FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 30, 1994
Commission file number 1-4372
FOREST CITY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-0863886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
None
(Former name, former address and former fiscal year, if changed since last
report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 27, 1994
Class A Common Stock, $.33 1/3 par value 5,146,226 shares
Class B Common Stock, $.33 1/3 par value 3,845,388 shares
FOREST CITY ENTERPRISES, INC.
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Forest City Enterprises, Inc. and Subsidiaries:
Consolidated Balance Sheets - April 30, 1994
(Unaudited) and January 31, 1994 3-4
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three Months Ended
April 30, 1994 and 1993 5
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended April 30, 1994 and 1993 6
Note to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II. Other Information:
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
PART I - FINANCIAL INFORMATION
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30, 1994 January 31, 1994
-------------- ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
Assets
Real Estate
Completed rental properties $2,139,372 $2,116,557
Projects under development 221,401 214,111
Land held for development or sale 74,382 74,398
---------- ----------
2,435,155 2,405,066
Less accumulated depreciation (294,309) (282,313)
---------- ----------
Total Real Estate 2,140,846 2,122,753
Cash 8,540 21,798
Notes and accounts receivable, net of allowance
for doubtful accounts of $5,514 and $5,322,
respectively 244,155 252,009
Inventories and construction contracts
in progress 44,568 63,220
Investments in and advances to affiliates 62,081 59,891
Other assets 151,493 148,386
---------- ----------
$2,651,683 $2,668,057
========== ==========
</TABLE>
See note to consolidated financial statements.
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30, 1994 January 31, 1994
-------------- ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
Liabilities
Mortgage debt, nonrecourse $1,941,559 $1,930,999
Accounts payable and accrued expenses 325,297 361,023
Notes payable 50,794 39,183
Long-term debt 90,252 95,452
Deferred income taxes 70,393 69,449
Deferred profit 26,475 26,509
---------- ----------
Total Liabilities 2,504,770 2,522,615
---------- ----------
Shareholders' Equity
Preferred stock - convertible, without par
value; 1,000,000 shares authorized;
no shares issued - -
Common stock - $.33 1/3 par value
Class A, 16,000,000 shares authorized;
5,146,226 shares outstanding 1,715 1,715
Class B, convertible, 6,000,000 shares
authorized; 3,845,388 shares
outstanding 1,282 1,282
---------- ----------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 98,405 96,934
---------- ----------
Total Shareholders' Equity 146,913 145,442
---------- ----------
$2,651,683 $2,668,057
========== ==========
</TABLE>
See note to consolidated financial statements.
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended April 30,
----------------------------
1994 1993
-------- --------
(in thousands, except
per share data)
<S> <C> <C>
Sales and operating revenues $111,896 $127,905
Interest and other income 4,616 1,983
-------- --------
Total revenues 116,512 129,888
Operating expenses 73,270 84,351
Interest expense 29,902 27,666
Depreciation and amortization 15,650 15,389
Gain on disposition of properties - 384
-------- --------
Earnings (loss) before income taxes
and extraordinary gain (2,310) 2,866
-------- --------
Income taxes
Current (1,372) 151
Deferred 944 1,392
-------- --------
(428) 1,543
-------- --------
Net earnings (loss) before extraordinary gain (1,882) 1,323
Extraordinary gain, net of tax 3,353 -
-------- --------
Net earnings 1,471 1,323
Retained earnings at beginning of period 96,934 94,722
-------- --------
Retained earnings at end of period $ 98,405 $ 96,045
======== ========
Per common share
Net earnings (loss) before extraordinary gain $(.21) $ .15
Extraordinary gain, net of tax .37 -
----- -----
$ .16 $ .15
===== =====
Weighted average common shares outstanding 8,991,614 8,991,614
========= =========
</TABLE>
See note to consolidated financial statements.
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended April 30,
----------------------------
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Operating Activities
Net earnings $ 1,471 $ 1,323
Depreciation and amortization 15,650 15,389
Deferred income taxes 944 1,392
Accrued interest of a rental property
not payable until future years 3,394 1,260
Extraordinary gain (5,656) -
Gain on disposition of properties - (384)
Decrease in land held for development or sale 15 6,057
(Increase) decrease in notes
and accounts receivable, net 7,854 (4,008)
(Increase) decrease in inventories and
construction contracts in progress 18,652 (3,981)
(Increase) decrease in other assets (6,397) 248
(Decrease) in accounts payable and
accrued expenses (39,120) (25,921)
Increase (decrease) in deferred profit (34) 1,252
-------- --------
Net cash used in operating activities (3,227) (7,373)
-------- --------
Investing Activities
Capital expenditures (30,468) (13,953)
(Increase) decrease in investments
in and advances to affiliates (2,190) 126
-------- --------
Net cash used in investing activities (32,658) (13,827)
-------- --------
Financing Activities
Increase in mortgage and long-term debt 23,667 6,825
Payments on long-term debt (5,892) (5,680)
Principal payments on mortgage debt
on real estate (6,759) (10,005)
Increase in notes payable 12,048 24,251
Payments on notes payable (437) (4,498)
-------- --------
Net cash provided by financing activities 22,627 10,893
-------- --------
Net (decrease) in cash (13,258) (10,307)
Cash at beginning of period 21,798 41,483
-------- --------
Cash at end of period $ 8,540 $ 31,176
======== ========
</TABLE>
See note to consolidated financial statements.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. During the first quarter of 1994, the Company restructured the
nonrecourse debt on Robinson Town Center Plaza, a community strip
shopping center, located in Robinson Township near the Greater
Pittsburgh International Airport. As part of this transaction,
approximately $5,700,000 in debt was forgiven by the lender.
As a result of this transaction, the Company recorded an extraordinary
gain, net of tax, of $3,353,000 during the quarter ended April 30, 1994.
PART I - FINANCIAL INFORMATION (CONTINUED)
The enclosed financial statements have been prepared on a basis
consistent with accounting principles applied in the prior periods and
reflect all adjustments which are, in the opinion of management, necessary
for a fair presentation of the results of operations for the periods
presented. All such adjustments were of a normal recurring nature.
Results of operations for the three months ended April 30, 1994 and 1993
are not necessarily indicative of results of operations which may be expected
for the full year.
The following discussion and analysis of business segments of Forest
City Enterprises, Inc. and all majority-owned subsidiaries ("Company")
should be read in conjunction with the financial statements and the
footnotes thereto contained in the January 31, 1994 annual report
("Form 10-K").
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Earnings Before Depreciation and Deferred Taxes from Operations ("EBDT")
increased 4% for the quarter ended April 30, 1994 to $19,036,000 from
$18,363,000 for the first quarter of fiscal 1993. EBDT consists of net
earnings before gain on disposition of properties and the provision for
decline in real estate plus noncash charges from real estate operations of
depreciation and amortization, deferred income taxes and accrued interest on
mortgage notes of a rental property that is not payable until future years.
Consolidated sales and operating revenues were $111,896,000 for the
three months ended April 30, 1994 versus $127,905,000 for the three
months ended April 30, 1993. The decline in revenues was due to a reduced
level of sales in the Land Division and a decrease in volume in the
Wholesale Lumber Division.
The net loss before extraordinary gain, including gain on disposition
of properties, was $1,882,000 for the first quarter of 1994 versus net
earnings of $1,323,000 for the same period in 1993. The gain on disposition
of properties, net of tax, which varies from year to year and is not
considered by management to be a part of the on-going results of operations,
was $236,000 for the first three months of 1993. There was no gain on
disposition of properties during the first quarter of 1994.
The Company also recorded an extraordinary gain, net of tax, of
$3,353,000 during the quarter ended April 30, 1994. This resulted from the
restructuring of the nonrecourse debt on Robinson Town Center Plaza, a
community strip shopping center located in Robinson Township near the
Greater Pittsburgh International Airport. As a part of the transaction,
approximately $5,700,000 in debt was forgiven by the lender.
INVESTMENT REAL ESTATE - FOREST CITY RENTAL PROPERTIES CORPORATION
The Company conducts the development and management of its real estate
portfolio through Forest City Rental Properties Corporation. Sales and
operating revenues increased to $94,260,000 for the quarter ended
April 30, 1994 from $89,375,000 for the first three months of fiscal 1993.
Net earnings before gain on disposition of properties and the
extraordinary gain for the first quarter of 1994 were $2,044,000 versus a
net loss for the first three months of 1993 of $1,073,000. Much of the
improvement in the first quarter of 1994 over 1993 resulted from the
operating activities of properties recently acquired as well
as improvements in existing properties.
LAND DIVISION
The sales of residential, commercial and industrial land were $4,286,000 for
the first quarter of 1994 versus $12,907,000 for the comparable period in
1993. The pretax loss was $1,123,000 for the three months ended
April 30, 1994 versus pretax earnings of $2,640,000 for the first quarter
of 1993. During the first quarter of 1993, the Company completed the sale
of a multi-family parcel in Northeast Ohio as well as the sale of a large
number of lots in its Florida land operation. There were no significant
individual land sales in the first quarter of 1994. The portion of the
loss for the first quarter of 1994 due to the operations of Granite
Development Partners, L.P., formed during the fourth quarter of 1993 to
invest in a specified pool of land, was $1,734,000. Until the limited
partners exercise their outstanding warrants and dilute Forest City's
ownership interest in this limited partnership as provided for in the
partnership agreement, the Company is recognizing 100% of the losses being
generated from operations. Since there were no significant land sales in
Granite during the first quarter, most of the loss is due to interest
expense on the debt outstanding. Sales of land and related earnings
vary from period to period depending upon management's decisions
regarding the disposition of significant land holdings.
RESIDENTIAL DEVELOPMENT DIVISION
Revenues for the three months ended April 30, 1994 were $541,000 versus
$596,000 for the first quarter of 1993. Earnings before income taxes
were $436,000 for the quarter ended April 30, 1994 versus earnings of
$323,000 for the first quarter of 1993. The majority of this division's
efforts are now directed toward acquiring completed real estate at
favorable prices for the Company's portfolio and continuing to oversee
the operations of properties syndicated in prior years.
WHOLESALE LUMBER DIVISION
Forest City Trading Group's revenues were $12,809,000 for the three months
ended April 30, 1994 compared to revenues of $25,027,000 for the first
quarter of 1993. The pretax loss for this division was $3,532,000,
including results of operations from the Company's building materials
business which is accounted for on the equity method, versus pretax
earnings of $2,415,000 for the first quarter of 1993. The decrease in
revenues is due to the steep decline in the market price of lumber. The
pretax loss is attributable to the decline in the market price of lumber
and its associated negative impact on the division's physical inventory.
The physical inventory levels had grown during 1993 due to market price
increases and the volume of trading. When the market price of lumber fell
during the first quarter of 1994, the division sold its physical inventory
at a loss. All of the loss related to the physical inventory has been
accrued. Fluctuations in lumber markets during the first quarter of 1993
created market conditions that allowed the Company to substantially
increase its gross margin and pretax earnings as a result of these
trading activities.
FINANCIAL CONDITION AND LIQUIDITY
The net cash used in operating activities was $3,227,000 for the first
quarter of 1994 versus cash used of $7,373,000 for the first quarter of
1993. The reduction in cash used in the first quarter of 1994 versus 1993
resulted primarily from the change in the debt agreements at the
Company's lumber brokerage subsidiary which resulted in a reduction in
accounts receivable.
Net cash used in investing activities was $32,658,000 for the quarter
ended April 30, 1994 versus $13,827,000 used during the first quarter
of 1993. Net cash provided by financing activities was $22,627,000
for the three months ended April 30, 1994 versus $10,893,000 provided
during the quarter ended April 30, 1993. The Company acquired two apartment
buildings in 1994, which resulted in an increase in capital expenditures
and mortgage debt in 1994 as compared to 1993. On-going development
activity also is reflected in the increase in capital expenditures.
Mortgage debt increased in 1994 over 1993 due to debt issued by Granite
Development Partners, L.P. This increase in debt was partially offset by
a change in the debt agreements at the Company's lumber brokerage subsidiary
which resulted in a reduction of notes payable in 1994 as compared to 1993.
The Company's wholly-owned real estate subsidiary, Forest City Rental
Properties Corporation, has two term loans outstanding which totaled
$85,625,000 at April 30, 1994. The Company is making quarterly principal
payments under both of these loans, totaling $5,625,000. The Company
also had $6,000,000 outstanding under its $15,000,000 short-term line
of credit at April 30, 1994.
During 1991, the Company borrowed $10,000,000 from each of two related
parties who were shareholders. The debt to one of the shareholders has been
repaid. There is $8,826,000 outstanding to the remaining shareholder at
April 30, 1994. This loan is secured by selected real estate assets of the
Company and collections of a note receivable.
The Company's mortgage debt, all of which is nonrecourse, totaled
$1,941,559,000 at April 30, 1994. The Company has followed a policy of
obtaining debt which is nonrecourse to the Company. However, the Company
does guarantee the completion of the initial construction of certain
projects. During 1993, certain loans matured which were either extended or
refinanced. Just as we have been able to refinance our debt that has
matured in the past, we expect to either extend the maturity date on our
loans as they come due in 1994 or refinance the projects.
The Company's lumber brokerage subsidiary has a three-year agreement
under which it is selling an undivided ownership interest in a pool of
accounts receivable up to a maximum of $80,000,000. The Company also has a
bank line of credit of $40,000,000 with the right to borrow an additional
$10,000,000 for up to ninety days through May 31, 1995. At April 30, 1994,
$32,168,000 was outstanding under this line of credit.
The sources of liquidity of the Company and its subsidiaries are
unused bank lines, cash flow from operations, refinancings of rental
properties with larger mortgages and sales of real estate. In addition,
the large principal payments we are making on our recourse debt provides
the Company with the potential to raise additional corporate debt on a
recourse basis. The sources of funds have been and, to a lesser extent, will
continue to be used principally for the development of additional real estate
projects, the acquisition of existing real estate and the repayment
of recourse debt. Now that the Company's development program
has diminished and the properties are completing their lease up, we are
experiencing a substantial increase in cash flow from operations. This
has had a positive impact upon the Company's liquidity.
The Company has historically invested a significant amount of equity
in its projects during their development and construction phases. Forest
City generally mortgages the properties owned by Forest City Rental
Properties on an intermediate- to long-term nonrecourse basis with
maturities ranging from 5 years and higher to the extent that funds
are available on acceptable terms. Rental Properties has financed most of it
development and construction projects with shorter- to intermediate-term bank
loans bearing floating rates of interest. We now have begun a program of
securitizing our nonrecourse debt on a longer-term basis.
The Company has a substantial amount of variable-rate debt which
enables it to benefit from historically low interest rates. In past
years, the Company has purchased interest rate protection on a
portion of its debt to provide protection against significant increases in
interest rates. The Company has elected to purchase interest rate
protection on a substantial portion of it debt through January 31, 1995.
Increases in interest rates still could have a negative impact upon the
Company to the extent that it has variable-rate debt that is not covered by
interest rate protection. The Company will continue to review the
various components of its variable-rate debt structure and purchase
interest rate protection as it deems appropriate.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and lawsuits incidental to
its business. The Company's General Counsel is of the opinion that,
except for the claims discussed below which may or may not have a material
effect, none of the other claims and lawsuits will have a material adverse
effect on the Company.
The Company holds a partnership interest in Grant Liberty Development
Group Associates ("GLDGA"). GLDGA and Metropolitan Life Insurance Company
("Metropolitan") hold ownership interests of 40% and 60%, respectively, in
Liberty Center Venture ("Partnership"). Metropolitan is also the holder of
the nonrecourse mortgage which encumbers the property held by the
Partnership. In July 1990, GLDGA initiated an action against Metropolitan
alleging Metropolitan violated its fiduciary duty to the Partnership by
refusing to refinance or reduce the interest rate on the mortgage and by
making decisions detrimental to the Partnership. Subsequently, in
March 1991, Metropolitan filed an action against the Partnership to foreclose
on the mortgage and obtain title to the property. Subsequent thereto,
a receiver had been appointed to manage the property.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K filed for the three months ended April 30,
1994:
None
SIGNATURES
Pursuant to the requirements 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 June 14, 1994 /s/ Thomas G. Smith
Thomas G. Smith, Senior Vice President,
Chief Financial Officer
and Secretary
Date June 14, 1994 /s/ D. Layton McCown
D. Layton McCown, Vice President,
Corporate Controller and Chief
Accounting Officer
