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, 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 May 23, 1995
Class A Common Stock, $.33 1/3 par value 5,158,275 shares
Class B Common Stock, $.33 1/3 par value 3,833,339 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, 1995
(Unaudited) and January 31, 1995 3-4
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three Months Ended
April 30, 1995 and 1994 5
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended April 30, 1995 and 1994 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II. Other Information:
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
PART I - FINANCIAL INFORMATION
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30, 1995 January 31, 1995
-------------- ----------------
(Unaudited)
(dollars in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties $2,016,641 $2,011,168
Projects under development 247,964 230,802
Land held for development or sale 80,899 80,166
---------- ----------
2,345,504 2,322,136
Less accumulated depreciation (313,283) (303,012)
---------- ----------
Total Real Estate 2,032,221 2,019,124
Cash 21,012 46,478
Notes and accounts receivable, net of allowance
for doubtful accounts of $5,574 and $4,208,
respectively 180,554 197,602
Inventories and construction contracts
in progress 38,160 38,949
Investments in and advances to affiliates 145,176 139,318
Other assets 137,440 143,263
---------- ----------
$2,554,563 $2,584,734
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $1,774,612 $1,769,270
Accounts payable and accrued expenses 350,857 375,350
Notes payable 18,950 22,340
Long-term debt 109,327 112,647
Deferred income taxes 92,449 93,650
Deferred profit 26,017 25,917
---------- ----------
TOTAL LIABILITIES 2,372,212 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;
5,158,269 and 5,146,226 shares outstanding,
respectively 1,719 1,715
Class B, convertible, 6,000,000 shares
authorized; 3,833,345 and 3,845,388 shares
outstanding, respectively 1,278 1,282
---------- ----------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 133,843 137,052
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 182,351 185,560
---------- ----------
$2,554,563 $2,584,734
========== ==========
</TABLE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended April 30,
----------------------------
1995 1994
-------- --------
(dollars in thousands,
except per share data)
<S> <C> <C>
Sales and operating revenues $108,298 $111,896
Interest and other income 3,286 4,616
-------- --------
Total revenues 111,584 116,512
Operating expenses 67,928 73,270
Interest expense 31,745 29,902
Depreciation and amortization 16,188 15,650
-------- --------
(LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY GAIN (4,277) (2,310)
-------- --------
INCOME TAXES
Current 133 (1,372)
Deferred (1,201) 944
-------- --------
(1,068) (428)
-------- --------
NET (LOSS) BEFORE EXTRAORDINARY GAIN (3,209) (1,882)
Extraordinary gain, net of tax - 3,353
-------- --------
Net earnings (loss) (3,209) 1,471
Retained earnings at beginning of period 137,052 96,934
-------- --------
Retained earnings at end of period $133,843 $ 98,405
======== ========
PER COMMON SHARE
Net (loss) before extraordinary gain $ (.36) $ (.21)
Extraordinary gain, net of tax - .37
-------- --------
Net earnings (loss) $ (.36) $ .16
======== ========
Weighted average common shares outstanding 8,991,614 8,991,614
========= =========
</TABLE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended April 30,
----------------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (3,209) $ 1,471
Depreciation and amortization 16,188 15,650
Deferred income taxes (1,201) 944
Accrued interest of a rental property
not payable until future years - 3,394
Extraordinary gain - (5,656)
(Increase) decrease in land held for
development or sale (733) 15
Decrease in notes and accounts receivable, net 17,048 8,226
Decrease in inventories and construction
contracts in progress 789 18,652
(Increase) decrease in other assets 1,587 (6,397)
(Decrease) in accounts payable
and accrued expenses (24,493) (39,120)
Increase (decrease) in deferred profit 100 (34)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,076 (2,855)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (24,316) (30,468)
(Increase) in investments in
and advances to affiliates (5,858) (2,562)
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (30,174) (33,030)
-------- --------
FINANCING ACTIVITIES
Increase in mortgage and long-term debt 14,569 23,667
Principal payments on mortgage debt
on real estate (7,957) (6,759)
Payments on long-term debt (4,590) (5,892)
Increase in notes payable 321 12,048
Payments on notes payable (3,711) (437)
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,368) 22,627
-------- --------
NET (DECREASE) IN CASH (25,466) (13,258)
CASH AT BEGINNING OF PERIOD 46,478 21,798
-------- --------
CASH AT END OF PERIOD $ 21,012 $ 8,540
======== ========
</TABLE>
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, 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
$14,136,000 for the quarter ended April 30, 1995 compared to $19,036,000 for
the first quarter of fiscal 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 ended April 30, 1994,
EBDT also included $3,394,000 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
ended April 30, 1995 contains no such accrued interest.
Consolidated sales and operating revenues were $108,298,000 for the
three months ended April 30, 1995 versus $111,896,000 for the quarter ended
April 30, 1994. The decline in revenues is primarily due to the sale of Park
LaBrea Towers in the fourth quarter of 1994.
The net loss before extraordinary gain was $3,209,000 for the quarter
ended April 30, 1995 compared to $1,882,000 for the three months ended April
30, 1994. The extraordinary gain, net of tax, of $3,353,000 for the quarter
ended April 30, 1994 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 were $85,948,000 for the quarter ended April 30, 1995
versus $94,260,000 for the first three 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 for the quarter ended April 30, 1995 was $863,000 compared
to net earnings before extraordinary gain of $2,044,000 for the three months
ended April 30, 1994. The primary reason for this decline in earnings is the
increase in interest rates since the first quarter of 1994.
LAND DIVISION
The sales of residential, commercial and industrial land were $4,899,000 for
the first quarter of 1995 versus $4,286,000 for the comparable period in 1994.
The pre-tax loss was $1,978,000 for the three months ended April 30, 1995
versus $1,123,000 for the first quarter of 1994. The increase in loss is
largely due to interest expense on the debt of Granite Development Partners,
L.P., a joint venture which is in its initial stages of development. 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, 1995 were $485,000 versus
$541,000 for the first quarter of 1994. Pre-tax earnings were $413,000 and
$436,000 for the quarter ended April 30, 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 $16,966,000 for the three months
ended April 30, 1995 compared to revenues of $12,809,000 for the first quarter
of 1994. Pre-tax earnings from this division, including earnings from the
Company's building materials business which is accounted for on the equity
method, were $424,000 for the first quarter of 1995 versus a pre-tax loss of
$3,532,000 for the same period in 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 decreases 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 $6,076,000 for the quarter
ended April 30, 1995 versus net cash used in operating activities of
$2,855,000 for the first quarter of 1994. The increase in cash provided by
operating activities is primarily due to the following events occurring at
the Company's lumber brokerage subsidiaries: 1) an increase in accounts
receivable sold in the first quarter of 1995 as compared to the same period in
1994 under the subsidiary's agreement to sell an undivided interest in a pool
of accounts receivable; and 2) the sharp decline in market prices of lumber in
the first quarter of 1994 resulted in a decrease in both inventories and
accounts payable in 1994 as compared to the first quarter of 1995.
Net cash used in investing activities totaled $30,174,000 for the
quarter ended April 30, 1995 versus $33,030,000 used during the first quarter
of 1994. The net cash used in financing activities was $1,368,000 for the
quarter ended April 30, 1995 versus cash provided by financing activities of
$22,627,000 for the quarter ended April 30, 1994. During the first quarter of
1994, the Company acquired two apartment buildings which increased capital
expenditures and mortgage debt. Mortgage debt for 1994 also increased as a
result of the issuance of senior notes by Granite Developers Partners, L.P.
Changes in the Company's lumber brokerage subsidiary's debt agreement resulted
in an increase in notes payable in 1994 which did not recur in 1995.
At April 30, 1995, the Company's wholly-owned real estate subsidiary,
Forest City Rental Properties Corporation, had a total of $104,500,000
outstanding under its $70,000,000 term loan and $70,000,000 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
$1,774,612,000 at April 30, 1995. The Company has followed a policy of
obtaining debt which is nonrecourse to the Company. However, the Company does
guarantee the completion of the initial construction of certain projects.
During 1994, 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 in
1995 or refinance the projects.
The Company's lumber brokerage subsidiary has a three-year agreement
maturing July 15, 1996 under which it is selling an undivided ownership
interest in a pool of accounts receivable up to a maximum of $90,000,000. The
Company also has a bank line of credit of $40,000,000 with the right to borrow
an additional $10,000,000 for up to 90 days through June 30, 1995. The Company
expects to extend this line to May 31, 1996. At April 30, 1995, $12,380,000
was outstanding under this line of credit.
The sources of liquidity of the Company and its subsidiaries are unused
bank lines, cash flow from operations, refinancing of 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. We have a program of securitizing our nonrecourse
debt on longer-term bases as well as obtaining fixed rate mortgage debt for
certain properties when the financing terms are favorable.
The Company has a substantial amount of variable-rate debt that has
enabled it to benefit from historically low interest rates. However, interest
rates have risen over the past year. With variable-rate debt in excess of $1
billion, the current level of interest rates and any future rate increases
could have an impact on cash flow in 1995. We have purchased interest rate
protection on the vast majority of the portfolio for 1995 and 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 April 30, 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 June 14, 1995 /s/ Thomas G. Smith
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date June 14, 1995 /s/ Linda M. Kane
Linda M. Kane, Vice President,
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<CASH> 21012
<SECURITIES> 0
<RECEIVABLES> 186128
<ALLOWANCES> 5574
<INVENTORY> 38160
<CURRENT-ASSETS> 0
<PP&E> 2345504
<DEPRECIATION> 313283
<TOTAL-ASSETS> 2554563
<CURRENT-LIABILITIES> 0
<BONDS> 1883939
<COMMON> 2997
0
0
<OTHER-SE> 179354
<TOTAL-LIABILITY-AND-EQUITY> 2554563
<SALES> 0
<TOTAL-REVENUES> 108298
<CGS> 0
<TOTAL-COSTS> 84116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31745
<INCOME-PRETAX> (4277)
<INCOME-TAX> (1068)
<INCOME-CONTINUING> (3209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3209)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> 0
</TABLE>
