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UNITED STATES 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 [FEE REQUIRED]
For the fiscal year ended January 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [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 1, 1994 the aggregate market value of the voting stock held by non-
affiliates of the registrant amounted to $105,254,409 and $52,221,415 for
Class A and Class B common stock, respectively.
The number of shares of registrant's common stock outstanding on March 1,
1994 was 5,146,226 and 3,845,388 for Class A and Class B common stock,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended January 31, 1994 (1993 Annual Report to Shareholders) are
incorporated by reference into Parts I and II of this Form 10-K. Portions
of the Proxy Statement for the Annual Meeting of Shareholders to be held
June 14, 1994 are incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. Business
Forest City Enterprises, Inc. and subsidiaries (the "Company" or
"Forest City Enterprises") is a major national real estate company
principally engaged in the development, construction, ownership and
management of commercial and residential real estate throughout the
United States. The Company is vertically integrated and comprised of
three main operating groups: Forest City Rental Properties
Corporation, Sunrise Land Company and the Wholesale Lumber Division.
Forest City Rental Properties Corporation ("Rental Properties"), a
wholly-owned subsidiary of Forest City Enterprises, conducts the real
estate development and management activity for the Company. Rental
Properties focuses on urban development and is engaged in the
investment in, development and management of large-scale real estate
projects, including regional malls and shopping centers, hotels,
office and mixed-use facilities and apartment complexes.
Sunrise Land Company is involved in the acquisition, development and
sale of commercial, industrial and residential land.
The Wholesale Lumber Division is comprised of the Company's lumber
brokerage business which operates in the trading of lumber in the
United States and Canada, and a business which sells lumber and
building materials to contractors in Northeast Ohio.
The following material provides additional information about the
Company's principal operating groups.
I. Rental Properties
Rental Properties was formed as, and has remained, a wholly-owned
subsidiary of Forest City Enterprises since its inception on
September 19, 1969.
The goal of Rental Properties is to increase value through the
development and ownership of predominantly large-scale real estate
projects nationwide, with an emphasis on urban projects. Rental
Properties is responsible for the development, construction,
management and ownership of a diversity of projects including mixed-
use properties, shopping centers, apartment complexes, congregate
care facilities, office buildings, hotels and parking facilities.
The business of Rental Properties is conducted through three
divisions: the Residential Development and Management Division, the
Commercial Development Division and the Commercial Management
Division.
The Residential Development and Management Division is responsible
for developing, leasing and managing our residential properties. In
addition, the Division acquires completed real estate at advantageous
prices.
The Commercial Development Division locates and executes commercial
and mixed-use development opportunities, obtaining favorable
financing and structuring deals as advantageously as possible. This
division also supervises construction and carries out the initial
lease up of the properties it develops. Real estate development is a
highly competitive business. For this reason, the Company seeks
projects to which its special talents, imagination and resources are
likely to add value. The Company uses a variety of financing
techniques. In addition to being financed through conventional
methods, its projects also have been financed with various forms of
public/private financing alternatives.These include government-
subsidized mortgage loans used to construct housing for the elderly
and disadvantaged, bond proceeds on which the interest is tax-free to
the recipients and Urban Development Action Grants (either
noninterest-bearing or bearing interest at below-market rates)
which the Company received as an inducement to develop real estate in
economically underdeveloped localities.
The Commercial Management Division is responsible for the ownership,
leasing and management of our shopping centers, office buildings,
hotels, and mixed-use projects. Once projects are developed by the
Commercial Development Division, they are transferred to the
Commercial Management Division. This group is also responsible for
increasing cash flow by deciding when to refinance, determining
leasing strategy, deciding when to purchase interest rate caps on
variable-rate debt and setting capital expenditures.
II. Sunrise Land Company
Sunrise Land Company acquires and sells both raw land and developed
lots to commercial, industrial and residential users. The Division's
efforts are currently concentrated on major developments in Arizona,
Florida, Illinois, Nevada, New York and Ohio.
Competition in this segment is dominated by price, location and
availability of product.
III. Wholesale Lumber Division
Lumber Brokerage--Forest City Trading Group, Inc., with thirteen
offices in the United States and one office in Canada, conducts
the lumber brokerage portion of the Company's business. Lumber
brokerage consists of the purchase of lumber and plywood from
sawmills and other specialty products for immediate resale to
retailers and other large purchasers of lumber throughout the
United States.
Approximately 88% of the Division's transactions are direct
shipments from the sawmills to the customer. The remainder of
its business is delivered from inventory stored at public
warehouse facilities.
Wholesale Lumber--This unit is comprised of two joint ventures
in northeastern Ohio which are accounted for on the equity
method. Forest City and North American Lumber supplies building
materials and lumber to general contractors. Forest City/Babin
is a wholesaler of major home appliances, cabinets and hardware
to housing contractors.
The principal factors of competition in this unit are price,
service and product availability.
Number of Employees
The Company had 2,980 employees as of January 31, 1994, of which
2,309 were full-time and 671 were part-time.
Segments of Business
Financial information about industry segments required by this item
is incorporated by reference to Note I "Segment Information" which
appears on page 30 of the 1993 Annual Report to Shareholders.
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 thirteen
aministrative and sales offices and two manufacturing plants located
in eight states and one sales office in North Vancouver, B.C.,
Canada.
The "Forest City Rental Properties Corporation Portfolio of Real
Estate," presented on pages 18 and 19 of the 1993 Annual Report to
Shareholders, lists the shopping centers, office buildings, hotels
and apartments in which Rental Properties has an interest and is
incorporated herein by reference.
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,
except for the claims discussed below which may or may not have a
material effect, none of the other claims and lawsuits will have a
material adverse effect on the Company.
The Company holds a partnership interest in Grant Liberty Development
Group Associates ("GLDGA"). GLDGA and Metropolitan Life Insurance
Company ("Metropolitan") hold ownership interests of 40% and 60%,
respectively, in Liberty Center Venture ("Partnership"). Metropolitan
is also the holder of the nonrecourse mortgage which encumbers the
property held by the Partnership. In July 1990, GLDGA initiated an
action against Metropolitan alleging Metropolitan violated its
fiduciary duty to the Partnership by refusing to refinance or reduce
the interest rate on the mortgage and by making decisions detrimental
to the Partnership. Subsequently, in March 1991, Metropolitan filed
an action against the Partnership to foreclose on the mortgage and
obtain title to the property and, subsequent thereto a receiver had
been appointed to manage the property.
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.
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 14, 1994.
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 14, 1994. (Note: The first order of business at the
Annual Meeting of Shareholders will be an immediate adjournment to Tuesday,
June 21, 1994 because of a scheduling conflict with many of the Directors.)
Date
Name and Position(s) Held Appointed Age Family Relationship
Max Ratner
Founder Chairman of the Board, 6-08-93 86 Brother-in-law of Nathan Shafran;
Director, Officer of various Uncle of Albert B. Ratner;
subsidiary corporations. Father of Charles A. Ratner,
James A. Ratner and Ronald A.Ratner
Albert B. Ratner
Vice Chairman of the Board, 6-08-93 66
Chief Executive Officer,
Director, Officer of various
subsidiary corporations.
Samuel H. Miller
Chairman of the Board, 6-08-93 72
Treasurer, Director, Officer
of various subsidiary
corporations.
Charles A. Ratner
President, Chief Operating 6-08-93 52
Officer, Director, Officer
of various subsidiary
corporations.
Nathan Shafran
Vice Chairman of the Board, 3-11-87 80
Director, Officer of various
subsidiary corporations.
James A. Ratner
Executive Vice President, 3-09-88 49
Director, Officer of various
subsidiary corporations.
Ronald A. Ratner
Executive Vice President, 3-09-88 47
Director, Officer of various
subsidiary corporations.
Thomas G. Smith
Senior Vice President, Chief 9-03-85 53
Financial Officer, Secretary,
Officer of various subsidiary
corporations.
William M. Warren
Senior Vice President and 5-16-72 65
General Counsel.
D. Layton McCown
Vice President-Corporate 8-17-86 45
Controller.
Gilles Stucker resigned his position with the Registrant as Senior Vice
President-Finance effective January 31, 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information required by this item is incorporated by reference to the
"Quarterly Consolidated Financial Data (Unaudited)" which appears on
page 33 of the 1993 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to
the "Selected Financial Data" on page 20 of the 1993 Annual Report to
Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 33 through 35 of the 1993 Annual
Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data for Forest City
Enterprises, Inc. and subsidiaries are incorporated by reference to
pages 21 through 33 of the 1993 Annual Report to Shareholders.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors is contained in a definitive proxy
statement which the registrant anticipates will be filed by May 5,
1994 and is incorporated herein by reference.
(b) Pursuant to General Instruction G of Form 10-K and Item 401(b) of
Regulation S-K, Executive Officers of the Registrant are reported
in Part I of this Report.
(c) The disclosure of delinquent filers under Section 16(a) of the
Securities Exchange Act of 1934 is contained in a definitive proxy
statement which the registrant anticipates will be filed by May 5,
1994 and is incorporated herein by reference.
Item 11. Executive Compensation; Item 12. Security Ownership of Certain
Beneficial Owners and Management; and Item 13. Certain
Relationships and Related Transactions
Information required under these sections is contained in a
definitive proxy statement which the registrant anticipates will be
filed by May 5, 1994 and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. The following financial statements of Forest City Enterprises,
Inc. and subsidiaries and the report of the independent
accountants included in the 1993 Annual Report to Shareholders
are incorporated by reference in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets - January 31, 1994 and January 31,
1993
Consolidated Statements of Earnings for the three years
ended January 31, 1994
Consolidated Statements of Shareholders' Equity for the three
years ended January 31, 1994
Consolidated Statements of Cash Flows for the three years ended
January 31, 1994
Notes to Consolidated Financial Statements
Individual financial statements of 50% or less owned persons
accounted for by the equity method have been omitted because
such 50% or less owned persons considered in the aggregate as a
single subsidiary would not constitute a significant
subsidiary.
(a) 2. The following consolidated financial statement schedules are
included in Part IV, Item 14(d):
For the three years ended January 31, 1994:
Page No.
Schedule II - Amounts Receivable from Related
Parties and Underwriters, Promoters, and
Employees Other Than Related Parties IV-4
Schedule VIII - Valuation and Qualifying Accounts IV-5
Schedule IX - Short-Term Borrowings IV-6
Schedule X - Supplementary Income Statement IV-7
Information
At January 31, 1994 with reconciliations for
the three years ended January 31, 1994:
Schedule XI - Real Estate and Accumulated
Depreciation IV- 8 & 9
The report of the registrant's independent accountants with
respect to the above listed financial statement schedules as
of and for the years ended January 31, 1994, 1993 and 1992
appears on page IV-3 of this Report.
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown in the consolidated financial statements or
notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.
(a) 3. Exhibits:
No. 3.1 - Amended Articles of Incorporation adopted as of
October 11, 1983, was filed with Form 10-Q for the
quarter ended October 31, 1983 and is incorporated
herein by reference.
No. 3.2 - Code of Regulations as amended June 11, 1991 was
filed with Form 10-K for the fiscal year ended
January 31, 1992 and is incorporated herein by
reference.
No. 10.1 - Credit Agreement, dated as of July 1, 1989, among
Forest City Rental Properties Corporation, the
banks named therein and Ameritrust Company National
Association, as Agent, was filed with Form 10-Q for
the quarter ended July 31, 1989 and is incorporated
herein by reference.
No. 10.2 - Amendment Agreement, dated as of July 1, 1989,
among Forest City Rental Properties Corporation,
the banks named therein and Ameritrust Company
National Association, as Agent, was filed with
Form 10-Q for the quarter ended July 31, 1989 and
is incorporated herein by reference.
No. 10.3 - Guaranty of Payment of Debt, dated as of July 1,
1989, between Forest City Enterprises, Inc. and the
banks named therein was filed with Form 10-Q for
the quarter ended July 31, 1989 and is incorporated
herein by reference.
No. 10.4 - Second Amendment Agreement, dated as of June 29,
1990, among Forest City Rental Properties
Corporation, the banks named therein and Ameritrust
Company National Association, as Agent, was filed
with Form 10-K for the fiscal year ended January
31, 1991 and is incorporated herein by reference.
No. 10.5 - Amendment Agreement to the Guaranty of Payment of
Debt, dated as of June 29, 1990, between Forest
City Enterprises, Inc. and the banks named therein
was filed with Form 10-K for the fiscal year
ended January 31, 1991 and is incorporated herein
by reference.
No. 10.6 - Amendment Agreement to the Guaranty of Payment of
Debt, dated as of June 14, 1991, between Forest
City Enterprises, Inc. and the banks named therein
was filed with Form 10-K for the fiscal year
ended January 31, 1992 and is incorporated herein
by reference.
No. 13 - 1993 Annual Report to Shareholders
Page No.
No. 22 - Subsidiaries of the Registrant IV-10
(Parents and Subsidiaries)
(b) Reports on Form 8-K filed during the three months ended January
31, 1994:
None.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Forest City Enterprises, Inc.
Our report on the consolidated financial statements of Forest City
Enterprises, Inc. and subsidiaries has been incorporated by reference in
this Form 10-K from page 21 of the 1993 Annual Report to Shareholders of
Forest City Enterprises, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedules listed in the index on page IV-1 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
Cleveland, Ohio
March 10, 1994
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Balance at Deductions Balance
Beginning Amounts Amounts at End
Name of Debtor of Period Additions Collected Written Off of Period
(in thousands)
Year ended January 31, 1994
David G. Max-Muller (A) $183 $ - $ - $ - $183
Everett Shine (B) 203 - - - 203
Abraham Gelber (C) 131 5 (32) - 104
---- ---- ----- ---- ----
$517 $ 5 $ (32) $ - $490
==== ==== ===== ==== ====
Year ended January 31, 1993
David G. Max-Muller (A) $183 $ - $ - $ - $183
Everett Shine (B) 203 - - - 203
Abraham Gelber (C) 151 5 (25) - 131
---- ---- ----- ---- ----
$537 $ 5 $ (25) $ - $517
==== ==== ===== ==== ====
Year ended January 31, 1992
David G. Max-Muller (A) $183 $ - $ - $ - $183
Everett Shine (B) 200 3 - - 203
Abraham Gelber (C) 150 1 - - 151
---- ---- ----- ---- ----
$533 $ 4 $ - $ - $537
==== ==== ===== ==== ====
(A) Mr. Max-Muller terminated his employment in August 1990. As a part of his
termination agreement, this note is due upon sale of the residence or death of the
debtor. The promissory note is secured by a second mortgage on his residence with
interest charged at the Company's cost of borrowing but not to exceed 10%. The
promissory note became noninterest-bearing as of August 1990.
(B) The promissory note is secured by a second mortgage on the employee's residence
with interest charged at the lower of 8% or a formula based on the increased value
of the residence. Additionally, the promissory note is due June 13, 1998 or
earlier providing the residence is sold or the employee is terminated. The
accrual of interest income was discontinued during 1991 due to the difficulty in
computing it under the formula.
(C) The promissory note is secured by a second mortgage on the employee's new
residence and former residence. The note is due on the earlier of November 21,
1994 or the date of closing on the sale of the former residence. This note became
interest-bearing at the rate of 4% on November 21, 1991.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
(in thousands)
Allowance for
doubtful accounts
Year Ended January 31, 1994 $3,683 $3,078 $1,439(A) $5,322
Year Ended January 31, 1993 $5,226 $1,827 $3,370(A) $3,683
Year Ended January 31, 1992 $5,963 $3,271 $4,008(A) $5,226
(A) Uncollectible accounts written off.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
Average Weighted
Maximum Amount Average
Weighted Amount Outstanding Interest
Balance Average Outstanding During Rate During
Category of Aggregate at End Interest During the Period the Period
Short-Term Borrowings of Period Rate the Period (A) (B)
(in thousands)
Year Ended January 31, 1994
Notes payable to
financial institutions $ 26,555 6.6% $ 70,565 $ 36,585 7.0%
Commercial Paper $ 39,704 3.2%(C) $141,235 $ 65,082 3.1%(C)
Year Ended January 31, 1993
Notes payable to
financial institutions $ 49,168 6.8% $ 62,713 $ 45,391 7.5%
Commercial Paper $141,914 3.5%(C) $144,134 $143,482 4.1%(C)
Year Ended January 31, 1992
Notes payable to
financial institutions $ 39,690 7.0% $ 45,571 $ 37,174 8.8%
Commercial Paper $143,912 5.0%(C) $145,389 $144,344 8.5%(C)
(A) The average amount outstanding during the period was computed by adding the daily
principal balance outstanding during the period and then dividing that total by the
number of days in the period.
(B) The weighted average interest rate during the period was computed by dividing interest
expense by the "Average Amount Outstanding During the Period."
(C) Includes certain credit related fees.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Charged to Costs and Expenses
Year Ended January 31,
Item 1994 1993 1992
(in thousands)
Maintenance and repairs $30,746 $29,104 $27,055
Taxes, other than payroll and
income taxes:
Real property 25,733 27,214 23,781
Amortization of intangible
assets 16,468 14,862 12,397
Advertising costs 5,895 5,858 5,424
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
Range of lives
Gross amount at which (in yrs) on
- Initital cost - -Cost capitalized- -- carried at close of -- Acc which deprec in
Amount of -- to Company -- -- subsequent ---- --- January 31, 1994 ---- Depr latest income
encumbrance Buildings, -to acquisition--- Buildings, at statement
Description at Jan. 31, and Carrying and Total Jan 31, Date of Date is computed
of Property 1994 Land imprvmnts. Imprvemnts. costs Land imprvmnts. (A)(B) 1994 (C) const. acquired Bldg. Improv.
(in thousands)
Apartments:
Los Angeles,
Calif. $ 216,542 $53,238 $ 148,383 $ 9,431 $ - $ 53,959 $ 157,093 $ 211,052 $ 29,855 10/86 40 10-40
Misc.
invest. 426,958 42,916 434,694 11,676 27,867 44,644 472,509 517,153 74,056 Various - Various Various
Shopping Centers:
Cleveland,
Ohio 66,058 - 143,287 5,718 - - 149,005 149,005 11,499 1988-1990 - 50 50
Misc.
invest. 478,346 29,412 319,669 65,237 30,387 40,598 404,107 444,705 72,437 Various - Various Various
Office Buildings:
New York,
New York 128,838 - 137,618 1,484 - - 139,102 139,102 4,919 1989-1991 - 50 -
Misc.
invest. 517,236 11,335 479,628 106,775 45,009 13,407 629,340 642,747 81,210 Various - Various Various
Leasehold improvements
and other equipment:
Misc.
invest. - - 12,793 - - - 12,793 12,793 8,337 - Various Various Various
Under Construction:
Misc.
invest. 49,161 108,719 105,392 - - 108,719 105,392 214,111 -
Undeveloped Land:
Misc.
invest. 47,860 74,398 - - - 74,398 - 74,398 -
---------- -------- ---------- -------- -------- ------- ---------- ---------- --------
Total $1,930,999 $320,018 $1,781,464 $200,321 $103,263 $335,725 $2,069,341 $2,405,066 $282,313
========== ======== ========== ======== ======== ======== ========== ========== ========
(A) The aggregate cost at January 31, 1994 for federal income tax purposes was $2,261,137.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
For the Years Ended January 31,
1994 1993 1992
(in thousands)
(B) Reconciliations of total real estate carrying value are as follows:
Balance at beginning of period $2,310,970 $2,281,731 $2,080,522
Additions during period -
Improvements 127,035 111,083 226,358
Other acquisitions 5,198 - -
---------- ---------- ----------
132,233 111,083 226,358
---------- ---------- ----------
Deductions during period -
Cost of real estate sold (38,137) (81,844) (25,149)
---------- ---------- ----------
Balance at end of period $2,405,066 $2,310,970 $2,281,731
========== ========== ==========
(C) Reconciliations of accumulated depreciation are as follows:
Balance at beginning of period $ 243,019 $ 204,212 $ 178,485
Additions during period -
Charged to profit or loss 48,840 44,410 39,583
Deductions during period -
Retirement and sales (9,546) (5,603) (13,856)
---------- ---------- ----------
Balance at end of period $ 282,313 $ 243,019 $ 204,212
========== ========== ==========
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FOREST CITY ENTERPRISES, INC.
(Registrant)
DATE: 4/27/94 BY: /s/ Albert B. Ratner
(Albert B. Ratner, Vice Chairman of the Board)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Founder Chairman of the Board
/s/ Max Ratner and Director 4/27/94
(Max Ratner) (Date)
Vice Chairman of the Board and Director
/s/ Albert B. Ratner (Principal Executive Officer) 4/27/94
(Albert B. Ratner) (Date)
Chairman of the Board, Treasurer
/s/ Samuel H. Miller and Director 4/27/94
(Samuel H. Miller) (Date)
President, Chief Operating Officer
/s/ Charles A. Ratner and Director 4/27/94
(Charles A. Ratner) (Date)
Senior Vice President, Chief
Financial Officer and Secretary
/s/ Thomas G. Smith (Principal Financial Officer) 4/27/94
(Thomas G. Smith) (Date)
Vice President and Corporate Controller
/s/ D. Layton McCown (Principal Accounting Officer) 4/27/94
(D. Layton McCown) (Date)
/s/ Nathan Shafran Vice Chairman of the Board and Director 4/27/94
(Nathan Shafran) (Date)
/s/ James A. Ratner Executive Vice President and Director 4/27/94
(James A. Ratner) (Date)
/s/ Ronald A. Ratner Executive Vice President and Director 4/27/94
(Ronald A. Ratner) (Date)
/s/ Jerry V. Jarrett Director 4/27/94
(Jerry V. Jarrett) (Date)
/s/ Scott S. Cowen Director 4/27/94
(Scott S. Cowen) (Date)
The registrant plans to furnish security holders a copy of the Annual
Report and Proxy material by May 5, 1994.
Exhibits Filed Electronically
The following exhibits are included in this electronic filing and are
located after this index.
Exhibit No. 22 - Parents and Subsidiaries
Portions of the 1993 Annual Report to Shareholders that are
incorporated by reference into this electronic filing:
- Selected Financial Data
- Report of Independent Accountants
- Financial Statements of Forest City Enterprises, Inc.
and subsidiaries
- Quarterly Consolidated Financial Data (Unaudited)
- Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 14. Exhibit 22 - Parents and Subsidiaries
The voting securities of the subsidiaries below are in each case owned by
Forest City Enterprises, Inc. except where a subsidiary's name is indented,
in which case that subsidiary's voting securities are owned by the next
preceding subsidiary whose name is not so indented. All subsidiaries of
the parent except those which are 50%-owned are included in the consolidated
financial statements of the registrant:
Percentage of
Voting Securities
Owned by State of
Name of Subsidiary Immediate Parent Incorporation
F.C.P. Supply, Inc. 100 (a) Ohio
FL-Tampa, Inc. 100 (a) Florida
Forest City Rental Properties Corporation 100 (a) Ohio
Campus Condos, Inc. 100 (a) California
Center Courtland, Inc. 100 (a) Ohio
Concourse Development, Inc. 100 (a) Ohio
F.C. Grand Terrace, Inc. 100 (a) California
F.C. Irvine, Inc. 100 (a) California
F.C. Parklabrea Towers, Inc. 100 (a) Ohio
F.C. Superblock, Inc. 100 (a) Delaware
F.C. Wisconsin, Inc. 100 (a) Maryland
FL-Pembroke, Inc. 100 (a) Florida
Forest Bay, Inc. 100 (a) Ohio
Forest City 38 Sidney Street, Inc. 100 (a) Ohio
Forest City 64 Sidney Street, Inc. 100 (a) Ohio
Forest City Antelope Valley, Inc. 100 (a) Ohio
Forest City Bluffside Corporation 100 (a) Ohio
Forest City Central Station, Inc. 100 (a) Ohio
Forest City Commercial Construction Co., Inc. 100 (a) Ohio
Forest City East Coast, Inc. 100 (a) New York
Forest City Eureka, Inc. 100 (a) Ohio
Forest City Finance Corporation 100 (a) Ohio
Forest City Franklin Town Corp. 100 (a) Ohio
Forest City Investment Partners Millender, Inc. 100 (a) Ohio
Forest City Management, Inc. 100 (a) Ohio
Forest City Palmdale, Inc. 100 (a) Ohio
Forest City Parklabrea, Inc. 100 (a) Delaware
Forest City Peripheral Land, Inc. 100 (a) Delaware
Forest City Properties Corporation 100 (a) California
Forest City Rental Properties Corporation
of Nevada, Inc. 100 (a) Nevada
Forest City Robinson Mall, Inc. 100 (a) Delaware
Forest City Southpark Two, Inc. 100 (a) California
Forest City Vineyard Village, Inc. 100 (a) Ohio
Hawthorne Bay, Inc. 100 (a) California
Parklabrea Finance Corp. 100 (a) Delaware
Parmatown Towers, Inc. 100 (a) Ohio
Playhouse Square Investment, Inc. 100 (a) Ohio
Post Office Building Co. 100 (a) Ohio
Terminal Investments, Inc. 100 (a) Ohio
Tower City Land Corporation 100 (a) Ohio
Tower City Retail, Inc. 100 (a) Ohio
Tower City Skylight Tower, Inc. 100 (a) Ohio
Forest City Residential Development, Inc. 100 (a) Ohio
Forest City Capital Corporation 100 (a) Ohio
Forest City Southpark Corp. 100 (a) Ohio
Forest City Scottsdale, Inc. 100 (a) Ohio
Forest City Trading Group, Inc. 100 (a) Oregon
Ironwood Insurance Company 100 (a) Vermont
Mid-Corp., Inc. 100 (a) Ohio
Mountain, Inc. 100 (a) Ohio
Sunrise Development Co. 100 (a) Ohio
(a) Subsidiaries included in consolidated financial statements.
SELECTED FINANCIAL DATA
For the Years Ended January 31, 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
OPERATING RESULTS
Sales and operating revenues $ 502,903 $ 463,626 $ 419,815 $ 381,955 $ 324,249
===============================================================
Net earnings (loss)
Operating earnings (loss), net of tax (1) $ 718 $ (4,712) $ (5,083) $ (9,834) $ 2,522
Gain (loss) on disposition of properties and
other provisions, net of tax (2) 1,494 17,399 (1,105) 12,986 3,269
---------------------------------------------------------------
$ 2,212 $ 12,687 $ (6,188) $ 3,152 $ 5,791
===============================================================
Earnings before depreciation and deferred taxes
Operating earnings (loss), net of tax (1) $ 718 $ (4,712) $ (5,083) $ (9,834) $ 2,522
Adjustments related to real estate operations (3)
Depreciation and amortization 63,901 57,896 50,543 39,224 29,487
Deferred income taxes 10,865 19,021 1,789 13,761 7,954
Accrued interest of a rental property not paid 5,495 4,870 3,973 3,293 4,111
---------------------------------------------------------------
Real estate adjustment 80,261 81,787 56,305 56,278 41,552
---------------------------------------------------------------
$ 80,979 $ 77,075 $ 51,222 $ 46,444 $ 44,074
===============================================================
Per common share
Net earnings (loss) $ .25 $ 1.41 $ (.69) $ .35 $ .70
===============================================================
Dividends declared
Class A $ - $ - $ - $ .46 $ .42
Class B $ - $ - $ - $ .40 $ .36
January 31, 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
FINANCIAL POSITION
Consolidated assets $ 2,668,057 $ 2,625,404 $ 2,556,261 $ 2,350,343 $ 1,955,264
Real estate portfolio, at cost $ 2,405,066 $ 2,310,970 $ 2,281,731 $ 2,080,522 $ 1,685,402
Long-term debt, including mortgage debt $ 2,026,451 $ 1,972,160 $ 1,980,985 $ 1,807,683 $ 1,482,545
FOREST CITY RENTAL PROPERTIES CORPORATION - REAL ESTATE ACTIVITY
Total real estate end of year
Completed rental properties, before depreciation $ 2,101,528 $ 2,045,946 $ 1,878,394 $ 1,600,276 $ 1,145,591
Projects under development 214,111 188,187 316,771 385,042 451,211
---------------------------------------------------------------
2,315,639 2,234,133 2,195,165 1,985,318 1,596,802
Accumulated depreciation (272,518) (232,905) (193,683) (160,616) (136,192)
---------------------------------------------------------------
Rental properties, net of depreciation $ 2,043,121 $ 2,001,228 $ 2,001,482 $ 1,824,702 $ 1,460,610
===============================================================
Activity during the year
Completed rental properties
Additions $ 50,384 $ 200,440 $ 279,319 $ 462,796 $ 147,546
Purchased 5,198 - - 28,143 -
Sold - (32,888) (1,201) (36,254) (5,750)
---------------------------------------------------------------
55,582 167,552 278,118 454,685 141,796
---------------------------------------------------------------
Projects under development
New development 54,317 39,045 199,346 387,582 363,448
Transferred to completed rental properties (28,393) (167,629) (267,617) (453,751) (115,800)
---------------------------------------------------------------
25,924 (128,584) (68,271) (66,169) 247,648
---------------------------------------------------------------
Increase in rental properties, at cost $ 81,506 $ 38,968 $ 209,847 $ 388,516 $ 389,444
===============================================================
(1) Represents operating earnings (loss), excluding the gain (loss) on disposition of properties and the provision for decline
in real estate.
(2) Includes the provision for decline in real estate.
(3) These adjustments represent amounts related to the Company's real estate operations in Rental Properties only.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Forest City Enterprises, Inc.
We have audited the consolidated balance sheets of Forest City Enterprises,
Inc. and subsidiaries at January 31, 1994 and 1993, and the related
consolidated statements of earnings, shareholders' equity, and cash flows
for each of the three years in the period ended January 31, 1994. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with 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 subsidiaries at January 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended January 31, 1994, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand
Cleveland, Ohio
March 10, 1994
CONSOLIDATED BALANCE SHEETS
January 31, 1994 1993
- - -------------------------------------------------------------------------------------
(dollars in thousands)
ASSETS
Real Estate
Completed rental properties $ 2,116,557 $ 2,059,532
Projects under development 214,111 188,187
Land held for development or sale 74,398 63,251
----------------------------
2,405,066 2,310,970
Less accumulated depreciation (282,313) (243,019)
----------------------------
Total Real Estate 2,122,753 2,067,951
Cash 21,798 41,483
Notes and accounts receivable, net 252,009 295,099
Inventories and construction contracts in progress 63,220 42,823
Investments in and advances to affiliates 59,891 58,848
Other assets 148,386 119,200
----------------------------
$ 2,668,057 $ 2,625,404
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $ 1,930,999 $ 1,853,439
Accounts payable and accrued expenses 361,023 356,831
Notes payable 39,183 64,430
Long-term debt 95,452 118,721
Deferred income taxes 69,449 65,835
Deferred profit 26,509 22,918
----------------------------
Total Liabilities 2,522,615 2,482,174
----------------------------
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; 5,146,226
and 5,140,826 shares outstanding, respectively 1,715 1,713
Class B, convertible, 6,000,000 shares authorized;
3,845,388 and 3,850,788 shares outstanding,
respectively 1,282 1,284
----------------------------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 96,934 94,722
----------------------------
Total Shareholders' Equity 145,442 143,230
----------------------------
$ 2,668,057 $ 2,625,404
============================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Sales and operating revenues $ 502,903 $ 463,626 $ 419,815
Interest and other income 16,476 10,843 32,101
---------------------------------------
Total revenues 519,379 474,469 451,916
Operating expenses 338,308 310,621 287,268
Interest expense 111,494 111,309 116,886
Provision for decline in real estate - 9,438 1,823
Depreciation and amortization 65,309 59,272 51,979
Gain on disposition of properties 2,268 39,322 88
---------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 6,536 23,151 (5,952)
---------------------------------------
INCOME TAXES
Current 710 1,655 (84)
Deferred 3,614 8,809 320
---------------------------------------
4,324 10,464 236
---------------------------------------
NET EARNINGS (LOSS) $ 2,212 $ 12,687 $ (6,188)
=======================================
NET EARNINGS (LOSS) PER SHARE $ .25 $ 1.41 $ (.69)
=======================================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
------------- Common Stock ------------ Additional
---- Class A ---- ---- Class B ---- Paid-In Retained
Shares Amount Shares Amount Capital Earnings
- - -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balances at January 31, 1991 5,119 $ 1,706 3,873 $ 1,291 $ 45,511 $ 88,223
Net loss (6,188)
Conversion of Class B shares to Class A shares 9 3 (9) (3)
-------------------------------------------------------------------------
Balances at January 31, 1992 5,128 1,709 3,864 1,288 45,511 82,035
Net earnings 12,687
Conversion of Class B shares to Class A shares 13 4 (13) (4)
-------------------------------------------------------------------------
Balances at January 31, 1993 5,141 1,713 3,851 1,284 45,511 94,722
Net earnings 2,212
Conversion of Class B shares to Class A shares 5 2 (5) (2)
-------------------------------------------------------------------------
Balances at January 31, 1994 5,146 $ 1,715 3,846 $ 1,282 $ 45,511 $ 96,934
=========================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES
Net earnings (loss) $ 2,212 $ 12,687 $ (6,188)
Depreciation and amortization 65,309 59,272 51,979
Deferred income taxes 3,614 8,809 320
Accrued interest of a rental property not payable until future years 5,495 4,870 3,973
Gain on disposition of properties (2,268) (39,322) (88)
Provision for decline in real estate - 9,438 1,823
(Increase) decrease in land held for development or sale (11,147) 8,992 (299)
(Increase) decrease in notes and accounts receivable 43,090 (37,530) (14,742)
(Increase) decrease in inventories and construction contracts in progress (20,397) (7,311) 5,584
Increase (decrease) in accounts payable and accrued expenses 4,263 54,830 (6,463)
Increase in deferred profit 3,929 2,593 162
(Increase) in other assets (45,655) (13,664) (6,279)
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 48,445 63,664 29,782
------------------------------------
INVESTING ACTIVITIES
Capital expenditures (92,495) (76,318) (215,476)
Proceeds from disposition of properties 1,859 25,205 1,268
Investments in affiliates (1,043) (11,532) (6,587)
------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (91,679) (62,645) (220,795)
------------------------------------
FINANCING ACTIVITIES
Increase in mortgage and long-term debt 111,256 61,479 198,222
Payments on long-term debt (25,719) (14,153) (8,753)
Principal payments on mortgage debt on real estate (36,741) (23,858) (20,140)
Increase in notes payable 1,332 13,775 23,755
Payments on notes payable (26,579) (14,726) (3,056)
------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,549 22,517 190,028
------------------------------------
NET INCREASE (DECREASE) IN CASH (19,685) 23,536 (985)
CASH AT BEGINNING OF YEAR 41,483 17,947 18,932
------------------------------------
CASH AT END OF YEAR $ 21,798 $ 41,483 $ 17,947
====================================
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The years 1993, 1992 and 1991 refer to the fiscal years ended January 31,
1994, 1993 and 1992, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Forest City
Enterprises, Inc. and all wholly-owned subsidiaries ("Enterprises" and the
"Company"). The Company also includes its share of the assets, liabilities
and results of operations of its real estate partnerships, joint ventures
and majority-owned corporations. These entities are included as of their
respective fiscal year-ends (generally December 31).
All significant intercompany accounts and transactions between
consolidated entities have been eliminated. Entities which the Company does
not control are accounted for on the equity method. Undistributed earnings
of such entities included in retained earnings are $2,410,000 at January 31,
1994.
Certain prior years' amounts in the accompanying financial statements have
been reclassified to conform to the current year's presentation.
RECOGNITION OF REVENUE AND PROFIT
REAL ESTATE SALES-The Company follows the provisions of Statement of
Financial Accounting Standards No. 66 for reporting the gain on the
disposition of properties.
LEASING OPERATIONS-The Company enters into leases with tenants in its
rental properties. The lease terms of tenants occupying space in the
shopping centers and office buildings range from 1 to 20 years, excluding
leases with anchor tenants. Minimum rent revenues are recognized when due
from tenants. Leases with most shopping center tenants provide for
percentage rents when the tenants' sales volumes exceed stated amounts. The
Company is also reimbursed for certain expenses related to operating its
properties.
LUMBER BROKERAGE-The Company recognizes the gross margin on these sales as
revenue. Sales invoiced for the years 1993 through 1991 were approximately
$2,447,800,000, $1,723,800,000 and $1,278,500,000, respectively.
CONSTRUCTION-Revenue and profit on long-term fixed-price contracts are
reflected under the percentage-of-completion method. On reimbursable cost-
plus fee contracts, revenues are recorded in the amount of the accrued
reimbursable costs plus proportionate fees at the time the costs were
incurred.
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes.
For financial reporting purposes, interest and taxes during development
and construction are capitalized as a part of the project cost.
Depreciation is generally computed on a straight-line method over the
estimated useful asset lives. The estimated useful lives of buildings vary
from 3 to 50 years, lease-hold improvements from 4 to 51.5 years, and other
equipment from 1 to 10 years.
Major renewals and improvements are capitalized and expensed through
depreciation charges. Repairs, maintenance and minor improvements are
expensed as incurred. Costs and accumulated depreciation applicable to
assets retired or sold are eliminated from the respective accounts and any
resulting gains or losses are reported in the consolidated statements of
earnings.
LAND OPERATIONS
Land held for development or sale is stated at the lower of cost or market.
OTHER ASSETS
Included in other assets are costs incurred in connection with obtaining
financing, which are deferred and amortized over the life of the related
debt. Costs incurred in connection with leasing space to tenants are also
included in other assets and are deferred and amortized on the straight-line
method over the lives of the related leases.
INCOME TAXES
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting For Income Taxes".
Deferred income taxes reflect the tax consequences on future years of
differences between the tax and financial statement basis of assets and
liabilities at year-end. The Company has recognized the benefits of its tax
loss carryforward and investment tax credits as a reduction of the deferred
tax expense.
CAPITAL STOCK
Class B common stock is convertible into Class A common stock on a share-
for-share basis. The 1,000,000 authorized shares of preferred stock without
par value, none of which have been issued, are convertible into Class A
common stock.
Class A common stockholders elect three members of the Board of Directors
and Class B common stockholders elect the remaining nine directors annually.
EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted
average number of common shares outstanding during the year of 8,991,614 in
1993, 1992 and 1991.
B. REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION AND INDEBTEDNESS
The components of real estate cost and the related nonrecourse mortgage
indebtedness is presented below.
January 31, 1994
----------------------------------------------------
Total Accumulated Net Amount of
Classification Cost Depreciation Cost Indebtedness
- - -----------------------------------------------------------------------------------------
(in thousands)
Shopping centers $ 593,710 $ 83,936 $ 509,774 $ 544,404
Apartments 728,205 103,911 624,294 643,500
Office and other buildings 781,849 86,129 695,720 646,074
Corporate and other equipment 12,793 8,337 4,456 -
----------------------------------------------------
2,116,557 282,313 1,834,244 1,833,978
----------------------------------------------------
Under development 214,111 - 214,111 49,161
Land held for development or sale 74,398 - 74,398 47,860
----------------------------------------------------
$ 2,405,066 $ 282,313 $ 2,122,753 $ 1,930,999
====================================================
C. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable are summarized below.
January 31, 1994 1993
- - --------------------------------------------------------------------------
(in thousands)
Lumber brokerage $ 122,235 $ 150,609
Receivables from affiliates 53,460 47,557
Real estate sales 16,915 36,273
Syndication activities 19,961 20,621
Receivables from tenants 16,758 17,095
Construction contracts 407 674
Other receivables 27,595 25,953
---------------------------
257,331 298,782
Allowance for doubtful accounts (5,322) (3,683)
---------------------------
$ 252,009 $ 295,099
===========================
Notes receivable at January 31, 1994 of $39,118,000, primarily reflected
above in real estate sales and syndication activities, are collectible
primarily over 8 years, with $10,764,000 being due within one year. The
weighted average interest rate at January 31, 1994 was 10.2%.
In July 1993, Forest City Trading Group, the Company's lumber brokerage
subsidiary, entered into a three-year agreement under which it is selling an
undivided interest in a pool of accounts receivable up to a maximum of
$60,000,000. During the year ended January 31, 1994, the Company received
$50,000,000 as net proceeds from this transaction. An interest in additional
accounts receivable is being sold as collections reduce previously sold
interests.
D. INVENTORIES AND CONSTRUCTION CONTRACTS IN PROGRESS
The detail of the balances are as follows.
January 31, 1994 1993
- - -------------------------------------------------------------------------
(in thousands)
Lumber brokerage $ 62,818 $ 42,534
Other 402 289
---------------------------
$ 63,220 $ 42,823
===========================
The lumber brokerage inventory is stated at the lower of cost or market.
Inventory cost is determined by specific identification and average cost
methods.
E. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses at January 31, 1994 and
1993 are book overdrafts of approximately $60,434,000 and $64,498,000,
respectively. The overdrafts are a result of the Company's cash management
program and represent checks issued but not yet presented to a Company bank
for collection.
F. NOTES PAYABLE
The components of notes payable, which represent indebtedness whose original
maturity dates are within one year of issuance, are as follows.
January 31, 1994 1993
- - ----------------------------------------------------------------------
(in thousands)
Payable To
Banks $ 26,555 $ 49,168
Other 12,628 15,262
-------------------
$ 39,183 $ 64,430
===================
Effective May 31, 1993, the Company extended its $15,000,000 short-term
line of credit to May 31, 1994, at which time it is subject to renewal. This
line of credit is available for working capital advances and letters of
credit. Funds drawn under the line bear interest at a rate of 1/2% above
prime (6-1/2% at January 31, 1994). At January 31, 1994, no borrowings were
outstanding under this credit line.
In July 1993, the Lumber Brokerage Division entered into a three-year
agreement under which it is selling an undivided ownership interest in a pool
of accounts receivable up to a maximum of $60,000,000. During 1993, the
Company received $50,000,000 as net proceeds from this transaction that were
used to reduce the bank debt outstanding. An interest in additional accounts
receivable is being sold as collections reduce previously sold interests. At
the same time, the Company reduced its bank line of credit from $67,500,000 to
$40,000,000. The Company has the right to borrow an additional $10,000,000
for up to 90 days between January 25, 1994 and May 31, 1994 under this bank
line of credit. The bank line of credit bears interest at a rate up to 0.6%
over prime and has a fee of 1/4% per annum on the unused portion of the
available commitment. This agreement is subject to review and extension
annually on May 31. At January 31, 1994, there was $26,555,000 outstanding
under the bank line of credit.
In June 1991, the Company borrowed $10,000,000 from each of two related
parties pursuant to a nonrecourse loan and security agreement, the loans being
secured by selected real estate assets of the Company and a note receivable.
The creditors, both of whom are shareholders, are the Ratner, Miller and
Shafran families ("RMS") and related parties, and the Harris family and
related parties. Harris is also a partner with the Company in several
development projects. During 1992, the Company repaid $7,146,000 of the
Harris/bank loan and repaid the remainder of the loan in February 1993. The
RMS loan has been paid down $70,000 in 1992 and $1,045,000 in 1993 from sales
of secured properties and collections on the note receivable. Interest is
payable monthly at a rate of 2% over prime with an 8% minimum. Prior to loan
maturity, which has been extended to August 1, 1994, loan principal payments
are due from proceeds from sales or financing of the secured properties and
collections on the note receivable. At January 31, 1994, $8,885,000 was
outstanding in notes payable.
G. LONG-TERM DEBT
MORTGAGE DEBT ON REAL ESTATE
Mortgage debt, which is collateralized by completed rental properties,
projects under development and certain undeveloped land, is as follows.
January 31, 1994 1993
- - -----------------------------------------------------------------------
(in thousands)
Fixed interest rates
ranging from 1.5%
to 14.0% $ 778,998 $ 618,648
Variable interest
rates ranging from
2.1% to 8.8% 1,112,297 1,092,877
Commercial paper
having a weighted
average interest
rate of 3.2% 39,704 141,914
---------------------------
$ 1,930,999 $ 1,853,439
===========================
The debt related to projects under development at January 31, 1994 totals
$49,161,000 out of a total commitment from lenders of $83,003,000. Of this
outstanding debt, $35,253,000 is variable-rate debt and $13,908,000 is fixed-
rate debt. The Company generally borrows funds for development and
construction projects on a long-term basis, usually with maturities of five to
seven years, which allows the property to achieve stabilized operations before
refinancing is required.
The Company has a practice of purchasing interest rate caps on a
substantial portion of its variable-rate debt to provide protection against
significant increases in interest rates. The coverage generally extends for
one to two years.
In lieu of purchasing interest rate caps, the Company periodically has
fixed the interest rates on a short-term basis (generally for periods not
exceeding one year) when favorable market conditions exist.
Included in the fixed-rate debt above is $54,788,000 of Urban Development
Action Grant loans. These loans bear interest at rates which are below
prevailing commercial lending rates and are granted to the Company as an
inducement to develop real estate in economically under-developed localities.
A right to participate by the local government in the future cash flow of the
project is generally a condition of these loans. The Company also has entered
into a small number of mortgage obligations and leases with tenants that
enable the debt holder or lessee to participate in appreciation and cash flow,
as defined, generated from operations, sale or refinancing. Participation in
annual cash flow generated from operations is recognized as an expense in the
period earned. Participation in appreciation and cash flow resulting from a
sale or refinancing is recorded as an expense at the time of sale or is
capitalized as additional basis and amortized if amounts are paid prior to the
disposition of the property.
The Company has a nonrecourse mortgage on which a portion of the interest
expense is accrued currently but is not payable until future years when
certain requirements are satisfied. These requirements generally relate to a
specified level of cash flow or the sale or refinancing of the property.
Interest accrued but not paid was $5,495,000, $4,870,000 and $3,973,000 in
1993, 1992 and 1991, respectively.
Annual maturities of the mortgage debt for the next five years ending
January 31 are as follows: 1995, $313,643,000; 1996, $203,505,000; 1997,
$496,529,000; 1998, $94,335,000; and 1999, $287,981,000.
The Company is negotiating with its current lenders and expects to
refinance or extend the maturity dates of its nonrecourse mortgage debt that
matures. In certain instances, the Company will seek alternative sources of
financing to replace certain debt that matures.
LONG-TERM DEBT
Long-term debt is as follows.
January 31, 1994 1993
- - ----------------------------------------------------------------------
(in thousands)
Six-year term loan $ 78,750 $ 96,250
Seven-year term loan 12,500 17,500
Other debt 4,202 4,971
-------------------------
$ 95,452 $ 118,721
=========================
Effective July 1, 1992, the Company converted its $105,000,000 revolving
credit agreement with a group of banks to a six-year term loan in accordance
with the terms of the agreement. Quarterly principal payments commenced
October 1, 1992. The agreement provides, among other things, for 1) interest
rates ranging from 1/4% to 1/2% over the prime rate or 1-1/4% to 1-1/2% over
the London Interbank Offered Rate ("LIBOR") or Certificate of Deposit ("CD")
rates; 2) the maintenance of a specified level of net worth and cash flow (as
defined); and 3) a restriction on dividend payments. At January 31, 1994
approximately $7,162,000 of retained earnings were available for payment of
dividends.
The Company also has a seven-year term loan under the above credit
agreement. The term loan bears interest at rates ranging from 1/4% to 3/4%
over the prime rate or 1-1/4% to 1-3/4% over the LIBOR or CD rates. The
repayment, payable in twenty-eight equal quarterly principal installments of
$1,250,000 plus interest, commenced October 1, 1989.
Interest rates on the other debt ranged primarily from 6.0% to 10.4% at
January 31, 1994.
Maturities of other debt for the next five years ending January 31, are as
follows: 1995, $461,000; 1996, $472,000; 1997, $474,000; 1998, $301,000; and
1999, $119,000.
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the Company
determined the estimated fair value of its debt by aggregating the various
types (i.e. fixed rate versus variable rate debt) and discounting future cash
payments at interest rates that the Company believes approximates the current
market. There was no material difference in the carrying amount and the
estimated fair value of the Company's total mortgage debt.
Total interest incurred on all forms of indebtedness was $117,826,000 in
1993, $126,755,000 in 1992 and $147,835,000 in 1991, of which $6,332,000,
$15,446,000 and $30,949,000 was capitalized, respectively.
The following are non-cash supplemental disclosures related to the
consolidated statements of cash flows. Interest actually paid on all forms of
indebtedness, net of interest capitalized, was $103,311,000, $106,120,000 and
$117,384,000 for 1993, 1992 and 1991, respectively. During 1992, the Company
sold a shopping center to a limited partnership in which it retained a 50%
interest. The purchaser assumed $35,000,000 of nonrecourse mortgage debt
collateralized by the shopping center.
H. INCOME TAXES
The Company's provision for income taxes consists of the following components.
For the Years Ended
January 31, 1994 1993 1992
- - ----------------------------------------------------------------------
(in thousands)
Current
Federal $ 376 $ 716 $ (602)
State 334 939 518
------------------------------
710 1,655 (84)
------------------------------
Deferred
Federal 2,985 6,383 (2,537)
State 629 2,426 2,857
------------------------------
3,614 8,809 320
------------------------------
Provision for
income taxes $ 4,324 $ 10,464 $ 236
==============================
In August 1993, the United States Congress passed the Omnibus Budget
Reconciliation Act of 1993. Among other things, this law increased the
federal corporate tax rate from 34% to 35% effective January 1, 1993. The
impact on the Company is an increase in income taxes and a decrease in net
earnings of $1,742,000 for the year ended January 31, 1994, of which
$1,658,000 relates to timing items at January 31, 1993.
The effective tax rate for income taxes varies from the federal statutory
rate of 35% for 1993 and 34% for 1992 and 1991 due to the following items.
For the Years Ended
January 31, 1994 1993 1992
- - ---------------------------------------------------------------------
(in thousands)
Financial earnings (loss)
before income taxes $ 6,536 $ 23,151 $ (5,952)
----------------------------
Income taxes computed at
the statutory rate $ 2,288 $ 7,871 $ (2,024)
Increase (decrease) in tax
resulting from:
Minimum tax refund and
audit adjustments (2,559) - -
Valuation allowance 1,362 - 2,065
Rate difference for
change in tax law 1,658 - -
State taxes, net of
federal benefit 556 2,221 162
Adjustment of prior
estimated taxes 771 - 21
Contribution carryover 477 333 74
Other items (229) 39 (62)
----------------------------
Total provision $ 4,324 $ 10,464 $ 236
============================
An analysis of the deferred tax provision is as follows.
For the Years Ended
January 31, 1994 1993 1992
- - ---------------------------------------------------------------------
(in thousands)
Excess of tax over statement
depreciation and amortization $ 9,976 $ 9,736 $ 10,217
Allowance for doubtful
accounts deducted for
statement (476) 563 (87)
Costs on land and rental
properties under development
expensed for tax 309 2,704 6,161
Revenues and expenses
recognized in different
periods for tax and
statement (8,793) (10,800) (738)
Development fees deferred
for statement (701) - (935)
Provision for decline
in real estate - (1,056) (206)
Deferred state taxes, net of
federal benefit 564 1,066 1,885
Interest on construction
advances deferred for
statement 1,721 2,441 2,471
Benefits of tax loss carry-
forward recognized against
deferred taxes (1,021) 4,155 (20,513)
Audit adjustments (985) - -
Rate difference per change
in tax law 1,658 - -
Valuation allowance 1,362 - 2,065
----------------------------
$ 3,614 $ 8,809 $ 320
============================
The types of differences that give rise to significant portions of the
deferred income tax liability are as follows.
Temporary Deferred Tax
Differences (Asset) Liability
- - ---------------------------------------------------------------------------
(in thousands)
Depreciation $ 211,371 $ 83,597
Capitalized costs 142,704 56,439
Net operating losses (91,348) (36,128)
Investment tax credits - (4,350)
Other (86,308) (30,109)
---------------------------
$ 176,419 $ 69,449
===========================
Income taxes paid totaled $323,926, $449,000 and $1,983,000 in 1993, 1992
and 1991, respectively.
At January 31, 1994, the Company had a net operating loss carryforward for
tax purposes of $91,348,000 which will expire in the years ending January 31,
2005 through January 31, 2007 and an investment tax credit carryover of
$4,350,000 which will expire in the years ending January 31, 2002 through
January 31, 2005.
The Company's deferred tax liability at January 31, 1994 is comprised of
deferred liabilities of $173,132,000, deferred assets of $107,079,000 and a
valuation allowance related to state taxes and investment credits of
$3,396,000.
I. SEGMENT INFORMATION
Business segments are determined by the type of customer served or the product
sold. Rental properties include apartments, shopping centers, office
buildings and hotels. It also includes data relating to the management of
real estate. The Land Division develops and markets land to home builders and
commercial and industrial users principally in Arizona, Florida, Illinois,
Nevada, New York and Ohio. The Residential Development Division manages
syndicated partnerships and acquires selected completed real estate at
advantageous prices. In prior years, it also was involved heavily in the
construction of apartments, condominiums and similar residential buildings.
The Wholesale Lumber Division sells lumber products to retailers and also
sells building products to commercial contractors and builders. Corporate
includes capitalized interest on the Company's equity in development projects,
interest expense on borrowings for investment activities, development fee
income, miscellaneous development expenses and interest income on notes
receivable for properties previously syndicated, as well as general and
administrative expenses. The following tables summarize selected financial
data by business segment for the fiscal years ended January 31, 1994, 1993 and
1992.
- Sales and Operating Revenues (a) -------- Income Taxes --------
For the Years Ended January 31, 1994 1993 1992 1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------
(in thousands)
Rental properties $ 367,160 $ 353,743 $ 319,035 $ 119 $ (11,482) $ (22,659)
Land Division 46,238 36,877 24,864 5,405 3,186 (848)
Residential Development Division 2,504 5,121 22,306 1,284 1,160 5,421
Wholesale Lumber Division (b) 87,001 67,885 53,610 8,654 6,629 4,313
Gain on disposition of properties - - - 2,268 39,322 88
Provision for decline in real estate - - - - (9,438) (1,823)
Corporate - - - (11,194) (6,226) 9,556
----------------------------------------------------------------------
Consolidated $ 502,903 $ 463,626 $ 419,815 $ 6,536 $ 23,151 $ (5,952)
======================================================================
--------------------- Real Estate ----------------------
------ Depreciation ------
For the Years Ended --- Identifiable Assets at --- ----- Additions, net ---- ---- and Amortization ----
January 31, 1994 1993 1992 1994 1993 1992 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Rental properties
Completed $ 1,982,198 $ 1,975,580 $ 1,801,104 $ 55,582 $ 167,552 $ 278,118 $ 63,885 $ 57,875 $ 50,474
Under Construction 197,361 192,602 357,067 25,924 (128,584) (68,271) - - 29
Land Division 120,035 94,650 101,798 11,155 (8,990) 299 102 103 113
Residential Development
Division 38,064 35,166 40,326 38 - (9,032) 29 25 97
Wholesale Lumber
Division 198,617 204,005 149,439 1,126 860 (8) 1,124 1,075 1,032
Corporate (c) 131,782 123,401 106,527 271 (1,599) 103 169 194 234
---------------------------------------------------------------------------------------------------------
Consolidated $ 2,668,057 $ 2,625,404 $ 2,556,261 $ 94,096 $ 29,239 $ 201,209 $ 65,309 $ 59,272 $ 51,979
=========================================================================================================
(a) Interdivision sales are not significant except for sales of buildings by the Residential Development Division to Rental
Properties, which amounted to approximately $5,762,000 and $18,757,000 for the years ended January 31, 1993 and 1992,
respectively. These sales are at cost and are eliminated in consolidation.
(b) The Company recognizes the gross margin on lumber brokerage sales as revenue. Gross value of lumber sold for the years
ended January 31, 1994, 1993 and 1992 was approximately $2,447,800,000, $1,723,800,000 and $1,278,500,000, respectively.
(c) Corporate assets consist primarily of the investments in and advances to affiliates and capitalized interest on the
Company's equity in projects under development.
J. LEASES
THE COMPANY AS LESSOR
The following summarizes the minimum future rental income to be received on
noncancelable operating leases of commercial properties that generally extend
for periods of more than one year.
For the Years Ended January 31,
- - ------------------------------------------------------------------
(in thousands)
1995 $ 135,090
1996 129,794
1997 123,178
1998 117,208
1999 109,854
Later years 737,231
-----------
Total minimum future rentals $ 1,352,355
===========
Further, most of the commercial leases also include provisions for
additional rental income based on sales volume and increases in real estate
taxes and operating costs. Percentage rents and other charges amounted to
$3,282,000 and $70,641,000 in 1993, $3,754,000 and $72,719,000 in 1992 and
$4,374,000 and $72,672,000 in 1991.
THE COMPANY AS LESSEE
The Company and its subsidiaries are lessees under various leasing
arrangements for real property and equipment having terms expiring through
2019, excluding optional renewal periods. These leases are operating leases.
As part of the syndication of a mixed-use property in November 1985, the
Company leased back all of the facilities sold. The lease is a noncancelable
operating lease expiring in the year 2000.
Minimum fixed rental payments under long-term leases (over one year) in
effect at January 31, 1994 are as follows.
For the Years Ended January 31,
- - -------------------------------------------------------------
Syndicated All
Property Other
------------------------
(in thousands)
1995 $ 5,510 $ 5,060
1996 5,998 4,339
1997 6,677 3,700
1998 6,996 2,879
1999 7,318 1,752
Later years 15,162 2,557
-----------------------
Total minimum lease
payments $ 47,661 $ 20,287
=======================
Rent expense was $11,351,000, $12,061,000 and $11,626,000 for 1993, 1992 and
1991, respectively.
K. CONTINGENT LIABILITIES
As of January 31, 1994, the Company has guaranteed loans totaling $1,170,000
and has $17,121,000 in outstanding letters of credit.
The Company customarily guarantees lien-free completion of its
construction. Upon completion the guarantees are released.
The Company is also involved in certain claims and litigation related to
its operations. Based upon the facts known at this time, management is of the
opinion that the ultimate outcome of all such claims and litigation will not
have a material adverse effect on the financial condition of the Company.
L. SUMMARIZED FINANCIAL INFORMATION
Forest City Rental Properties Corporation ("Rental Properties") is a wholly-
owned subsidiary engaged in the development and management of real estate
projects, including regional malls and shopping centers, hotels, office and
mixed-use facilities and apartment complexes.
Condensed consolidated balance sheets and statements of earnings for Rental
Properties and its subsidiaries follows.
Forest City Rental Properties Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31, 1994 1993
- - -----------------------------------------------------------------------------
(in thousands)
Assets
Real Estate
Completed rental properties $ 2,101,528 $ 2,045,946
Projects under development 214,111 188,187
-----------------------------
2,315,639 2,234,133
Less accumulated depreciation (272,518) (232,905)
-----------------------------
Total Real Estate 2,043,121 2,001,228
Cash 6,217 31,546
Other assets 236,760 241,327
-----------------------------
$ 2,286,098 $ 2,274,101
=============================
Liabilities and Shareholder's Equity
Liabilities
Mortgage debt, nonrecourse $ 1,883,139 $ 1,831,906
Accounts payable and accrued expenses 122,077 147,969
Long-term debt 92,083 116,328
Other liabilities and deferred credits 121,856 110,135
-----------------------------
Total Liabilities 2,219,155 2,206,338
-----------------------------
Shareholder's Equity
Common stock and additional paid-in capital 5,378 5,378
Retained earnings 61,565 62,385
-----------------------------
Total Shareholder's Equity 66,943 67,763
-----------------------------
$ 2,286,098 $ 2,274,101
=============================
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1994 1993 1992
- - -----------------------------------------------------------------------------
(in thousands)
Sales and operating revenues $ 367,160 $ 353,743 $ 319,035
Interest and other income 8,247 5,192 21,176
--------------------------------------
Total revenues 375,407 358,935 340,211
Operating expenses 214,805 209,890 190,889
Interest expense 102,414 104,260 107,758
Provision for decline in real estate - 9,438 1,823
Depreciation and amortization 63,901 57,896 50,543
Gain on disposition of properties 2,268 39,322 88
--------------------------------------
Earnings (loss) before income taxes (3,445) 16,773 (10,714)
Income taxes (credit) (2,625) 5,804 (1,898)
--------------------------------------
Net earnings (loss) $ (820) $ 10,969 $ (8,816)
======================================
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
-- First -- - Second -- -- Third -- - Fourth --
-- Quarter -- -- Quarter -- -- Quarter -- -- Quarter --
Fiscal Year 1993 1992 1993 1992 1993 1992 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Sales and operating revenues $ 127,905 $ 108,456 $ 114,905 $ 108,547 $ 119,753 $ 113,277 $ 140,340 $ 133,346
Earnings (loss) before income taxes $ 2,866 $ (3,082) $ 1,360 $ (2,487) $ 1,684 $ (3,856) $ 626 $ 32,576
Net earnings (loss) (a) $ 1,323 $ (2,587) $ 179 $ (2,262) $ (590) $ (2,728) $ 1,300 $ 20,264
Earnings (loss) per common share (a) $ .15 $ (.29) $ .02 $ (.25) $ (.07) $ (.30) $ .15 $ 2.25
Dividends declared per common share (b) $ - $ - $ - $ - $ - $ - $ - $ -
Market price range of common stock
Class A
High $ 33 1/4 $ 20 3/4 $ 36 1/2 $ 20 1/8 $ 44 1/8 $ 18 3/4 $ 41 3/8 $ 27 1/4
Low $ 23 3/4 $ 17 1/4 $ 30 3/8 $ 17 5/8 $ 35 1/8 $ 16 5/8 $ 38 1/4 $ 16 1/2
Class B
High $ 33 1/2 $ 20 3/8 $ 36 5/8 $ 20 1/4 $ 44 1/8 $ 18 1/2 $ 43 1/2 $ 27
Low $ 23 3/4 $ 17 1/2 $ 30 3/4 $ 17 5/8 $ 36 1/4 $ 16 5/8 $ 38 1/2 $ 16 5/8
Both classes of common stock are traded on the American Stock Exchange
under the symbols, FCEA and FCEB. High and low prices shown are based upon
data provided by the Exchange.
As of March 1, 1994, the number of registered holders of Class A and Class
B common stock were 984 and 780, respectively.
[FN]
(a) In 1992, the Company recorded year-end adjustments during the fourth
quarter which decreased net earnings by approximately $843,000, or $.09
per share. These adjustments primarily related to depreciation
expense on properties recently placed in service and on which
additional construction occurred during 1992.
(b) No dividends were declared in either 1993 or 1992. Future dividends will
depend upon such factors as the earnings, capital requirements and
financial condition of the Company. Approximately $7,162,000 of
retained earnings were available for payment of dividends under the
restrictions contained in the six-year term loan agreement with a
group of banks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Earnings Before Depreciation and Deferred Taxes from Operations ("EBDT")
increased 5% in 1993 to $80,979,000 from $77,075,000 in 1992. EBDT consists
of net earnings before gain on disposition of properties and the provision for
decline in real estate plus noncash charges from real estate operations of
depreciation and amortization, deferred income taxes and accrued interest on
mortgage notes of a rental property that is not payable until future years.
During the fourth quarter of 1992, the Company sold the Galleria at South Bay
shopping center to a limited partnership in which the Company retained a 50%
interest. The tax implication of this transaction increased EBDT in 1992 by
approximately $23,000,000. There was no major sale in 1993.
EBDT for 1991 was $51,222,000.
Consolidated sales and operating revenues were $502,903,000. Consolidated
sales and operating revenues in 1993 exceeded 1992 revenues of $463,626,000 by
$39,277,000, an increase of 8.5%.
The net earnings from operations, including gain on disposition of
properties and the provision for the decline in real estate, was $2,212,000 in
1993 versus $12,687,000 in 1992 and a net loss of $6,188,000 in 1991. The
gain on disposition of properties and the provision for the decline in real
estate, net of tax, which varies from year to year and are not considered by
management to be a part of the on-going results of operations, were earnings
in 1993 and 1992 of $1,494,000 and $17,399,000, respectively, and a loss of
$1,105,000 in 1991.
INVESTMENT REAL ESTATE
FOREST CITY RENTAL PROPERTIES CORPORATION
OPERATIONS
The Company conducts the development and management of its real estate
portfolio through Forest City Rental Properties Corporation. Sales and
operating revenues were $367,160,000 in 1993 versus $353,743,000 in 1992.
Revenues in 1991 were $319,035,000. The increase in revenues is attributable
to a large number of buildings opened by the Company during the past few years
and their related lease-up. During the last five years, the Company has added
over $1,000,000,000 to its completed real estate portfolio. The growth in the
Company's completed real estate portfolio will not continue in the next few
years at the same pace as it has in the past few years. As a result, the
growth in revenues will decrease.
The net loss before gain on disposition of properties and the provision for
the decline in real estate for 1993 was $2,314,000 versus losses of $6,430,000
in 1992 and $7,711,000 in 1991. It is normal for new properties to have a
negative impact upon earnings due to the initial operating deficits and
additional depreciation and amortization expense. The loss in 1993 includes
approximately $64,000,000 in depreciation and amortization expense, an
increase of approximately $6,000,000 over that of 1992. Most of our newer
properties are now rented and management expects that the related earnings and
EBDT will continue to increase.
DISPOSITION OF PROPERTIES AND OTHER PROVISIONS
Gains on disposition of properties and the provision for decline in real
estate will vary from year to year, depending upon management's decisions
regarding the disposition of properties and the performance of the Company's
real estate portfolio. The Company does not write up assets for financial
statement purposes; however, we provide our shareholders with the current
value of our completed rental properties. During 1992, the Company sold the
Galleria at South Bay shopping center to a limited partnership in which the
Company retained a 50% interest, resulting in a pretax profit of approximately
$38,500,000. There were no major sales in either 1993 or 1991. The Company
continually evaluates the realization of the investment in its real
estate projects by reviewing their current operations and future projected
results. As a result of such analysis, the Company provided a provision for
the decline in real estate of $9,438,000 in 1992 and $1,823,000 in 1991.
LAND DIVISION
The sales of residential, commercial and industrial land were $46,238,000 in
1993 versus $36,877,000 in 1992 and $24,864,000 in 1991. The pretax earnings
were $5,405,000 in 1993 and $3,186,000 in 1992 versus a loss of $848,000 in
1991. The increase in profit in 1993 over 1992 resulted from an increase in
land sales in several of our large residential developments and the margin
earned on the sale of several commercial parcels. Sales of land and related
earnings vary from period to period, depending upon management's decisions
regarding the disposition of significant land holdings.
RESIDENTIAL DEVELOPMENT DIVISION
Revenues in 1993 totaled $2,504,000 versus $5,121,000 in 1992. Revenues in
1991 were $22,306,000. Pretax income was $1,284,000 in 1993, $1,160,000 in
1992 and $5,421,000 in 1991. The division completed the construction of its
major residential projects during 1991. In 1993 and 1992, the majority of its
efforts were directed toward acquiring completed real estate at favorable
prices for the Company's portfolio and continuing to oversee the operations of
properties syndicated in prior years. During 1991, the Company recognized
approximately $4,000,000 of deferred income related to syndicated operations
and charged off $3,300,000 to operating expense for an investment on which the
Company no longer intends to proceed.
WHOLESALE LUMBER DIVISION
Forest City Trading Group's revenues were a record $87,001,000 in 1993 versus
$67,885,000 in 1992 and $53,610,000 in 1991. Pretax earnings from this
division, including earnings from the Company's building materials business
which is accounted for on the equity method, were $8,654,000 in 1993, also a
record compared to earnings of $6,629,000 in 1992 and $4,313,000 in 1991. The
significant fluctuations in the lumber markets created market conditions which
allowed the Company to substantially increase its gross margins on trades,
resulting in a significant increase in profitability.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities totaled $48,455,000 in 1993 versus
$63,664,000 in 1992 and $29,782,000 in 1991. Net earnings from operations in
1993 improved by $5,430,000 over net earnings in 1992. Contributing to an
increase in funds generated from the results of operations in 1993 over 1992
was the continued improvement in profitability of the Company's lumber
brokerage subsidiary and a greater volume of land sales. The decrease in
notes and accounts receivable primarily resulted from the net proceeds of
$50,000,000 received under the Company's lumber brokerage subsidiary's
agreement to sell an undivided ownership interest in a pool of accounts
receivable. An increase in trading activity by the lumber brokerage
subsidiary resulted in an increase in inventories and construction contracts
in progress, partially offset by an increase in accounts payable and accrued
expenses. Other assets increased primarily due to the restricted funds
acquired by a new land development subsidiary, Granite Development, L.P., and
an increase in Rental Properties' unamortized mortgage and lease costs due to
the continuing lease-up of our completed real estate portfolio.
Net cash used in investing activities totaled $91,679,000 in 1993, versus
$62,645,000 and $220,795,000 in 1992 and 1991, respectively. The net cash
provided by financing activities in 1993 was $23,549,000, which was comparable
to 1992 of $22,517,000, but substantially lower than 1991 of $190,028,000.
The Company's net capital expenditures and related mortgage debt financing
decreased significantly in 1992 and 1993 as compared to 1991 due to less
development and construction activity, a condition that resulted from the
general lack of available financing for real estate projects. The Company
continued to amortize its corporate recourse debt and increased the
amortization of its mortgage debt. Payments on notes payable increased in
1993, primarily due to the Company's lumber brokerage subsidiary using the net
proceeds from their sale of accounts receivable to reduce the bank debt
outstanding.
During 1992, Forest City Rental Properties Corporation converted its
$105,000,000 revolving credit agreement with a group of banks into a six-year
term loan in accordance with the terms of the agreement. Quarterly principal
payments commenced October 1, 1992. The balance outstanding under this loan
at January 31, 1994 was $78,750,000. The Company also has a $15,000,000
short-term line of credit which is subject to renewal by May 31, 1994. There
were no borrowings outstanding under this line of credit at January 31, 1994.
Forest City Rental Properties Corporation also has a term loan that had a
balance outstanding of $12,500,000 at January 31, 1994 and that has required
quarterly payments of $1,250,000. During 1991, the Company borrowed
$10,000,000 from a shareholder. The balance outstanding in notes payable at
January 31, 1994 was $8,885,000.
The Company's mortgage debt, all of which is nonrecourse, totaled
$1,930,999,000 at January 31, 1994. During 1993, certain loans matured which
were either extended or refinanced and, just as we have been able to refinance
our debt that has matured in the past, we expect to either extend the maturity
date on our loans as they come due in 1994 or refinance the projects.
In July 1993, Forest City Trading Group, the Company's lumber brokerage
subsidiary, entered into a three-year agreement under which it is selling, an
undivided ownership interest in a pool of accounts receivable up to a maximum
of $60,000,000. An interest in additional accounts receivable is being sold
as collections reduce previously sold interests. At the same time, the
Company reduced its bank line of credit from $67,500,000 to $40,000,000. The
Company has the right to borrow an additional $10,000,000 for up to 90 days
between January 25, 1994 and May 31, 1994 under this bank line of credit.
During 1993, the Company received $50,000,000 as net proceeds from this
transaction. At January 31, 1994, $26,555,000 was outstanding under the bank
line of credit.
The sources of liquidity of the Company and its subsidiaries are unused
bank lines, cash flow from operations, refinancings of rental properties with
larger mortgages and sales of real estate. In addition, the large principal
payments we are making on our recourse debt provides the Company with the
potential to raise additional corporate debt on a recourse basis. The sources
of funds have been and, to a lesser extent, will continue to be used
principally for the development of additional real estate projects, the
acquisition of existing real estate and the repayment of recourse debt. Now
that the Company's development program has diminished and the properties are
completing their lease-up, we are experiencing a substantial increase in cash
flow from operations. This should have a positive impact upon the
Company's liquidity.
The Company has historically invested a significant amount of equity in its
projects during their development and construction phases. Forest City
generally mortgages the properties owned by Forest City Rental Properties on
an intermediate- to long-term nonrecourse basis with maturities ranging from 5
years and higher to the extent that funds are available on acceptable terms.
Rental Properties has financed most of its development and construction
projects with shorter- to intermediate-term bank loans bearing floating rates
of interest. We now have begun a program of securitizing our nonrecourse debt
on a longer-term basis.
The Company has a substantial amount of variable-rate debt which enables it
to benefit from historically low interest rates. In past years, the Company
has purchased interest rate protection on a portion of its debt to provide
protection against significant increases in interest rates. The Company has
elected to purchase interest rate protection on a substantial portion of its
debt through January 31, 1995. Increases in interest rates still could have a
negative impact upon the Company to the extent that it has variable-rate debt
that is not covered by interest rate protection. The Company will continue to
review the various components of its variable-rate debt structure and purchase
interest rate protection as it deems appropriate.
GENERAL
Forest City had both investment tax credits and substantial tax net operating
loss carryforward ("NOL") at the end of 1993. The Company projects that this
NOL will increase during 1994 due to its real estate operations. The
Company's policy is to utilize these NOL's before they expire and will
consider a variety of strategies to implement that policy. These NOL's
generally will not begin to expire before January 31, 2005.