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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 1-4372
FOREST CITY ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-0863886
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
10800 BROOKPARK ROAD
CLEVELAND, OHIO 44130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 216-267-1200
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
Class A Common Stock ($.33 1/3 par value) American Stock Exchange
Class B Common Stock ($.33 1/3 par value) American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 4, 1997 the aggregate market value of the voting stock held by
non-affiliates of the registrant amounted to $210,541,403 and $67,584,666 for
Class A and Class B common stock, respectively.
The number of shares of registrant's common stock outstanding on March 4, 1997
was 7,702,308 and 5,409,668 for Class A and Class B common stock, respectively.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held June 10, 1997 are incorporated by reference into Part III of this Form
10-K.
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FOREST CITY ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
JANUARY 31, 1997
TABLE OF CONTENTS
PAGE
------
PART I
Item 1. Business................................................................... 1
Item 2. Properties................................................................. 4
Item 3. Legal Proceedings.......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........................ 8
Item 4A. Executive Officers of the Registrant....................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 9
Item 6. Selected Financial Data.................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 21
Item 8. Financial Statements and Supplementary Data................................ 22
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................. 46
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 46
Item 11. Executive Compensation..................................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 46
Item 13. Certain Relationships and Related Transactions............................. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 46
Signatures................................................................. 51
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PART I
ITEM 1. BUSINESS
Founded 77 years ago and publicly traded since 1960, Forest City
Enterprises, Inc. (with its Subsidiaries, the "Company" or "Forest City") is one
of the leading real estate development companies in the United States. It
develops, acquires, owns and manages commercial and residential real estate
projects in 20 states and the District of Columbia. At January 31, 1997, the
Company had $2.7 billion in consolidated assets, of which approximately $2.5
billion was invested in commercial and residential real estate.
The Company operates through its four principal business groups:
- The Commercial Group, which develops, acquires, owns and operates
shopping centers, office buildings and mixed-use projects including
hotels.
- The Residential Group, which develops, acquires, owns and operates the
Company's multi-family properties.
- The Land Group, which owns and develops raw land into master planned
communities and other residential developments for resale.
- The Lumber Trading Group, which operates the Company's lumber wholesaling
business.
Each group operates autonomously and each of the Commercial Group and the
Residential Group has its own development, acquisition, leasing, property and
financial management functions. As a result, each of these groups is able to
perform all of the tasks necessary to develop and maintain a property from
selecting a project site to financing the project to managing the completed
project. The Company's "corporate" activities relate to its investments in, and
advances to, affiliates, and general corporate items.
The following table sets forth, by type of property, a summary of the
Company's operating portfolio of commercial, residential and land projects as of
January 31, 1997.
NUMBER OF REPRESENTATIVE PRINCIPAL
TYPE OF PROPERTY PROPERTIES TOTAL SIZE METROPOLITAN REGIONS
- ---------------------------------- ----------- ----------------- ----------------------------------
COMMERCIAL GROUP
Shopping Centers................ 30 14.3 million New York City (4); California (4);
square feet Cleveland (3); Akron, OH (3); Las
Vegas (2); Tucson (2)
Office Buildings................ 20 6.4 million Cleveland (9); New York City (5);
leasable square Cambridge, MA (3); Pittsburgh (2)
feet
Hotels.......................... 5 1,530 rooms Cleveland (2); Pittsburgh (1);
Charleston, WV (1); Detroit (1)
RESIDENTIAL GROUP
Apartment Communities (1)....... 114 31,441 units Cleveland (20); California (7);
Washington, D.C. (5); Detroit (4);
Cambridge, MA (1); Las Vegas (1)
LAND GROUP
Land held for improvement and
sale.......................... -- 5,920 acres Ft. Lauderdale; Las Vegas;
Cleveland; Tucson
- ---------------
(1) Includes 9,402 syndicated senior citizen units in 57 apartment communities
developed under Federal subsidy programs in which the Company holds a
residual interest, none of which are reflected under the caption
"Representative Principal Metropolitan Regions."
During 1996, the Company opened six new shopping centers with an aggregate
of 1.4 million square feet of gross leaseable area ("GLA"), acquired a new
apartment complex with 419 apartment units, and opened 336 additional apartment
units at four existing projects.
1
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The following table sets forth certain information regarding these
properties.
COMPANY'S
DEVELOPED (D) DATE TOTAL COST SHARE OF TOTAL
OR OPENED/ COMPANY AT 100% COST SQUARE GLA(1)/
PROPERTY LOCATION ACQUIRED (A) ACQUIRED OWNERSHIP (%) (IN MIL.) (IN MIL.) FEET NO. OF UNITS
- ----------------- ----------------- ------------- -------- ------------- ---------- --------- --------- ------------
COMMERCIAL GROUP
Shopping Centers
Galleria at
Sunset.......... Henderson, NV D Feb-96 60% $ 82.0 $ 49.2 892,000 294,000
Hunting Park..... Philadelphia, PA D Apr-96 70 14.9 10.4 144,000 144,000
Bruckner
Boulevard....... Bronx, NY D Sep-96 70 15.1 10.6 114,000 114,000
Marketplace at
Riverpark....... Fresno, CA D Sep-96 50 26.5 13.3 453,000 284,000
Atlantic
Center.......... Brooklyn, NY D Nov-96 75 75.2 56.4 391,000 391,000
Showcase......... Las Vegas, NV D Dec-96 20 76.9 15.4 189,000 189,000
------ ------ --------- ---------
Subtotal...... $290.6 $ 155.3 2,183,000 1,416,000
========= =========
------ ------
RESIDENTIAL GROUP
Tam-A-Rac(2)..... Willoughby, OH D Feb-96 50% 3.3 1.7 64
Cherry Tree(2)... Strongsville, OH D Apr-96 50 6.9 3.5 132
Big Creek(2)..... Parma Hts., OH D May-96 50 4.3 2.2 72
Emerald Palms.... Miami, FL A May-96 100 21.8 21.8 419
Pebble
Creek(2)........ Twinsburg, OH D Sep-96 50 3.4 1.7 68
------ ------ ---------
Subtotal...... $ 39.7 $ 30.9 755
=========
------ ------
Total...... $330.3 $ 186.2
====== ======
- ---------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
(2) Part of a phased construction process.
COMMERCIAL GROUP
The Company has developed retail projects for more than 50 years and
office, mixed-use and hotel projects for more than 30 years, and today the
Commercial Group owns a diverse portfolio in both urban and suburban locations
in 12 states. The Commercial Group targets densely populated locations where it
uses its expertise to develop complex projects, often employing public/private
partnerships. As of January 31, 1997, the Commercial Group owned interests in 55
completed projects, including 30 retail properties, 20 office properties and
five hotels.
The Company opened its first strip shopping center in 1948, and its first
enclosed regional mall in 1962. Since then, it has developed urban retail
centers, entertainment based centers, community centers and power centers
focused on "big box" retailing (collectively, "Specialty Retail Centers"), as
well as regional malls. As of January 31, 1997, the Commercial Group's shopping
center portfolio consisted of 14 regional malls with a total GLA of 4.3 million
square feet and 16 Specialty Retail Centers with a total GLA of 3.4 million
square feet.
Malls are generally developed in collaboration with anchor stores that
usually own their own facilities as integral parts of the mall structure and
environment and which do not generate significant direct payments to the
Company. In contrast, anchor stores at specialty retail and power centers
generally are tenants under long-term leases which contribute significant rental
payments to the Company.
While the Company continues to develop regional malls in strong markets,
the Company recently has pioneered the concept of bringing "big box" retailing
to urban locations previously ignored by major retailers. With high population
densities and disposable income levels at or near those of the suburbs, urban
development is proving to be economically advantageous for the Company, for the
tenants who realize high sales per square foot and for the cities, which benefit
from the new jobs created in the urban locations.
The Company's existing portfolio of office/mixed-use and hotel projects
consists of 20 office buildings containing 6.4 million square feet, including
mixed-use projects with an aggregate of 164,000 gross leasable square feet of
retail space and five hotels with 1,530 rooms.
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In its office development activities, Forest City is primarily a
build-to-suit developer which works with tenants to meet their highly
specialized requirements. The Company's office development has focused primarily
on mixed-use projects in urban developments, often built in conjunction with
hotels and shopping centers or as part of a major office campus. As a result of
this focus on new urban developments, 50% of the Company's office buildings were
built within the last seven years and are concentrated in four new urban
developments located in Brooklyn, Cleveland, Cambridge and Pittsburgh.
RESIDENTIAL GROUP
The Company's Residential Group develops, acquires, owns, leases and
manages residential rental property in 16 states and the District of Columbia.
The Company has been engaged in apartment community development for over 50
years, beginning in northeast Ohio, and gradually expanding nationally. Its
portfolio includes mature middle-market apartments in geographically attractive
suburbs, newer and higher end apartments in unique urban locations and newer
apartments in the suburbs. The Residential Group, which focuses on large
apartment complexes, does not develop or operate single-family housing or
condominium projects.
The Residential Group's portfolio consists of 31,441 units in which Forest
City has an ownership interest, including 9,402 units of syndicated senior
citizen subsidized housing that the Company manages and in which it owns a
residual interest.
LAND GROUP
The Company has been in the land business since the 1930's. The Land Group
acquires and sells both raw land and developed lots to residential, commercial
and industrial customers. The Land Group projects attract national, regional and
local builders. The Land Group develops raw land into master planned
communities, mixed-use and other residential developments and currently owns
more than 5,920 acres of undeveloped land for this purpose. The Company
currently has major land development projects in five states.
Historically, the Land Group's activities focused on land development
projects in northeast Ohio. Over time, the Group's activities expanded to
larger, more complex projects, and regional expansion into western New York
State. In the last ten years, the Group has extended its activities on a
national basis, first in Arizona, and more recently in Florida and Nevada.
In addition to the sales activities of the Land Group, the Company also
sells land acquired by its Commercial Group and Residential Group adjacent to
their respective projects. Proceeds from such land sales are included in the
revenues and assets of such Groups.
LUMBER TRADING GROUP
The Company's original business was selling lumber to homebuilders. The
Company expanded this business in 1969 through its acquisition of Forest City
Trading Group, Inc., which is a lumber wholesaler to customers in all 50 states
and in all Canadian provinces. Through ten strategically located independent
trading companies in the United States and Canada, employing 343 traders, Forest
City sold the equivalent of seven billion board feet of lumber in 1996, with a
gross sales volume of nearly $3 billion, making the Company one of the largest
lumber wholesalers in North America.
The Lumber Trading Group currently has offices in 11 states, the District
of Columbia, Vancouver, British Columbia and Toronto, Ontario. The Company opens
offices in response to the changing demands of the lumber industry. In 1996, the
Lumber Trading Group opened offices in Utah and Texas. The new Houston, Texas
office is part of the Lumber Trading Group's strategic initiative to increase
its participation in the southern pine market, which is growing in popularity as
logging restrictions limit production in the Pacific Northwest.
The Lumber Trading Group's core business is supplying lumber for new home
construction and to the repair and remodeling markets. Approximately 60% of the
Lumber Trading Group's sales involve back-to-back trades in which the Company
brings together a buyer and seller for an immediate purchase and sale. The
3
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balance of transactions are trades in which the Company takes a short-term
ownership position and is at risk for lumber market fluctuations.
COMPETITION
The real estate industry is highly competitive in all major markets. With
regard to the Commercial and Residential Groups, there are numerous other
developers, managers and owners of commercial and residential real estate that
compete with the Company nationally, regionally and/or locally in seeking
management and leasing revenues, land for development, properties for
acquisition and disposition and tenants for properties, some of whom may have
greater financial resources than the Company. There can be no assurance that the
Company will successfully compete for new projects or have the ability to react
to competitive pressures on existing projects caused by factors such as
declining occupancy rates or rental rates. In addition, tenants at the Company's
retail properties face continued competition in attracting customers from
retailers at other shopping centers, catalogue companies, warehouse stores,
large discounters, outlet malls, wholesale clubs and direct mail and
telemarketers. The existence of competing developers, managers and owners and
competition to the Company's tenants could have a material adverse effect on the
Company's ability to lease space in its properties and on the rents charged or
concessions granted, could materially and adversely affect the Company's results
of operations and cash flows, and could affect the realizable value of assets
upon sale.
With regard to the Lumber Trading Group, the lumber wholesaling business is
highly competitive. Competitors in the lumber brokerage business include
numerous brokers and in-house sales departments of lumber manufacturers, many of
which are larger and have greater resources than the Company.
Forest City was incorporated in Ohio in 1960 as a successor to a business
started in 1921.
NUMBER OF EMPLOYEES
The Company had 3,384 employees as of January 31, 1997, of which 2,525 were
full-time and 859 were part-time.
SEGMENTS OF BUSINESS
Financial information about industry segments required by this item is
included in Item 8. Financial Statements and Supplementary Data, page 37, Note I
"Segment Information."
ITEM 2. PROPERTIES
The Corporate headquarters of Forest City Enterprises is located in
Cleveland, Ohio and is owned by the Company. Forest City Trading Group maintains
its headquarters in Portland, Oregon with twenty-three administrative and sales
offices and one processing plant located in eleven states and the District of
Columbia and two sales offices in Canada. The following table lists the shopping
centers, office buildings, hotels, and apartments in which Forest City Rental
Properties Corporation has an interest:
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PROPERTIES
The following tables provide summary information concerning the Company's
real estate portfolio as of January 31, 1997.
SHOPPING CENTERS -- EXISTING PORTFOLIO
YEAR
COMPLETED/ RETAIL SQ. FT.
DATE OF LAST COMPANY INCLUDING
NAME RENOVATION OWNERSHIP(%) LOCATION MAJOR ANCHORS DEPT. STORES GLA
- ----------------- ------------ ---------- ----------------- -------------------------------------- -------------- ---------
REGIONAL MALLS
Antelope Valley
Mall............ 1990 40.0% Palmdale, CA Sears Roebuck and Co.; JC Penney's; 839,000 287,000
Gottshalk's; Harris; Mervyn's
The Avenue at
Tower City...... 1990/1996 100.0 Cleveland, OH Dillard's 368,000 368,000
Ballston
Common.......... 1986/1995 100.0 Arlington, VA Hecht's; JC Penney's 490,000 221,000
Boulevard Mall... 1962/1996 50.0 Amherst, NY Jenss; JC Penney's; Kaufmann's 772,000 261,000
Canton Centre.... 1981/1988 100.0 Canton, OH Kaufmann's; JC Penney's; Montgomery 680,000 254,000
Ward
Chapel Hill
Mall............ 1966/1995 50.0 Akron, OH Kaufmann's; JC Penney's; Sears Roebuck 882,000 321,000
and Co.
Charleston Town
Center.......... 1983/1994 50.0 Charleston, WV Kaufmann's; JC Penney's; Sears Roebuck 897,000 360,000
and Co.; Montgomery Ward
Courtland
Center.......... 1968 100.0 Flint, MI Crowley's; JC Penney's; Mervyn's 460,000 239,000
Galleria at
Sunset.......... 1996 60.0 Henderson, NV Dillard's; Robinson-May; Mervyn's; JC 892,000 294,000
Penney's
Manhattan Town
Center.......... 1987 37.5 Manhattan, KS Dillard's; JC Penney's; Sears Roebuck 380,000 185,000
and Co.
Rolling Acres
Mall............ 1975 80.0 Akron, OH Kaufmann's; JC Penney's; Sears Roebuck 1,014,000 365,000
and Co.; Dillard's; Target
South Bay
Galleria........ 1985 50.0 Redondo Beach, CA May Co.; Mervyn's; Nordstrom's 953,000 385,000
Summit Park
Mall............ 1972 100.0 Wheatfield, NY Bon-Ton; Jenss; Sears Roebuck and Co. 695,000 309,000
Tucson Mall...... 1982/1992 67.5 Tucson, AZ Broadway's; Foley's; Dillard's; 1,293,000 408,000
Mervyn's; JC Penney's; Sears Roebuck
and Co.
---------- ---------
Subtotal...... 10,615,000 4,257,000
---------- ---------
SPECIALTY RETAIL CENTERS
Atlantic
Center.......... 1996 75.0% Brooklyn, NY Caldor; The Sports Authority; 391,000 391,000
Pathmark; OfficeMax
Bowling Green
Mall............ 1966 50.0 Bowling Green, KY Kroger; Quality Big Lots 242,000 242,000
Bruckner
Boulevard....... 1996 70.0 Bronx, NY Pergament; Seaman's; Young World; Old 114,000 114,000
Navy
Chapel Hill
Suburban........ 1969 50.0 Akron, OH Value City; Petzazz 112,000 112,000
Courtyard........ 1990 50.0 Flint, MI V.G.'s Market; Home Depot; OfficeMax 233,000 124,000
Flatbush
Avenue.......... 1995 80.0 Brooklyn, NY Caldor 90,000 90,000
Gallery at
MetroTech....... 1990 80.0 Brooklyn, NY Toys "R" Us 163,000 163,000
Golden Gate...... 1958/1996 50.0 Mayfield Hts., OH OfficeMax; Old Navy; Koenig; 260,000 260,000
Michael's; Home Place
Hunting Park..... 1996 70.0 Philadelphia, PA Caldor; US Kidz; Payless Shoes 144,000 144,000
Marketplace at
Riverpark....... 1996 50.0 Fresno, CA Best Buy; Target; Marshall's; JC 453,000 284,000
Penney's
Midtown Plaza.... 1961 50.0 Parma, OH Hills 256,000 256,000
Newport Plaza.... 1977 50.0 Newport, KY IGA 157,000 157,000
The Plaza at
Robinson Town
Center.......... 1989 50.0 Pittsburgh, PA T.J. Maxx; IKEA; Hills; Marshall's; 455,000 455,000
Sears Roebuck and Co.
Showcase......... 1996 20.0 Las Vegas, NV Coca-Cola(R); All Star Cafe 189,000 189,000
South Bay
Southern........ 1978 100.0 Redondo Beach, CA CompUSA; General Cinema 160,000 160,000
Tucson Place..... 1989 100.0 Tucson, AZ Wal-Mart; Homelife; OfficeMax; 276,000 276,000
Smitty's
---------- ---------
Subtotal...... 3,695,000 3,417,000
---------- ---------
Shopping Centers at January 31, 1997 14,310,000 7,674,000
========== =========
Shopping Centers at January 31, 1996 13,422,000 6,938,000
========== =========
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OFFICE BUILDINGS -- EXISTING PORTFOLIO
LEASABLE
YEAR COMPLETED COMPANY SQUARE
NAME OR ACQUIRED OWNERSHIP (%) LOCATION MAJOR TENANTS FEET
- -------------------------- --------------- -------------- ---------------------- ---------------------------- -----------
METROTECH CENTER
Eleven MetroTech
Center................ 1995 65.0% Brooklyn, NY E-911 -- City of New York 216,000
One MetroTech........... 1991 65.0 Brooklyn, NY Brooklyn Union Gas; Bear 932,000
Stearns & Co., Inc.
One Pierrepont Plaza.... 1988 85.0 Brooklyn, NY Morgan Stanley & Co. 672,000
Incorporated; Goldman,
Sachs & Co.; U.S. Attorney
Ten MetroTech Center.... 1991 80.0 Brooklyn, NY Internal Revenue Service 409,000
Two MetroTech........... 1990 65.0 Brooklyn, NY Securities Industry 521,000
Automation Corp.
-----------
Subtotal..............
2,750,000
-----------
TOWER CITY CENTER
Chase Financial Tower... 1991 95.0% Cleveland, OH Chase Financial 119,000
M.K. Ferguson 1990
Plaza(1).............. 1.0 Cleveland, OH M.K. Ferguson; Chase 482,000
Financial
Skylight Office Tower... 1991 85.0 Cleveland, OH Ernst & Young, L.L.P 321,000
Terminal Tower.......... 1983 100.0 Cleveland, OH Forest City Enterprises, 583,000
Inc.
-----------
Subtotal..............
1,505,000
-----------
MIT
Clark Building.......... 1989 50.0% Cambridge, MA Oravax 122,000
Jackson Building........ 1987 100.0 Cambridge, MA Ariad Pharmaceuticals 99,000
Richards Building....... 1990 100.0 Cambridge, MA Genzyme Tissue Repair; 126,000
Alkermes
-----------
Subtotal..............
347,000
-----------
OTHER
Chagrin Plaza I & II.... 1969 66.7% Beachwood, OH National City Bank 116,000
Emery-Richmond.......... 1991 50.0 Warrensville Hts., OH All State Insurance 5,000
Halle Building.......... 1986 75.0 Cleveland, OH Sealy, Inc.; North American 379,000
Refractories Co.
Liberty Center.......... 1986 50.0 Pittsburgh, PA Federated Investors 526,000
San Vicente............. 1983 25.0 Brentwood, CA Foote, Cone; Needham, Harper 469,000
Signature Square I...... 1986 50.0 Beachwood, OH Ciuni & Panichi 79,000
Signature Square II..... 1989 50.0 Beachwood, OH Sterling Software 81,000
Station Square.......... 1994 25.0 Pittsburgh, PA Woodsons; Grand Concourse 144,000
-----------
Subtotal..............
1,799,000
-----------
Office Buildings at January 31, 1997 and 1996 6,401,000
=========
HOTELS -- EXISTING PORTFOLIO
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP (%) LOCATION ROOMS
- ----------------------------------------- ----------- ------------- ------------------ -----
Budgetel................................. 1982 28.4% Mayfield Hts., OH 102
Charleston Marriott...................... 1983 95.0 Charleston, WV 354
DoubleTree at Liberty Center............. 1986 50.0 Pittsburgh, PA 616
DoubleTree at Millender Center(1)........ 1985 4.0 Detroit, MI 250
Ritz-Carlton............................. 1990 95.0 Cleveland, OH 208
-----
Hotel Rooms at January 31, 1997 and 1996 1,530
=====
- ---------------
(1) Syndicated.
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APARTMENTS -- EXISTING PORTFOLIO
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP (%) LOCATION UNITS
- ---------------------------------------------------- ---------- --------------- ---------------------- ------
Bayside Village I, II & III......................... 1988-1989 50.0% San Francisco, CA 862
Big Creek........................................... 1996 50.0 Parma Hts., OH 72
Boot Ranch.......................................... 1991 50.0 Tampa, FL 236
Boulevard Towers.................................... 1969 50.0 Amherst, NY 402
Camelot............................................. 1967 50.0 Parma, OH 150
Chapel Hill Towers.................................. 1969 50.0 Akron, OH 402
Cherry Tree......................................... 1996 50.0 Strongsville, OH 132
Chestnut Lake....................................... 1969 50.0 Strongsville, OH 789
Clarkwood........................................... 1963 50.0 Warrensville Hts., OH 568
Classic Residence by Hyatt.......................... 1990 50.0 Chevy Chase, MD 339
Classic Residence by Hyatt.......................... 1989 50.0 Teaneck, NJ 221
Copper Creek........................................ 1992 20.0 Houston, TX 300
Deer Run I & II..................................... 1987-1989 43.0 Twinsburg, OH 562
Emerald Palms....................................... 1996 100.0 Miami, FL 419
Fenimore Court(1)................................... 1982 0.5 Detroit, MI 144
Fort Lincoln II..................................... 1979 45.0 Washington, D.C. 176
Fort Lincoln III & IV............................... 1981 24.9 Washington, D.C. 306
Granada Gardens..................................... 1966 50.0 Warrensville Hts., OH 940
Greenbriar.......................................... 1992 20.0 Houston, TX 400
Hamptons............................................ 1969 50.0 Beachwood, OH 649
Highlands I & II.................................... 1988-1990 100.0 Grand Terrace, CA 556
Hunter's Hollow..................................... 1990 50.0 Strongsville, OH 208
Independence Place I................................ 1976 50.0 Parma Hts., OH 202
Kennedy Lofts(1).................................... 1990 0.5 Cambridge, MA 142
Knolls(1)........................................... 1995 1.0 Orange, CA 260
Laurels............................................. 1995 100.0 Justice, IL 520
Lenox Club(1)....................................... 1991 0.5 Arlington, VA 385
Lenox Park(1)....................................... 1992 0.5 Silver Spring, MD 406
Liberty Hills....................................... 1979-1986 50.0 Solon, OH 396
Metropolitan........................................ 1989 100.0 Los Angeles, CA 270
Midtown Towers...................................... 1969 50.0 Parma, OH 635
Millender Center(1)................................. 1985 4.0 Detroit, MI 339
Noble Towers........................................ 1979 50.0 Pittsburgh, PA 133
Oaks................................................ 1994 100.0 Bryan, TX 248
One Franklintown.................................... 1988 100.0 Philadelphia, PA 335
Palm Villas......................................... 1991 100.0 Henderson, NV 350
Panorama Towers..................................... 1978 99.0 Los Angeles, CA 154
Parmatown........................................... 1972-1973 100.0 Parma, OH 412
Pavilion(1)......................................... 1992 0.5 Chicago, IL 1,115
Pebble Creek........................................ 1995-1996 50.0 Twinsburg, OH 148
Peppertree.......................................... 1993 100.0 College Station, TX 208
Pine Ridge Valley................................... 1967-1974 50.0 Willoughby, OH 1,147
Queenswood(1)....................................... 1990 0.7 Corona, NY 296
Regency Towers...................................... 1994 100.0 Jackson, NJ 372
Shippan Avenue...................................... 1980 100.0 Stamford, CT 148
Studio Colony....................................... 1986 80.0 Los Angeles, CA 450
Surfside Towers..................................... 1970 50.0 Eastlake, OH 246
Tam-A-Rac I, II & III............................... 1990-1996 50.0 Willoughby, OH 392
Toscana............................................. 1991-1992 100.0 Irvine, CA 563
Trolley Plaza....................................... 1981 100.0 Detroit, MI 351
Trowbridge.......................................... 1988 53.3 Southfield, MI 304
Twin Lakes Towers................................... 1966 50.0 Denver, CO 254
Village Green....................................... 1994-1995 25.0 Beachwood, OH 360
Vineyards........................................... 1995 100.0 Broadview Hts., OH 336
Waterford Village(1)................................ 1994 1.0 Indianapolis, IN 520
White Acres......................................... 1966 50.0 Richmond Hts., OH 473
Woodforest Glen..................................... 1992 20.0 Houston, TX 336
------
Subtotal........................................ 22,039
Senior Citizens Apartments(2)....................... 9,402
------
Apartments at January 31, 1997 31,441
======
Apartments at January 31, 1996 30,686
======
- ---------------
(1) Syndicated.
(2) Syndicated, subsidized units in 57 communities in which the Company holds a
residual interest only.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its
business. The Company's General Counsel is of the opinion that none of these
claims and lawsuits will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following list is included as an unnumbered Item in Part I of this
Report in lieu of being included in the Proxy Statement for the Annual Meeting
of Shareholders to be held on June 10, 1997.
The names, ages and positions held by the executive officers of the Company
are presented in the following list. Each individual has been appointed to serve
for the period which ends with the Annual Meeting of Shareholders scheduled for
June 10, 1997.
NAME AND POSITION(S) HELD DATE APPOINTED AGE
- --------------------------------------------------------------------- -------------- ---
ALBERT B. RATNER
Co-Chairman of the Board of Directors of the Company since June 1995,
Vice Chairman of the Board of the Company from June 1993 to June
1995, Chief Executive Officer prior to July 1995 and President prior
to July 1993......................................................... 6-13-95 69
SAMUEL H. MILLER
Co-Chairman of the Board of Directors of the Company since June 1995,
Chairman of the Board of the Company from June 1993 to June 1995 and
Vice Chairman of the Board, Chief Operating Officer of the Company
prior to June 1993, Treasurer of the Company since December 1992..... 6-13-95 75
NATHAN SHAFRAN
Vice Chairman of the Board of Directors, Officer of various
subsidiary corporations.............................................. 3-11-87 83
CHARLES A. RATNER
President of the Company since June 1993, Chief Executive Officer of
the Company since June 1995, Chief Operating Officer from June 1993
to June 1995 and Executive Vice President prior to June 1993,
Director............................................................. 6-13-95 55
JAMES A. RATNER
Executive Vice President, Director, Officer of various subsidiary
corporations......................................................... 3-09-88 52
RONALD A. RATNER
Executive Vice President, Director, Officer of various subsidiary
corporations......................................................... 3-09-88 50
THOMAS G. SMITH
Senior Vice President, Chief Financial Officer, Secretary, Officer of
various subsidiary corporations...................................... 9-03-85 56
WILLIAM M. WARREN
Senior Vice President, General Counsel and Assistant Secretary....... 5-16-72 68
BRIAN J. RATNER
Senior Vice President -- Development since January 1997, Vice
President -- Urban Entertainment from June 1995 to December 1996,
Vice President from May 1994 to June 1995 and an officer of various
subsidiaries......................................................... 1-01-97 39
LINDA M. KANE
Vice President and Corporate Controller since April 1995, Asset
Manager -- Commercial Group from July 1992 to April 1995 and
Financial Analyst -- Residential Group from October 1990 to July
1992................................................................. 4-01-95 39
- ---------------
Note: Nathan Shafran is the uncle of Charles A. Ratner, James A. Ratner and
Ronald A. Ratner, who are brothers, and is the uncle of Albert B. Ratner.
Albert B. Ratner is the father of Brian J. Ratner and Deborah Ratner
Salzberg and is first cousin to Charles A. Ratner, James A. Ratner and
Ronald A. Ratner.
8
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is included in Item 8. Financial
Statements and Supplementary Data, page 43, "Quarterly Consolidated Financial
Data (Unaudited)."
There were no sales by the Company of its equity securities during the
fiscal year ended January 31, 1997 that were not registered under the Securities
Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
For the Years Ended January 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands, except per share data)
OPERATING RESULTS
Revenues.................................. $610,449 $529,433 $522,608 $519,379 $474,469
======== ======== ======== ======== ========
Net earnings (loss) before extraordinary
gain(1)
Operating earnings (loss), net of
tax(2)............................... $ 6,986 $ 13,490 $ 6,774 $ 718 $ (4,712)
Provision for decline in real estate,
net of tax........................... (7,413) (6,073) (4,986) -- (5,705)
Gain (loss) on disposition of
properties, net of tax............... 9,598 (478) (20,321) 1,494 23,104
-------- -------- -------- -------- --------
$ 9,171 $ 6,939 $(18,533) $ 2,212 $ 12,687
======== ======== ======== ======== ========
Earnings before depreciation, amortization
and deferred taxes(1)
Operating earnings (loss), net of
tax(2)............................... $ 6,986 $ 13,490 $ 6,774 $ 718 $ (4,712)
Adjustments related to real estate
operations(3)
Depreciation and amortization........ 70,221 63,557 63,956 63,901 57,896
Deferred income taxes................ 13,197 4,974 10,532 10,865 19,021
Accrued interest of a rental property
not paid........................... -- -- -- 5,495 4,870
-------- -------- -------- -------- --------
Real estate adjustments............ 83,418 68,531 74,488 80,261 81,787
-------- -------- -------- -------- --------
$ 90,404 $ 82,021 $ 81,262 $ 80,979 $ 77,075
======== ======== ======== ======== ========
Per common share
Net earnings (loss) before extraordinary
gain(1)(4)........................... $ .70 $ .51 $ (1.37) $ .16 $ .94
======== ======== ======== ======== ========
Cash dividends declared(4)
Class A................................. $ .27 $ .17 $ .13 $ -- $ --
Class B................................. $ .27 $ .17 $ .13 $ -- $ --
9
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SELECTED FINANCIAL DATA (CONT'D)
January 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands)
FINANCIAL POSITION
Consolidated assets................ $2,741,405 $2,631,046 $2,584,734 $2,668,057 $2,625,404
Real estate portfolio, at cost..... $2,520,179 $2,425,083 $2,322,136 $2,405,066 $2,310,970
Long-term debt, including mortgage
debt............................. $1,993,351 $1,945,120 $1,881,917 $2,026,451 $1,972,160
FOREST CITY RENTAL PROPERTIES CORPORATION -- REAL ESTATE ACTIVITY
Total real estate -- end of year
Completed rental properties,
before depreciation........... $2,227,859 $2,085,284 $1,995,629 $2,101,528 $2,045,946
Projects under development....... 215,960 246,240 230,802 214,111 188,187
---------- ---------- ---------- ---------- ----------
2,443,819 2,331,524 2,226,431 2,315,639 2,234,133
Accumulated depreciation......... (387,733) (338,216) (293,465) (272,518) (232,905)
---------- ---------- ---------- ---------- ----------
Rental properties, net of
depreciation................ $2,056,086 $1,993,308 $1,932,966 $2,043,121 $2,001,228
========== ========== ========== ========== ==========
Activity during the year
Completed rental properties
Additions..................... $ 160,690 $ 89,028 $ 77,265 $ 50,384 $ 200,440
Acquisitions.................. 22,264 28,587 32,811 5,198 --
Dispositions.................. (40,379) (27,960) (215,975) -- (32,888)
---------- ---------- ---------- ---------- ----------
142,575 89,655 (105,899) 55,582 167,552
---------- ---------- ---------- ---------- ----------
Projects under development
New development............... 98,403 58,798 49,585 54,317 39,045
Transferred to completed
rental properties........... (128,683) (43,360) (32,894) (28,393) (167,629)
---------- ---------- ---------- ---------- ----------
(30,280) 15,438 16,691 25,924 (128,584)
---------- ---------- ---------- ---------- ----------
Increase (decrease) in rental
properties, at cost.............. $ 112,295 $ 105,093 $ (89,208) $ 81,506 $ 38,968
========== ========== ========== ========== ==========
- ---------------
(1) Excludes the extraordinary gain, net of tax, of $2,900,000, $1,847,000 and
$60,449,000 for the years ended January 31, 1997, 1996 and 1995,
respectively.
(2) Excludes the provision for decline in real estate and gain (loss) on
disposition of properties, net of tax.
(3) These adjustments represent amounts related to the Company's real estate
operations in Rental Properties only.
(4) Adjusted for three-for-two stock split effective February 17, 1997.
10
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, acquires, owns and manages commercial and residential
real estate properties in 20 states and the District of Columbia. The Company
owns a portfolio that is diversified both geographically and by property types
and operates through four principal business groups: Commercial Group,
Residential Group, Land Group and the Lumber Trading Group.
The Company uses an additional measure, along with net earnings (loss), to
report its operating results. This measure, referred to as Earnings Before
Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of
operating results or cash flows from operations as defined by generally accepted
accounting principles. However, the Company believes that EBDT provides
additional information about its operations and, along with net earnings (loss),
is necessary to understand its operating results. The Company believes that EBDT
is also an indicator of the Company's ability to generate cash to meet its
funding requirements. EBDT is defined and discussed in detail under "Results of
Operations-- EBDT."
The Company's EBDT grew by 10.2% (or 13.0% per share) in 1996 to
$90,404,000, or $6.87 per share of common stock, from $82,021,000, or $6.08 per
share of common stock in 1995. This increase in EBDT was primarily the result of
the addition of new retail properties, improved operating results from the
Company's existing portfolio, acquisition of apartment projects, sales of land
by the Commercial and Land Groups, strong lumber trading activity and favorable
interest rates. EBDT grew by 0.9% (or 1.0% per share) in 1995 from $81,262,000,
or $6.03 per share of common stock in 1994, with the positive impact of new
project openings offset by the effect of the disposition of Park LaBrea Towers,
a 2,825-unit apartment community in Los Angeles, California.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal
business groups as it believes such reporting provides the most meaningful
understanding of the Company's financial performance.
The major components of EBDT are Revenues, Operating Expenses and Interest
Expense, each of which is discussed below. Net Operating Income ("NOI") is
defined as Revenues less Operating Expenses. See Note I to the Consolidated
Financial Statements and information in the table "Three Year Summary of
Earnings Before Depreciation, Amortization and Deferred Taxes" at the end of
this section.
NET OPERATING INCOME FROM REAL ESTATE OPERATIONS
NOI from the combined Commercial Group and Residential Group for 1996 was
$196,456,000 compared to $199,651,000 in 1995, a 1.6% decrease. NOI in 1996 and
1995 was affected by the following items, which the Company believes are
non-recurring: (1) an increase of $5,863,000 in development expenses in 1996
over 1995, which includes write-offs of abandoned projects in excess of normal
levels, and (2) a decrease of $6,565,000 in the EBDT, resulting from an
unusually low cost basis in the land sold in 1995 (on comparable sales revenues)
compared to 1996. See "-- Commercial Group -- Operating and Interest Expenses."
Adjusting for these items, NOI would have been $202,319,000 and $193,086,000 for
1996 and 1995, respectively, a 4.8% increase. Comparable NOI (for properties in
operation throughout both periods) increased 2.5% from 1995 to 1996 and 6.1%
from 1994 to 1995. Eliminating asset dispositions and the non-recurring
development expenses discussed above, and including the expected NOI during the
initial twelve months after stabilization for the 11 properties that were opened
or acquired in 1996 and annualizing the ground rent received in 1996 from a
project under construction, would result in total NOI of approximately
$209,964,000.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group increased by $15,593,000 (or
5.3%) to $309,834,000 in 1996 from $294,241,000 in 1995. This increase was
primarily the result of the opening of the Galleria at
11
14
Sunset in Henderson, Nevada ($5,578,000), improved performance from existing
properties ($6,412,000) and the benefit of a full year of operating results from
properties that opened in 1995 ($5,403,000). These increases were offset by a
reduction in revenues due to the dispositions of Beachwood Place ($786,000) and
Victor Village ($438,000) (see "-- Other Transactions -- Gain (Loss) on
Disposition of Properties") and the loss of revenue from ten leases rejected by
Handy Andy which went bankrupt in 1996 ($1,109,000).
Revenues of the Commercial Group in 1995 increased by $35,275,000 (or
13.6%) from $258,966,000 in 1994. This increase was primarily attributable to
the sale of a five acre parcel of land at Tower City Center in Cleveland, Ohio
to the Federal government ($18,300,000) and outlot sales in Henderson, Nevada
($1,708,000). In addition, 1995 revenues increased from the openings in 1995 of
Eleven MetroTech ($3,200,000) and Flatbush Avenue ($1,200,000), and from a full
year of operations at Station Square in Pittsburgh, Pennsylvania ($1,268,000).
Lastly, the Company acquired an additional 31% interest in Liberty Center, a
mixed-use property in Pittsburgh ($8,800,000). In 1994, commercial outlot sales
of $7,176,000 were recorded in the Land Group. Commercial outlot sales have been
recorded in the Commercial Group since 1995.
OPERATING AND INTEREST EXPENSES. In 1996, operating and interest expenses
for the Commercial Group increased $22,126,000 and $2,103,000 (or 15.1% and
2.4%), respectively, over 1995 to $168,466,000 and $88,149,000, respectively.
The increase in operating expenses was primarily attributable to the decrease in
the EBDT ($6,565,000) resulting from an unusually low cost basis in the land
sold in 1995 (on comparable sales revenues), increased development expenses
($5,726,000) and the opening of new properties ($5,089,000). At January 31,
1997, the Company's property level expenses for properties open since 1994 had
increased at a compounded annual rate of only 0.1%, reflecting the Company's
emphasis on controlling costs. The increase in interest expense was attributable
to the financing of new properties.
Operating and interest expenses increased $8,757,000 and $19,015,000 in
1995 (or 6.4% and 28.4%), respectively, from $137,583,000 and $67,031,000,
respectively, in 1994. The increase in operating expense was primarily the
result of the acquisition of Station Square and an additional 31% interest in
Liberty Center ($6,475,000) and the opening of new properties in New York
($1,491,000). The increase in interest expense was due to the financing of new
properties ($1,804,000), the acquisition of Station Square, the additional 31%
interest in Liberty Center and the additional 50% interest in Ballston Common
($6,733,000), higher outstanding principal balances on nonrecourse mortgages
resulting from refinancings to fund development projects ($4,420,000) and an
increase in interest rates ($6,094,000).
NET OPERATING INCOME. Commercial Group NOI for 1996 was $141,368,000,
compared to $147,901,000 in 1995, a 4.4% decrease. NOI increased 0.9% from 1995
to 1996 for Commercial Group properties in operation throughout both years and
6.2% from 1994 to 1995 for Commercial Group properties in operation throughout
both years. Adjusting for the items discussed above under "-- Net Operating
Income from Real Estate Operations," Commercial Group NOI would be $147,094,000
and $141,336,000 for 1996 and 1995 respectively, a 4.1% increase. Eliminating
asset dispositions and the items discussed above under "-- Net Operating Income
from Real Estate Operations," and including the expected NOI during the initial
twelve months after stabilization for the six Commercial Group properties that
were opened or acquired in 1996 and annualizing the ground rent received in 1996
from a Commercial Group project under construction would result in total NOI of
approximately $157,861,000.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $10,776,000 (or
10.2%) to $116,525,000 in 1996, from $105,749,000 in 1995. This increase
reflected a full year of performance from the 1995 acquisitions of Laurels, a
520-unit apartment complex in Justice, Illinois ($2,701,000), and the Vineyards,
a 336-unit apartment community in Cleveland, Ohio ($1,887,000). Revenues in 1996
were also favorably impacted by the addition of 336 units added to four
developments in Cleveland ($874,000) and the acquisition of Emerald Palms, a
419-unit apartment community in Miami, Florida ($2,563,000). Average monthly
rental rates increased in 1996, generating an additional $3,240,000 in annual
revenues over 1995. Average occupancy in
12
15
1996 remained at 96%, consistent with the 1995 level. These revenue increases
were offset, in part, by the disposition of Vineyard Village, a 152-unit
apartment building in Ontario, California ($1,079,000).
Revenues for the Residential Group in 1995 decreased by $22,375,000 (or
17.5%) from $128,124,000 in 1994. Excluding the revenues of Park LaBrea Towers,
which was sold in 1994 (see "-- Other Transactions -- Gain (Loss) on Disposition
of Properties"), revenues increased by $5,796,000 (or 5.8%). This increase
reflected a full year of operations at Regency Towers, a 372-unit apartment
community in Jackson, New Jersey, and Oaks, a 248-unit apartment complex in
Bryan, Texas ($3,200,000). Average monthly rental rates increased in 1995,
generating an additional $2,868,000 in annual revenues over 1994. Average
occupancy in 1995 remained at 96%, the same level as in 1994.
OPERATING AND INTEREST EXPENSES. Operating and interest expenses for the
Residential Group increased by $7,438,000 and $2,420,000 (or 13.8% and 7.9%),
respectively, to $61,437,000 and $32,947,000, respectively, in 1996 from
$53,999,000 and $30,527,000, respectively, in 1995. The majority of the increase
in operating and interest expense reflected the expenses and debt service
associated with the addition of Laurels, the Vineyards and 336 new units at
existing properties in Cleveland, Ohio discussed above. During the fiscal years
ended January 31, 1995, 1996 and 1997, average comparable operating expenses
increased at a compounded annual rate of 2.2%.
Operating and interest expenses in 1995 decreased by $15,466,000 and
$6,166,000 (or 22.3% and 16.8%), respectively, from $69,465,000 and $36,693,000,
respectively, in 1994. Excluding Park LaBrea Towers, which was sold in 1994,
operating and interest expenses increased by $1,449,000 and $6,386,000 (or 2.8%
and 26.5%), respectively, from $52,550,000 and $24,141,000, respectively, in
1994. The increase in operating and interest expenses was primarily due to the
full year of operations for Regency Towers and Oaks, which were acquired in 1994
and the 1995 acquisition of Laurels. In addition, interest expense in 1995 was
also affected by increased interest rates.
NET OPERATING INCOME. Residential Group NOI for 1996 was $55,088,000,
compared to $51,750,000 in 1995, a 6.5% increase. NOI increased 6.7% from 1995
to 1996 for Residential Group properties in operation throughout both years and
6.0% from 1994 to 1995 for Residential Group properties in operation throughout
both years. Eliminating asset dispositions and including the expected NOI during
the initial twelve months after stabilization for the five Residential Group
properties that were opened or acquired in 1996 would result in total NOI of
approximately $52,103,000.
LAND GROUP
REVENUES. Revenues for the Land Group increased by $10,999,000 (or 25.6%)
in 1996, from $42,889,000 in 1995 to $53,888,000 in 1996. This increase
reflected income from the sale of a parcel of land in Miami, Florida
($9,029,000) and increased sales at the Company's Silver Lakes development in
Fort Lauderdale, Florida ($2,343,000). Revenues decreased by $6,005,000 (or
12.3%) in 1995 from $48,894,000 in 1994. The decrease was primarily the result
of two large commercial outlot sales in 1994 totaling $7,176,000. Commercial
outlot sales have been recorded in the Commercial Group since 1995.
OPERATING AND INTEREST EXPENSES. Operating expenses increased by
$9,966,000 and interest expense decreased by $1,151,000 (or 32.0% and 14.5%),
respectively, to $41,068,000 and $6,813,000, respectively, in 1996 from
$31,102,000 and $7,964,000, respectively, in 1995. Operating expenses decreased
by $7,262,000 and interest expense increased $724,000 (or 18.9% and 10.0%),
respectively, in 1995 from $38,364,000 and $7,240,000, respectively, in 1994.
The fluctuation in operating expenses primarily reflected the sales volume in
each year. The decrease in interest expense in 1996 compared to 1995 resulted
from a reduction in interest-bearing debt. The increase in interest expense in
1995 compared to 1994 was primarily due to the financing of new land
acquisitions.
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group increased by $43,398,000
(or 53.5%) from $81,093,000 in 1995 to $124,491,000 in 1996. Of this increase,
$26,708,000 reflected the consolidation of the revenues of Forest City/Babin, a
wholesaler of major appliances, cabinets and hardware to housing
13
16
contractors, for the first time. At the end of 1995, the Company acquired the
remaining 50% interest in Forest City/Babin and now consolidates this wholly
owned subsidiary. The Company previously accounted for its 50% interest in
Forest City/Babin using the equity method. The remaining increase was primarily
due to an increase in the Lumber Trading Group's margins as a result of
increased housing starts. Revenues of the Lumber Trading Group in 1995 were
relatively flat compared to 1994.
OPERATING AND INTEREST EXPENSES. Operating and interest expenses in the
Lumber Trading Group increased in 1996 by $40,170,000 and $88,000 (or 57.2% and
1.7%), respectively, from $70,189,000 and $5,078,000, respectively, in 1995. A
significant portion of this increase ($25,844,000 and $572,000 in operating and
interest expenses, respectively), was the result of the Forest City/Babin
acquisition described above. The remaining $14,326,000 increase in operating
expenses reflected the increase in variable expenses due to increased sales
volume. The remaining $484,000 decrease in interest expense was the result of
reduced inventory and a reduced rate of interest on the Lumber Trading Group's
lines of credit. Operating and interest expenses were flat in 1995 compared to
1994.
CORPORATE ACTIVITIES
REVENUES. Revenues of the Corporate Activities increased $250,000 (or
4.6%) in 1996 to $5,711,000 from $5,461,000 in 1995. Corporate Activities
revenues decreased $573,000 (or 9.5%) in 1995 from $6,034,000 in 1994. Corporate
Activities revenues consist primarily of interest income on advances made by the
Company on behalf of its partners, and vary from year to year depending on
interest rates and the amount of advances outstanding.
OPERATING AND INTEREST EXPENSES. Operating expenses increased $2,375,000
(or 37.4%) in 1996 to $8,723,000 from $6,348,000 in 1995, primarily due to a
favorable adjustment of $1,247,000 for a self-insurance accrual in 1995 that did
not recur in 1996 and increased general corporate expenses in 1996. Operating
expenses decreased $3,288,000 (or 34.1%) in 1995 from $9,636,000 in 1994. This
decrease was primarily the result of the favorable insurance adjustment noted
above and certain asset management costs that were charged to Corporate
Activities in 1994 and prior years. Beginning in 1995, these asset management
costs were being reported by each principal business group as part of its
operating expenses. Interest expense, which consists primarily of interest
expense on the Term Loan and Revolving Credit Facility that had not been
allocated to a principal business group, remained essentially flat for 1996,
1995, and 1994.
OTHER TRANSACTIONS
PROVISION FOR DECLINE IN REAL ESTATE. The Company's provision for decline
in real estate totaled $12,263,000, $9,581,000 and $10,133,000, in 1996, 1995
and 1994, respectively. In 1996, the Company entered into a joint venture
agreement with MGM to develop a casino/retail project which substantially
changed the scope of the Company's original development of the project. The 1996
provision for decline in real estate includes $5,104,000 of development costs
incurred by the Company which management determined to write-off as a result of
the change in scope of the project. In addition, the Company recorded a
provision for decline in real estate relating to the land acquired for Enclave,
a 633-unit apartment complex in San Jose, California. This provision for decline
in real estate resulted from an adjustment of $5,583,000 to write down the land
to its fair market value. The 1995 provision primarily reflected the write-off
of development costs of $7,242,000 associated with future phases of Toscana, a
563-unit apartment complex in Irvine, California discussed below under
"-- Recent Developments," based on management's determination that the Company
would not pursue future development. Also in 1995, the provision for decline in
real estate included an adjustment of $1,404,000 relating to the write down of
parcels of land to fair market value which were originally acquired for the
Enclave project and deeded back to the original land owner. The 1994 provision
reflected an adjustment to fair market value of Laurel Plaza, a Los Angeles,
California shopping center which was sold in 1995.
GAIN (LOSS) ON DISPOSITION OF PROPERTIES. The gain (loss) on disposition
of properties totaled a gain of $17,574,000, a loss of $754,000 and a loss of
$30,835,000, respectively, in 1996, 1995 and 1994. The 1996 gain primarily
reflects the disposition of the Company's 18.63% interest in Beachwood Place, a
regional shopping center in Cleveland, Ohio ($17,788,000) and the disposition of
Victor Village, a California strip shopping
14
17
center ($499,000). The 1995 loss was primarily the result of the disposition of
Vineyard Village, as described above, ($650,000). The 1994 loss is primarily the
result of the disposition of Park LaBrea Towers, as described above.
EXTRAORDINARY GAIN. Extraordinary gain, net of tax, totaled $2,900,000,
$1,847,000 and $60,449,000, respectively, in 1996, 1995 and 1994 representing
extinguishment of nonrecourse debt and related accrued interest relating to
Enclave and Clark Building in Cambridge, Massachusetts in 1996, to Liberty
Center in 1995, and to Park LaBrea Towers in 1994. See Note N to the Company's
Consolidated Financial Statements.
INCOME TAXES. Income tax expense (benefit) totaled $12,951,000,
$10,623,000 and ($5,964,000), respectively in 1996, 1995 and 1994. At January
31, 1997, the Company had a tax net operating loss carryforward ("NOL") of
$88,868,000 (generated primarily over time in the ordinary course of business
from the significant impact of depreciation expense from real estate properties
on the Company's net earnings) which will expire in the years ending January 31,
2005 through January 31, 2011 and general business credit carryovers of
$3,601,000 which will expire in the years ending January 31, 2003 through
January 31, 2011. The Company's policy is to utilize its NOL before it expires
and will consider a variety of strategies to implement that policy. Federal,
state and local income taxes paid (refunded) totaled $830,000, ($888,000) and
$3,244,000 in 1996, 1995 and 1994, respectively. In 1996, the Company paid no
regular Federal corporate income tax and paid $570,000 in Federal alternative
minimum tax.
NET EARNINGS. In 1996, the Company's net earnings grew to $12,071,000, or
$.92 per share of common stock, from $8,786,000, or $.65 per share of common
stock in 1995. Excluding the 1994 Park LaBrea Towers transaction discussed under
"-- Other Transactions -- Gain (Loss) on Disposition of Properties," net
earnings in 1995 increased from 1994 net earnings of $4,635,000, or $0.34 per
share of common stock.
EBDT. The Company defines Earnings Before Depreciation, Amortization and
Deferred Taxes ("EBDT") as net earnings from operations before depreciation,
amortization and deferred taxes on income, and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary gains.
The Company excludes depreciation and amortization expense from EBDT because
they are non-cash items and the Company believes the values of its properties
have appreciated over time in excess of their original cost. Deferred income
taxes are excluded because they are a non-cash item. Payment of current income
taxes has not been historically significant and is not expected to be
significant in the foreseeable future. The provision for the decline in real
estate is excluded from EBDT because it is typically a non-cash item that varies
from year to year based on factors unrelated to the Company's overall financial
performance. The Company excludes gain (loss) on the disposition of properties
from EBDT because it develops and acquires properties for long-term investment,
as opposed to short-term trading gains. As a result, the Company views
dispositions of properties other than commercial outlots or land held by the
Land Group as nonrecurring items. Extraordinary gains are generally the result
of the restructuring of nonrecourse debt obligations and are not considered to
be a component of the Company's operating results.
RECENT DEVELOPMENTS
During February 1997, the Company settled litigation with the original land
owner of Toscana, a 563-unit apartment complex in Irvine, California, and sold
the project back to the original land owner. As a result, the Company had
litigation settlement proceeds of $15,000,000 (the after-tax amount of which
will be included in EBDT for the first quarter of fiscal 1997); a pre-tax loss
on disposition of the property of $35,505,000; and a pre-tax extraordinary gain
of $18,272,000 related to the extinguishment of a portion of the nonrecourse
mortgage debt. The net result of these transactions to the Company was a pre-tax
loss of $2,233,000. Revenues, operating expenses, interest expense and asset
cost for 1996 related to Toscana were $7,218,000, $2,791,000, $4,097,000 and
$78,271,000, respectively.
FINANCIAL CONDITION AND LIQUIDITY
The Company believes that its sources of liquidity and capital are adequate
to meet its needs in the foreseeable future. The Company's principal sources of
funds are cash provided by operations, the Revolving
15
18
Credit Facility and refinancings of existing properties. The Company's principal
use of funds are the financing of new developments, capital expenditures and
payments on nonrecourse mortgage debt on real estate.
The Lumber Trading Group is financed separately from the rest of the
Company's principal business groups, and the financing obligations of the Lumber
Trading Group are nonrecourse to the Company. Accordingly, the liquidity of the
Lumber Trading Group is discussed separately below under "-- Lumber Trading
Group Liquidity."
1996 AND 1995 MORTGAGE REFINANCINGS
In 1996, the Company refinanced $482,428,000 of mortgage indebtedness with
$525,370,000 of new nonrecourse mortgage indebtedness. In 1995, the Company
refinanced $361,421,000 of mortgage indebtedness with $366,842,000 of new
nonrecourse mortgage indebtedness.
OUTLOOK FOR 1997. As of January 31, 1997, the Company had $288,915,000
million of nonrecourse mortgage indebtedness due and payable in 1997. Of this
amount, as of March 31, 1997, the Company had already refinanced $40,000,000 and
discharged $67,800,000 with proceeds from the sale of Toscana (see "-- Recent
Developments"). The Company anticipates that the remaining $181,115,000 of
mortgage indebtedness will either be refinanced with new nonrecourse mortgage
indebtedness or extended.
LONG-TERM DEBT
At January 31, 1997, the Company had recourse debt of $93,000,000
outstanding, comprised of $45,000,000 under a $70,000,000 Term Loan maturing
July 1, 2001 and $48,000,000 under an $80,000,000 Revolving Credit Facility
maturing July 25, 1998. The Company is required to make quarterly principal
payments of $2,500,000 under the Term Loan. The Company has entered into an
interest rate swap agreement to fix $87,000,000 of the Term Loan and Revolving
Credit Facility for the period February 1, 1997 through February 1, 1998. The
Term Loan and Revolving Credit Facility and the Company's Guaranty require
Forest City Rental Properties Corporation (a wholly owned subsidiary of the
Company -- see Note M to the Consolidated Financial Statements) and the Company
to maintain certain levels of cash flow and require the Company to maintain a
specified level of net worth and restrict the payment of dividends by the
Company to $10,000,000 per year. At March 31, 1997, the Company had $15,000,000
of borrowings available under the Revolving Credit Facility, which is the
Company's principal source of temporary borrowings.
INTEREST RATE EXPOSURE
At January 31, 1997, the Company had $994,957,000 in fixed-rate and
$903,471,000 in variable-rate nonrecourse mortgages outstanding, with a weighted
average interest rate of 7.25%. At January 31, 1997, the Company's fixed-rate
debt carried a weighted average interest rate of 7.96%. Its weighted average
variable-rate taxable interest rate was 7.38%. Of the variable-rate debt,
$134,302,000 are tax-exempt financings which carried a weighted average interest
rate of 4.38% at January 31, 1997. Its weighted average interest rate on UDAG
loans and other government subsidized financing was 2.60%. The Company generally
does not hedge tax-exempt debt because of the low base rate on this type of
financing. With respect to taxable variable-rate debt, the Company generally
attempts to obtain interest rate protection for such debt with a maturity in
excess of one year. Of the $769,169,000 in taxable variable-rate debt
outstanding at February 1, 1997, $330,385,000 was protected by interest rate
swaps with a weighted average rate of 7.79% and an average remaining term of 2.3
years, effectively reducing the Company's interest rate exposure from the
taxable variable-rate debt to $438,784,000. In addition, $40,969,000 of
variable-rate debt was protected by interest rate caps, of which $19,139,000
extends for more than one year.
At January 31, 1997, a 100 basis point increase in taxable interest rates
would have increased the pre-tax interest cost of the Company's taxable
variable-rate debt by approximately $4.4 million. Although tax-exempt interest
rates generally increase in an amount that is smaller than corresponding changes
in taxable interest rates, a 100 basis point increase in tax-exempt interest
rates would have increased the pre-tax interest cost of the Company's tax-exempt
variable-rate debt by approximately $1.3 million.
16
19
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two lines of credit
and an accounts receivable sale program, which are not recourse to the Company.
The Lumber Trading Group has in place two lines of credit totaling
$46,000,000. These credit lines are secured by the assets of the Lumber Trading
Group, and are used by the Lumber Trading Group to finance its working capital
needs. At January 31, 1997, the Lumber Trading Group had $26,554,000 of
available credit under these facilities.
The Lumber Trading Group also has sold an undivided ownership interest in a
pool of accounts receivable of up to a maximum of $90,000,000. The Lumber
Trading Group uses this program to finance its working capital needs. At January
31, 1997, $34,000,000 had been sold under this accounts receivable program.
The Company believes that the amounts available under these credit
facilities, together with the accounts receivable sale program, will be
sufficient to meet the Lumber Trading Group's liquidity needs in 1997.
CASH FLOWS
Net cash provided by operating activities was $62,227,000, $72,509,000 and
$132,305,000 in 1996, 1995 and 1994, respectively. The decrease in cash provided
by operating activities in 1996 from 1995 is primarily the result of an increase
in inventories for the Lumber Trading Group ($5,346,000), a decrease in deferred
profit on contract sales ($6,484,000) and an increase in interest paid
($2,545,000), offset in part by an increase in rents and other revenues
received. The decrease in cash provided by operating activities in 1995 from
1994 was primarily due to an increase in interest paid ($13,436,000), the
increase in other assets for lease procurement costs and restricted cash
($18,721,000) and 1994 activity which did not recur in 1995: (1) the decrease in
inventories for the Lumber Trading Group ($26,456,000), and (2) the increase in
accounts payable and accrued expenses for the Land Group ($6,703,000). The
additional increases in operating expenses in 1996 and 1995 were offset by rents
and other revenues received during those years.
Net cash used in investing activities totaled $134,903,000, $112,848,000
and $132,305,000 in 1996, 1995 and 1994, respectively. Capital expenditures,
other than development and acquisition activities, totaled $32,007,000
(including both recurring and investment capital expenditures) in 1996 and were
financed primarily with cash provided by operating activities. In 1996, net cash
used in investing activities reflected the Company's use of $120,667,000 of
funds for acquisition and development activities, which were financed with
$117,202,000 in new mortgage indebtedness (see below for discussion of Cash
Flows from Financing Activities) and the remainder from cash provided by
operating activities. Net cash used in investing activities in 1996 also
includes the gross proceeds from the dispositions of Beachwood Place
($15,427,000) and Victor Village ($10,613,000).
Capital expenditures, other than development and acquisition activities,
totaled $29,954,000 (including both recurring and investment capital
expenditures) in 1995 and were financed primarily with cash provided by
operating activities. In 1995, the Company used $87,385,000 of funds for
acquisition and development activities, which were financed with $68,146,000 in
new mortgage indebtedness (see below for discussion of Cash Flows from Financing
Activities), and the remainder from cash provided by operating activities. Net
cash used in investing activities in 1995 also includes proceeds from the
dispositions of Vineyard Village($7,450,000) and Laurel Plaza ($8,500,000) for
$15,950,000.
In 1994, capital expenditures, other than development and acquisition
activities, totaled $39,206,000 (including both recurring and investment capital
expenditures) and were financed primarily with cash provided by operating
activities. The Company used $82,396,000 of funds in 1994 for acquisition and
development activities, which were financed with $66,205,000 in new mortgage
indebtedness and the remainder from cash provided by operating activities. Net
cash used in investing activities in 1994 also includes proceeds from the sale
of Park LaBrea Towers ($15,264,000).
Capital expenditures for 1997, other than development and acquisition
activities, are estimated to total $34,816,000. In 1997, the Company anticipates
expending $91,839,000 in acquisition and development
17
20
activities. The Company anticipates that approximately one-half of these capital
expenditures will be financed with nonrecourse mortgage indebtedness, and that
the remaining portion with cash from operations and borrowings under the
Revolving Credit Facility.
Net cash provided by financing activities totaled $74,833,000, $33,006,000
and $24,680,000 in 1996, 1995 and 1994, respectively. The Company's refinancing
of mortgage indebtedness is discussed above in "-- 1996 and 1995 Mortgage
Refinancings" and borrowings under new mortgage indebtedness for acquisition and
development activities is included in the preceding paragraphs discussing net
cash used in investing activities. In addition, net cash provided by financing
activities in 1996 reflected $15,200,000 of restricted cash pledged for the
financing of Enclave, a 633 unit apartment community in San Jose, California
currently under construction, $6,080,000 of common stock repurchases and the
payment of $2,797,000 of dividends. Net cash provided by financing activities in
1995 reflected, in addition to the refinancing of mortgage indebtedness and
borrowing under new mortgage indebtedness, $2,509,000 in common stock
repurchases and the payment of $2,248,000 of dividends. Net cash provided by
financing activities in 1994 reflected, in addition to new indebtedness for
acquisition and development activities, refinancing of existing mortgages
indebtedness and the payment of $1,798,000 of dividends.
SHELF REGISTRATION
On March 4, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the potential offering on a delayed basis
of up to $250 million in debt or equity securities.
STOCK SPLIT, DIVIDENDS AND AUTHORIZED SHARES
The Board of Directors approved a three-for-two stock split of both the
Company's Class A and Class B Common Stock, which became effective February 17,
1997 to shareholders of record at the close of business on February 3, 1997. The
stock split was effected as a stock dividend.
The Board of Directors of the Company recently announced that they intend
to pay cash dividends on a quarterly basis in the future, whereas cash dividends
in 1995 and 1996 were paid on an annual basis. A quarterly cash dividend of $.06
per share (post-split) on shares of both Class A and Class B Common Stock was
paid on March 17, 1997. The $.06 quarterly dividend per share equates to an
annual pre-split dividend of $.36 per share and represents a 12.5% increase over
the annual dividend declared in 1996. The second 1997 quarterly dividend of $.06
per share on shares of both Class A and Class B Common Stock will be paid on
June 16, 1997 to shareholders of record at the close of business on June 2,
1997. Purchasers of Class A Common Stock in this Offering who hold shares of
Class A Common Stock on the record date will be entitled to this dividend.
The Company's current authorized shares are comprised of 16,000,000 shares
of Class A Common Stock, 6,000,000 shares of Class B Common Stock and 1,000,000
shares of Preferred Stock. The Board of Directors has approved for submission to
shareholders at the Company's 1997 Annual Meeting amendments to the Company's
Articles of Incorporation to increase the Company's authorized shares to
48,000,000 shares of Class A Common Stock, 18,000,000 shares of Class B Common
Stock and 5,000,000 shares of Preferred Stock.
INFLATION
The Commercial Group's exposure to increases in costs and operating
expenses resulting from inflation is minimized due to the provisions of its
leases with its tenants that require tenants to reimburse the Company for the
majority of its operating expenses. Also, many of the Company's leases provide
for payments based on a percentage of the rental income of the tenants, which
generally increases in periods of inflation. The Residential Group's risk in a
period of inflation is minimized by the annual turnover of tenant leases, which
allow for immediate market rate increases. The Land and the Lumber Trading
Groups may be affected by inflation by the availability of buyers of new housing
to obtain mortgage financing when interest rates are high.
18
21
NEW ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 121 " Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121 establishes accounting standards for the review of impairment of a
long-lived asset whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The Company has adopted the
provisions of SFAS 121, which has no material effect on the financial position
or results of operations of the Company.
During 1996, the Company granted options under its Stock Option Plan. The
Company recognizes compensation cost in accordance with the provisions of
Accounting Principles Board Opinion No. 25 and related Interpretations. The
Company has not adopted the recognition provisions of SFAS 123 "Accounting for
Stock-Based Compensation," but the disclosures required by SFAS 123 have been
included in the Notes to the Consolidated Financial Statements.
In February 1997, FASB issued SFAS 128 "Earnings per Share," which is
effective for fiscal years ending after December 15, 1997. This Statement
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. The Company will adopt the provisions
of SFAS 128 for its fiscal year ending January 31, 1998, but does not expect
such adoption to have a material impact on EPS.
19
22
FOREST CITY ENTERPRISES, INC.
THREE YEAR SUMMARY OF EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED
TAXES
LUMBER
TRADING
COMMERCIAL GROUP RESIDENTIAL GROUP LAND GROUP GROUP
---------------------------- ---------------------------- ------------------------- --------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
Revenues................... $309,834 $294,241 $258,966 $116,525 $105,749 $128,124 $53,888 $42,889 $48,894 $124,491
Operating expenses,
including depreciation and
amortization for non-real
estate Groups............. 168,466 146,340 137,583 61,437 53,999 69,465 41,068 31,102 38,364 110,359
Interest expense........... 88,149 86,046 67,031 32,947 30,527 36,693 6,813 7,964 7,240 5,166
Income tax provision....... (2,970) 7,026 (1,980) (2,464) 581 (5,120) 2,078 (358) 368 3,913
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
253,645 239,412 202,634 91,920 85,107 101,038 49,959 38,708 45,972 119,438
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT).................... $ 56,189 $ 54,829 $ 56,332 $ 24,605 $ 20,642 $ 27,086 $ 3,929 $ 4,181 $ 2,922 $ 5,053
======== ======== ======== ======== ======== ======== ======= ======= ======= ========
Reconciliation to net
earnings:
Earnings before
depreciation, amortization
and deferred taxes
(EBDT)....................
Depreciation and
amortization -- real
estate Groups.............
Deferred taxes -- real
estate Groups.............
Provision for decline in
real estate, net of tax...
Gain (loss) on disposition
of properties, net of
tax.......................
Extraordinary gain, net of
tax.......................
Net earnings...............
CORPORATE ACTIVITIES TOTAL
------------------------ ----------------------------
1995 1994 1996 1995 1994 1996 1995 1994
------- ------- ------- ------ ------- -------- -------- --------
Revenues................... $81,093 $80,590 $ 5,711 $5,461 $ 6,034 $610,449 $529,433 $522,608
Operating expenses,
including depreciation and
amortization for non-real
estate Groups............. 70,189 70,312 8,723 6,348 9,636 390,053 307,978 325,360
Interest expense........... 5,078 5,372 289 386 485 133,364 130,001 116,821
Income tax provision....... 2,823 2,268 (3,929) (639) 3,629 (3,372) 9,433 (835)
------- ------- ------ ------ ------ -------- -------- --------
78,090 77,952 5,083 6,095 13,750 520,045 447,412 441,346
------- ------- ------ ------ ------ -------- -------- --------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT).................... $ 3,003 $ 2,638 $ 628 $ (634) $(7,716) $ 90,404 $ 82,021 $ 81,262
======= ======= ====== ====== ====== ======== ======== ========
Reconciliation to net
earnings:
Earnings before
depreciation, amortization
and deferred taxes
(EBDT).................... $ 90,404 $ 82,021 $ 81,262
Depreciation and
amortization -- real
estate Groups............. (70,221) (63,557) (63,956)
Deferred taxes -- real
estate Groups............. (13,197) (4,974) (10,532)
Provision for decline in
real estate, net of tax... (7,413) (6,073) (4,986)
Gain (loss) on disposition
of properties, net of
tax....................... 9,598 (478) (20,321)
Extraordinary gain, net of
tax....................... 2,900 1,847 60,449
-------- -------- --------
Net earnings............... $ 12,071 $ 8,786 $ 41,916
======== ======== ========
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23
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Annual Report, together with other statements and information publicly
disseminated by the Company, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements reflect
management's current views with respect to financial results related to future
events and are based on assumptions and expectations which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial or otherwise, may differ from the results
discussed in the forward-looking statements. Risks and other factors that might
cause differences, some of which could be material, include, but are not limited
to, the effect of economic and market conditions on a nation-wide basis as well
as regionally in areas where the Company has a geographic concentration of
properties; failure to consummate financing arrangements; development risks,
including lack of satisfactory financing, construction and lease-up delays and
cost overruns; the level and volatility of interest rates; financial stability
of tenants within the retail industry, which may be impacted by competition and
consumer spending; the rate of revenue increases versus expenses increases; the
cyclical nature of the lumber wholesaling business; as well as other risks
listed from time to time in the Company's reports filed with the Securities and
Exchange Commission. The Company has no obligation to revise or update any
forward-looking statements as a result of future events or new information.
Readers are cautioned not to place undue reliance on such forward-looking
statements.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable until fiscal year ending January 31, 1999.
21
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGES
-----
Financial Reports:
Report of Independent Accountants......................................... 23
Consolidated Financial Statements:
Consolidated Balance Sheets............................................... 24
Consolidated Statements of Earnings....................................... 25
Consolidated Statements of Shareholders' Equity........................... 26
Consolidated Statements of Cash Flows..................................... 27
Notes to Consolidated Financial Statements................................ 29
Supplementary Data:
Quarterly Consolidated Financial Data (Unaudited)......................... 43
Financial Statement Schedules:
II. Valuation and Qualifying Accounts.................................... 44
III. Real Estate and Accumulated Depreciation............................. 45
All other schedules are omitted because they are not applicable or the
required information is presented in the consolidated financial statements
or the notes thereto.
22
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Forest City Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Forest City
Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1997 and financial
statement schedules listed in the Index of Item 8 of this Form 10-K. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Forest City
Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 13, 1997
23
26
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
-----------------------
1997 1996
---------- ----------
(dollars in thousands)
ASSETS
Real Estate
Completed rental properties.......................................... $2,247,393 $2,101,564
Projects under development........................................... 220,137 246,240
Land held for development or sale.................................... 52,649 77,279
---------- ----------
2,520,179 2,425,083
Less accumulated depreciation........................................ (399,830) (347,912)
---------- ----------
Total Real Estate................................................. 2,120,349 2,077,171
Cash................................................................... 41,302 39,145
Notes and accounts receivable, net..................................... 204,959 168,177
Inventories............................................................ 48,769 41,186
Investments in and advances to affiliates.............................. 145,242 145,238
Other assets........................................................... 180,784 160,129
---------- ----------
$2,741,405 $2,631,046
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse............................................. $1,898,428 $1,832,059
Accounts payable and accrued expenses.................................. 378,230 342,511
Notes payable.......................................................... 37,041 19,856
Long-term debt......................................................... 94,923 113,061
Deferred income taxes.................................................. 115,488 105,111
Deferred profit........................................................ 25,317 28,859
---------- ----------
Total Liabilities................................................. 2,549,427 2,441,457
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value;
1,000,000 shares authorized; no shares issued........................ -- --
Common stock - $.33 1/3 par value
Class A, 16,000,000 shares authorized; 7,932,358 and 7,906,990 shares
issued, 7,696,408 and 7,903,990 outstanding, respectively......... 2,643 2,635
Class B, convertible, 6,000,000 shares authorized; 5,554,618 and
5,580,431 shares issued, 5,415,568 and 5,467,931 outstanding,
respectively...................................................... 1,851 1,859
---------- ----------
4,494 4,494
Additional paid-in capital............................................. 43,996 44,014
Retained earnings...................................................... 152,077 143,590
---------- ----------
200,567 192,098
Less treasury stock, at cost; 1997: 235,950 Class A and 139,050 Class B
shares, 1996: 3,000 Class A and 112,500 Class B shares............... (8,589) (2,509)
---------- ----------
Total Shareholders' Equity........................................ 191,978 189,589
---------- ----------
$2,741,405 $2,631,046
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
24
27
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands, except per share
data)
Revenues.................................................. $610,449 $529,433 $522,608
-------- -------- --------
Operating expenses........................................ 386,970 305,819 323,736
Interest expense.......................................... 133,364 130,001 116,821
Provision for decline in real estate...................... 12,263 9,581 10,133
Depreciation and amortization............................. 73,304 65,716 65,580
-------- -------- --------
605,901 511,117 516,270
-------- -------- --------
Gain (loss) on disposition of properties.................. 17,574 (754) (30,835)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES....................... 22,122 17,562 (24,497)
-------- -------- --------
INCOME TAX EXPENSE (BENEFIT)
Current................................................. 1,935 370 6,057
Deferred................................................ 11,016 10,253 (12,021)
-------- -------- --------
12,951 10,623 (5,964)
-------- -------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN............. 9,171 6,939 (18,533)
Extraordinary gain, net of tax............................ 2,900 1,847 60,449
-------- -------- --------
NET EARNINGS.............................................. $ 12,071 $ 8,786 $ 41,916
======== ======== ========
NET EARNINGS PER COMMON SHARE
Net earnings (loss) before extraordinary gain, net of
tax.................................................. $ .70 $ .51 $ (1.37)
Extraordinary gain, net of tax.......................... .22 .14 4.48
-------- -------- --------
NET EARNINGS PER COMMON SHARE............................. $ .92 $ .65 $ 3.11
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
28
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK
------------------------------
CLASS A CLASS B ADDITIONAL TREASURY STOCK
-------------- -------------- PAID-IN RETAINED ---------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ------ ------ ---------- -------- ------ ------- --------
(in thousands, except per share data)
BALANCES AT JANUARY 31, 1994, AS PREVIOUSLY
REPORTED.................................. 5,146 $1,715 3,846 $1,282 $ 45,511 $96,934 -- $ -- $145,442
Three-for-two stock split effective
February 17, 1997 applied
retroactively........................... 2,573 857 1,922 640 (1,497) -- -- -- --
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1994, AS RESTATED... 7,719 2,572 5,768 1,922 44,014 96,934 -- -- 145,442
Net earnings.............................. 41,916 41,916
Dividends -- $.13 per share............... (1,798) (1,798)
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1995, AS RESTATED... 7,719 2,572 5,768 1,922 44,014 137,052 -- -- 185,560
Net earnings.............................. 8,786 8,786
Dividends -- $.17 per share............... (2,248) (2,248)
Conversion of Class B shares to Class A
shares.................................. 188 63 (188) (63) --
Purchase of treasury stock................ 116 (2,509) (2,509)
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1996, AS RESTATED... 7,907 2,635 5,580 1,859 44,014 143,590 116 (2,509) 189,589
Net earnings.............................. 12,071 12,071
Dividends:
Annual 1996 -- $.21 per share........... (2,797) (2,797)
Quarterly 1997 -- $.06 per share........ (787) (787)
Conversion of Class B shares to Class A
shares.................................. 25 8 (25) (8) --
Purchase of treasury stock................ 259 (6,080) (6,080)
Cash in lieu of fractional shares from
three-for-two stock split............... (18) (18)
----- ------ ----- ------ ------- -------- --- ------- ---------
BALANCES AT JANUARY 31, 1997................ 7,932 $2,643 5,555 $1,851 $ 43,996 $152,077 375 $(8,589) $191,978
===== ====== ===== ====== ======= ======== === ======= =========
The accompanying notes are an integral part of these consolidated financial
statements.
26
29
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received.............. $530,597 $508,494 $480,470
Proceeds from land sales....................... 44,297 44,740 42,493
Land development expenditures.................. (25,741) (24,163) (33,430)
Operating expenditures......................... (352,372) (324,553) (238,655)
Interest paid.................................. (134,554) (132,009) (118,573)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES... 62,227 72,509 132,305
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... (157,601) (122,878) (121,602)
Proceeds from disposition of properties........ 26,040 15,950 15,264
Investments in and advances to affiliates...... (3,342) (5,920) (25,967)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES....... (134,903) (112,848) (132,305)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage and long-term debt........ 175,202 103,993 99,894
Payments on long-term debt..................... (26,932) (12,873) (17,555)
Principal payments on mortgage debt on real
estate...................................... (55,880) (43,631) (34,228)
Increase in notes payable...................... 22,820 6,140 434
Payments on notes payable...................... (6,263) (8,624) (17,277)
Increase in cash restricted for letter of
credit...................................... (15,200) -- --
Payment of deferred financing costs............ (10,037) (7,242) (4,790)
Purchase of treasury stock..................... (6,080) (2,509) --
Dividends paid to shareholders................. (2,797) (2,248) (1,798)
-------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 74,833 33,006 24,680
-------- -------- --------
NET INCREASE (DECREASE) IN CASH.................. 2,157 (7,333) 24,680
CASH AT BEGINNING OF YEAR........................ 39,145 46,478 21,798
-------- -------- --------
CASH AT END OF YEAR.............................. $ 41,302 $ 39,145 $ 46,478
======== ======== ========
27
30
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended January 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS..................................... $ 12,071 $ 8,786 $ 41,916
Depreciation................................... 52,979 50,821 49,869
Amortization................................... 20,325 14,895 15,711
Deferred income taxes.......................... 10,377 11,461 24,201
Provision for decline in real estate........... 12,263 9,581 10,133
(Gain) loss on disposition of properties....... (17,574) 754 30,835
Extraordinary gain............................. (4,797) (3,055) (90,823)
Decrease (increase) in land held for
development or sale......................... 8,980 2,887 (5,768)
(Increase) decrease in notes and accounts
receivable.................................. (40,579) 29,425 947
(Increase) decrease in inventories............. (7,583) (2,237) 24,271
Increase (decrease) in accounts payable and
accrued expenses............................ 40,225 (29,232) 37,403
(Decrease) increase in deferred profit......... (3,542) 2,942 (592)
(Increase) in other assets..................... (20,918) (24,519) (5,798)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES... $ 62,227 $ 72,509 $132,305
======== ======== ========
Supplemental Non-Cash Disclosure:
The following items represent the non-cash effect of reductions in the
Company's interest in Granite Development Partners, L.P. and the Clark Building,
and the disposition of the Company's interest in Beachwood Place, during the
fiscal year ended January 31, 1997 and an increase in the Company's interest in
Liberty Center during the fiscal year ended January 31, 1996.
Operating Activities
Land held for development or sale.............. $ 15,650 $ -- $ --
Notes and accounts receivable.................. 3,797 -- --
Other assets................................... 5,175 -- --
Accounts payable and accrued expenses.......... (5,311) -- --
-------- -------- --------
Total effect on operating activities...... $ 19,311 $ -- $ --
======== ======== ========
Investing Activities
Capital expenditures........................... $ 16,085 $(15,714) $ --
Investments in and advances to affiliates...... 3,338 -- --
-------- -------- --------
Total effect on investing activities...... $ 19,423 $(15,714) $ --
======== ======== ========
Financing Activities
Mortgage and long-term debt.................... $(39,362) $ 15,714 $ --
Notes payable.................................. 628 -- --
-------- -------- --------
Total effect on financing activities...... $(38,734) $ 15,714 $ --
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
28
31
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
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 principal business groups. The COMMERCIAL GROUP
develops, acquires, owns and operates shopping centers, office buildings and
mixed-use projects including hotels. The RESIDENTIAL GROUP develops or acquires,
and owns and operates the Company's multi-family properties. The LAND GROUP owns
and develops raw land into master planned communities and other residential
developments for resale. The LUMBER TRADING GROUP operates the Company's lumber
wholesaling business.
Forest City Enterprises, Inc. owns approximately $2.5 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 1996, 1995 and 1994 refer to the fiscal years ended January 31,
1997, 1996 and 1995, 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 proportionate 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 $418,000 at January 31, 1997.
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. The
Consolidated Statements of Cash Flows have been presented using the direct
method, whereas the indirect method was used in prior years.
RECOGNITION OF REVENUE AND PROFIT
REAL ESTATE SALES -- The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) No. 66, "Accounting for Sales of Real
Estate" 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 25 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 1996 through 1994 were approximately
$2,884,000,000, $2,337,500,000 and $2,697,500,000, respectively.
CONSTRUCTION -- Revenue and profit on long-term fixed-price contracts are
reflected under the percentage-of-completion method. On reimbursable cost-plus
fee contracts, revenues are recorded in the amount of the accrued reimbursable
costs plus proportionate fees at the time the costs are incurred.
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes.
29
32
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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 range 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.
The Company periodically reviews its properties to determine if its
carrying costs will be recovered from future operating cash flows. In cases
where the Company does not expect to recover its carrying costs, an impairment
loss is recorded as a provision for decline in real estate.
LAND OPERATIONS
Land held for development or sale is stated at the lower of carrying amount
or fair value less cost to sell.
INVENTORIES
The lumber brokerage inventories are 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 tax assets and liabilities 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 general business tax credits which it expects to use as a
reduction of the deferred tax expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the estimated fair value of its debt and hedging
instruments 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 and hedging instruments.
INTEREST RATE PROTECTION AGREEMENTS
The Company maintains a practice of hedging its variable interest rate risk
by purchasing interest rate caps or entering into interest rate swap agreements
for periods of one to five years. The principal 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.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion (APBO) No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations to
account for stock-based compensation. As such,
30
33
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the amount
the employee is required to pay for the stock.
STOCK SPLIT
On December 11, 1996, the Board of Directors declared a three-for-two stock
split of the Company's common stock payable February 17, 1997 to shareholders of
record on February 3, 1997. The stock split was effected as a stock dividend.
The stock split is given retroactive effect to the beginning of the earliest
period presented in the accompanying Consolidated Balance Sheets and
Consolidated Statements of Shareholders' Equity by transferring the par value of
the additional shares issued from the additional paid-in capital account to the
common stock accounts. All share and per share data included in this annual
report, including stock option plan information, have been restated to reflect
the stock split.
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 13,155,236 in
1996, 13,480,164 in 1995 and 13,487,421 in 1994. Stock options outstanding
during 1996 did not have a material dilutive effect on earnings per share.
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, may be convertible into Class
A common stock.
Class A common shareholders elect 25% of the members of the Board of
Directors and Class B common shareholders elect the remaining directors
annually. The Company currently has 12 directors.
During 1996, the Company repurchased 232,950 shares of Class A and 26,550
shares of Class B common stock, and during 1995, the Company repurchased 3,000
shares of Class A and 112,500 shares of Class B common stock. All these shares
were held in treasury at January 31, 1997.
NEW ACCOUNTING STANDARD
Effective February 1, 1996, the Company adopted the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires that long-lived assets to be
held and used or disposed of should be reviewed for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. The Company adopted SFAS No. 121 and determined that no impairment
loss is required to be recognized for real estate held and used or to be
disposed of in the current year.
31
34
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION AND NONRECOURSE MORTGAGE
DEBT
The components of real estate cost and related nonrecourse mortgage debt
are presented below.
January 31, 1997
----------------------------------------------------
Less Nonrecourse
Total Accumulated Net Mortgage
Cost Depreciation Cost Debt
---------- ----------- ----------- -----------
(in thousands)
Completed rental properties
Residential......................... $ 605,201 $ 110,467 $ 494,734 $ 496,545
Commercial
Shopping centers................. 787,468 125,721 661,747 682,596
Office and other buildings....... 835,190 151,545 683,645 657,189
Corporate and other equipment....... 19,534 12,097 7,437 --
---------- -------- ---------- ----------
2,247,393 399,830 1,847,563 1,836,330
---------- -------- ---------- ----------
Projects under development
Residential......................... 46,564 -- 46,564 9,601
Commercial
Shopping centers................. 91,223 -- 91,223 8,729
Office and other buildings....... 82,350 -- 82,350 12,070
---------- -------- ---------- ----------
220,137 -- 220,137 30,400
---------- -------- ---------- ----------
Land held for development or sale..... 52,649 -- 52,649..... 31,698
---------- -------- ---------- ----------
$2,520,179 $ 399,830 $ 2,120,349 $ 1,898,428
========== ======== ========== ==========
C. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable are summarized below.
January 31,
---------------------
1997 1996
--------- ---------
(in thousands)
Lumber brokerage................................................ $ 153,944 $ 116,295
Real estate sales............................................... 14,509 13,862
Syndication activities.......................................... 12,865 15,072
Receivable from tenants......................................... 12,795 12,527
Other receivables............................................... 15,840 14,108
-------- --------
209,953 171,864
Allowance for doubtful accounts................................. (4,994) (3,687)
-------- --------
$ 204,959 $ 168,177
======== ========
Notes receivable at January 31, 1997 of $24,536,000, reflected in real
estate sales and syndication activities in the table above, are collectible
primarily over five years, with $15,488,000 being due within one year. The
weighted average interest rate at January 31, 1997 and 1996 was 9.2% and 11.8%,
respectively.
In July 1996, the Lumber Trading Group 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, 1997 and 1996, the Company had
received $34,000,000 and $27,000,000, respectively, as net proceeds from this
transaction. The program is non-recourse to the Company and the Company bears no
risk as to the collectability of the accounts receivable. An interest in
additional accounts receivable may be sold as collections reduce previously sold
interests.
32
35
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses at January 31, 1997 and
1996 are book overdrafts of approximately $66,971,000 and $48,316,000,
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,
------------------
1997 1996
------- -------
(in thousands)
Payable To
Banks.......................................................... $15,191 $12,743
Other.......................................................... 21,850 7,113
------- -------
$37,041 $19,856
======= =======
Notes payable to banks reflect borrowings on the Lumber Trading Group's
$46,000,000 bank lines of credit. The Company has the right to borrow an
additional $10,000,000 for up to 90 days through May 31, 1997 under these bank
lines of credit. Borrowings under these bank lines of credit, which are
non-recourse to the Company, are collateralized by all the assets of the Lumber
Trading Group and bear interest at prime and has a fee of 1/5% per annum on the
unused portion of the available commitment. These bank lines of credit are
subject to review and extension annually. The weighted average interest rate was
8.3% and 8.9% at January 31, 1997 and 1996, respectively.
Interest expense on notes payable was $5,166,000 in 1996, $5,078,000 in
1995 and $5,321,000 in 1994. Interest actually paid on notes payable was
$5,097,000 in 1996, $5,129,000 in 1995 and $5,527,000 in 1994.
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,
-----------------------------------------------
1997 1996
-------------------- --------------------
(dollars in thousands)
RATE(1) Rate(1)
------- -------
Fixed.................................... $917,547... 7.96% $ 738,217 8.09%
Variable --
Taxable(2)............................. 769,169 7.38 910,767 7.16
Tax-Exempt............................. 134,302 4.38 128,199 4.13
UDAG and other subsidized loans.......... 77,410 2.60 54,876 2.56
---------- ----------
$1,898,428 7.25 $1,832,059 7.19
========== ==========
- ---------------
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) At February 1, 1997, $330,385,000 of this debt is subject to interest rate
swaps as described below.
Debt related to projects under development at January 31, 1997 totals
$30,400,000, out of a total commitment from lenders of $93,461,000. Of this
outstanding debt, $25,288,000 is variable-rate debt and $5,112,000 is fixed-rate
debt. The Company generally borrows funds for development and construction
projects with maturities of three to seven years utilizing variable-rate
financing. Upon opening and achieving stabilized operations, the Company
generally obtains long-term fixed-rate financing.
33
36
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. MORTGAGE DEBT, NONRECOURSE -- CONTINUED
As of January 31, 1997, the Company had entered into $378,385,000 of London
Interbank Offered Rate ("LIBOR") interest rate swap agreements for durations
ranging from one to five years, as follows.
SWAP BASE PRINCIPAL
LIBOR RATE PERIOD OUTSTANDING
- ----------- -------------------- --------------
(in thousands)
6.25% 03/15/96 - 12/29/00 $ 21,624
6.28% 04/15/96 - 04/15/99 99,095
6.54% 06/03/96 - 10/31/00 58,052
6.64% 01/02/97 - 01/04/99 39,750
6.21% 02/01/97 - 02/01/98 80,000
6.28% 05/01/96 - 11/12/01 31,864
6.25% 05/01/97 - 02/01/98 48,000
-------
$378,385
=======
The effect of these interest rate swap agreements reduces the Company's
outstanding taxable variable-rate debt at February 1, 1997, to $438,784,000,
which is 23.1% of the total mortgage debt.
In addition, the Company has purchased LIBOR interest rate caps ranging
from 6.50% to 9.85% on $40,969,000 of its variable-rate debt with varying
expiration dates through February 1, 2001.
The Urban Development Action Grants and other subsidized 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 areas. A right to participate by the local government in the
future cash flows of the project is generally a condition of these loans.
Participation in annual cash flows generated from operations is recognized as an
expense in the period earned. Participation in appreciation and cash flows
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.
Mortgage debt maturities for the next five years ending January 31 are as
follows: 1998, $288,915,000; 1999, $167,563,000; 2000, $416,612,000; 2001,
$318,753,000 and 2002, $98,186,000.
The Company is engaged in discussions with its current lenders and is
actively pursuing new lenders to extend and refinance the 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 incurred on mortgage debt was $129,241,000 in 1996, $126,520,000
in 1995 and $110,899,000 in 1994, of which $1,383,000, $2,861,000 and $2,156,000
was capitalized, respectively. Interest actually paid on mortgage debt, net of
capitalized interest, was $122,341,000 in 1996, $118,889,000 in 1995 and
$105,256,000 in 1994.
G. LONG-TERM DEBT
Long-term debt is as follows.
January 31,
--------------------
1997 1996
------- --------
(in thousands)
Term loan..................................................... $45,000 $ 55,000
Revolving credit agreement.................................... 48,000 53,000
Other debt.................................................... 1,923 5,061
------- --------
$94,923 $113,061
======= ========
34
37
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
G. LONG-TERM DEBT -- CONTINUED
At January 31, 1997, the Company had a term loan maturing July 1, 2001 and
an $80,000,000 revolving credit agreement maturing July 25, 1998. The term loan
requires quarterly principal payments of $2,500,000. The revolving credit
agreement allows for up to $20,000,000 in outstanding letters of credit (none of
which were outstanding at January 31, 1997), 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 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 LIBOR; 2) the maintenance of a specified level of net
worth and cash flows (as defined); and 3) a restriction on dividend payments. At
January 31, 1997, approximately $7,203,000 of retained earnings were available
for payment of dividends.
The Company has entered into an interest rate swap agreement to fix
$87,000,000 of the term loan and revolving credit agreement at the base LIBOR
rate of 6.21% plus lender margin for the period February 1, 1997 to February 1,
1998.
Interest rates on the other debt ranged primarily from 6.1% to 12.3% at
January 31, 1997.
Maturities of other debt for the next five years ending January 31 are as
follows: 1998, $850,000; 1999, $794,000; 2000, $151,000; 2001, $80,000; and
2002, $22,000.
Interest incurred on long-term debt was $6,982,000 in 1996, $7,764,000 in
1995 and $7,650,000 in 1994 of which $6,642,000, $6,500,000 and $4,893,000 was
capitalized, respectively. Interest actually paid on long-term debt was
$7,116,000 in 1996, $7,991,000 in 1995 and $7,790,000 in 1994.
CONSOLIDATED INTEREST
Total interest incurred on all forms of indebtedness (included in Notes E,
F and G) was $141,389,000 in 1996, $139,362,000 in 1995 and $123,870,000 in 1994
of which $8,025,000, $9,361,000 and $7,049,000 was capitalized, respectively.
Interest paid on all forms of indebtedness was $134,554,000 in 1996,
$132,009,000 in 1995 and $118,573,000 in 1994.
H. INCOME TAXES
The provision (benefit) for income taxes consists of the following
components.
For the Years Ended January 31,
--------------------------------
1997 1996 1995
------- ------- --------
(in thousands)
Current
Federal........................................... $ 896 $ 159 $ 4,764
Foreign........................................... 580 143 63
State............................................. 459 68 1,230
------- ------- --------
1,935 370 6,057
------- ------- --------
Deferred
Federal........................................... 6,985 6,083 (9,945)
Foreign........................................... (126) -- --
State............................................. 4,157 4,170 (2,076)
------- ------- --------
11,016 10,253 (12,021)
------- ------- --------
Total provision (benefit)........................... $12,951 $10,623 $ (5,964)
======= ======= ========
35
38
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. INCOME TAXES -- CONTINUED
The effective tax rate for income taxes varies from the federal statutory
rate of 35% for 1996, 1995 and 1994 due to the following items.
For the Years Ended January 31,
--------------------------------
1997 1996 1995
------- ------- --------
(in thousands)
Statement earnings (loss) before income taxes....... $22,122 $17,562 $(24,497)
======= ======= ========
Income taxes computed at the statutory rate......... $ 7,742 $ 6,146 $ (8,574)
Increase (decrease) in tax resulting from:
State taxes, net of federal benefit............... 3,000 2,220 (839)
Contribution carryover............................ 811 520 494
Nondeductible lobbying costs...................... 811 -- --
Adjustment of prior estimated taxes............... (111) 566 589
Valuation allowance............................... 351 897 102
Losses without tax benefits....................... -- -- 2,067
Other items....................................... 347 274 197
------- ------- --------
Total provision (benefit)........................... $12,951 $10,623 $ (5,964)
======= ======= ========
An analysis of the deferred tax provision (benefit) is as follows.
For the Years Ended January 31,
--------------------------------
1997 1996 1995
------- ------- --------
(in thousands)
Excess of tax over statement depreciation and
amortization...................................... $ 4,730 $ 5,743 $ 8,046
Allowance for doubtful accounts deducted for
statement purposes................................ (349) 461 (464)
Costs on land and rental properties under
development expensed for tax purposes............. 3,244 (515) 366
Revenues and expenses recognized in different
periods for tax and statement purposes............ (2,652) 6,224 (14,893)
Development fees deferred for statement purposes.... (109) (1,326) (400)
Provision for decline in real estate................ (1,650) 3,547 (3,547)
Deferred state taxes, net of federal benefit........ 2,392 2,565 757
Interest on construction advances deferred for
statement purposes................................ (189) (953) 1,609
Benefits of tax loss carryforward recognized against
deferred taxes.................................... 3,187 (5,656) (1,869)
Deferred compensation............................... 2,061 (734) (1,728)
Valuation allowance................................. 351 897 102
------- ------- --------
Deferred provision (benefit)........................ $11,016 $10,253 $(12,021)
======= ======= ========
36
39
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. INCOME TAXES -- CONTINUED
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............................................. $ 237,653 $ 93,992
Capitalized costs........................................ 142,517 56,365
Net operating losses..................................... (88,868) (35,147)
General business credits................................. -- (3,601)
Other.................................................... 2,996 3,879
-------- --------
$ 294,298 $115,488
======== ========
Income taxes paid (refunded) totaled $830,000, $(888,000) and $3,244,000 in
1996, 1995 and 1994, respectively. At January 31, 1997, the Company had a net
operating loss carryforward for tax purposes of $88,868,000 which will expire in
the years ending January 31, 2005 through January 31, 2011 and general business
credits carryovers of $3,601,000 which will expire in the years ending January
31, 2003 through January 31, 2011. The Company's deferred tax liability at
January 31, 1997 is comprised of deferred liabilities of $194,574,000, deferred
assets of $83,832,000 and a valuation allowance related to state taxes and
general business credits of $4,746,000.
I. SEGMENT INFORMATION
Principal business groups are determined by the type of customer served or
the product sold. The COMMERCIAL GROUP develops, acquires, owns and operates
shopping centers, office buildings and mixed-use projects including hotels. The
RESIDENTIAL GROUP develops or acquires, and owns and operates the Company's
multi-family properties. The LAND GROUP owns and develops raw land into master
planned communities and other residential developments for resale to users
principally in Arizona, Florida, Nevada, New York and Ohio. The LUMBER TRADING
GROUP operates the Company's lumber wholesaling business. CORPORATE includes
interest on corporate borrowings and general administrative expenses. The
following tables summarize selected financial data by business segment for the
fiscal years ended January 31, 1997, 1996 and 1995.
For the Years Ended January 31,
-------------------------------------------------------------
Earnings (Loss) Before
Revenues Income Taxes
------------------------------ ----------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- ------- ------- --------
(in thousands)
Commercial Group........................................... $309,834 $294,241 $258,966 $(1,656) $12,283 $ 7,482
Residential Group(1)....................................... 116,525 105,749 128,124 6,795 7,238 4,880
Land Group................................................. 53,888 42,889 48,894 6,007 3,823 3,290
Lumber Trading Group(2).................................... 124,491 81,093 80,590 8,966 5,826 4,906
Provision for decline in real estate....................... -- -- -- (12,263) (9,581) (10,133)
Gain (loss) on disposition of properties................... -- -- -- 17,574 (754) (30,835)
Corporate.................................................. 5,711 5,461 6,034 (3,301) (1,273) (4,087)
-------- -------- -------- -------- ------- --------
Consolidated........................................... $610,449 $529,433 $522,608 $22,122 $17,562 $(24,497)
======== ======== ======== ======== ======= ========
37
40
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
I. SEGMENT INFORMATION -- CONTINUED
For the Years Ended January 31,
-------------------------------------------------------------
Real Estate
-------------------------------------------------------------
Identifiable Assets at Depreciation and
January 31, Additions, net Amortization
------------------------------------ ------------------------------- ---------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- ---------- ---------- -------- -------- --------- ------- ------- -------
(in thousands)
Commercial Group........... $1,699,056 $1,640,810 $1,566,320 $ 84,972 $ 83,623 $ 95,264 $54,875 $49,572 $46,870
Residential Group(1)....... 642,873 613,480 614,609 26,120 27,612 (184,465) 15,419 14,001 17,108
Land Group................. 88,953 121,031 126,680 (25,658) (8,887) 5,791 748 59 90
Lumber Trading Group....... 209,901 172,305 175,107 2,285 (504) 542 2,140 1,962 1,377
Corporate.................. 100,622 83,420 102,018 7,377 1,103 (62) 122 122 135
---------- ---------- ---------- -------- -------- --------- ------- ------- -------
Consolidated........... $2,741,405 $2,631,046 $2,584,734 $ 95,096 $102,947 $ (82,930) $73,304 $65,716 $65,580
========== ========== ========== ======== ======== ========= ======= ======= =======
- ---------------
(1) The Residential Group includes the Company's apartment and residential
development divisions. In prior years, these divisions were reported
separately. Segment information for the years ended January 31, 1996 and
1995 in this Note I combines these divisions to conform to the current year
presentation.
(2) The Company recognizes the gross margin on lumber brokerage sales as
revenue. Sales invoiced for the years ended January 31,1997, 1996 and 1995
were approximately $2,884,000,000, $2,337,500,000 and $2,697,500,000,
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)
1998............................................................... $ 152,852
1999............................................................... 149,394
2000............................................................... 142,181
2001............................................................... 134,404
2002............................................................... 116,515
Later years........................................................ 823,259
----------
Total minimum future rentals.................................. $1,518,605
==========
Most of the commercial leases include provisions for reimbursements of
other charges including real estate taxes and operating costs. Other charges
amounted to $94,033,000, $84,533,000 and $83,881,000 in 1996, 1995 and 1994,
respectively.
THE COMPANY AS LESSEE
The Company is a lessee under various operating leasing arrangements for
real property and equipment having terms expiring through 2076, excluding
optional renewal periods.
38
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FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
J. LEASES -- CONTINUED
Minimum fixed rental payments under long-term leases (over one year) in
effect at January 31, 1997 are as follows.
FOR THE YEARS
ENDING JANUARY 31,
------------------
(in thousands)
1998.................................. $ 9,425
1999.................................. 8,711
2000.................................. 6,874
2001.................................. 6,373
2002.................................. 5,651
Later years........................... 140,915
--------
Total minimum lease payments........ $177,949
========
Rent expense was $8,813,000, $6,986,000 and $6,468,000 for 1996, 1995 and
1994, respectively.
K. CONTINGENT LIABILITIES
As of January 31, 1997, the Company has guaranteed loans totaling
$1,661,000 and has $12,555,000 in outstanding letters of credit.
The Company customarily guarantees lien-free completion of its
construction. Upon completion the guarantees are released. The Company is also
involved in certain claims and litigation related to its operations. Based upon
the facts known at this time, management is of the opinion that the ultimate
outcome of all such claims and litigation will not have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company.
L. STOCK OPTION PLAN
During 1994, the Board of Directors of the Company and the shareholders
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
non-qualified stock options. The aggregate number of shares that may be awarded
during the term of the Plan is 375,000 shares, subject to adjustments under the
Plan. The maximum number of shares that may be awarded to any employee during
any calendar year is 37,500 shares. The exercise price of all non-qualified 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 of incentive stock
options 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 incentive stock option shall be not less than 110% of the fair market
value of a share on the date granted. The Plan is administered by the
Compensation Committee of the Board of Directors. During 1996, 180,900 Class A
fixed stock options were granted. The options have a term of 10 years and vest
over two to four years. No options were granted in 1994 and 1995.
The Company applies APBO No. 25 and related Interpretations in accounting
for its Plan. Accordingly, no compensation cost has been recognized for its
Plan. During 1996, the Company adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Had compensation cost been determined
in accordance with SFAS No. 123, net earnings and earnings per share for 1996
would have been reduced to the pro forma amounts indicated below.
NET EARNINGS
EARNINGS PER SHARE
-------------- ---------
(in thousands)
As reported................................................ $ 12,071 $ .92
Pro forma.................................................. $ 11,846 $ .90
39
42
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. STOCK OPTION PLAN -- CONTINUED
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
the grant in 1996: dividend yield of .5%; expected volatility of 30.7%;
risk-free interest rate of 6.5%; and expected life of 8.7 years.
A summary of stock option activity during 1996 is presented below.
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year........................... --
Granted.................................................... 180,900 $28.75
Exercised.................................................. --
Forfeited.................................................. --
---------
Outstanding at end of year................................. 180,900 $28.75
=========
Options exercisable at year end............................ --
=========
Weighted average fair value of options granted during the
year..................................................... $ 14.37
=========
Range of exercise prices................................... $ 28.75
=========
Weighted average remaining contractual life................ 9.6 years
=========
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 buildings and mixed-use facilities. Condensed
consolidated balance sheets and statements of earnings for Rental Properties and
its subsidiaries follows.
40
43
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. SUMMARIZED FINANCIAL INFORMATION -- CONTINUED
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
-------------------------
1997 1996
---------- ----------
(in thousands)
ASSETS
Real Estate
Completed rental properties....................................... $2,227,859 $2,085,284
Projects under development........................................ 215,960 246,240
---------- ----------
2,443,819 2,331,524
Less accumulated depreciation..................................... (387,733) (338,216)
---------- ----------
Total Real Estate......................................... 2,056,086 1,993,308
Cash................................................................ 14,194 24,430
Other Assets........................................................ 267,596 250,171
---------- ----------
$2,337,876 $2,267,909
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse.......................................... $1,866,730 $1,767,910
Accounts payable and accrued expenses............................... 101,532 130,099
Long-term debt...................................................... 93,467 108,049
Other liabilities and deferred credits.............................. 157,466 150,143
---------- ----------
Total Liabilities......................................... 2,219,195 2,156,201
---------- ----------
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital......................... 5,378 5,378
Retained earnings................................................... 113,303 106,330
---------- ----------
Total Shareholder's Equity................................ 118,681 111,708
---------- ----------
$2,337,876 $2,267,909
========== ==========
41
44
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. SUMMARIZED FINANCIAL INFORMATION -- CONTINUED
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Revenues................................................... $426,226 $398,576 $386,858
-------- -------- --------
Operating expenses......................................... 228,110 198,282 205,707
Interest expense........................................... 121,186 117,560 104,836
Provision for decline in real estate....................... 11,684 9,581 10,133
Depreciation and amortization.............................. 70,221 63,557 63,956
-------- -------- --------
431,201 388,980 384,632
-------- -------- --------
Gain (loss) on disposition of properties................... 17,574 (754) (30,835)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES........................ 12,599 8,842 (28,609)
INCOME TAX EXPENSE (BENEFIT)
Current.................................................. (989) (1,213) (375)
Deferred................................................. 9,515 6,925 (7,573)
-------- -------- --------
8,526 5,712 (7,948)
-------- -------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN.............. 4,073 3,130 (20,661)
Extraordinary gain, net of tax............................. 2,900 1,847 60,449
-------- -------- --------
NET EARNINGS............................................... $ 6,973 $ 4,977 $ 39,788
======== ======== ========
N. GAIN (LOSS) ON DISPOSITION AND EXTRAORDINARY GAIN
During 1996, the Company recorded a gain on disposition of properties of
$17,574,000, before tax of $7,976,000, primarily resulting from the sale of its
18.63% interest in Beachwood Place, a regional shopping center in suburban
Cleveland, Ohio. In 1995, a loss on disposition of properties of $754,000,
before tax of $276,000, was recognized on the sale of a California apartment
complex.
Extraordinary gains, net of tax, of $2,900,000 and $1,847,000 were recorded
for 1996 and 1995, respectively. These gains were the result of the
extinguishment of nonrecourse mortgage debt and related accrued interest on
three rental properties. In 1994, loss on disposition of properties of
$19,181,000, net of tax of $11,654,000, was recognized on the sale of Park
LaBrea Towers, a 2,825-unit apartment complex located in Los
Angeles, California. Prior to the sale transaction, an extraordinary gain of
$56,462,000, net of tax of $27,715,000, was recorded as a result of
extinguishment of nonrecourse purchase money mortgage debt and related accrued
interest.
Also in 1994, two other rental properties recognized extraordinary gains on
nonrecourse debt extinguishment, amounting to $3,987,000, net of tax.
O. SUBSEQUENT EVENT
During February 1997, the Company settled litigation with the original land
owner of Toscana, a 563-unit apartment complex in Irvine, California, and in
connection therewith sold the property to the original land owner. As a result
of these transactions, the Company recorded litigation settlement proceeds of
$15,000,000, a pre-tax loss on disposition of the property of $35,505,000, and a
pre-tax extraordinary gain of $18,272,000 related to the extinguishment of a
portion of the nonrecourse mortgage debt. The net result of these transactions
to the Company was a pre-tax loss of $2,233,000.
42
45
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
Quarter Ended
---------------------------------------------------------------------------------------
JAN. 31, OCT. 31, JULY 31, APR. 30, Jan. 31, Oct. 31, July 31, Apr. 30,
FISCAL YEAR 1997 1996 1996 1996 1996 1995 1995 1995
- -------------------------------------- -------- -------- --------- -------- -------- -------- --------- --------
(in thousands, except per share data)
Revenues.............................. $169,177 $163,809 $ 148,492 $128,971 $170,643 $126,399 $ 120,807 $111,584
Earnings (loss) before income
taxes(1)............................ $ 2,065 $ 15,527 $ 5,488 $ (958) $ 21,131 $ 1,706 $ (998) $ (4,277)
Net earnings (loss) before
extraordinary gain(1)(2)............ $ (759) $ 8,054 $ 2,822 $ (946) $ 10,450 $ 601 $ (903) $ (3,209)
Net earnings (loss)................... $ (759) $ 10,047 $ 3,729 $ (946) $ 10,450 $ 601 $ 944 $ (3,209)
Net earnings (loss) before
extraordinary gain per common
share(1)(2)(4)...................... $ (.05) $ .61 $ .21 $ (.07) $ .77 $ .04 $ (.06) $ (.24)
Net earnings (loss) per common
share(4)............................ $ (.05) $ .76 $ .28 $ (.07) $ .77 $ .04 $ .08 $ (.24)
Dividends declared per common
share(3)(4)
Annual dividend
Class A........................... $ -- $ .21 $ -- $ -- $ -- $ .17 $ -- $ --
Class B........................... $ -- $ .21 $ -- $ -- $ -- $ .17 $ -- $ --
Quarterly dividend
Class A........................... $ .06 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Class B........................... $ .06 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Market price range of common stock(4)
Class A
High.............................. $ 41.67 $ 33.08 $ 28.08 $ 25.50 $ 24.50 $ 26.33 $ 26.33 $ 23.50
Low............................... $ 32.67 $ 27.83 $ 24.50 $ 22.00 $ 21.33 $ 24.50 $ 22.00 $ 20.25
Class B
High.............................. $ 40.67 $ 32.67 $ 28.08 $ 25.42 $ 24.33 $ 26.00 $ 26.25 $ 23.58
Low............................... $ 32.75 $ 27.92 $ 24.92 $ 22.17 $ 21.33 $ 24.50 $ 22.33 $ 20.75
- ---------------
Both classes of common stock are traded on the American Stock Exchange
("Exchange") under the symbols, FCEA and FCEB. High and low prices shown are
based upon data provided by the Exchange.
As of March 4, 1997, the number of registered holders of Class A and Class B
common stock were 883 and 687, respectively.
(1) Third quarter 1996 data has been restated to reflect the reclassification of
$3,297,000, before taxes, from provision for decline in real estate to
extraordinary gain. This reclassification represents a $.15 reduction in net
earnings (loss) before extraordinary gain per common share, but has no
effect on net earnings of the Company.
(2) Excludes the extraordinary gain, net of tax of $2,900,000 ($.22 per share)
and $1,847,000 ($.14 per share), in fiscal 1996 and 1995, respectively.
These items are explained in Note N in the Notes to Consolidated Financial
Statements.
(3) Future dividends will depend upon such factors as earnings, capital
requirements and financial condition of the Company. Approximately
$7,203,000 of retained earnings were available for payment of dividends as
of January 31, 1997, under the restrictions contained in the term loan and
revolving credit agreement with a group of banks.
(4) Adjusted for three-for-two split of Class A and Class B common stock
effective February 17, 1997.
43
46
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, 1997.................. $3,687 $2,714 $1,407(A) $4,994
------ ------ ------ ------
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
------ ------ ------ ------
- ---------------
(A) Uncollectible accounts written off.
44
47
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
GROSS AMOUNT AT
WHICH CARRIED
INITIAL COST COST CAPITALIZED AT CLOSE OF
TO COMPANY SUBSEQUENT JANUARY 31, 1997
AMOUNT OF --------------------------- TO ACQUISITION ------------------------------------
ENCUMBRANCE BUILDINGS ----------------------- BUILDINGS
DESCRIPTION OF AT JANUARY 31, AND CARRYING AND TOTAL
PROPERTY 1997 LAND IMPROVEMENTS(A) IMPROVEMENTS COSTS LAND IMPROVEMENTS (B)(C)
- ------------------ -------------- --------- --------------- ------------ -------- -------- ------------ ----------
(in thousands)
Apartments:
Miscellaneous
investments... $ 496,545 $ 50,070 $ 499,726 $ 27,484 $ 27,921 $ 72,508 $ 532,693 $ 605,201
Shopping Centers:
Cleveland,
Ohio.......... 62,304 -- 137,137 7,861 6,150 -- 151,148 151,148
Miscellaneous
investments... 620,292 53,299 438,542 112,171 32,308 64,117 572,203 636,320
Office Buildings:
New York,
New York...... 133,946 -- 127,659 1,218 3,235 -- 132,112 132,112
Miscellaneous
investments... 523,243 15,295 504,885 163,267 19,631 20,055 683,023 703,078
Leasehold
improvements and
other equipment:
Miscellaneous
investments -- -- 19,534 -- -- -- 19,534 19,534
Under
Construction:
Miscellaneous
investments 30,400 51,480 168,657 -- -- 51,480 168,657 220,137
Undeveloped Land:
Miscellaneous
investments.. 31,698 52,649 -- -- -- 52,649 -- 52,649
---------- --------- ---------- -------- -------- -------- ---------- ----------
Total......... $ 1,898,428 $ 222,793 $ 1,896,140 $312,001 $ 89,245 $260,809 $2,259,370 $2,520,179
========== ========= ========== ======== ======== ======== ========== ==========
RANGE OF LIVES
(IN YEARS) ON
WHICH DEPRECIATION
ACCUMULATED IN LATEST INCOME
DEPRECIATION STATEMENT IS COMPUTED
DESCRIPTION OF AT JANUARY 31, DATE OF DATE ----------------------
PROPERTY 1997(D) CONSTRUCTION ACQUIRED BLDG. IMPROVEMENTS
- ------------------ -------------- ------------ --------- ------- ------------
<
Apartments:
Miscellaneous
investments... $110,467 Various -- Various Various
Shopping Centers:
Cleveland,
Ohio.......... 21,451 1988-1990 -- 50 50
Miscellaneous
investments... 104,270 Various -- Various Various
Office Buildings:
New York,
New York...... 13,217 1989-1991 -- 50 --
Miscellaneous
investments... 138,328 Various -- Various Various
Leasehold
improvements and
other equipment:
Miscellaneous
investments 12,097 -- Various Various Various
Under
Construction:
Miscellaneous
investments --
Undeveloped Land:
Miscellaneous
investments.. --
--------
Total......... $399,830
========
- ---------------
(A) Certain amounts were reclassified to conform to the current year's
classifications.
(B) The aggregate cost at January 31, 1996 for federal income tax purposes was
$2,387,391.
(Continued)
45
48
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
FOR THE YEARS ENDED JANUARY 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
(in thousands)
(C) Reconciliations of total real estate carrying
value are as follows:
Balance at beginning of period.................... $2,425,083 $2,322,136 $2,405,066
Additions during period --
Improvements...................................... 148,025 130,296 134,557
Other acquisitions................................ 22,264 28,587 32,811
---------- ----------
170,289 158,883 167,368
---------- ----------
Deductions during period --
Cost of real estate sold.......................... (75,193) (55,936) (250,298)
---------- ----------
Balance at end of period.......................... $2,520,179 $2,425,083 $2,322,136
========== ==========
(D) Reconciliations of accumulated depreciation are as
follows:
Balance at beginning of period.................... $ 347,912 $ 303,012 $ 282,313
Additions during period --
Charged to profit or loss......................... 52,979 50,821 49,869
Deductions during period --
Retirement and sales.............................. (1,061) (5,921) (29,170)
---------- ----------
Balance at end of period.......................... $ 399,830 $ 347,912 $ 303,012
========== ==========
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, 1997 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, 1997 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, 1997
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
46
49
1. Financial Statements and Supplementary Data included in Part II, Item
8.
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Earnings for the years ended January 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
January 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended January 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Quarterly Consolidated Financial Data (Unaudited)
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.
2. Financial statement schedules required by Part IV, Item 14 are
included in Part II, Item 8.
Schedule II -- Valuation and Qualifying Accounts for the years ended
January 31, 1997, 1996 and 1995
Schedule III -- Real Estate and Accumulated Depreciation at January 31,
1997 with reconciliations for the years ended January 31, 1997, 1996 and
1995
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.
(b) Reports on Form 8-K.
On December 11, 1996, the Company filed a Current Report on Form 8-K
pursuant to Item 5 thereof, reporting the announcement of a stock split,
cash dividend and new quarterly dividend policy.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ------------------------------------------------------------------------
No. 3.1 -- Amended Articles of Incorporation adopted as of October 11, 1983,
incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for
the quarter ended October 31, 1983.
(1) No. 3.2 -- Code of Regulations as amended June 14, 1994.
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, incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended July 31, 1994.
No. 10.2 -- Guaranty of Payment of Debt, dated as of July 25, 1994, between Forest
City Enterprises, Inc. and the banks named therein incorporated by
reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended July 31, 1994.
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, incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q for the quarter ended October
31, 1995.
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, incorporated by reference to
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended October
31, 1995.
47
50
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ------------------------------------------------------------------------
No. 10.5 -- Second Amendment to Credit Agreement, dated as of April 4, 1996, among
Forest City Rental Properties Corporation, the banks named therein and
Society National Bank, as agent, incorporated by reference to Exhibit
4.8 to the Company's Registration Statement on Form S-3 (Registration
No. 333-22695).
(1) No. 10.6 -- Second Amendment to Guaranty of Payment of Debt, dated as of April 4,
1996, among Forest City Enterprises, Inc., the banks named therein and
Society National Bank, as agent, replacing Exhibit 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-22695).
No. 10.7 -- Third Amendment to Credit Agreement, dated as of December 18, 1996,
among Forest City Rental Properties Corporation, the banks named therein
and KeyBank National Association, f/k/a Society National Bank, as agent,
incorporated by reference to Exhibit 4.10 to the Company's Registration
Statement on Form S-3 (Registration No. 333-22695).
No. 10.8 -- Third Amendment to Guaranty of Payment of Debt, dated as of December 18,
1996, among Forest City Enterprises, Inc., the banks named therein and
KeyBank National Association, f/k/a Society National Bank, as agent,
incorporated by reference to Exhibit 4.11 to the Company's Registration
Statement on Form S-3 (Registration No. 333-22695).
(1)(2) No. 10.9 -- Supplemental Unfunded Deferred Compensation Plan for Executives.
(1)(2) No. 10.10 -- 1994 Stock Option Plan, including forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement.
(1)(2) No. 10.11 -- Employment Agreement entered into as of September 25, 1989 by the
Company and Albert B. Ratner.
(1)(2) No. 10.12 -- First Amendment to Employment Agreement entered into as of December 6,
1996 by the Company and Albert B. Ratner.
(1)(2) No. 10.13 -- Employment Agreement entered into as of September 25, 1989 by the
Company and Samuel H. Miller.
(1)(2) No. 10.14 -- Employment Agreement entered into as of September 25, 1989 by the
Company and Nathan P. Shafran.
(1)(2) No. 10.15 -- Employment Agreement entered into as of March 30, 1993 by the Company
and James A. Ratner.
(1)(2) No. 10.16 -- Employment Agreement entered into as of March 30, 1993 by the Company
and Ronald A. Ratner.
(1)(2) No. 10.17 -- Employment Agreement entered into as of February 1, 1994 by the Company
and Charles A. Ratner.
(1)(2) No. 10.18 -- First Amendment to Employment Agreement entered into as of December 6,
1996 by the Company and Charles A. Ratner.
(1)(2) No. 10.19 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Deborah Ratner Salzberg and Forest City
Enterprises, Inc., insuring the lives of Albert Ratner and Audrey
Ratner, dated June 26, 1996.
(1)(2) No. 10.20 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Brian J. Ratner and Forest City Enterprises, Inc.,
insuring the lives of Albert Ratner and Audrey Ratner, dated June 26,
1996.
(1)(2) No. 10.21 -- Letter Supplement to Split Dollar Insurance Agreement and Assignment of
Life Insurance Policy as Collateral between Brian J. Ratner and Forest
City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey
Ratner, effective June 26, 1996.
48
51
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ------------------------------------------------------------------------
(1)(2) No. 10.22 -- Letter Supplement to Split Dollar Insurance Agreement and Assignment of
Life Insurance Policy as Collateral between Deborah Ratner Salzberg and
Forest City Enterprises, Inc., insuring the lives of Albert Ratner and
Audrey Ratner, effective June 26, 1996.
(1)(2) No. 10.23 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Charles Ratner 1992 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the lives of Charles Ratner and Ilana
Horowitz (Ratner), dated November 2, 1996.
(1)(2) No. 10.24 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.25 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Max Ratner 1988 Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.26 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Max Ratner 1988 Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.27 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Max Ratner 1988 Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.28 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Max Ratner 1988 Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.29 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.30 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.31 -- Split Dollar Insurance Agreement and Assignment of Life Insurance Policy
as Collateral between Albert B. Ratner and James Ratner, Trustees under
the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner, dated October
24, 1996.
(1)(2) No. 10.32 -- Letter Supplement to Split Dollar Insurance Agreement and Assignment of
Life Insurance Policy as Collateral between James Ratner and Albert
Ratner, Trustees under the Charles Ratner 1992 Irrevocable Trust
Agreement and Forest City Enterprises, Inc., insuring the lives of
Charles Ratner and Ilana Ratner, effective November 2, 1996.
(1)(2) No. 10.33 -- Deferred Compensation Agreement between Forest City Enterprises, Inc.
and Thomas G. Smith, dated December 27, 1995.
(1) No. 21 -- Subsidiaries of the Registrant.
(1) No. 23(A) -- Consent of Coopers & Lybrand L.L.P. regarding Form S-3 (Registration No.
333-22695).
49
52
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ------------------------------------------------------------------------
(1) No. 23(B) -- Consent of Coopers & Lybrand L.L.P. regarding Form S-8 (Registration No.
33-65054).
(1) No. 23(C) -- Consent of Coopers & Lybrand L.L.P. regarding Form S-8 (Registration No.
33-65058).
(1) No. 24 -- Powers of Attorney.
(1) No. 27 -- Financial Data Schedules.
- ---------------
Note (1) Filed herewith.
Note (2) Reflects management contracts or other compensatory arrangements
required to be filed as an exhibit pursuant to Item 14(c) of this Form
10-K.
50
53
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 29, 1997 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.
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- --------
/s/ ALBERT B. RATNER Co-Chairman of the Board of Directors 4/29/97
- -----------------------------------------
(Albert B. Ratner)
/s/ SAMUEL H. MILLER Co-Chairman of the Board of Directors and Treasurer 4/29/97
- -----------------------------------------
(Samuel H. Miller)
* President, Chief Executive Officer and Director 4/29/97
- ----------------------------------------- (Principal Executive Officer)
(Charles A. Ratner)
/s/ THOMAS G. SMITH Senior Vice President, Chief Financial Officer and 4/29/97
- ----------------------------------------- Secretary (Principal Financial Officer)
(Thomas G. Smith)
/s/ LINDA M. KANE Vice President and Corporate Controller 4/29/97
- ----------------------------------------- (Principal Accounting Officer)
(Linda M. Kane)
/s/ NATHAN SHAFRAN Vice Chairman of the Board of Directors 4/29/97
- -----------------------------------------
(Nathan Shafran)
/s/ JAMES A. RATNER Executive Vice President and Director 4/29/97
- -----------------------------------------
(James A. Ratner)
/s/ RONALD A. RATNER Executive Vice President and Director 4/29/97
- -----------------------------------------
(Ronald A. Ratner)
/s/ BRIAN J. RATNER Senior Vice President and Director 4/29/97
- -----------------------------------------
(Brian J . Ratner)
/s/ DEBORAH RATNER SALZBERG Director 4/29/97
- -----------------------------------------
(Deborah Ratner Salzberg)
/s/ J MAURICE STRUCHEN Director 4/29/97
- -----------------------------------------
(J Maurice Struchen)
/s/ MICHAEL P. ESPOSITO, JR. Director 4/29/97
- -----------------------------------------
(Michael P. Esposito, Jr.)
/s/ SCOTT S. COWEN Director 4/29/97
- -----------------------------------------
(Scott S. Cowen)
/s/ JERRY V. JARRETT Director 4/29/97
- -----------------------------------------
(Jerry V. Jarrett)
The Registrant plans to furnish security holders a copy of the Annual
Report and Proxy material by May 9, 1997.
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and Officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this Form 10-K on behalf of each of the persons noted above, in the capacities
indicated.
By: /s/ CHARLES A. RATNER 4/29/97
- -------------------------------------------
(Charles A. Ratner, Attorney-in-Fact)
51