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 July 31, 1995
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 August 30, 1995
Class A Common Stock, $.33 1/3 par value 5,161,479 shares
Class B Common Stock, $.33 1/3 par value 3,830,135 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 - July 31, 1995
(Unaudited) and January 31, 1995 3-4
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three and Six Months Ended
July 31, 1995 and 1994 5
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended July 31, 1995 and 1994 6
Notes 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 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
PART I - FINANCIAL INFORMATION
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, 1995 January 31, 1995
------------- ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties $2,040,767 $2,011,168
Projects under development 261,557 230,802
Land held for development or sale 82,507 80,166
---------- ----------
2,384,831 2,322,136
Less accumulated depreciation (325,193) (303,012)
---------- ----------
Total Real Estate 2,059,638 2,019,124
Cash 24,242 46,478
Notes and accounts receivable, net of allowance
for doubtful accounts of $5,999 and $4,208,
respectively 173,276 197,602
Inventories and construction contracts
in progress 24,013 38,949
Investments in and advances to affiliates 145,132 139,318
Other assets 148,336 143,263
---------- ----------
$2,574,637 $2,584,734
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $1,804,690 $1,769,270
Accounts payable and accrued expenses 347,075 375,350
Notes payable 9,714 22,340
Long-term debt 108,855 112,647
Deferred income taxes 93,430 93,650
Deferred profit 27,578 25,917
---------- ----------
TOTAL LIABILITIES 2,391,342 2,399,174
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par
value; 1,000,000 shares authorized;
no shares issued - -
Common stock, $.33 1/3 par value
Class A, 16,000,000 shares authorized;
5,159,779 and 5,146,226 shares outstanding,
respectively 1,720 1,715
Class B, convertible, 6,000,000 shares
authorized; 3,831,835 and 3,845,388 shares
outstanding, respectively 1,277 1,282
---------- ----------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 134,787 137,052
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 183,295 185,560
---------- ----------
$2,574,637 $2,584,734
========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
(dollars in thousands, except
per share data)
<S> <C> <C> <C> <C>
Sales and operating revenues $118,082 $130,533 $226,380 $242,429
Interest and other income 2,725 2,934 6,011 7,550
-------- -------- -------- --------
Total revenues 120,807 133,467 232,391 249,979
Operating expenses 75,367 86,768 143,295 160,038
Interest expense 30,935 30,795 62,680 60,697
Depreciation and amortization 15,503 16,785 31,691 32,435
-------- -------- -------- --------
(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN (998) (881) (5,275) (3,191)
-------- -------- -------- --------
INCOME TAXES
Current 132 834 265 (538)
Deferred (227) (922) (1,428) 22
-------- -------- -------- --------
(95) (88) (1,163) (516)
-------- -------- -------- --------
NET (LOSS) BEFORE
EXTRAORDINARY GAIN (903) (793) (4,112) (2,675)
Extraordinary gain, net of tax 1,847 - 1,847 3,353
-------- -------- -------- --------
NET EARNINGS (LOSS) 944 (793) (2,265) 678
Retained earnings at beginning of period 133,843 98,405 137,052 96,934
-------- -------- -------- --------
Retained earnings at end of period $134,787 $ 97,612 $134,787 $ 97,612
======== ======== ======== ========
PER COMMON SHARE
Net (loss) before
extraordinary gain $ (.10) $ (.09) $ (.46) $ (.30)
Extraordinary gain, net of tax .21 - .21 .37
-------- -------- -------- --------
Net earnings (loss) $ .11 $ (.09) $ (.25) $ .07
======== ======== ======== ========
Weighted average
common shares outstanding 8,991,614 8,991,614 8,991,614 8,991,614
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended July 31,
--------------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (2,265) $ 678
Depreciation and amortization 31,691 32,435
Deferred income taxes (220) 22
Accrued interest of a rental property
not payable until future years - 6,825
Extraordinary gain (3,055) (5,656)
(Increase) decrease in land held
for development or sale (2,341) 6,341
Decrease in notes and accounts receivable, net 24,326 13,055
Decrease in inventories and
construction contracts in progress 14,936 26,874
(Increase) in other assets (12,027) (5,961)
(Decrease) in accounts payable and
accrued expenses (25,220) (24,866)
Increase in deferred profit 1,661 374
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,486 50,121
-------- --------
INVESTING ACTIVITIES
Capital expenditures (62,910) (54,615)
(Increase) in investments
in and advances to affiliates (5,814) (5,689)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (68,724) (60,304)
-------- --------
FINANCING ACTIVITIES
Increase in mortgage and long-term debt 63,465 55,985
Payments on long-term debt (6,221) (11,590)
Principal payments on mortgage debt
on real estate (25,616) (18,272)
Payments on notes payable (12,626) (25,859)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 19,002 264
-------- --------
NET (DECREASE) IN CASH (22,236) (9,919)
CASH AT BEGINNING OF PERIOD 46,478 21,798
-------- --------
CASH AT END OF PERIOD $ 24,242 $ 11,879
======== ========
See notes to consolidated financial statements.
</TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. During the second quarter, the Company recorded an extraordinary gain,
net of tax, of $1,847,000, or $.21 per share, resulting from the
restructuring of the ownership and debt extinguishment of a commercial
property.
B. On September 7, 1995, the Board of Directors declared a cash dividend of
$.25 per share on shares of both Class A and Class B common stock for
fiscal year 1995. The dividends are payable December 15, 1995 to
shareholders of record at the close of business on December 1, 1995.
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 and six months ended July 31, 1995 and 1994 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, 1995 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") were
$13,914,000 for the quarter ended July 31, 1995 compared to $20,421,000 for the
second quarter of fiscal 1994. EBDT for the six months ended July 31, 1995 was
$28,050,000 versus $39,457,000 for the first six months of 1994. EBDT consists
of net earnings before gain on disposition of properties and the provision for
the decline in real estate plus noncash charges from real estate operations of
depreciation and amortization and deferred income taxes. In the quarter and
six months ended July 31, 1994, EBDT also included $3,431,000 and $6,825,000,
respectively, of accrued interest on mortgage notes of Park LaBrea Towers which
was not payable until future years. The Company sold Park LaBrea Towers during
the fourth quarter of 1994. EBDT for the three months and six months ended July
31, 1995 contain no such accrued interest. The decrease in EBDT is primarily
the result of the increase in interest rates on variable rate debt as compared
to the same period for 1994. However, the Company expects that interest rates
will have a smaller effect on the second half of 1995 results and, therefore,
the comparative EBDT is expected to improve over the first half of 1995.
Consolidated sales and operating revenues were $118,082,000 for the three
months ended July 31, 1995 versus $130,533,000 for the quarter ended July 31,
1994. Consolidated sales and operating revenues were $226,380,000 for the six
months ended July 31, 1995 versus $242,429,000 for the comparable period in
1994. The decline in revenues is primarily due to the sale of Park LaBrea
Towers in the fourth quarter of 1994.
The net loss from operations was $903,000 and $793,000 for the quarter
ended July 31, 1995 and 1994, respectively. The net loss from operations for
the six months ended July 31, 1995 and 1994 was $4,112,000 and $2,675,000,
respectively.
The Company also recorded an extraordinary gain, net of tax, of
$1,847,000 for the quarter ended July 31, 1995 which resulted from the
restructuring of the ownership with the Company's partners in a commercial
property and extinguishment of debt of $3,055,000. In the first quarter of
1994, the Company recorded an extraordinary gain, net of tax, of $3,353,000
which resulted from the restructuring of the nonrecourse debt on a commercial
property. As a part of the transaction, $5,656,000 of debt was extinguished.
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 were $88,870,000 for the quarter ended July 31, 1995 versus
$94,615,000 for the second quarter of 1994. Sales and operating revenues for
the six months ended July 31, 1995 were $174,818,000 versus $188,875,000 for
the first six months of 1994. The decrease in revenues is primarily
attributable to Park LaBrea Towers being sold in the last quarter of 1994.
The net loss from operations for the quarter ended July 31, 1995 was
$552,000 compared to $1,464,000 for the three months ended July 31, 1994. The
reduction in net loss is due to the operating loss incurred by Park LaBrea
Towers in the first quarter of 1994 not recurring in 1995 due to its sale in
the fourth quarter of 1994, net of the effect of the increase in interest rates
since the second quarter of 1994. The net loss from operations for the six
months ended July 31, 1995 was $1,415,000 versus net earnings from operations
of $580,000 for the comparable period in 1994. The decrease in earnings is the
result of the increase in interest rates during the first half of 1995 over
the first six months of 1994, net of the first half of 1994 operating loss of
Park LaBrea Towers not recurring in 1995.
LAND DIVISION
The sales of residential, commercial and industrial land were $8,109,000 for
the second quarter of 1995 versus $14,069,000 for the comparable period in
1994. Revenues for the six months ended July 31, 1995 were $13,008,000 versus
$18,355,000 for the first six months of 1994. The pre-tax loss was $870,000
for the three months ended July 31, 1995 versus pre-tax earnings of $2,000 for
the second quarter of 1994. The pre-tax loss for the six months ended July 31,
1995 was $2,848,000 versus $1,121,000 for the first half of 1994. 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 July 31, 1995 were $372,000 versus $554,000
for the second quarter of 1994. Revenues for the six months ended July 31,
1995 were $857,000 versus revenues of $1,095,000 for the comparable period of
1994. Pre-tax earnings were $339,000 for the quarter ended July 31, 1995
compared to a pre-tax loss of $315,000 for the second quarter of 1994. Pre-tax
earnings were $752,000 and $121,000 for the six months ended July 31, 1995 and
1994, respectively. The majority of the efforts of this division are now
directed toward acquiring completed real estate at favorable prices for the
Company's portfolio and continuing to oversee the operations of properties
syndicated in prior years.
WHOLESALE LUMBER DIVISION
Forest City Trading Group's revenues were $20,731,000 for the three months
ended July 31, 1995 compared to revenues of $21,295,000 for the second quarter
of 1994. Revenues for the six months ended July 31, 1995 and 1994 were
$37,697,000 and $34,104,000, respectively. Pre-tax earnings from this
division, including earnings from the Company's building materials business
which are accounted for on the equity method, were $1,899,000 for the second
quarter of 1995 versus $3,273,000 for the same period in 1994. Pre-tax
earnings were $2,323,000 for the six months ended July 31, 1995, compared to a
pre-tax loss of $259,000 for the first six months of 1994. The pre-tax loss
for 1994 was due to the steep decline in the market price of lumber and the
associated negative impact upon the division's physical inventory. Physical
inventory levels had grown during 1993 due to market price increases and the
volume of trading. When the market price of lumber fell during the first
quarter of 1994, the division sold its physical inventory at a loss.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities totaled $27,486,000 for the six
months ended July 31, 1995, a decrease of $22,635,000 from net cash provided of
$50,121,000 in the first six months of 1994. The decrease in cash provided by
operating activities is primarily due to: 1) a decrease in land sold by the
Land division in 1995 as compared to 1994; 2) a decrease in inventories at the
Company's lumber brokerage subsidiary in 1994 as compared to the first half of
1995; 3) an increase in other assets in 1995 primarily resulting from the
increase in ownership of a commercial property; partially offset by 4) an
increase in the Company's lumber brokerage subsidiary's accounts receivable
sold in the first six months of 1995 as compared to the same period in 1994.
Net cash used in investing activities was $68,724,000 and $60,304,000 for
the six months ended July 31, 1995 and 1994, respectively. Net cash provided
by financing activities was $19,002,000 and $264,000 for the six months ended
July 31, 1995 and 1994, respectively. In the first six months of 1995, the
Company increased its ownership of the Liberty Center, which increased capital
expenditures and mortgage debt. The net increase in land held for development
or sale in 1995 as compared to 1994 also resulted in an increase in mortgage
debt.
At July 31, 1995, the Company's wholly-owned real estate subsidiary,
Forest City Rental Properties Corporation, had a total of $105,000,000
outstanding under its term loan and revolving credit agreement. The Company is
required to make quarterly principal payments of $2,500,000 under the term
loan.
The Company's mortgage debt, all of which is nonrecourse, totaled
$1,804,690,000 at July 31, 1995. The Company has followed a policy of
obtaining debt which is nonrecourse to the Company. However, the Company does
guarantee the completion of the initial construction of certain projects.
During 1995, 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 maturing dates of our loans as they come due or
refinance the projects.
The Company's lumber brokerage subsidiary has a three-year agreement
maturing July 15, 1996 under which it is selling an undivided ownership
interest in a pool of accounts receivable up to a maximum of $90,000,000. The
Company also has a bank line of credit of $40,000,000 with the right to borrow
an additional $10,000,000 for up to 90 days through May 31, 1996. At July 31,
1995, $2,499,000 was borrowed under this line of credit.
The sources of liquidity of the Company and its subsidiaries are unused
bank lines, cash flow from operations, refinancing of rental properties with
larger mortgages and sales of real estate. The sources of funds will continue
to be used principally for the development of additional real estate projects,
the acquisition of existing real estate and the repayment of recourse debt.
Forest City Rental Properties Corporation generally mortgages its
properties on an intermediate- to long-term nonrecourse basis with maturities
of five years and higher. It has financed most of its development and
construction projects with shorter- to intermediate-term bank loans bearing
floating rates of interest. When the financing terms are favorable, the
Company securitizes its nonrecourse debt on longer-term bases as well as
obtains fixed rate mortgage debt for certain properties.
The Company has a substantial amount of variable-rate debt that has
enabled it to benefit from historically low interest rates. However, interest
rates have risen over the past year. With variable-rate debt in excess of
$1 billion, the current level of interest rates and any future rate increases
will have an impact on cash flow in 1995. We have purchased interest rate
protection on the vast majority of the portfolio for 1995 and 1996, and we will
continue to purchase interest rate protection and fixed rates as we deem
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 none of these
claims and lawsuits will have a material adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K filed for the three months ended July 31, 1995 -
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 September 14, 1995 /s/ Thomas G. Smith
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date September 14, 1995 /s/ Linda M. Kane
Linda M. Kane, Vice President,
Corporate Controller
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