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, 1996
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 28, 1996
Class A Common Stock, $.33 1/3 par value 5,121,098 shares
Class B Common Stock, $.33 1/3 par value 3,620,516 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, 1996
(Unaudited) and January 31, 1996 3-4
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three Months Ended
April 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended April 30, 1996 and 1995 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
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>
April 30, 1996 January 31, 1996
-------------- ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties $2,144,994 $2,101,564
Projects under development 222,760 246,240
Land held for development or sale 78,375 77,279
---------- ----------
2,446,129 2,425,083
Less accumulated depreciation (359,552) (347,912)
---------- ----------
Total Real Estate 2,086,577 2,077,171
Cash 29,065 39,145
Notes and accounts receivable, net of allowance
for doubtful accounts of $4,495 and $3,687,
respectively 161,611 168,177
Inventories 59,192 41,186
Investments in and advances to affiliates 147,194 145,238
Other assets 158,420 160,129
---------- ----------
$2,642,059 $2,631,046
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage debt, nonrecourse $1,835,146 $1,832,059
Accounts payable and accrued expenses 367,845 350,131
Notes payable 19,741 19,856
Long-term debt 110,826 113,061
Deferred income taxes 104,751 105,111
Deferred profit 21,187 21,239
---------- ----------
Total Liabilities 2,459,496 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;
5,278,398 and 5,271,327 shares issued,
5,121,098 and 5,269,327 shares outstanding,
respectively 1,759 1,757
Class B, convertible, 6,000,000 shares
authorized; 3,713,216 and 3,720,287 shares
issued, 3,620,516 and 3,645,287 shares
outstanding, respectively 1,238 1,240
---------- ----------
2,997 2,997
Additional paid-in capital 45,511 45,511
Retained earnings 142,644 143,590
---------- ----------
191,152 192,098
Less treasury stock, at cost; 157,300 and 2,000
Class A shares and 92,700 and 75,000
Class B shares, respectively (8,589) (2,509)
---------- ----------
Total Shareholders' Equity 182,563 189,589
---------- ----------
$2,642,059 $2,631,046
========== ==========
</TABLE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended April 30,
----------------------------
1996 1995
----------- -----------
(dollars in thousands,
except per share data)
<S> <C> <C>
Sales and operating revenues $ 123,741 $ 108,298
Interest and other income 5,230 3,286
----------- -----------
Total revenues 128,971 111,584
Operating expenses 80,335 67,928
Interest expense 33,013 31,745
Depreciation and amortization 16,581 16,188
----------- -----------
Loss before income taxes (958) (4,277)
----------- -----------
Income taxes
Current 348 133
Deferred (360) (1,201)
----------- -----------
(12) (1,068)
----------- -----------
Net loss (946) (3,209)
Retained earnings at beginning of period 143,590 137,052
----------- -----------
Retained earnings at end of period $ 142,644 $ 133,843
=========== ===========
Net loss per common share $ (.11) $ (.36)
=========== ===========
Weighted average common shares outstanding 8,857,691 8,991,614
=========== ===========
</TABLE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended April 30,
----------------------------
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Operating Activities
Net (loss) $ (946) $ (3,209)
Depreciation and amortization 16,581 16,188
Deferred income taxes (360) (1,201)
(Increase) in land held for development
or sale (1,096) (733)
Decrease in notes and accounts
receivable, net 6,566 17,048
(Increase) decrease in inventories (18,006) 789
(Increase) decrease in other assets (1,689) 1,587
Increase (decrease) in accounts payable
and accrued expenses 17,714 (24,493)
(Decrease) increase in deferred profit (52) 100
-------- --------
Net cash provided by operating activities 18,712 6,076
-------- --------
Investing Activities
Capital expenditures (21,493) (24,316)
(Increase) in investments in
and advances to affiliates (1,956) (5,858)
-------- --------
Net cash used in investing activities (23,449) (30,174)
-------- --------
Financing Activities
Increase in mortgage and long-term debt 13,336 14,569
Principal payments on mortgage debt
on real estate (6,806) (7,957)
Payments on long-term debt (5,678) (4,590)
Increase in notes payable 1,557 321
Payments on notes payable (1,672) (3,711)
Purchase of treasury stock (6,080) -
-------- --------
Net cash used in financing activities (5,343) (1,368)
-------- --------
Net (decrease) in cash (10,080) (25,466)
Cash at beginning of period 39,145 46,478
-------- --------
Cash at end of period $ 29,065 $ 21,012
======== ========
</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, 1996 and 1995 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, 1996 annual report ("Form 10-K").
Certain amounts in the accompanying January 31, 1996 Balance Sheet
have been reclassified to conform to the current presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- -------------------------------------------------------------------------------
Earnings Before Depreciation and Deferred Taxes ("EBDT") were $15,957,000 for
the quarter ended April 30, 1996 compared to $14,136,000 for the first
quarter of fiscal 1995. EBDT consists of net loss before gain (loss) on
disposition of properties and the provision for decline in real estate plus
noncash charges from real estate operations of depreciation and amortization
and deferred income taxes.
Consolidated sales and operating revenues were $123,741,000 for the three months
ended April 30, 1996 versus $108,298,000 for the quarter ended April 30, 1995.
The increase in revenues is due to acquisition of apartment complexes, the
opening of commercial properties and a strong lumber trading quarter.
The net loss was $946,000 for the quarter ended April 30, 1996 compared to
$3,209,000 for the three months ended April 30, 1995. This improvement is
attributable to earnings from newly-opened commercial properties.
During 1995, the Company realigned its business segments for financial reporting
purposes. Beginning with the first quarter of 1996, Management will comment on
each of the Company's Strategic Business Units:
Forest City Residential Group
Forest City Commercial Group
Forest City Land Group
Forest City Trading Group
FOREST CITY RESIDENTIAL GROUP
Forest City Residential Group is made up of two divisions: Apartments and
Residential Development. Apartments owns, leases and manages residential
properties. Residential Development develops new properties, acquires existing
real estate and manages syndicated partnerships.
Revenues for the three months ended April 30, 1996 were $26,363,000 versus
$23,997,000 for the first quarter of 1995. The increase in revenues is due to
the acquisition of apartment complexes in 1995. Pre-tax earnings were
$578,000 for the first quarter of 1996 compared to pre-tax earnings of
$820,000 for the three months ended April 30, 1995.
FOREST CITY COMMERCIAL GROUP
Forest City Commercial Group owns, acquires, develops and manages retail,
office, urban entertainment, hotel and mixed-use properties. Revenues for
the three months ended April 30, 1996 were $67,938,000 compared to
$62,436,000 for the first quarter of 1995. The increase in revenues is due
to the opening of several retail properties, one office building and the
acquisition of additional ownership interest in a mixed-use project. Pre-tax
earnings for the quarter ended April 30, 1996 were $734,000 compared to
pre-tax loss of $1,930,000 for the three months ended April 30, 1995. The
improvement in earnings is the result of the openings of new projects and
improved operations of the existing portfolio.
FOREST CITY LAND GROUP
The sales of residential, commercial and industrial land were $4,237,000 for the
first quarter of 1996 versus $4,899,000 for the comparable period in 1995. The
pre-tax loss was $1,463,000 for the three months ended April 30, 1996 versus
$1,978,000 for the first quarter of 1995. The decrease in the loss is primarily
attributable to the generation of fee income by the Land Group. Sales of land
and related earnings vary from period to period, depending on management's
decisions regarding the disposition of significant land holdings.
FOREST CITY TRADING GROUP
Forest City Trading Group's revenues were $25,203,000 for the three months ended
April 30, 1996 compared to revenues of $16,966,000 for the first quarter of
1995. The increase in revenues is primarily attributable to the acquisition
of the Company's building materials business as a wholly-owned subsidiary on
January 1, 1996. Prior to this date, this joint venture was accounted for
on the equity method. Pre-tax earnings for the first quarter of 1996 were
$1,017,000 versus $424,000 for the same period in 1995. This is the result
of a strong first quarter of 1996 for the lumber brokerage business.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities totaled $18,712,000 for the quarter
ended April 30, 1996 versus $6,076,000 for the quarter ended April 30, 1995.
The increase in cash provided by operating activities is primarily a result of
1) the increase in accounts payable of Forest City Trading Group, which is
offset by an increase in lumber inventories, 2) the increase in accounts
payable due to the timing of payments relating to Commercial Group
development activity in the first quarter of 1996, net of 3) a decrease in
accounts receivables sold under Forest City Trading Group's agreement to
sell an undivided interest in a pool of accounts receivables.
Net cash used in investing activities totaled $23,449,000 for the quarter ended
April 30, 1996 versus $30,174,000 during the quarter ended April 30, 1995. The
change in net cash used in investing activities is primarily the result of
timing of completion of the Company's ongoing development activities.
The net cash used in financing activities was $5,343,000 for the quarter ended
April 30, 1996 versus $1,368,000 for the quarter ended April 30, 1995. The
purchase of treasury stock resulted in an increase in the net cash used in
financing activities.
At April 30, 1996, the Company's wholly-owned real estate subsidiary,
Forest City Rental Properties Corporation, had a total of $105,500,000
outstanding under its $70,000,000 term loan and $80,000,000 revolving
credit agreement. The Company is required to make quarterly principal
payments of $2,500,000 under the term loan. The Company has reached agreement
with two banks to establish a new $8,500,000 letter of credit line to be
implemented in 1996.
The Company's mortgage debt, all of which is nonrecourse, totaled $1,835,146,000
at April 30, 1996. The Company has followed a policy of obtaining debt which is
nonrecourse to the Company. However, the Company does guarantee completion of
the initial construction of certain projects. During 1996 to date, the Company
completed $299,800,000 of financing, including $126,500,000 in new mortgages and
$173,300,000 in refinancing existing mortgages. Just as we have been able to
refinance our debt that has matured in the past, we expect to either extend the
maturing dates of our loans as they come due or refinance the projects.
Forest City Trading Group (FCTG) 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. FCTG has reached an
agreement to extend this maturity date to July 15, 1999. FCTG 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, 1996. The Company has reached an agreement
to extend this maturity date to May 31, 1998. At April 30, 1996, $13,929,000 was
outstanding under this line of credit.
The sources of liquidity of the Company and its subsidiaries are unused bank
lines, cash flow from operations, refinancing of properties with larger
mortgages and sales of real estate. The sources of funds will continue to be
used principally for the development of additional real estate projects, the
acquisition of existing real estate and the repayment of recourse debt.
The Residential and Commercial Groups generally mortgage their properties on an
intermediate- to long-term nonrecourse basis with maturities of five years and
higher. The Company has financed most of its development and construction
projects with medium-term bank loans bearing floating rates of interest. When
the financing terms are favorable, the Company securitizes its nonrecourse debt
on longer-term basis as well as obtains fixed rate mortgage debt for certain
properties.
The Company has a substantial amount of variable-rate debt that has enabled it
to benefit from historically low interest rates. With variable-rate debt of
approximately $1 billion, the current level of interest rates and any
future rate changes will have an impact on future cash flow. Interest rate
protection has been purchased for the vast majority of the portfolio for 1996
and the Company plans to purchase additional interest rate protection and
fix rates as is deemed appropriate. During 1996 to date, the Company has
fixed or has received commitments to fix $690,700,000 of variable rate loans
to maturity, and $156,000,000 of variable rate loans have been fixed for one
year expiring May 1, 1997.
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 have no material effect on the financial position
or results of operations of the Company.
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation." To date, the Company has not granted options under its Stock
Option Plan. Once stock options are granted, the Company will analyze whether
to adopt the recognition provisions of SFAS 123 or apply the existing accounting
rules contained in Accounting Principles Board Opinion 25 "Accounting for Stock
Issued to Employees."
GENERAL
Forest City had both investment tax credits and substantial tax net operating
loss carryforwards ("NOL") at the end of 1995. The Company projects that this
NOL will decrease during 1996, primarily due to property transactions. The
Company's policy is to utilize these NOL's before they expire and will consider
a variety of strategies to implement that policy. These NOL's generally will
not begin to expire before January 31, 2005.
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, 1996 -
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, 1996 /s/ Thomas G. Smith
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date June 14, 1996 /s/ Linda M. Kane
Linda M. Kane, Vice President,
Corporate Controller
<TABLE> <S> <C>
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<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
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0
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