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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, 1996
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, 1996 the aggregate market value of the voting stock held by non-
affiliates of the registrant amounted to $96,464,698 and $32,788,460 for
Class A and Class B common stock, respectively.
The number of shares of registrant's common stock outstanding on
March 1, 1996 was 5,263,327 and 3,639,287 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, 1996 (1995 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 11, 1996 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 Strategic Business Units.
The Commercial Group owns, acquires, develops and manages retail, office,
hotel and mixed-use projects. The Residential Group owns, acquires,
develops, leases and manages the Company's residential properties. The
Land Group acquires and sells both raw land and developed lots to
commercial, industrial and residential users. Forest City Trading Group
is primarily a wholesale lumber trading company.
The following material provides additional information about the
Company's principal operating groups.
I. Commercial Group
The Commercial Group owns, acquires, develops and manages retail, office,
hotel and mixed-use 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.
II. Residential Group
The Residential Group owns, acquires, 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.
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. Forest City Trading Group
Lumber Brokerage--Forest City Trading Group, Inc., with sixteen
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--Wholesale Lumber is comprised of two units in
northeast Ohio. Forest City and North American Lumber joint venture
supplies building materials and lumber to general contractors.
Forest City/Babin is a wholesaler of major home appliances,
cabinets and hardware to housing contractors. On January 1, 1996,
Forest City/Babin became a wholly-owned subsidiary of Forest City
Trading Group,Inc.; previously it was a joint venture.
The principal factors of competition in this unit are price, service
and product availability.
Number of Employees
The Company had 3,287 employees as of January 31, 1996, of which 2,395
were full-time and 892 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 1995 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 sixteen administrative
and sales offices and one manufacturing plant located in nine states and
one sales office in Canada.
The "Forest City Rental Properties Corporation Portfolio of Real Estate,"
presented on pages 18 and 19 of the 1995 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 none of
these claims and lawsuits will have a material adverse effect on the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter.
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 11, 1996.
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 11, 1996.
Date
Name and Position(s) Held Appointed Age Family Relationship
Samuel H. Miller
Co-Chairman of the Board, 6-13-95 74
Treasurer, Director, Officer
of various subsidiary
corporations.
Albert B. Ratner
Co-Chairman of the Board, 6-13-95 68 Cousin of Charles A.
Director, Officer of various Ratner, James A. Ratner
subsidiary corporations. and Ronald A. Ratner
Nathan Shafran
Vice Chairman of the Board, 3-11-87 82
Director, Officer of various
subsidiary corporations.
Charles A. Ratner
President, Chief Executive 6-13-95 54
Officer, Director, Officer
of various subsidiary
corporations.
James A. Ratner
Executive Vice President, 3-09-88 51
Director, Officer of various
subsidiary corporations.
Ronald A. Ratner
Executive Vice President, 3-09-88 49
Director, Officer of various
subsidiary corporations.
Thomas G. Smith
Senior Vice President, Chief 9-03-85 55
Financial Officer, Secretary,
Officer of various subsidiary
corporations.
William M. Warren
Senior Vice President and 5-16-72 67
General Counsel.
Linda M. Kane
Vice President-Corporate 4-01-95 38
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 33 of the 1995 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 1995 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 34 and 35 of the 1995 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 1995 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 1, 1996 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 1, 1996 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 1, 1996 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 1995 Annual Report to Shareholders
are incorporated by reference in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets - January 31, 1996 and January 31, 1995
Consolidated Statements of Earnings for the three years
ended January 31, 1996
Consolidated Statements of Shareholders' Equity for the three years
ended January 31, 1996
Consolidated Statements of Cash Flows for the three years ended
January 31, 1996
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, 1996: Page No.
Schedule II - Valuation and Qualifying Accounts IV-4
At January 31, 1996 with reconciliations for
the three years ended January 31, 1996:
Schedule III - Real Estate and Accumulated IV-5 & 6
Depreciation
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, 1996, 1995 and 1994
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. 10.3 - First Amendment to Credit Agreement, dated as of
September 12, 1995 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 October 31, 1995 and is incorporated
herein by reference.
No. 10.4 - First Amendment to Guaranty of Payment of Debt, dated as of
September 12, 1995, among Forest City Enterprises, Inc.,
the banks named therein and Society National Bank, as
agent, was filed with Form 10-Q for the quarter ended
October 31, 1995, and is incorporated herein by reference.
No. 13 - 1995 Annual Report to Shareholders
No. 22 - Subsidiaries of the Registrant Page No.
(Parents and Subsidiaries) IV-7
b) Reports on Form 8-K filed during the three months ended
January 31, 1996:
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 1995 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 11, 1996
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, 1996 $4,208 $ 714 $1,235(A) $3,687
====== ====== ========= ======
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
====== ====== ========= ======
(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 years)
Initial cost Cost capitalized carried at close of on which
to Company subsequent January 31, 1996 Accum. depre.
Amount of --------------- to acquisition ----------------- depre at in latest
encumbrance Bldgs ----------------- Buildings Total Jan 31, income stmt
Description at Jan 31, and Carrying and (A) 1996 Date of Date is computed
of property 1996 Land imprvmnts. Imprvmnts. costs Land imprvmnts. (B) (C) construc. acquired Bldg Imprv
- ---------- ---------- ------ ---------- --------- ------ ------- ---------- ------- --------- --------- -------- ----- -----
(in thousands)
Apartments:
Misc.
invest. $463,062 $ 49,386 $487,614 $ 5,725 $ 27,902 $ 67,589 $503,038 $ 570,627 $ 94,448 Var. - Var. Var.
Shopping Centers:
Cleveland,
Ohio 63,645 - 143,287 6,820 - - 150,107 150,107 18,094 1988-1990 - 50 50
Misc.
invest. 499,798 38,818 345,837 91,309 40,875 50,036 466,803 516,839 100,992 Var. - Var. Var.
Office Buildings:
New York,
New York 134,225 - 133,277 1,685 - - 134,962 134,962 10,104 1989-1991 - 50 -
Misc.
invest. 549,991 15,295 506,474 159,022 31,835 16,722 695,904 712,626 114,517 Var. - Var. Var.
Leasehold improvements
and other equipment:
Misc.
invest. - - 22,503 - - - 22,503 22,503 9,757 - Var. Var. Var.
Under Construction:
Misc.
invest. 57,189 71,454 174,786 - - 71,454 174,786 246,240 -
Undeveloped Land:
Misc.
invest. 64,149 71,179 - - - 71,179 - 71,179 -
---------- -------- ---------- -------- -------- -------- ---------- ---------- --------
Total $1,832,059 $246,132 $1,813,778 $264,561 $100,612 $276,980 $2,148,103 $2,425,083 $347,912
========== ======== ========== ======== ======== ======== ========== ========== ========
(A) The aggregate cost at January 31, 1996 for federal income tax
purposes was $2,278,992
For the Years Ended January 31,
-----------------------------------
1996 1995 1994
(in thousands)
(B) Reconciliations of total real estate carrying value are as follows:
Balance at beginning of period $2,322,136 $2,405,066 $2,310,970
Additions during period -
Improvements 130,296 134,557 127,035
Other acquisitions 28,587 32,811 5,198
---------- ---------- ----------
158,883 167,368 132,233
---------- ---------- ----------
Deductions during period -
Cost of real estate sold (55,936) (250,298) (38,137)
---------- ---------- ----------
Balance at end of period $2,425,083 $2,322,136 $2,405,066
========== ========== ==========
(C) Reconciliations of accumulated depreciation are as follows:
Balance at beginning of period $ 303,012 $ 282,313 $ 243,019
Additions during period -
Charged to profit or loss 50,821 49,869 48,840
Deductions during period -
Retirement and sales (5,921) (29,170) (9,546)
---------- ---------- ----------
Balance at end of period $ 347,912 $ 303,012 $ 282,313
========== ========== ==========
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: April 30, 1996 BY: /s/ Charles A. Ratner
(Charles A. Ratner, President and Chief Executive Officer)
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.
/s/ Albert B. Ratner Co-Chairman of the Board and Director 4/30/96
(Albert B. Ratner) (Date)
/s/ Samuel H. Miller Co-Chairman of the Board, Treasurer 4/30/96
(Samuel H. Miller) and Director (Date)
/s/ Charles A. Ratner President, Chief Executive Officer 4/30/96
(Charles A. Ratner) and Director (Principal Executive (Date)
Officer)
/s/ Thomas G. Smith Senior Vice President, Chief 4/30/96
(Thomas G. Smith) Financial Officer and Secretary (Date)
(Principal Financial Officer)
/s/ Linda M. Kane Vice President and Corporate Controller 4/30/96
(Linda M. Kane) (Principal Accounting Officer) (Date)
/s/ Nathan Shafran Vice Chairman of the Board and Director 4/30/96
(Nathan Shafran) (Date)
/s/ James A. Ratner Executive Vice President and Director 4/30/96
(James A. Ratner) (Date)
/s/ Ronald A. Ratner Executive Vice President and Director 4/30/96
(Ronald A. Ratner) (Date)
/s/ J Maurice Struchen Director 4/30/96
(J Maurice Struchen) (Date)
The registrant plans to furnish security holders a copy of the Annual
Report and Proxy material by May 6, 1996.
Exhibits filed Electronically
The following exhibits are included in this electronic filing and are
located after this index.
Exhibit No. 21 - Parents and Subsidiaries
Portions of the 1995 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 21 - 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.
Percentage of
Voting Securities
Owned by State of
Name of Subsidiary Immediate Parent Incorporation
- -------------------------------------------------------------------------------------
Forest City Rental Properties Corporation 100 (a) Ohio
Center Courtland, Inc. 100 (a) Ohio
F.C. Irvine, Inc. 100 (a) California
F.C. Laurel, Inc. 100 (a) California
Forest City 38 Sidney Street, Inc. 100 (a) Ohio
Forest City Central Station, Inc. 100 (a) Ohio
Forest City Commercial Construction Co., Inc. 100 (a) Ohio
Forest City Finance Corporation 100 (a) Ohio
Forest City Franklin Town Corp. 100 (a) Ohio
Forest City Management, Inc. 100 (a) Ohio
Forest City Palmdale, Inc. 100 (a) Ohio
Forest City Peripheral Land, Inc. 100 (a) Delaware
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
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 Capital Corporation 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
Sunrise Eaton, Inc. 100 (a) Ohio
(a) Subsidiaries included in consolidated financial statements.
SELECTED FINANCIAL DATA
For the Years Ended January 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
OPERATING RESULTS
Sales and operating revenues $ 506,885 $ 499,635 $ 502,903 $ 463,626 $ 419,815
==============================================================
Net earnings (loss) (1)
Operating earnings (loss), net of tax (2) $ 13,490 $ 6,774 $ 718 $ (4,712) $ (5,083)
Gain (loss) on disposition of properties and
other provisions, net of tax (3) (6,551) (25,307) 1,494 17,399 (1,105)
---------------------------------------------------------------
$ 6,939 $ (18,533) $ 2,212 $ 12,687 $ (6,188)
===============================================================
Earnings before depreciation and deferred taxes (1)
Operating earnings (loss), net of tax (2) $ 13,490 $ 6,774 $ 718 $ (4,712) $ (5,083)
Adjustments related to real estate operations (4)
Depreciation and amortization 63,557 63,956 63,901 57,896 50,543
Deferred income taxes 4,974 10,532 10,865 19,021 1,789
Accrued interest of a rental property not paid - - 5,495 4,870 3,973
--------------------------------------------------------------
Real estate adjustments 68,531 74,488 80,261 81,787 56,305
--------------------------------------------------------------
$ 82,021 $ 81,262 $ 80,979 $ 77,075 $ 51,222
==============================================================
Per common share
Net earnings (loss) (1) $ .77 $ (2.06) $ .25 $ 1.41 $ (.69)
==============================================================
Cash dividends declared and paid
Class A $ .25 $ .20 $ - $ - $ -
Class B $ .25 $ .20 $ - $ - $ -
January 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
FINANCIAL POSITION
Consolidated assets $2,631,046 $2,584,734 $2,668,057 $2,625,404 $2,556,261
Real estate portfolio, at cost $2,425,083 $2,322,136 $2,405,066 $2,310,970 $2,281,731
Long-term debt, including mortgage debt $1,945,120 $1,881,917 $2,026,451 $1,972,160 $1,980,985
- ----------------------------------------------------------------------------------------------------------------------
FOREST CITY RENTAL PROPERTIES CORPORATION - REAL ESTATE ACTIVITY
Total real estate - end of year
Completed rental properties, before depreciation $2,085,284 $1,995,629 $2,101,528 $2,045,946 $1,878,394
Projects under development 246,240 230,802 214,111 188,187 316,771
--------------------------------------------------------------
2,331,524 2,226,431 2,315,639 2,234,133 2,195,165
Accumulated depreciation (338,216) (293,465) (272,518) (232,905) (193,683)
--------------------------------------------------------------
Rental properties, net of depreciation $1,993,308 $1,932,966 $2,043,121 $2,001,228 $2,001,482
==============================================================
Activity during the year
Completed rental properties
Additions $ 89,028 $ 77,265 $ 50,384 $ 200,440 $ 279,319
Acquisitions 28,587 32,811 5,198 - -
Dispositions (27,960) (215,975) - (32,888) (1,201)
--------------------------------------------------------------
89,655 (105,899) 55,582 167,552 278,118
--------------------------------------------------------------
Projects under development
New development 58,798 49,585 54,317 39,045 199,346
Transferred to completed rental properties (43,360) (32,894) (28,393) (167,629) (267,617)
--------------------------------------------------------------
15,438 16,691 25,924 (128,584) (68,271)
--------------------------------------------------------------
Increase (decrease) in rental properties, at cost $ 105,093 $ (89,208) $ 81,506 $ 38,968 $ 209,847
==============================================================
(1) Excludes the extraordinary gain, net of tax, of $1,847,000 and
$60,449,000 for the years ended January 31, 1996 and 1995, respectively.
(2) Excludes the gain (loss) on disposition of properties and other
provisions, net of tax.
(3) Includes the provision for decline in real estate.
(4) 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 accompanying consolidated balance sheets of Forest City
Enterprises, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended January 31, 1996.
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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 11, 1996
CONSOLIDATED BALANCE SHEETS
January 31, 1996 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
ASSETS
Real Estate
Completed rental properties $2,107,664 $2,011,168
Projects under development 246,240 230,802
Land held for development or sale 71,179 80,166
-------------------------
2,425,083 2,322,136
Less accumulated depreciation (347,912) (303,012)
-------------------------
Total Real Estate 2,077,171 2,019,124
Cash 39,145 46,478
Notes and accounts receivable, net 168,177 197,602
Inventories 41,186 38,949
Investments in and advances to affiliates 145,238 139,318
Other assets 160,129 143,263
-------------------------
$2,631,046 $2,584,734
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $1,832,059 $1,769,270
Accounts payable and accrued expenses 350,131 375,350
Notes payable 19,856 22,340
Long-term debt 113,061 112,647
Deferred income taxes 105,111 93,650
Deferred profit 21,239 25,917
-------------------------
Total Liabilities 2,441,457 2,399,174
-------------------------
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; 5,271,327
and 5,146,226 shares issued, 5,269,327 and
5,146,226 outstanding, respectively. 1,757 1,715
Class B, convertible, 6,000,000 shares
authorized; 3,720,287 and 3,845,388 shares
issued, 3,645,287 and 3,845,388 outstanding,
respectively. 1,240 1,282
-------------------------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 143,590 137,052
-------------------------
192,098 185,560
Less treasury stock, at cost; 2,000 Class A
and 75,000 Class B shares (2,509) -
-------------------------
Total Shareholders' Equity 189,589 185,560
-------------------------
$2,631,046 $2,584,734
=========================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------
(in thousands, except per share data)
Sales and operating revenues $506,885 $499,635 $502,903
Interest and other income 22,548 22,973 16,476
---------------------------------------
529,433 522,608 519,379
---------------------------------------
Operating expenses 305,819 323,736 338,308
Interest expense 130,001 116,821 111,494
Provision for decline in real estate 9,581 10,133 -
Depreciation and amortization 65,716 65,580 65,309
---------------------------------------
511,117 516,270 515,111
Gain (loss) on disposition of properties (754) (30,835) 2,268
---------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 17,562 (24,497) 6,536
---------------------------------------
INCOME TAX EXPENSE (BENEFIT)
Current 370 6,057 710
Deferred 10,253 (12,021) 3,614
---------------------------------------
10,623 (5,964) 4,324
---------------------------------------
NET EARNINGS (LOSS)BEFORE EXTRAORDINARY GAIN 6,939 (18,533) 2,212
Extraordinary gain, net of tax 1,847 60,449 -
---------------------------------------
NET EARNINGS $ 8,786 $ 41,916 $ 2,212
=======================================
NET EARNINGS PER COMMON SHARE
Earnings (loss) before extraordinary gain, net of tax$ .77 $ (2.06) $ .25
Extraordinary gain, net of tax .21 6.72 -
---------------------------------------
Net earnings per common share $ .98 $ 4.66 $ .25
=======================================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
-------------------------------
Class A Class B Additional Treasury Stock
------------------------------- Paid-in Retained -----------------
Shares Amount Shares Amount Capital Earnings Shares Amount Total
----------------------------------------------------------------------------------------
(in thousands)
BALANCES AT JANUARY 31, 1993 5,141 $1,713 3,851 $1,284 $45,511 $ 94,722 - $ - $143,230
Net earnings 2,212 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 - - 145,442
Net earnings 41,916 41,916
Dividends -- $.20 per share (1,798) (1,798)
-----------------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 1995 5,146 1,715 3,846 1,282 45,511 137,052 - - 185,560
Net earnings 8,786 8,786
Dividends -- $.25 per share (2,248) (2,248)
Conversion of Class B shares
to Class A shares 125 42 (125) (42)
Purchase of treasury stock 77 (2,509) (2,509)
-----------------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 1996 5,271 $1,757 3,721 $1,240 $45,511 $143,590 77 $(2,509) $189,589
=========================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31,
-----------------------------------------
1996 1995 1994
=========================================
(in thousands)
OPERATING ACTIVITIES
Net earnings $ 8,786 $ 41,916 $ 2,212
Depreciation and amortization 65,716 65,580 65,309
Deferred income taxes 11,461 24,201 3,614
Accrued interest of a rental property not
payable until future years - - 5,495
(Gain) loss on disposition of properties 754 30,835 (2,268)
Provision for decline in real estate 9,581 10,133 -
Extraordinary gain (3,055) (90,823) -
(Increase) decrease in land held for development
or sale 8,987 (5,768) (11,147)
Decrease in notes and accounts receivable 29,425 947 48,993
(Increase) decrease in inventories (2,237) 24,271 (20,397)
Increase (decrease) in accounts payable and
accrued expenses (21,612) 37,403 4,263
Increase (decrease) in deferred profit (4,678) (592) 3,929
(Increase) in other assets (31,761) (10,588) (45,655)
---------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,367 127,515 54,348
---------------------------------------
INVESTING ACTIVITIES
Capital expenditures (144,692) (121,602) (92,495)
Proceeds from disposition of properties 15,950 15,264 1,859
Investments in and advances to affiliates (5,920) (25,967) (6,946)
---------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (134,662) (132,305) (97,582)
FINANCING ACTIVITIES
Increase in mortgage and long-term debt 119,707 99,894 111,256
Payments on long-term debt (12,873) (17,555) (25,719)
Principal payments on mortgage debt on real estate (43,631) (34,228) (36,741)
Increase in notes payable 6,140 434 1,332
Payments on notes payable (8,624) (17,277) (26,579)
Purchase of treasury stock (2,509) - -
Dividends paid to shareholders (2,248) (1,798) -
---------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 55,962 29,470 23,549
---------------------------------------
NET INCREASE (DECREASE) IN CASH (7,333) 24,680 (19,685)
CASH AT BEGINNING OF YEAR 46,478 21,798 41,483
---------------------------------------
CASH AT END OF YEAR $ 39,145 $ 46,478 $ 21,798
=======================================
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Forest City Enterprises, Inc. is a major, vertically integrated national
real estate company with four Strategic Business Units. The COMMERCIAL
GROUP owns, acquires, develops and manages retail, office, hotel and
mixed-use projects. The RESIDENTIAL GROUP owns, acquires, develops, leases
and manages our residential properties. The LAND GROUP acquires and sells
both raw land and developed lots to commercial, industrial and residential
users. The TRADING GROUP is primarily a wholesale lumber trading company.
Forest City owns approximately $2.4 billion of properties at cost in
20 states and Washington, D.C. The Company's executive offices are in
Cleveland, Ohio. Regional offices are located in New York, Los Angeles,
Boston, Chicago, Portland, Tucson, Detroit and Washington, D.C.
FISCAL YEAR
The years 1995, 1994 and 1993 refer to the fiscal years ended January 31,
1996, 1995 and 1994, 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 $380,000 at
January 31, 1996.
The Company is required to make estimates and assumptions when preparing
its financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
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 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 commercial properties.
LUMBER BROKERAGE - The Company recognizes the gross margin on these sales
as revenue. Sales invoiced for the years 1995 through 1993 were
approximately $2,337,500,000, $2,697,500,000 and $2,447,800,000,
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 real estate 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.
Major 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.
INVENTORIES
The Lumber brokerage inventory is stated at the lower of cost or market.
Inventory cost is determined by specific identification and average cost
methods.
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 shareholders elect three members of the Board of Directors
and Class B common shareholders elect the remaining nine directors annually.
During 1995, the Company repurchased 2,000 shares of Class A and 75,000
shares of Class B common stock. These shares are currently being held in
treasury.
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 8,986,776
in 1995 and 8,991,614 in 1994 and 1993.
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, 1996
--------------------------------------------------
Amount of
Total Accumulated Net Nonrecourse
Cost Depreciation Cost Indebtedness
--------------------------------------------------
(in thousands)
Completed rental properties
Residential $ 570,627 $ 94,448 $ 476,179 $ 463,062
Commercial
Shopping centers 666,946 119,086 547,860 563,443
Office and other buildings 844,951 123,655 721,296 684,216
Corporate and other equipment 25,140 10,723 14,417 -
--------------------------------------------------
2,107,664 347,912 1,759,752 1,710,721
--------------------------------------------------
Projects under development
Residential 43,178 - 43,178 9,577
Commercial
Shopping centers 102,205 - 102,205 31,793
Office and other buildings 100,857 - 100,857 15,819
--------------------------------------------------
246,240 - 246,240 57,189
--------------------------------------------------
Land held for development or sale 71,179 - 71,179 64,149
--------------------------------------------------
$2,425,083 $ 347,912 $2,077,171 $1,832,059
==================================================
C. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable are summarized below.
January 31,
----------------------
1996 1995
----------------------
(in thousands)
Lumber brokerage $116,295 $124,318
Real estate sales 13,862 17,840
Syndication activities 15,072 29,620
Receivables from tenants 12,527 13,164
Other receivables 14,108 16,868
----------------------
171,864 201,810
Allowance for doubtful accounts (3,687) (4,208)
----------------------
$168,177 $197,602
======================
Notes receivable at January 31, 1996 of $26,205,000, reflected in real
estate sales and syndication activities in the table above, are
collectible primarily over five years, with $10,227,000 being due within one
year. The weighted average interest rate at January 31, 1996 and 1995 was
11.8% and 10.1%, respectively.
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, 1996 and 1995, the Company had received
$27,000,000 and $25,000,000, respectively, as net proceeds from this
transaction. An interest in additional accounts receivable may be sold
as collections reduce previously sold interests.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses at January 31, 1996 and
1995 are book overdrafts of approximately $48,316,000 and $54,970,000,
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.
E. 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,
---------------------
1996 1995
---------------------
(in thousands)
Payable To
Banks $ 12,743 $ 11,914
Other 7,113 10,426
---------------------
$ 19,856 $ 22,340
=====================
Notes payable to banks reflects borrowings on the Company's $40,000,000
bank line of credit. The Company has the right to borrow an additional
$10,000,000 for up to 90 days through May 31, 1996 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. The weighted average interest rate
was 8.9% and 9.1% at January 31, 1996 and 1995, respectively.
Interest expense on notes payable was $5,078,000 in 1995, $5,321,000 in
1994 and $3,815,000 in 1993. Interest actually paid on notes payable was
$5,129,000 in 1995, $5,527,000 in 1994 and $3,539,000 in 1993.
F. MORTGAGE DEBT, NONRECOURSE
Mortgage debt, which is collateralized by completed rental properties,
projects under development and certain undeveloped land, is as follows.
January 31,
------------------------
1996 1995
------------------------
(in thousands)
Fixed interest, rates
ranging from 1.5%
to 14.0% $ 793,093 $ 695,144
Variable interest,
rates ranging from
2.9% to 11.3% 1,000,024 1,034,786
Commercial paper,
1996 - 5.7% and
1995 - 6.2% 38,942 39,340
------------------------
$1,832,059 $1,769,270
========================
Debt related to projects under development at January 31, 1996 totals
$57,189,000, out of a total commitment from lenders of $121,790,000. Of
this outstanding debt, $47,180,000 is variable-rate debt and $10,009,000
is fixed-rate debt. The Company generally borrows funds for development
and construction projects on a medium-term basis, usually with maturities
of three to seven years, which allows the property to achieve stabilized
operations before refinancing is required.
The Company maintains 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
a minimum of one year.
In lieu of purchasing interest rate caps, the Company periodically has
fixed the interest rates on a short-term basis when favorable market
conditions exist.
Payments totaling $1,739,000 were made during 1995 for the purchase of
interest rate caps. The Company has the following significant interest
rate caps in place on its variable-rate mortgage debt at January 31, 1996.
Original Principal
Base Rate Cap Rate Period Outstanding
-----------------------------------------------------------
(in thousands)
LIBOR 8.00% 2/1/96 - 8/1/96 $343,400
LIBOR 7.50% 2/1/96 - 8/1/96 154,489
LIBOR 6.00% 2/1/96 - 2/1/97 147,303
LIBOR 6.85% 5/1/95 - 5/1/00 24,482
LIBOR 8.40% 5/1/00 - 5/1/05 20,800
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
obligations. 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 benefit period as
interest expense in the consolidated statements of earnings.
Included in the fixed-rate debt above is $54,876,000 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 has also entered into a small number of mortgage
obligations and leases with tenants that enable the debt holder of 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 capitlized as
additional basis and amortized if amounts are paid prior to the disposition
of the property.
Mortgage debt annual maturities for the next five years ending January 31
are as follows: 1997, $378,895,000; 1998, $164,331,000; 1999, $173,368,000;
2000, $272,211,000; and 2001, $68,614,000.
The Company is engaged in discussions with its current lenders and is
actively pursuing new lenders to extend and refinance the nonrecourse
mortgage debt that matures. The Company intends to convert a significant
portion of its existing variable-rate debt to fixed-rate mortgages in order
to reduce the volatility in the Company's project mortgage interest expense.
Interest expense on nonrecourse mortgage debt was $126,521,000 in 1995,
$110,899,000 in 1994 and $107,708,000 in 1993, of which $9,362,000,
$7,049,000 and $6,332,000 was capitalized, respectively.
Interest actually paid on nonrecourse mortgage debt, net of capitalized
interest, was $116,977,000 in 1995, $105,256,000 in 1994 and $93,504,000 in
1993.
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.
G. LONG-TERM DEBT
Long-term debt is as follows.
January 31,
------------------------
1996 1995
------------------------
(in thousands)
Term loan $ 55,000 $ 65,000
Revolving credit agreement 53,000 44,000
Other debt 5,061 3,647
------------------------
$ 113,061 $ 112,647
========================
At January 31, 1995, the Company had a seven-year, $70,000,000 term loan
and a three-year, $70,000,000 revolving credit agreement. Effective
September 1995, the Company's revolving credit agreement was amended to
increase its available credit by $10,000,000 to $80,000,000. 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 which
range 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 maintanance of a specified level of
net worth and cash flow (as defined); and 3) a restriction on dividend
payments. At January 31, 1996, approximately $7,752,000 of retained
earnings were available for payment of dividends.
Interest rates on the other debt ranged primarily from 6.1% to 12.3% at
January 31, 1996.
Maturities of other debt for the next five years ending January 31 are
as follows: 1997, $3,668,000; 1998, $608,000; 1999, $562,000; 2000,
$127,000; and 2001, $56,000.
Interest expense on long-term debt was $7,764,000 in 1995, $7,650,000
in 1994 and $6,303,000 in 1993. Interest actually paid on long-term debt
was $9,903,000 in 1995 $7,790,000 in 1994, and $6,268,000 in 1993.
The Company has purchased the following interest rate caps on long-term
debt as of January 31, 1996.
Original Principal
Base Rate Cap Rate Period Outstanding
-------------------------------------------------------------
(in thousands)
LIBOR 6.0% 2/1/96 - 8/1/96 $ 48,065
LIBOR 7.5% 2/1/96 - 2/1/97 $103,142
Payments totaling $193,000 were made during 1995 relating to long-term
debt caps. See Note F for additional interest rate cap disclosures.
H.INCOME TAXES
The provision (benefit) for income taxes consists of the following components.
For the Years Ended January 31,
---------------------------------
1996 1995 1994
---------------------------------
(in thousands)
Current
Federal $ 302 $ 4,827 $ 376
State 68 1,230 334
--------------------------------
370 6,057 710
--------------------------------
Deferred
Federal 6,083 (9,945) 2,985
State 4,170 (2,076) 629
--------------------------------
10,253 (12,021) 3,614
--------------------------------
Total provision (benefit) $10,623 $ (5,964) $ 4,324
================================
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 1995, 1994 and 1993 due to the following items.
For the Years Ended January 31,
---------------------------------------
1996 1995 1994
---------------------------------------
(in thousands)
Financial earnings (loss)
before income taxes $17,562 $(24,497) $ 6,536
===================================
Income taxes computed at
the statutory rate $ 6,146 $ (8,574) $ 2,288
Increase (decrease) in tax
resulting from:
Minimum tax (refund) and
audit adjustments - - (2,559)
Valuation allowance 897 102 1,362
Rate difference for
change in tax law - - 1,658
Losses without tax benefits - 2,067 -
State taxes, net of
federal benefit 2,220 (839) 556
Adjustment of prior
estimated taxes 566 589 771
Contribution carryover 520 494 477
Other items 274 197 (229)
-------------------------------------
Total provision (benefit) $10,623 $ (5,964) $ 4,324
=====================================
An analysis of the deferred tax provision (benefit) is as follows.
For the Years Ended January 31,
----------------------------------
1996 1995 1994
----------------------------------
(in thousands)
Excess of tax over statement
depreciation and amortization $ 5,743 $ 8,046 $ 9,976
Allowance for doubtful
accounts deducted for
statement purposes 461 (464) (476)
Costs on land and rental
properties under development
expensed for tax (515) 366 309
Revenues and expenses
recognized in different
periods for tax and
statement 5,490 (16,621) (8,793)
Development fees deferred
for statement (1,326) (400) (701)
Provision for decline
in real estate 3,547 (3,547) -
Deferred state taxes, net of
federal benefit 2,565 757 564
Interest on construction
advances deferred for
statement (953) 1,609 1,721
Benefits of tax loss carry-
forward recognized against
deferred taxes (5,656) (1,869) (1,021)
Audit adjustments - - (985)
Rate difference per change
in tax law - - 1,658
Valuation allowance 897 102 1,362
-----------------------------------
Deferred provision (benefit) $10,253 $ (12,021) $ 3,614
===================================
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 $ 223,716 $ 88,480
Capitalized costs 148,210 58,617
Net operating losses (96,928) (38,335)
Investment tax credits - (4,583)
Other (21,039) 932
----------------------------------
$ 253,959 $ 105,111
==================================
Income taxes (refunded) paid totaled $(888,000), $3,244,000 and $324,000
in 1995, 1994 and 1993, respectively. At January 31, 1996, the Company
had a net operating loss carry forward for tax purposes of $96,928,000
which will expire in the years ending January 31, 2005 through January 31,
2011 and an investment tax credit carryover of $4,583,000 which will expire
in the years ending January 31, 2002 through January 31, 2005.
The Company's deferred tax liability at January 31, 1996 is comprised
of deferred liabilities of $220,036,000, deferred assets of $119,319,000
and a valuation allowance related to state taxes and investment credits of
$4,394,000.
I. SEGMENT INFORMATION
Business segments are determined by the type of customer served or the
product sold. The Commercial Group owns, acquires, develops and manages
retail, office, hotel and mixed-use properties. The Residential Group is
made up of two divisions: Apartments and Residential Development.
Apartments owns, leases and manages residential properties. Residential
Development develops new properties, acquires completed real estate and
manages syndicated partnerships. The Land Group develops and markets
land to home builders and commercial and industrial users principally in
Arizona, California, Florida, Illinois, Nevada, New York and Ohio. The
Trading Group sells lumber and building products to retailers, commercial
contractors and homebuilders. Corporate includes interest on corporate
borrowings and general administrative expenses. In 1995, the Company
realigned its business segments for financial reporting purposes. The
Rental Properties segment was broken out into Apartments and the
Commercial Group. Segment information for the years ended January 31, 1995
and 1994 has been restated to conform to the current year presentation. The
following tables summarize selected financial data by business segment for
the fiscal years ended January 31, 1996, 1995 and 1994.
For the Years Ended January 31,
----------------------------------------------------------------------
Earnings (Loss) Before
Sales and Operating Revenues Income Taxes
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
======================================================================
(in thousands)
Commercial Group $ 287,254 $ 254,956 $ 254,313 $ 12,283 $ 7,482 $ 1,100
Residential Group
Apartments 96,588 118,124 112,847 2,102 1,084 (8,046)
Residential Development 3,071 2,072 2,504 5,136 3,796 1,284
Land Group 40,444 46,427 46,238 3,823 3,290 5,405
Trading Group (1) 79,528 78,056 87,001 5,826 4,906 8,654
Gain (loss) on disposition of properties - - - (754) (30,835) 2,268
Provision for decline in real estate - - - (9,581) (10,133) -
Corporate - - - (1,273) (4,087) (4,129)
----------------------------------------------------------------------
Consolidated $ 506,885 $ 499,635 $ 502,903 $ 17,562 $(24,497) $ 6,536
======================================================================
For the Years Ended January 31,
---------------------------------------------------------
Real Estate
---------------------------------------------------------
Identifiable Assets at Depreciation
January 31, Additions, net and Amortization
----------------------------------- -------------------------- ---------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------------------------------------------------------------------------------------------
(in thousands)
Commercial Group $1,640,810 $1,566,320 $1,490,082 $ 83,623 $ 95,264 $ 70,410 $ 49,572 $ 46,870 $ 47,425
Residential Group
Apartments 560,891 558,814 703,758 21,470 (184,472) 11,096 13,985 17,086 16,460
Residential Development 52,589 55,795 38,064 6,142 7 38 16 22 29
Land Group 121,031 126,680 120,035 (8,887) 5,791 11,155 59 90 102
Trading Group 172,305 175,107 198,617 (504) 542 1,126 1,962 1,377 1,124
Corporate 83,420 102,018 117,501 1,103 (62) 271 122 135 169
------------------------------------------------------------------------------------------------
Consolidated $2,631,046 $2,584,734 $2,668,057 $102,947 $(82,930) $ 94,096 $ 65,716 $ 65,580 $ 65,309
================================================================================================
(1) The Company recognizes the gross margin on lumber brokerage sales
as revenue. Gross value of lumber sold for the years ended
January 31, 1996, 1995 and 1994 was approximately $2,337,500,000,
$2,697,500,000, and $2,447,800,000, respectively.
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
Ending January 31,
--------------------
(in thousands)
1997 $ 134,895
1998 129,465
1999 123,802
2000 114,152
2001 106,251
Later years 567,034
---------------
Total minimum future rentals $ 1,175,599
===============
Most of the commercial leases include provisions for reimbursements of
other charges including real estate taxes and operating costs. Other
charges amounted to $84,533,000, $83,881,000 and $70,641,000 in 1995,
1994 and 1993, respectively.
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, 1996 are as follows.
For the Years
Ending January 31,
--------------------
(In thousands)
1997 $ 5,145
1998 4,262
1999 3,302
2000 2,705
2001 2,460
Later years 12,683
-------------------
Total minimum lease payments $ 30,557
===================
Rent expense was $5,524,000, $5,110,000 and $11,351,000 for 1995, 1994
and 1993, respectively.
K. CONTINGENT LIABILITIES
As of January 31, 1996 the Company has guaranteed loans totaling $2,892,000
and has $16,532,000 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, 1996.
M. SUMMARIZED FINANCIAL INFORMATION
Forest City Rental Properties Corporation ("Rental Properties") is a
wholly-owned subsidiary engaged in the development, acquisition and
management of real estate projects, including apartment complexes, regional
malls and shopping centers, hotels, office and mixed-use facilities.
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,
----------------------------
1996 1995
----------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties $ 2,085,284 $ 1,995,629
Projects under development 246,240 230,802
----------------------------
2,331,524 2,226,431
Less accumulated depreciation (338,216) (293,465)
----------------------------
Total Real Estate 1,993,308 1,932,966
Cash 24,430 8,333
Other assets 250,171 260,949
----------------------------
$ 2,267,909 $ 2,202,248
============================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse $ 1,767,910 $ 1,710,291
Accounts payable and accrued expenses 137,719 144,304
Long-term debt 108,049 109,084
Other liabilities and deferred credits 142,523 131,838
----------------------------
Total Liabilities 2,156,201 2,095,517
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital 5,378 5,378
Retained earnings 106,330 101,353
----------------------------
Total Shareholder's Equity 111,708 106,731
----------------------------
$ 2,267,909 $ 2,202,248
============================
- -----------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31,
------------------------------------------
1996 1995 1994
------------------------------------------
(in thousands)
Sales and operating revenues $ 383,842 $ 373,080 $ 367,160
Interest and other income 14,734 13,778 8,247
------------------------------------------
Total revenues 398,576 386,858 375,407
------------------------------------------
Operating expenses 198,282 205,707 214,805
Interest expense 117,560 104,836 102,414
Provision for decline in real estate 9,581 10,133 -
Depreciation and amortization 63,557 63,956 63,901
-------------------------------------------
388,980 384,632 381,120
-------------------------------------------
Gain (loss) on disposition of properties 754) (30,835) 2,268
-------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 8,842 (28,609 (3,445)
INCOME TAX EXPENSE (BENEFIT) 5,712 (7,948) (2,625)
-------------------------------------------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN 3,130 (20,661) (820)
EXTRAORDINARY GAIN, NET OF TAX 1,847 60,449 -
-------------------------------------------
NET EARNINGS (LOSS) $ 4,977 $ 39,788 $ (820)
===========================================
N. LOSS ON DISPOSITION AND EXTRAORDINARY GAIN
During 1995, the Company recorded an extraordinary gain of $3,055,000,
before tax of $1,208,000, resulting from debt extinguishment of commercial
property.
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 $90,823,000, before 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 1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Sales and operating revenues $108,298 $111,896 $118,082 $130,533 $120,989 $127,951 $159,516 $129,255
Earnings (loss) before income taxes $ (4,277) $ (2,310) $ (998) $ (881) $ 1,706 $ (644) $ 21,131 $(20,662)
Net earnings (loss) before
extraordinary gain (1)(2) $ (3,209) $ (1,882) $ (903) $ (793) $ 601 $ (600) $ 10,450 $(15,258)
Net earnings (loss) before
extraordinary gain per common
share (1)(2) $ (.36) $ (.21) $ (.10) $ (.09) $ .07 $ (.06) $ 1.16 $ (1.70)
Dividends declared per common share (3)
Class A $ - $ - $ - $ - $ .25 $ .20 $ - $ -
Class B $ - $ - $ - $ - $ .25 $ .20 $ - $ -
Market price range of common stock
Class A
High $ 35 1/4 $ 43 3/8 $ 39 1/2 $ 38 3/4 $ 39 1/2 $ 37 1/2 $ 36 3/4 $ 32 1/4
Low $ 30 3/8 $ 36 1/2 $ 33 $ 34 $ 36 3/4 $ 30 1/4 $ 32 $ 27 3/4
Class B
High $ 35 3/8 $ 46 3/8 $ 39 3/8 $ 40 3/8 $ 39 $ 38 $ 36 1/2 $ 33 1/4
Low $ 31 1/8 $ 40 1/2 $ 33 1/2 $ 37 5/8 $ 36 3/4 $ 32 5/8 $ 32 $ 29 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, 1996, the number of registered holders of Class A and
Class B common stock were 933 and 728, respectively.
(1) Excludes the extraordinary gain, net of tax of $1,847,000
($.21 per share) and $60,449,000 ($6.72 per share), in fiscal l995 and
1994, respectively. These items are explained in Note N in the Notes to
Consolidated Financial Statements.
(2) 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.
(3) Future dividends will depend upon such factors as the earnings,
capital requirements and financial condition of the Company. Approximately
$ 7,752,000 of retained earnings were available for payment of dividends as
of January 31, 1996, under the restrictions contained in the term loan and
revolving credit agreement with a group of banks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Earnings Before Depreciation and Deferred Taxes ("EBDT") was $82,021,000,
slightly higher than $81,262,000 reported in 1994. EBDT for 1993 was
$80,979,000. EBDT consists of net earnings before gain (loss) on
disposition of properties and the provision for decline in real estate
plus noncash charges from real estate operations of depreciation and
amortization and deferred income taxes. Also included in EBDT for 1993
was accrued interest on mortgage notes of a rental property that was not
payable until future years.
Consolidated sales and operating revenues were $506,885,000, $499,635,000
and $502,903,000 in 1995, 1994, and 1993, respectively.
Net earnings from operations, including gain (loss) on disposition of
properties and the provision for decline in real estate, was $6,939,000 in
1995 compared to a loss of $18,533,000 in 1994 and net earnings of
$2,212,000 in 1993. 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 $6,551,000 and $25,307,000 in 1995 and
1994, respectively, versus net gain of $1,494,000 in 1993. The Company
also recorded extraordinary gains, net of tax, of $1,847,000 in 1995 and
$60,449,000 in 1994. The 1995 extraordinary gain relates to the forgiveness
of mortgage debt on Liberty Center Venture. The 1994 extraordinary gain
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. See footnote N in the Notes to the Consolidated
Financial Statements for additional information on these transactions.
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 $383,842,000 for 1995 versus $373,080,000 in 1994
and $367,160,000 in 1993. The increase in revenues is attributable to the
improvement in occupancy in the portfolio, the effect of the Company's
residential property acquisition programs under which the Company acquired
an additional 1,116 units during 1995 and a major land sale.
The net earnings before gain (loss) on disposition of properties and the
provision for decline in real estate for 1995 and 1994 was $9,681,000 and
$4,646,000, respectively, versus net loss of $2,314,000 in 1993. The
improvement in earnings is due primarily to an improvement in occupancy in
the operating portfolio and a major land sale.
DISPOSITION OF PROPERTIES AND OTHER PROVISIONS
During 1995, the Company sold a 152-unit apartment complex, Vineyard Village.
During 1994, the Company sold Park Labrea Towers and its future development
rights, resulting in a pre-tax loss of approximately $30,800,000. 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 decline in real estate of
$9,581,000 in 1995 and $10,133,000 in 1994.
LAND DIVISION
The sales of residential, commercial and industrial land were $40,444,000
in 1995 versus $46,427,000 in 1994 and $46,238,000 in 1993. The pre-tax
earnings were $3,823,000, $3,290,000 and $5,405,000 in 1995, 1994 and 1993,
respectively. Sales of land and related earnings vary from period to
period, depending on management's decisions regarding the disposition of
significant land holdings.
RESIDENTIAL DEVELOPMENT DIVISION
Revenues in 1995 were $3,071,000 versus $2,072,000 in 1994 and $2,504,000
in 1993. Pre-tax income was $5,136,000, $3,796,000 and $1,284,000 in 1995,
1994 and 1993, respectively. The efforts of this division are directed
toward acquiring completed real estate at favorable prices for the Company's
portfolio, developing new residential projects and continuing to oversee the
operations of the properties syndicated in prior years.
WHOLESALE LUMBER DIVISION
Forest City Trading Group's revenues were $79,528,000, compared to
$78,056,000 in 1994 and $87,001,000 in 1993. Pre-tax earnings from this
division were $5,826,000 in 1995, $4,906,000 in 1994 and $8,654,000 in 1993.
The results of this division include the Company's building materials
business which was accounted for on the equity method until January 1, 1996
when it became a wholly-owned subsidiary of Forest City Trading Group.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities totaled $71,367,000 in 1995 versus
$127,515,000 in 1994 and $54,348,000 in 1993. The decrease in cash provided
by operating activities in 1995 as compared to 1994 is primarily due to the
trading activity of Forest City Trading Group which resulted in a decrease
in inventories during 1994 not recurring in 1995 and decrease in accrued
expenses in 1995.
Net cash used in investing activities totaled $134,662,000 in 1995 versus
$132,305,000 in 1994 and $97,582,000 in 1993. Net cash provided by
financing activities in 1995 was $55,962,000 compared to $29,470,000 in
1994 and $23,549,000 in 1993. On going development activity and the
increase in the Company's ownership in Liberty Center is reflected in the
increases in capital expenditures and increases in mortgage debt.
Principal payments on mortgage debt on real estate increased in 1995 over
1994 due to the investment activity of Granite Development Partners, L.P.,
a self-liquidating limited partnership of the Land Division. Purchase of
treasury stock in 1995 resulted in a use of cash.
At January 31, 1996, the Company's wholly-owned subsidiary, Forest City
Rental Properties Corporation, had a total of $108,000,000 outstanding
under its term loan and revolving credit agreement. The Company is
required to make quarterly principal payments of $2,500,000 under the
term loan. During the third quarter of 1995, the Company's revolving
credit agreement was amended to increase the amount available by $10,000,000.
The Company's mortgage debt, all of which is nonrecourse, totaled
$1,832,059,000 at January 31, 1996. 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. In 1995, the Company completed $754,000,000 of financing,
including $233,000,000 in new mortgages and $521,000,000 in refinancing of
existing mortgages. Just as we have been able to refinance our debt that
has matured in the past, we expect to either extend the maturing dates of
our loans as they come due or refinance the projects.
The Company's wholesale lumber division 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, 1996. At
January 31, 1996, $12,743,000 was outstanding under this line of credit.
The sources of liquidity of the Company and its subsidiaries are unused
bank lines, cash flow from operations, refinancing of 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 Corporation 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 medium-term bank loans
bearing floating rates of interest. When the financing terms are
favorable, the Company securitizes its nonrecourse debt on longer-term
bases as well as obtains fixed rate mortgage debt for certain properties.
The Company has a substantial amount of variable-rate debt that has
enabled it to benefit from historically low interest rates. With
variable-rate debt in excess of $1 billion, the current level and interest
rates and any future rate increases will have an impact on future cash
flow. Interest rate protection has been purchased for the vast majority
of the portfolio for 1996 and the Company plans to purchase additional
interest rate protection and fix rates as is deemed appropriate.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS 121 establishes accounting standards for the review of
impairment of a long-lived asset whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company will adopt the provisions of SFAS 121, which
are effective for fiscal years beginning after December 15, 1995. The
adoption of SFAS 121 will not have a material effect on the financial
position or results of operations of the Company.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation", which is effective for financial statements for fiscal years
beginning after December 15, 1995. As of January 31, 1996, the Company
has not granted options under the Stock Option Plan. Once stock options
are granted, the Company will analyze whether to adopt the recognition
provisions of SFAS 123 or apply the existing accounting rules contained in
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees".
GENERAL
Forest City had both investment tax credits and substantial tax net
operating loss carryforwards ("NOL") at the end of 1995. The Company
projects that this NOL will decrease during 1996, primarily due to property
transactions. 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.