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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, 1995
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, 1995 the aggregate market value of the voting stock held by non-
affiliates of the registrant amounted to $94,793,528 and $40,916,529 for
Class A and Class B common stock, respectively.
The number of shares of registrant's common stock outstanding on March 1, 1995
was 5,156,159 and 3,835,455 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, 1995 (1994 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 13, 1995 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, vertically integrated 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 has four major lines of business. The
Company's real estate is organized into three major product lines.
The Residential Group develops, leases and manages the Company's
residential properties. The Commercial Group owns, acquires, develops
and manages retail, office and urban entertainment projects. The Land
Group acquires and sells both raw land and develops lots to commercial,
industrial and residential users.
The Wholesale Lumber division is primarily a wholesale lumber trading
company.
The following material provides additional information about the
Company's principal operating groups.
I. Residential Group
The Residential Group develops, leases and manages our residential
properties. In addition to acquiring or developing new residential
assets for the Company, this division is responsible for increasing cash
flow and long-term value of the existing portfolio by deciding when to
refinance, optimizing our leasing strategy and determining the
appropriate level of capital expenditures.
II. Commercial Group
The Commercial Group owns, acquires, develops and manages retail, office
and urban entertainment projects throughout the United States.
Development activities focus on locating opportunities, structuring
deals as advantageously as possible, obtaining favorable financing,
supervising construction and handling the initial leasing of developed
properties. Management operations concentrate on increasing cash flow
and long-term value by leasing the properties, deciding when to
refinance and setting the appropriate level of capital expenditures.
We use our expertise and entrepreneurial skills to maximize the value of
our existing assets and to identify development opportunities with an
emphasis on major cities and changing demographics.
III. Land Group
The Land Group acquires and sells both raw land and developed lots to
commercial, industrial and residential users. The Group's efforts are
currently concentrated on major developments in Arizona, California,
Florida, Illinois, Nevada, New York and Ohio.
Competition in this segment is dominated by price, location and
availability of product.
IV. Wholesale Lumber Division
Lumber Brokerage--Forest City Trading Group, Inc., with fourteen
offices in the United States and two offices 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 3,068 employees as of January 31, 1995, of which 2,293
were full-time and 775 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 26 of the 1994 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 fourteen
administrative and sales offices and one manufacturing plant located in
eight states and two sales offices in Canada.
The "Forest City Rental Properties Corporation Portfolio of Real Estate,"
presented on pages 14 and 15 of the 1994 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. Currently, the parties have
reached an agreement in principle to settle this action, subject to
entering into a definitive agreement. Although the Company has reason to
believe that a definitive agreement will be consummated, there can be no
assurance of this.
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 13, 1995.
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 13, 1995.
Date
Name and Position(s) Held Appointed Age Family Relationship
Max Ratner
Founder Chairman of the Board, 6-08-93 87 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 67
Chief Executive Officer,
Director, Officer of various
subsidiary corporations.
Samuel H. Miller
Chairman of the Board, 6-08-93 73
Treasurer, Director, Officer
of various subsidiary
corporations.
Charles A. Ratner
President, Chief Operating 6-08-93 53
Officer, Director, Officer
of various subsidiary
corporations.
Nathan Shafran
Vice Chairman of the Board, 3-11-87 81
Director, Officer of various
subsidiary corporations.
James A. Ratner
Executive Vice President, 3-09-88 50
Director, Officer of various
subsidiary corporations.
Ronald A. Ratner
Executive Vice President, 3-09-88 48
Director, Officer of various
subsidiary corporations.
Thomas G. Smith
Senior Vice President, Chief 9-03-85 54
Financial Officer, Secretary,
Officer of various subsidiary
corporations.
William M. Warren
Senior Vice President and 5-16-72 66
General Counsel.
D. Layton McCown
Vice President-Corporate 8-17-86 46
Controller.
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 29 of the 1994 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 16 of the 1994 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 30 and 31 of the 1994 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 17 through 29 of the 1994 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,
1995 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, if any, 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, 1995 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,
1995 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 1994 Annual Report to Shareholders
are incorporated by reference in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets - January 31, 1995 and
January 31, 1994
Consolidated Statements of Earnings for the three years
ended January 31, 1995
Consolidated Statements of Shareholders' Equity for the three
years ended January 31, 1995
Consolidated Statements of Cash Flows for the three years ended
January 31, 1995
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, 1995: Page No.
Schedule II - Valuation and Qualifying Accounts IV-4
At January 31, 1995 with reconciliations for
the three years ended January 31, 1995:
Schedule III - Real Estate and Accumulated
Depreciation IV-5 & 6
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, 1995, 1994 and 1993 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 25, 1994, among Forest
City Rental Properties Corporation, the banks named
therein and Society National Bank, as agent, was filed
with Form 10-Q for the quarter ended July 31, 1994 and is
incorporated herein by reference.
No. 10.2 - Guaranty of Payment of Debt, dated as of July 25, 1994,
between Forest City Enterprises, Inc. and the banks named
therein was filed with Form 10-Q for the quarter ended
July 31, 1994 and is incorporated herein by reference.
No. 13 - 1994 Annual Report to Shareholders
Page No.
No. 22 - Subsidiaries of the Registrant IV-7
(Parents and Subsidiaries)
(b) Reports on Form 8-K filed during the three months ended
January 31, 1995:
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 17 of the 1994 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 L.L.P.
Cleveland, Ohio
March 10, 1995
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II - 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, 1995 $5,322 $1,320 $2,434(A) $4,208
====== ====== ====== ======
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
====== ====== ====== ======
(A) Uncollectible accounts written off.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Range of lives
Gross amount at which (in yrs) on
--Initial cost-- -Cost capitalized carried at close of Acc. which depr. in
Amount of ---to Company--- ----subsequent--- January 31, 1995 depr. at latest income
encumbrance Buildings --to acquisition- Buildings Jan. 31, statement
Description at Jan. 31, and Carrying and Total 1995 Date of Date is computed
of Property 1995 Land imprvmnts. Imprvmnts. costs Land imprvmnts. AB (C) construc. acquired Bldg. Improv.
(in thousands)
Apartments:
Misc.
invest. $452,255 $ 45,996 $ 459,277 $ 10,139 $ 28,019 $ 65,256 $ 478,175 $ 543,431 $ 84,186 Various - Various Various
Shopping Centers:
Cleveland,
Ohio 64,917 - 143,287 6,198 - - 149,485 149,485 14,748 1988-1990 - 50 50
Misc.
invest. 499,323 33,218 335,549 105,578 34,303 47,589 461,059 508,648 92,441 Various - Various Various
Office Buildings:
New York,
New York 133,250 - 133,277 1,942 - - 135,219 135,219 7,332 1989-1991 - 50 -
Misc.
invest. 512,675 15,295 482,251 120,288 43,383 15,399 645,818 661,217 96,353 Various - Various Various
Leasehold improvements
and other equipment:
Misc.
invest. - - 13,168 - - - 13,168 13,168 7,952 - Various Various Various
Under Construction:
Misc.
invest. 47,871 87,111 143,691 - - 87,111 143,691 230,802 -
Undeveloped Land:
Misc.
invest. 58,979 80,166 - - - 80,166 - 80,166 -
---------- -------- ---------- -------- -------- -------- ---------- ---------- --------
Total $1,769,270 $261,786 $1,710,500 $244,145 $105,705 $295,521 $2,026,615 $2,322,136 $303,012
========== ======== ========== ======== ======== ======== ========== ========== ========
(A) The aggregate cost at January 31, 1995 for federal income tax purposes was $2,173,488.
(B) Reconciliations of total real estate carrying value are as follows:
For the Years Ended January 31,
1995 1994 1993
(in thousands)
Balance at beginning of period $2,405,066 $2,310,970 $2,281,731
Additions during period -
Improvements 134,557 127,035 111,083
Other acquisitions 32,811 5,198 -
---------- ---------- ----------
167,365 132,233 111,083
---------- ---------- ----------
Deductions during period -
Cost of real estate sold (250,298) (38,137) (81,844)
---------- ---------- ----------
Balance at end of period $2,322,136 $2,405,066 $2,310,970
========== ========== ==========
(C) Reconciliations of accumulated depreciation are as follows:
For the Years Ended January 31,
1995 1994 1993
(in thousands)
Balance at beginning of period $ 282,313 $ 243,019 $ 204,212
Additions during period -
Charged to profit or loss 49,869 48,840 44,410
Deductions during period -
Retirement and sales (29,170) (9,546) (5,603)
---------- ---------- ----------
Balance at end of period $ 303,012 $ 282,313 $ 243,019
========== ========== ==========
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: 4/28/95 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 4/28/95
(Max Ratner) (Date)
Vice Chairman of the Board and Director
/s/ Albert B. Ratner (Principal Executive Officer) 4/28/95
(Albert B. Ratner) (Date)
Chairman of the Board, Treasurer
/s/ Samuel H. Miller and Director 4/28/95
(Samuel H. Miller) (Date)
President, Chief Operating Officer
/s/ Charles A. Ratner and Director 4/28/95
(Charles A. Ratner) (Date)
Senior Vice President, Chief
Financial Officer and Secretary
/s/ Thomas G. Smith (Principal Financial Officer) 4/28/95
(Thomas G. Smith) (Date)
Vice President and Corporate Controller
/s/ D. Layton McCown (Principal Accounting Officer) 4/28/95
(D. Layton McCown) (Date)
/s/ Nathan Shafran Vice Chairman of the Board and Director 4/28/95
(Nathan Shafran) (Date)
/s/ James A. Ratner Executive Vice President and Director 4/28/95
(James A. Ratner) (Date)
/s/ Ronald A. Ratner Executive Vice President and Director 4/28/95
(Ronald A. Ratner) (Date)
/s/ Scott S. Cowen Director 4/28/95
(Scott S. Cowen) (Date)
The registrant plans to furnish security holders a copy of the Annual
Report and Proxy material by May 5, 1995.
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 1994 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
Forest City Rental Properties Corporation 100 (a) Ohio
Campus Condos, Inc. 100 (a) California
Center Courtland, Inc. 100 (a) Ohio
F.C. Irvine, Inc. 100 (a) California
F.C. Laurel, Inc. 100 (a) California
F.C. Parklabrea Residential-A, Inc. 100 (a) Delaware
F.C. Parklabrea Residential-B, Inc. 100 (a) Delaware
F.C. Parklabrea Residential-C, Inc. 100 (a) Delaware
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 City 38 Sidney Street, Inc. 100 (a) Ohio
Forest City B.U.G. Building, Inc. 100 (a) New York
Forest City Cambridge, Inc. 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 Finance Corporation 100 (a) Ohio
Forest City Franklin Town Corp. 100 (a) Ohio
Forest City Fulton Street Building, Inc. 100 (a) New York
Forest City Investment Partners Millender, Inc. 100 (a) Ohio
Forest City Rental Properties Corporation
of Nevada, Inc. 100 (a) Nevada
Forest City S.I.A.C. Building, Inc. 100 (a) New York
Forest City Southpark Two, Inc. 100 (a) California
Parklabrea Finance Corp. 100 (a) Delaware
Terminal Investments, Inc. 100 (a) Ohio
Tower City Land Corporation 100 (a) Ohio
Tower City Retail, Inc. 100 (a) Ohio
Forest City Residential Development, Inc. 100 (a) Ohio
Forest City Trading Group, Inc. 100 (a) Oregon
Sunrise Development Co. 100 (a) Ohio
Sunrise Land Co. 100 (a) Ohio
FC-Granite, Inc. 100 (a) Ohio
(a) Subsidiaries included in consolidated financial statements.
SELECTED FINANCIAL DATA
For the Years Ended January 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
OPERATING RESULTS
Sales and operating revenues $ 499,635 $ 502,903 $ 463,626 $ 419,815 $ 381,955
==============================================================
Net earnings (loss)
Operating earnings (loss), net of tax (1) $ 6,774 $ 718 $ (4,712) $ (5,083) $ (9,834)
Gain (loss) on disposition of properties and
other provisions, net of tax (2) (25,307) 1,494 17,399 (1,105) 12,986
--------------------------------------------------------------
$ (18,533) $ 2,212 $ 12,687 $ (6,188) $ 3,152
==============================================================
Earnings before depreciation and deferred taxes
Operating earnings (loss), net of tax (1) $ 6,774 $ 718 $ (4,712) $ (5,083) $ (9,834)
Adjustments related to real estate operations (3)
Depreciation and amortization 63,956 63,901 57,896 50,543 39,224
Deferred income taxes 10,532 10,865 19,021 1,789 13,761
Accrued interest of a rental property not paid - 5,495 4,870 3,973 3,293
--------------------------------------------------------------
Real estate adjustments 74,488 80,261 81,787 56,305 56,278
--------------------------------------------------------------
$ 81,262 $ 80,979 $ 77,075 $ 51,222 $ 46,444
==============================================================
Per common share
Net earnings (loss) (4) $ (2.06) $ .25 $ 1.41 $ (.69) $ .35
==============================================================
Dividends declared
Class A $ .20 $ - $ - $ - $ .46
Class B $ .20 $ - $ - $ - $ .40
January 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
FINANCIAL POSITION
Consolidated assets $2,584,734 $2,668,057 $2,625,404 $2,556,261 $2,350,343
Real estate portfolio, at cost $2,322,136 $2,405,066 $2,310,970 $2,281,731 $2,080,522
Long-term debt, including mortgage debt $1,881,917 $2,026,451 $1,972,160 $1,980,985 $1,807,683
FOREST CITY RENTAL PROPERTIES CORPORATION - REAL ESTATE ACTIVITY
Total real estate - end of year
Completed rental properties, before depreciation $1,995,629 $2,101,528 $2,045,946 $1,878,394 $1,600,276
Projects under development 230,802 214,111 188,187 316,771 385,042
--------------------------------------------------------------
2,226,431 2,315,639 2,234,133 2,195,165 1,985,318
Accumulated depreciation (293,465) (272,518) (232,905) (193,683) (160,616)
--------------------------------------------------------------
Rental properties, net of depreciation $1,932,966 $2,043,121 $2,001,228 $2,001,482 $1,824,702
==============================================================
Activity during the year
Completed rental properties
Additions $ 77,265 $ 50,384 $ 200,440 $ 279,319 $ 462,796
Purchased 32,811 5,198 - - 28,143
Sold (215,975) - (32,888) (1,201) (36,254)
--------------------------------------------------------------
(105,899) 55,582 167,552 278,118 454,685
--------------------------------------------------------------
Projects under development
New development 49,585 54,317 39,045 199,346 387,582
Transferred to completed rental properties (32,894) (28,393) (167,629) (267,617) (453,751)
--------------------------------------------------------------
16,691 25,924 (128,584) (68,271) (66,169)
--------------------------------------------------------------
Increase (decrease) in rental properties, at cost $ (89,208) $ 81,506 $ 38,968 $ 209,847 $ 388,516
==============================================================
(1) Represents operating earnings (loss), excluding the gain (loss) on disposition of properties and the provision for
decline in real estate. Also excludes extraordinary gain in fiscal 1994 of $60,449,000.
(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.
(4) Excludes the extraordinary gain in fiscal 1994 of $60,449,000.
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 as of January 31, 1995 and 1994, and the related
consolidated statements of earnings, shareholders' equity, and cash flows
for each of the three years in the period ended January 31, 1995. 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 as of January 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 10, 1995
CONSOLIDATED BALANCE SHEETS
January 31, 1995 1994
- ------------------------------------------------------------------------------------
(dollars in thousands)
ASSETS
Real Estate
Completed rental properties $2,011,168 $2,116,557
Projects under development 230,802 214,111
Land held for development or sale 80,166 74,398
-------------------------
2,322,136 2,405,066
Less accumulated depreciation (303,012) (282,313)
-------------------------
Total Real Estate 2,019,124 2,122,753
Cash 46,478 21,798
Notes and accounts receivable, net 197,602 198,549
Inventories and construction contracts in progress 38,949 63,220
Investments in and advances to affiliates 139,318 113,351
Other assets 143,263 148,386
-------------------------
$2,584,734 $2,668,057
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $1,769,270 $1,930,999
Accounts payable and accrued expenses 375,350 361,023
Notes payable 22,340 39,183
Long-term debt 112,647 95,452
Deferred income taxes 93,650 69,449
Deferred profit 25,917 26,509
-------------------------
Total Liabilities 2,399,174 2,522,615
-------------------------
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
shares outstanding 1,715 1,715
Class B, convertible, 6,000,000 shares authorized;
3,845,388 shares outstanding 1,282 1,282
-------------------------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 137,052 96,934
-------------------------
Total Shareholders' Equity 185,560 145,442
-------------------------
$2,584,734 $2,668,057
=========================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Sales and operating revenues $499,635 $502,903 $463,626
Interest and other income 22,973 16,476 10,843
--------------------------------------
522,608 519,379 474,469
--------------------------------------
Operating expenses 323,736 338,308 310,621
Interest expense 116,821 111,494 111,309
Provision for decline in real estate 10,133 - 9,438
Depreciation and amortization 65,580 65,309 59,272
--------------------------------------
516,270 515,111 490,640
--------------------------------------
Gain (loss) on disposition of properties (30,835) 2,268 39,322
--------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (24,497) 6,536 23,151
--------------------------------------
INCOME TAXES
Current 6,057 710 1,655
Deferred (12,021) 3,614 8,809
--------------------------------------
(5,964) 4,324 10,464
--------------------------------------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN (18,533) 2,212 12,687
Extraordinary gain, net of tax 60,449 - -
--------------------------------------
NET EARNINGS $ 41,916 $ 2,212 $ 12,687
======================================
NET EARNINGS PER SHARE
Earnings (loss) before extraordinary gain, net of tax $ (2.06) $ .25 $ 1.41
Extraordinary gain, net of tax 6.72 - -
--------------------------------------
NET EARNINGS PER SHARE $ 4.66 $ .25 $ 1.41
======================================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
-------------------------------
Class A Class B Additional
------------------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
BALANCES AT JANUARY 31, 1992 5,128 $1,709 3,864 $1,288 $45,511 $ 82,035
Net earnings 2,687
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
Net earnings 41,916
Dividends -- Class A and B - $.20 per share (1,798)
----------------------------------------------------
BALANCES AT JANUARY 31, 1995 5,146 $1,715 3,846 $1,282 $45,511 $137,052
====================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES
Net earnings $ 41,916 $ 2,212 $ 12,687
Depreciation and amortization 65,580 65,309 59,272
Deferred income taxes 24,201 3,614 8,809
Accrued interest of a rental property not
payable until future years - 5,495 4,870
(Gain) loss on disposition of properties 30,835 (2,268) (39,322)
Provision for decline in real estate 10,133 - 9,438
Extraordinary gain (90,823) - -
(Increase) decrease in land held for development
or sale (5,768) (11,147) 8,992
(Increase) decrease in notes and accounts receivable 947 48,993 (42,353)
(Increase) decrease in inventories and construction
contracts in progress 24,271 (20,397) (7,311)
Increase in accounts payable and accrued expenses 37,403 4,263 54,830
Increase (decrease) in deferred profit (592) 3,929 2,593
(Increase) in other assets (10,588) (45,655) (13,664)
--------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 127,515 54,348 58,841
--------------------------------------
INVESTING ACTIVITIES
Capital expenditures (121,602) (92,495) (76,318)
Proceeds from disposition of properties 15,264 1,859 25,205
Investments in and advances to affiliates (25,967) (6,946) (6,709)
--------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (132,305) (97,582) (57,822)
--------------------------------------
FINANCING ACTIVITIES
Increase in mortgage and long-term debt 99,894 111,256 61,479
Payments on long-term debt (17,555) (25,719) (14,153)
Principal payments on mortgage debt on real estate (34,228) (36,741) (23,858)
Increase in notes payable 434 1,332 13,775
Payments on notes payable (17,277) (26,579) (14,726)
Dividends paid to shareholders (1,798) - -
--------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 29,470 23,549 22,517
--------------------------------------
NET INCREASE (DECREASE) IN CASH 24,680 (19,685) 23,536
CASH AT BEGINNING OF YEAR 21,798 41,483 17,947
--------------------------------------
CASH AT END OF YEAR $ 46,478 $ 21,798 $ 41,483
======================================
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 1994, 1993 and 1992 refer to the fiscal years ended January 31,
1995, 1994 and 1993, 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 $2,486,000 at January 31, 1995.
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 1994 through 1992 were approximately
$2,697,500,000, $2,447,800,000 and $1,723,800,000, 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 20 to 50 years, leasehold 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
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
1994, 1993 and 1992.
B. REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION AND INDEBTEDNESS
The components of real estate cost and the related nonrecourse mortgage indebtedness are presented below.
January 31, 1995
-----------------------------------------------
Total Accumulated Net Amount of
Classification Cost Depreciation Cost Indebtedness
- ------------------------------------------------------------------------------------------------
(in thousands)
Completed rental properties
Shopping centers $ 658,133 $107,189 $ 550,944 $ 564,240
Apartments 543,431 84,186 459,245 452,255
Office and other buildings 796,436 103,685 692,751 645,925
Corporate and other equipment 13,168 7,952 5,216 -
-----------------------------------------------
2,011,168 303,012 1,708,156 1,662,420
-----------------------------------------------
Projects under development 230,802 - 230,802 47,871
Land held for development or sale 80,166 - 80,166 58,979
-----------------------------------------------
$2,322,136 $303,012 $2,019,124 $1,769,270
===============================================
C. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable are summarized below.
January 31, 1995 1994
- ------------------------------------------------------------------------
(in thousands)
Lumber brokerage $124,318 $122,235
Real estate sales 17,840 16,915
Syndication activities 29,620 30,001
Receivables from tenants 13,164 16,758
Construction contracts 184 407
Other receivables 16,684 17,555
---------------------
201,810 203,871
Allowance for doubtful accounts (4,208) (5,322)
---------------------
$197,602 $198,549
=====================
Notes receivable at January 31, 1995 of $42,919,000, primarily reflected
above in real estate sales and syndication activities, are collectible
primarily over 5 years, with $11,985,000 being due within one year. The
weighted average interest rate at January 31, 1995 was 10.1%.
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
$90,000,000. At January 31, 1995 and 1994, the Company had received
$25,000,000 and $50,000,000, respectively, as net proceeds from this
transaction. An interest in additional accounts receivable may be sold as
collections reduce previously sold interests.
D. INVENTORIES AND CONSTRUCTION CONTRACTS IN PROGRESS
The detail of the balances are as follows.
January 31, 1995 1994
- --------------------------------------------------------------------
(in thousands)
Lumber brokerage $37,818 $62,818
Other 1,131 402
-------------------
$38,949 $63,220
===================
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, 1995 and
1994 are book overdrafts of approximately $54,970,000 and $60,434,000,
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, 1995 1994
- --------------------------------------------------------------------
(in thousands)
Payable To
Banks $11,914 $26,555
Other 10,426 12,628
-------------------
$22,340 $39,183
===================
The Company has a bank line of credit of $40,000,000. The Company has the
right to borrow an additional $10,000,000 for up to 90 days through May 31,
1995 under this bank line of credit. Borrowings under this bank line of credit
are collateralized by all the assets of the Company's lumber brokerage
subsidiary and bear 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 bank
line of credit is subject to review and extension annually on May 31.
At January 31, 1995, there was $11,914,000 outstanding under the bank line of
credit. The weighted average interest rate was 9.1% and 6.6% at January 31,
1995 and 1994, respectively.
In June 1991, the Company borrowed $10,000,000 from a shareholder, the
Ratner, Miller and Shafran families, pursuant to a nonrecourse loan and
security agreement. The loan is collateralized by selected real estate assets
of the Company and a 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 December 31, 1995, loan principal payments are due from proceeds
from sales or financing of the selected properties and collections on the note
receivable. At January 31, 1995, $8,623,000 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, 1995 1994
- ---------------------------------------------------------------------------
(in thousands)
Fixed interest
rates ranging from 1.5% to 14% $ 695,144 $ 778,998
Variable interest
rates ranging from 2.9% to 11.3% 1,034,786 1,112,297
Commercial paper
having a weighted average
interest rate of 6.2% 39,340 39,704
-------------------------
$1,769,270 $1,930,999
=========================
The debt related to projects under development at January 31, 1995 totals
$47,869,000, out of a total commitment from lenders of $102,341,000. Of this
outstanding debt, $34,344,000 is variable-rate debt and $13,525,000 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.
The Company has purchased the following interest rate caps for $3,871,000
on its variable-rate debt at January 31, 1995.
Original Cap Principal
Base Rate Cap Rate Maturity Outstanding
--------- -------- ---------------- -----------
(in thousands)
LIBOR 3.50% July 10, 1995 $ 23,238
LIBOR 6.25% July 31, 1995 $677,962
LIBOR 7.00% July 31, 1995 $160,739
LIBOR 8.00% February 1, 1996 $880,955
LIBOR 6.85% May 1, 2000 $ 24,560
The only known risk to the Company through its interest-rate hedging
strategy is the potential inability of the financial institution from which
the interest-rate protection was purchased to cover all of its losses.
To mitigate this exposure, the Company purchases its interest-rate protection
from either the institution that holds the debt or from institutions with a
minimum A credit rating.
The cost of interest-rate protection is capitalized in other assets in the
consolidated balance sheets and amortized over the period benefited as
interest expense in the consolidated statements of earnings.
Included in the fixed-rate debt above is $54,564,000 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 underdeveloped 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 had a nonrecourse mortgage on which a portion of the interest
expense was accrued currently but was not payable until future years when
certain requirements were satisfied. These requirements generally related to
a specified level of cash flow or the sale or refinancing of the property.
Interest accrued but not paid was $5,495,000 and $4,870,000 in 1993 and 1992,
respectively. See Note N for further discussion.
Annual maturities of the mortgage debt for the next five years ending
January 31 are as follows: 1996, $242,996,000; 1997, $175,311,000;
1998, $393,700,000; 1999, $175,659,000; and 2000, $129,261,000.
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, 1995 1994
- ---------------------------------------------------------------------------------
(in thousands)
Seven-year term loan $ 65,000 $ -
Revolving credit agreement 44,000 -
Six-year and seven-year term loans - 91,250
Other debt 3,647 4,202
--------------------
$112,647 $95,452
====================
During 1994, the Company replaced its six-year term loan, its $15,000,000
short-term line of credit and its seven-year term loan with a seven-year,
$70,000,000 term loan and a three-year, $70,000,000 revolving credit
agreement. Quarterly principal payments of $2,500,000 on the seven-year term
loan commenced October 1, 1994. The revolving credit agreement allows for up
to $20,000,000 in outstanding letters of credit, which shall reduce the
revolving credit portion available to the Company. At its maturity, the
revolving credit agreement may be renewed annually or converted to a
seven-year term loan by the Company. The seven-year term loan and revolving
credit agreement provide, among other things, for 1) interest rates ranging
from 1/4% to 3/4% over the prime rate or 2% to 2-1/2% over the London Interbank
Offered Rate ("LIBOR"); 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, 1995, approximately $3,202,000 of retained earnings were
available for payment of dividends.
Interest rates on the other debt ranged primarily from 6.0% to 10.4% at
January 31, 1995.
Maturities of other debt for the next five years ending January 31 are as
follows: 1996, $324,000; 1997, $378,000; 1998, $338,000; 1999, $214,000;
and 2000, $2,267,000.
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 and interest rate caps 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 $123,871,000 in
1994, $117,826,000 in 1993 and $126,755,000 in 1992, of which $7,049,000,
$6,332,000 and $15,446,000 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 $118,573,000, $103,311,000 and
$106,120,000 for 1994, 1993 and 1992, respectively. As described in further
detail in Note N, $140,000,000 in nonrecourse mortgage debt and other
liabilities was assumed by the purchaser of Park Labrea Towers. 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 provision (benefit) for income taxes consists of the following components.
For the Years Ended January 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(in thousands)
Current
Federal $ 4,827 $ 376 $ 716
State 1,230 334 939
-------------------------------
6,057 710 1,655
-------------------------------
Deferred
Federal (9,945) 2,985 6,383
State (2,076) 629 2,426
-------------------------------
(12,021) 3,614 8,809
-------------------------------
Total provision (benefit) $ (5,964) $4,324 $10,464
===============================
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 1994 and 1993 and 34% for 1992 due to the following items.
For the Years Ended January 31, 1995 1994 1993
- ----------------------------------------------------------------------------------
(in thousands)
Financial earnings (loss) before income taxes $(24,497) $ 6,536 $23,151
=================================
Income taxes computed at the statutory rate $ (8,574) $ 2,288 $ 7,871
Increase (decrease) in tax resulting from:
Minimum tax (refund) and audit adjustments - (2,559) -
Valuation allowance 102 1,362 -
Rate difference for change in tax law - 1,658 -
Losses without tax benefits 2,067 - -
State taxes, net of federal benefit (839) 556 2,221
Adjustment of prior estimated taxes 589 771 -
Contribution carryover 494 477 333
Other items 197 (229) 39
---------------------------------
Total provision $ (5,964) $ 4,324 $10,464
=================================
An analysis of the deferred tax provision is as follows.
For the Years Ended January 31, 1995 1994 1993
- ----------------------------------------------------------------------------------
(in thousands)
Excess of tax over statement depreciation
and amortization $ 8,046 $ 9,976 $ 9,736
Allowance for doubtful accounts deducted
for statement purposes (464) (476) 563
Costs on land and rental properties under
development expensed for tax 366 309 2,704
Revenues and expenses recognized in
different periods for tax and statement (16,621) (8,793) (10,800)
Development fees deferred for statement (400) (701) -
Provision for decline in real estate (3,547) - (1,056)
Deferred state taxes, net of federal benefit 757 564 1,066
Interest on construction advances deferred
for statement 1,609 1,721 2,441
Benefits of tax loss carry-forward
recognized against deferred taxes (1,869) (1,021) 4,155
Audit adjustments - (985) -
Rate difference per change in tax law - 1,658 -
Valuation allowance 102 1,362 -
---------------------------------
Deferred provision $(12,021) $ 3,614 $ 8,809
=================================
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 $197,926 $ 78,280
Capitalized costs 148,277 58,644
Net operating losses (82,626) (32,679)
Investment tax credits - (4,476)
Other (32,109) (6,119)
---------------------
$231,468 $ 93,650
=====================
Income taxes paid totaled $3,244,000, $324,000 and $449,000 in 1994, 1993
and 1992, respectively.
At January 31, 1995, the Company had a net operating loss carryforward for
tax purposes of $82,626,000 which will expire in the years ending January 31,
2005 through January 31, 2010 and an investment tax credit carryover of
$4,476,000 which will expire in the years ending January 31, 2002 through
January 31, 2005.
The Company's deferred tax liability at January 31, 1995 is comprised of
deferred liabilities of $196,075,000, deferred assets of $105,923,000 and a
valuation allowance related to state taxes and investment credits
of $3,498,000.
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, California, Florida,
Illinois, Nevada, New York and Ohio. The Residential Development Division
manages syndicated partnerships and acquires selected completed real estate at
advantageous prices. The Wholesale Lumber Division sells lumber and building
products to retailers, commercial contractors and homebuilders. 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, 1995, 1994
and 1993.
Earnings (Loss) Before
Sales and Operating Revenues (a) Income Taxes
---------------------------------- ----------------------------------
For the Years Ended January 31, 1995 1994 1993 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
(in thousands)
Rental Properties $373,080 $367,160 $353,743 $ 9,601 $ 119 $(11,482)
Land Division 46,427 46,238 36,877 3,290 5,405 3,186
Residential Development Division 2,072 2,504 5,121 3,796 1,284 1,160
Wholesale Lumber Division (b) 78,056 87,001 67,885 4,906 8,654 6,629
Gain on disposition of properties - - - (30,835) 2,268 39,322
Provision for decline in real estate - - - (10,133) - (9,438)
Corporate - - - (5,122) (11,194) (6,226)
-------------------------------------------------------------------------
Consolidated $499,635 $502,903 $463,626 $(24,497) $ 6,536 $ 23,151
=========================================================================
Real Estate
--------------------------------------------------------
Depreciation
Identifiable Assets at Additions, net and Amortization
---------------------------------- ----------------------------- -------------------------
For the Years Ended January 31, 1995 1994 1993 1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Rental Properties
Completed $1,858,126 $1,982,198 $1,975,580 $(105,899) $55,582 $167,552 $63,956 $63,885 $57,875
Under development 240,202 197,361 192,602 16,691 25,924 (128,584) - - -
Land Division 126,680 120,035 94,650 5,791 11,155 (8,990) 90 102 103
Residential Development Division 55,795 38,064 35,166 7 38 - 22 29 25
Wholesale Lumber Division 175,107 198,617 204,005 542 1,126 860 1,377 1,124 1,075
Corporate (c) 128,824 131,782 123,401 (62) 271 (1,599) 135 169 194
--------------------------------------------------------------------------------------------
Consolidated $2,584,734 $2,668,057 $2,625,404 $ (82,930) $94,096 $ 29,239 $65,580 $65,309 $59,272
============================================================================================
(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 for the year ended January 31, 1993. 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, 1995, 1994 and 1993 was approximately $2,697,500,000, $2,447,800,000 and $1,723,800,000, 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)
1996 $ 138,040
1997 132,704
1998 125,670
1999 119,930
2000 110,326
Later years 653,798
----------
Total minimum future rentals $1,280,468
==========
Further, most of the commercial leases also include provisions for
additional rental income based on sales volume and other charges including
real estate taxes and operating costs. Percentage rents and other charges
amounted to $3,419,000 and $83,881,000 in 1994, $3,282,000 and $70,641,000
in 1993 and $3,754,000 and $72,719,000 in 1992.
THE COMPANY AS LESSEE
The Company is a lessee under various leasing arrangements for real property
and equipment having terms expiring through 2019, excluding optional renewal
periods. These leases are operating leases.
Minimum fixed rental payments under long-term leases (over one year) in
effect at January 31, 1995 are as follows.
For the Years Ended January 31,
- --------------------------------------------------------
(in thousands)
1996 $ 4,774
1997 4,302
1998 3,669
1999 3,091
2000 2,478
Later years 14,511
-------
Total minimum lease payments $32,825
=======
Rent expense was $5,110,000, $11,351,000 and $12,061,000 for 1994, 1993
and 1992, respectively.
K. CONTINGENT LIABILITIES
As of January 31, 1995 the Company has guaranteed loans totaling $1,236,000
and has $11,158,000 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 materially adverse effect on the financial condition of the Company.
L. STOCK OPTION PLAN
During 1994, the Board of Directors of the Company and the stockholders
approved the 1994 Stock Option Plan ("Plan"). Shares may be awarded under the
Plan to key employees in the form of either incentive stock options or
nonqualified stock options. The aggregate number of shares that may be awarded
during the term of the Plan is 250,000 shares, subject to adjustments under
the Plan. The maximum number of shares that may be awarded to any employee
during any calendar year is 25,000 shares. The exercise price of all
nonqualified and incentive stock options shall be at least equal to the fair
market value of a share on the date the option is granted unless the grantee
constructively owns more than ten percent of the total combined voting power
of all classes of stock of the Company, in which case the exercise price of
each nonqualified stock option shall not be less than 110% of the fair market
value of a share on the date the incentive stock option award is granted. The
Plan is administered by the Compensation Committee of the Board of Directors.
No options have been granted under the Plan at January 31, 1995.
M. 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.
CONSOLIDATED BALANCE SHEETS
January 31, 1995 1994
- --------------------------------------------------------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties $1,995,629 $2,101,528
Projects under development 230,802 214,111
-------------------------
2,226,431 2,315,639
Less accumulated depreciation (293,465) (272,518)
-------------------------
Total Real Estate 1,932,966 2,043,121
Cash 8,333 6,217
Other assets 260,949 236,760
-------------------------
$2,202,248 $2,286,098
=========================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse $1,710,291 $1,883,139
Accounts payable and accrued expenses 144,304 122,077
Long-term debt 109,084 92,083
Other liabilities and deferred credits 131,838 121,856
-------------------------
Total Liabilities 2,095,517 2,219,155
-------------------------
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital 5,378 5,378
Retained earnings 101,353 61,565
-------------------------
Total Shareholder's Equity 106,731 66,943
-------------------------
$2,202,248 $2,286,098
=========================
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1995 1994 1993
- -----------------------------------------------------------------------------------
(in thousands)
Sales and operating revenues $373,080 $367,160 $353,743
Interest and other income 13,778 8,247 5,192
----------------------------------
Total revenues 386,858 375,407 358,935
----------------------------------
Operating expenses 205,707 214,805 209,890
Interest expense 104,836 102,414 104,260
Provision for decline in real estate 10,133 - 9,438
Depreciation and amortization 63,956 63,901 57,896
----------------------------------
384,632 381,120 381,484
----------------------------------
Gain (loss) on disposition of properties (30,835) 2,268 39,322
----------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (28,609) (3,445) 16,773
INCOME TAXES (7,948) (2,625) 5,804
----------------------------------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN (20,661) (820) 10,969
EXTRAORDINARY GAIN, NET OF TAX 60,449 - -
----------------------------------
NET EARNINGS (LOSS) $ 39,788 $ (820) $ 10,969
==================================
N. LOSS ON SALE AND EXTRAORDINARY GAIN
In 1986, the Company had acquired Park Labrea Towers, a residential complex
containing 2,825 units, in Los Angeles, California. At the time of acquisition,
the Company also entered into a development agreement on the remaining units it
had not purchased. In January 1995, the Company concluded an agreement under
which $84,177,000 of the mortgage debt was forgiven. Subsequent to this
transaction, the real estate was sold to a third party for approximately
$140,000,000, an amount equal to the outstanding debt and other liabilities.
The Company also sold its future development rights in the total Park Labrea
real estate project for approximately $15,600,000. The effect of these
transactions was to reduce net assets by approximately $180,000,000 and
mortgage debt by approximately $220,000,000 while stockholders' equity
increased by approximately $37,000,000. As a result of these transactions, the
Company will have no future involvement in Park Labrea. A substantial portion
of the debt forgiveness represents interest expense accrued in prior years
through operations that was not paid.
The Company also had nonrecourse mortgage debt forgiveness on two other
properties during 1994 totaling $6,646,000.
The forgiveness of debt totaling $60,449,000, net of tax of $30,374,000, is
included in the financial statements as an extraordinary gain. The subsequent
loss on the sale of Park Labrea and the sale of future development rights are
reported as a loss on disposition of properties of $30,835,000.
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------ ------------------ ------------------ ------------------
Fiscal Year 1994 1993 1994 1993 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Sales and operating revenues $111,896 $127,905 $130,533 $114,905 $127,951 $119,753 $129,255 $140,340
Earnings (loss) before income taxes $ (2,310) $ 2,866 $ (881) $ 1,360 $ (644) $ 1,684 $(20,662) $ 626
Net earnings (loss) before
extraordinary gain (a) (c) $ (1,882) $ 1,323 $ (793) $ 179 $ (600) $ (590) $(15,258) $ 1,300
Net earnings (loss) per common
share (a) (c) $ (.21) $ .15 $ (.09) $ .02 $ (.06) $ (.07) $ (1.70) $ .15
Dividends declared per common share (b)
Class A $ - $ - $ - $ - $ .20 $ - $ - $ -
Class B $ - $ - $ - $ - $ .20 $ - $ - $ -
Market price range of common stock
Class A
High $ 43 3/8 $ 33 1/4 $ 38 3/4 $ 36 1/2 $ 37 1/2 $ 44 1/8 $ 32 1/4 $ 41 3/8
Low $ 36 1/2 $ 23 3/4 $ 34 $ 30 3/8 $ 30 1/4 $ 35 1/8 $ 27 3/4 $ 38 1/4
Class B
High $ 46 3/8 $ 33 1/2 $ 40 3/8 $ 36 5/8 $ 38 $ 44 1/8 $ 33 1/4 $ 43 1/2
Low $ 40 1/2 $ 23 3/4 $ 37 5/8 $ 30 3/4 $ 32 5/8 $ 36 1/4 $ 29 1/2 $ 38 1/2
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, 1995, the number of registered holders of Class A and Class B common stock were 969 and 760, respectively.
(a) Excludes the extraordinary gain, net of tax of $60,449,000 ($6.72 per share), recorded in 1994. This item is explained
in Note N in the Notes to Consolidated Financial Statements.
(b) No dividends were declared in 1993. Future dividends will depend upon such factors as the earnings, capital requirements
and financial condition of the Company. Approximately $3,202,000 of retained earnings were available for payment of
dividends as of January 31, 1995, under the restrictions contained in the seven-year term loan and revolving credit
agreement with a group of banks.
(c) In 1994, the Company recorded adjustments during the fourth quarter which increased net earnings by approximately
$5,600,000, or $.62 per share. These adjustments primarily related to interest expense accrued earlier in 1994 that was
not paid due to the forgiveness of debt of Park Labrea Towers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Earnings Before Depreciation and Deferred Taxes from Operations ("EBDT") was
$81,262,000, slightly up from $80,979,000 reported in 1993. EBDT for 1992 was
$77,075,000. 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.
Consolidated sales and operating revenues were $499,635,000, $502,903,000
and $463,626,000 in 1994, 1993 and 1992, respectively.
The net earnings from operations, including gain on disposition of
properties and the provision for decline in real estate, was a loss of
$18,533,000 in 1994 as compared to net earnings of $2,212,000 in 1993 and
$12,687,000 in 1992. The gain (loss) on disposition of properties and the
provision for decline in real estate, net of tax, which vary from year to year
and are not considered by management to be a part of the on-going results of
operations, was a loss of $25,307,000 in 1994 versus net earnings of $1,494,000
in 1993 and $17,399,000 in 1992. The Company also recorded an extraordinary
gain, net of tax, of $60,449,000 in 1994 that reflects the forgiveness of
$84,177,000 of mortgage debt on Park Labrea Towers. The subsequent sale of this
property is included in the gain (loss) on disposition of properties.
Beginning in fiscal 1994, EBDT no longer contains an adjustment for accrued
interest on mortgage notes of a rental property that is not payable until
future years as this was related to Park Labrea. See footnote N in the Notes to
the Consolidated Financial Statements for additional information on this
transaction.
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 $373,080,000 in 1994 versus $367,160,000 in 1993 and
$353,743,000 in 1992. The increase in revenues is attributable to the
improvement in occupancy in the portfolio as well as the effect of the
Company's residential property acquisition program under which the Company
acquired an additional 1,140 units during 1994.
The net earnings before gain on disposition of properties and the provision
for decline in real estate for 1994 was $4,646,000 versus net losses of
$2,314,000 in 1993 and $6,430,000 in 1992. The improvement in earnings is due
primarily to an improvement in occupancy in the operating portfolio. While the
Company has added over $1 billion to its completed real estate portfolio during
the past six years, the pace of growth has slowed. Most of the properties
recently added are now leased and generating cash flow.
DISPOSITION OF PROPERTIES AND OTHER PROVISIONS
During 1994, the Company sold Park Labrea Towers and its future development
rights, resulting in a pre-tax loss of approximately $30,800,000. 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 pre-
tax profit of approximately $38,500,000. There were no major sales in 1993.
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 $10,133,000 in 1994, representing a provision for our
Laurel Plaza shopping center which was heavily damaged in the earthquake in
January 1994 in Los Angeles. The Company expects to close on the sale of this
property in 1995. A provision of $9,438,000 was recorded in 1992. No such
provision was provided in 1993.
LAND DIVISION
The sales of residential, commercial and industrial land were $46,427,000 in
1994 versus $46,238,000 in 1993 and $36,877,000 in 1992. The pre-tax earnings
were $3,290,000 in 1994 versus $5,405,000 in 1993 and $3,186,000 in 1992. The
decrease in profit in 1994 is largely due to a full year of operations for
Granite Development Partners, L.P. ("Granite"), a self-liquidating limited
partnership created during the fourth quarter of 1993. The Company expects to
begin closing on sales in Granite in late 1995. 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 1994 were $2,072,000 versus $2,504,000 and $5,121,000 in 1993 and
1992, respectively. Pre-tax income was $3,796,000 in 1994, $1,284,000 in 1993
and $1,160,000 in 1992. The majority of the efforts of this division are now
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. The increase in income in 1994 versus 1993 is due to
the recognition of the Company's portion of operating income related to
properties previously syndicated.
WHOLESALE LUMBER DIVISION
Forest City Trading Group's revenues were $78,056,000, down from $87,001,000 in
1993. Revenues were $67,885,000 in 1992. Pre-tax earnings from this division,
including earnings from the Company's building materials business which is
accounted for on the equity method, were $4,906,000 in 1994, $8,654,000 in 1993
and $6,629,000 in 1992. The decrease in revenues and profitability in 1994
from 1993 is due to the steep decline in the market price of lumber that
occurred during the first quarter of 1994 and the associated negative impact
upon the division's physical inventory. Physical inventory levels had grown
during 1993 due to market price increases and the volume of trading. When the
market price of lumber fell during the first quarter of 1994, the division sold
its physical inventory at a loss.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities totaled $127,515,000 in 1994 versus
$54,348,000 in 1993 and $58,841,000 in 1992. The increase in cash provided by
operating activities in 1994 as compared to 1993 primarily is due to: 1) a
buildup in 1993 of the Company's lumber brokerage inventory due to market
conditions did not recur in 1994; 2) included in other assets are restricted
funds of a partnership that were raised in 1993 which did not recur in 1994; 3)
accounts payable and accrued expenses increased in 1994 in part due to the
addition of two apartment buildings and on-going development activity; all of
which was partially offset by a decrease in accounts receivable in 1993
resulting from the Company's lumber brokerage subsidiary's agreement to sell an
undivided interest in a pool of accounts receivable.
Net cash used in investing activities totaled $132,305,000 in 1994 versus
$97,582,000 in 1993 and $57,822,000 in 1992, respectively. The net cash
provided by financing activities in 1994 was $29,470,000 versus $23,549,000 in
1993 and $22,517,000 in 1992. On-going development activity is reflected in the
increases in capital expenditures, investments in and advances to affiliates
and mortgage debt. The Company also acquired two apartment buildings in 1994
which resulted in an increase in capital expenditures and mortgage debt in 1994
as compared to 1993. An increase in long-term debt in 1993 as compared to 1994
resulted from the issuance of senior notes by Granite. Payments on long-term
debt decreased in 1994 due to the renegotiation of the unsecured corporate
banking line of credit agreement in 1994. Payments on notes payable in 1994
were less than in 1993 due to the change in debt agreements of the Company's
lumber brokerage subsidiary that occurred in 1993.
The Company's wholly-owned subsidiary, Forest City Rental Properties
Corporation, renegotiated its unsecured corporate banking line of credit during
1994. The Company's two term loans that totaled $91,250,000 at January 31, 1994
and its $15,000,000 short-term line of credit were replaced by a $70,000,000
term loan and a $70,000,000 revolving credit agreement. The $70,000,000 term
loan is a seven-year agreement providing for interest to be payable monthly at
rates based on LIBOR plus an increment ranging from 2% in years 1 through 3 to
2 1/4% in years 4 and 5 and 2 1/2% in years 6 and 7. Quarterly principal
payments of $2,500,000 commenced October 1, 1994. The $70,000,000 revolving
credit agreement is for a three-year period with interest payable monthly based
on LIBOR plus 2%. At termination the Company and the banks may agree to renew
the revolver or the Company may convert it to a seven-year term loan with the
same principal payment and interest rate terms as the $70,000,000 term loan.
There was $109,000,000 outstanding under these two loans at January 31, 1995.
The Company's mortgage debt, all of which is nonrecourse, totaled
$1,769,270,000 at January 31, 1995. The Company has followed a policy of
obtaining debt which is nonrecourse to the Company. However, the Company does
guarantee the completion of the initial construction of certain projects.
During 1994 and 1993, approximately $750,000,000 of mortgage debt matured which
was either extended or refinanced. In addition, we have raised approximately
$112,000,000 in new debt. Just as we have been able to refinance our debt that
has matured in the past, we expect either to extend the maturity dates of our
loans as they come due in 1995 or refinance the projects.
The Company's lumber brokerage subsidiary has a three-year agreement
maturing July 15, 1996, under which it is selling an undivided ownership
interest in a pool of accounts receivable up to a maximum of $90,000,000. The
Company also has a bank line of credit of $40,000,000 with the right to borrow
an additional $10,000,000 for up to 90 days through May 31, 1995. At January
31, 1995, $11,914,000 was outstanding under this line of credit.
The sources of liquidity of the Company and its subsidiary are unused bank
lines, cash flow from operations, refinancings of rental properties with larger
mortgages and sales of real estate. The sources of funds 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.
Forest City Rental Properties generally mortgages its properties on an
intermediate- to long-term nonrecourse basis with maturities of five years
and higher. It has financed most of its development and construction
projects with shorter- to intermediate-term bank loans bearing floating
rates of interest. We have now begun a program of securitizing our
nonrecourse debt on longer-term bases as well as obtaining fixed rate
mortgage debt for certain properties when the financing terms are favorable.
The Company has a substantial amount of variable-rate debt that has enabled
it to benefit from historically low interest rates. However, interest rates
have risen over the past year. With variable-rate debt in excess of $1
billion, the current level of interest rates and any future rate increases
could have an impact on cash flow in 1995. We have purchased interest rate
protection on the vast majority of the portfolio for 1995 and are beginning to
purchase interest rate caps for 1996. We will continue to purchase interest
rate protection and fixed rates as we deem appropriate.
GENERAL
Forest City had both investment tax credits and substantial tax net operating
loss carryforwards ("NOL") at the end of 1994. The Company projects that this
NOL will increase during 1995 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, 2004.