,497) -- -- -- --
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1994, AS RESTATED... 7,719 2,572 5,768 1,922 44,014 96,934 -- -- 145,442
Net earnings.............................. 41,916 41,916
Dividends -- $.13 per share............... (1,798) (1,798)
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1995, AS RESTATED... 7,719 2,572 5,768 1,922 44,014 137,052 -- -- 185,560
Net earnings.............................. 8,786 8,786
Dividends -- $.17 per share............... (2,248) (2,248)
Conversion of Class B shares to Class A
shares.................................. 188 63 (188) (63) --
Purchase of treasury stock................ 116 (2,509) (2,509)
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1996, AS RESTATED... 7,907 2,635 5,580 1,859 44,014 143,590 116 (2,509) 189,589
Net earnings.............................. 12,071 12,071
Dividends:
Annual 1996 -- $.21 per