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, 1997
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 September 5, 1997
Class A Common Stock, $.33 1/3 par value 9,579,933 shares
Class B Common Stock, $.33 1/3 par value 5,409,343 shares
<PAGE>
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, 1997
(Unaudited) and January 31, 1997 3
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three and Six Months
Ended July 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended July 31, 1997 and 1996 5 - 6
Notes to Consolidated Financial Statements
(Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 21
Part II. Other Information
Item I. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31,1997 January 31, 1997
------------- ----------------
(Unaudited)
(dollars in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties $ 2,225,463 $ 2,247,393
Projects under development 284,549 220,137
Land held for development or sale 47,871 52,649
------------- -------------
2,557,883 2,520,179
Less accumulated depreciation (421,037) (399,830)
------------- -------------
Total Real Estate 2,136,846 2,120,349
Cash 31,697 41,302
Notes and accounts receivable, net 166,141 204,959
Inventories 43,812 48,769
Investments in and advances to affiliates 173,061 145,242
Other assets 172,909 180,784
------------- -------------
$ 2,724,466 $ 2,741,405
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage debt, nonrecourse $ 1,916,338 $ 1,898,428
Accounts payable and accrued expenses 314,160 378,230
Notes payable 7,215 37,041
Long-term debt 75,428 94,923
Deferred income taxes 114,910 115,488
Deferred profit 24,024 25,317
------------- -------------
Total Liabilities 2,452,075 2,549,427
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value;
5,000,000 and 1,000,000 shares authorized, respectively;
no shares issued. - -
Common stock - $.33 1/3 par value
Class A, 48,000,000 and 16,000,000 shares authorized,
9,893,583 and 7,932,358 shares issued, 9,657,633
and 7,696,408 outstanding, respectively. 3,296 2,643
Class B, convertible, 18,000,000 and 6,000,000 shares
authorized, 5,548,393 and 5,554,618 shares issued,
5,409,343 and 5,415,568 outstanding, respectively. 1,849 1,851
------------- --------------
5,145 4,494
Additional paid-in capital 119,691 43,996
Retained earnings 156,144 152,077
------------- --------------
280,980 200,567
Less treasury stock, at cost; 235,950 Class A
and 139,050 Class B shares (8,589) (8,589)
------------- --------------
Total Shareholders' Equity 272,391 191,978
------------- --------------
$ 2,724,466 $ 2,741,405
============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 142,035 $ 148,492 $ 293,103 $ 277,463
----------- ----------- ----------- -----------
Operating expenses 84,557 92,229 168,077 172,564
Interest expense 30,497 33,537 63,606 66,550
Depreciation and amortization 18,369 18,172 35,911 34,753
----------- ----------- ----------- -----------
133,423 143,938 267,594 273,867
----------- ----------- ----------- -----------
(Loss) gain on disposition of properties (3,132) 934 (38,637) 934
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 5,480 5,488 (13,128) 4,530
----------- ----------- ----------- -----------
INCOME TAX EXPENSE (BENEFIT)
Current 4,354 2,337 1,650 2,685
Deferred (1,821) 329 (6,461) (31)
----------- ----------- ----------- -----------
2,533 2,666 (4,811) 2,654
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN 2,947 2,822 (8,317) 1,876
Extraordinary gain, net of tax 3,142 907 14,187 907
----------- ----------- ----------- -----------
NET EARNINGS 6,089 3,729 5,870 2,783
Retained earnings at beginning of period 150,954 142,644 152,077 143,590
Dividends on common stock - $.06 and $.12 per share,
respectively in 1997 (899) - (1,803) -
----------- ----------- ----------- -----------
Retained earnings at end of period $ 156,144 $ 146,373 $ 156,144 $ 146,373
----------- ----------- ----------- -----------
Weighted average common shares outstanding 14,663,226 13,112,421 13,900,457 13,198,522
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) before extraordinary gain,
net of tax $ 0.20 $ 0.21 $ (0.60) $ 0.14
Extraordinary gain, net of tax 0.22 0.07 1.02 0.07
----------- ----------- ----------- -----------
NET EARNINGS PER COMMON SHARE $ 0.42 $ 0.28 $ 0.42 $ 0.21
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended July 31,
-----------------------------
1997 1996
-------------- ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received $ 312,573 $ 268,802
Proceeds from land sales 11,467 15,474
Land development expenditures (9,105) (11,287)
Operating expenditures (204,432) (161,631)
Interest paid (63,606) (66,550)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 46,897 44,808
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (136,188) (82,089)
Proceeds from disposition of property - 10,215
Investments in and advances to affiliates (27,290) (3,174)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (163,478) (75,048)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage and long-term debt 160,430 70,113
Payments on long-term debt (76,494) (16,679)
Principal payments on mortgage debt on real estate (21,446) (11,491)
Increase in notes payable 12,704 6,282
Payments on notes payable (43,061) (19,998)
Decrease in restricted cash 3,600 -
Payment of deferred financing costs (3,412) (3,173)
Net proceeds from sale of common stock 76,346 -
Purchase of treasury stock - (6,080)
Dividends paid to shareholders (1,691) -
----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 106,976 18,974
----------- ------------
NET DECREASE IN CASH (9,605) (11,266)
CASH AT BEGINNING OF PERIOD 41,302 39,145
----------- ------------
CASH AT END OF PERIOD $ 31,697 $ 27,879
=========== ============
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
<CAPTION>
Six Months Ended July 31,
--------------------------
------------ -----------
1997 1996
------------ -----------
(in thousands)
<S> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS $ 5,870 $ 2,783
Depreciation 29,360 26,251
Amortization 6,551 8,502
(Decrease) increase in deferred income taxes (742) 1,183
Loss (gain) on disposition of properties 38,637 (934)
Extraordinary gain (18,272) (1,500)
(Increase) decrease in land held for development or sale (1,376) 2,182
Decrease (increase) in notes and accounts receivable 39,230 (2,717)
Decrease (increase) in inventories 4,957 (286)
(Decrease) increase in accounts payable and accrued expenses (57,282) 4,818
(Decrease) increase in deferred profit (1,293) 964
Decrease in other assets 1,257 3,562
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 46,897 $ 44,808
=========== ===========
</TABLE>
Supplemental Non-Cash Disclosure:
The following items represent the non-cash effect of an increase in the
Company's interest in Skylight Office Tower, the disposition of the Company's
interest in Toscana, a reduction of the Company's interest in MIT Phase II, and
the exchange of Woodridge during the period ended July 31, 1997 and a reduction
of the Company's interest in the Clark Building during the period ended July
31, 1996.
<TABLE>
<S> <C> <C>
Operating Activities
Notes and accounts receivable $ (5,072) $ 212
Other assets (121) 844
Accounts payable and accrued expenses (6,900) (2,051)
Deferred taxes 164 -
----------- -----------
Total effect on operating activities $ (11,929) $ (995)
----------- -----------
Investing Activities
Capital expenditures $ 53,070 $ 9,073
Investments in and advances to affiliates 4,131 -
----------- -----------
Total effect on investing activities $ 57,201 $ 9,073
----------- -----------
Financing Activities
Mortgage and long-term debt $ (45,803) $ (8,078)
Notes payable 531 -
----------- -----------
Total effect on financing activities $ (45,272) $ (8,078)
----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. EXTRAORDINARY GAIN
During the first quarter of 1997, the Company recorded an extraordinary
gain, net of tax, of $11,045,000, or $.84 per share, resulting from
debt extinguishment of Toscana, a 563-unit apartment complex which was
sold in February 1997. In the second quarter, the Company recorded an
extraordinary gain of $3,142,000, or $.22 per share, representing an
adjustment of the estimated income tax effect of the Toscana debt
extinguishment that occurred in the first quarter. See "Sale of
Toscana" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
B. DIVIDENDS
On March 19, 1997, the Board of Directors declared a regular quarterly
cash dividend of $.06 per share on both Class A and Class B common
shares, payable June 16, 1997, to shareholders of record on June 2,
1997.
On June 9, 1997, the Board of Directors declared a regular quarterly
cash dividend of $.06 per share on both Class A and Class B common
shares, payable September 15, 1997, to shareholders of record on
September 2, 1997.
On September 8, 1997, the Board of Directors declared a regular
quarterly cash dividend of $.06 per share on both Class A and Class B
common shares, payable December 15, 1997, to shareholders of record on
December 1, 1997.
C. AUTHORIZED SHARES
On June 10, 1997, the shareholders approved amendments to the Company's
Articles of Incorporation to increase the Company's capitalization to
a) 48,000,000 shares of Class A common stock from 16,000,000 shares;
b) 18,000,000 shares of Class B common stock from 6,000,000 shares; and
c) 5,000,000 shares of preferred stock from 1,000,000 shares.
<PAGE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. TREASURY STOCK
On August 18, 1997, the Company purchased 77,700 shares of Class A
common stock owned by three children of Samuel H. Miller, the Company's
Co-Chairman of the Board of Directors, and Ruth Miller, who died on
November 26, 1996. The purchase price was $36.50 per share plus 8%
interest from May 7, 1997 to August 18, 1997, less dividends paid
between those two dates, for a total of $2,896,000.
E. EARNINGS PER SHARE
Earnings per share for the six months ended July 31, 1997 does not
equal the sum of the earnings per share of the first two quarters
because of the effect on weighted average common shares outstanding
caused by the public offering of 1,955,000 shares of Class A common
stock (see note F).
F. PUBLIC OFFERING/SUPPLEMENTARY EARNINGS PER SHARE
On May 20, 1997, the Company sold to the public 1,955,000 shares of
Class A common stock at an initial price of $42.00 per share. Had the
issuance of these shares occurred at the beginning of each of the
periods presented, earnings (loss) per share would have been as
follows:
Three Months Six Months
Ended July 31, Ended July 31,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
Net earnings (loss) before
extraordinary gain, net of tax $.19 $.19 $(.55) $.13
Extraordinary gain, net of tax .21 .06 .94 .06
----- ----- ------ -----
Net earnings per common share $.40 $.25 $ .39 $.19
===== ===== ====== =====
<PAGE>
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 six
months ended July 31, 1997 are not necessarily indicative of results of
operations which may be expected for the full year.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations of Forest City Enterprises, Inc. should be
read in conjunction with the financial statements and the footnotes thereto
contained in the January 31, 1997 annual report ("Form 10-K").
Item 2. 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 21 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 Lumber Trading Group.
The Company uses an additional measure, along with net earnings, 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, is necessary to
understand its operating results. The Company's view is 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 13.3% (or 1.8% per share) in the second quarter of
1997 to $24,725,000, or $1.69 per share of common stock, from $21,821,000, or
$1.66 per share of common stock, for the second quarter of 1996. Proforma per
share EBDT, reflecting the sale of 1,955,000 shares of Class A common stock in
May 1997, was $1.64 for the second quarter of 1997 and $1.45 for the same period
of 1996.
EBDT for the six months ended July 31, 1997 grew by 40.7% (or 33.9% per share)
to $53,172,000, or $3.83 per share of common stock, compared to $37,778,000, or
$2.86 per share of common stock, for the first half of 1996. Proforma per share
EBDT for the six months ended July 31, 1997 and 1996, reflecting the sale of
1,955,000 shares of Class A common stock in May 1997, was $3.53 and $2.49,
respectively.
<PAGE>
EBDT for the first half of 1997 primarily grew as a result of litigation
settlement proceeds for Toscana, a 563-unit apartment complex in Irvine,
California (see "Sale of Toscana" below), the addition of new retail properties
($813,000), acquisition of apartment projects ($325,000), increase in
capitalized interest on development projects ($3,899,000) and results of Forest
City Trading Group ($545,000).
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal
business groups and believes this 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 the information in the table
"Earnings before Depreciation, Amortization and Deferred Taxes" at the end of
this Management's Discussion and Analysis of Financial Condition and Results of
Operations.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group decreased by $4,281,000, or
5.4%, to $74,706,000 in the second quarter of 1997 from $78,987,000 for the
second quarter of 1996. This decrease is primarily the result of outlot sales
which occurred in second quarter 1996 but did not recur in 1997 ($5,106,000),
the closing of the Handy Andy stores in 1996 ($2,876,000) and properties which
were sold in 1996, Beachwood Place ($519,000) and Victor Village ($416,000).
These decreases were offset by increases from the openings of Atlantic Center in
Brooklyn, New York ($1,983,000), Bruckner Boulevard in the Bronx, New York
($963,000), Marketplace at Riverpark in Fresno, California ($118,000) and
Showcase in Las Vegas, Nevada ($570,000). In addition, the Charleston Marriott
realized increased revenues over last year ($192,000).
Revenues of the Commercial Group increased $136,000, or .1%, to $149,551,000 in
the six months ended July 31, 1997 compared to $149,415,000 for the first half
of 1996. This increase is primarily the result of the openings of Galleria at
Sunset in Henderson, Nevada ($1,033,000), Atlantic Center ($3,842,000), Bruckner
Boulevard ($963,000), Marketplace at Riverpark ($340,000) and Showcase
($644,000). In addition, the Charleston Marriott realized increased revenues in
the first half of 1997 over the prior year ($769,000) and development and
financing fees were collected from third parties ($1,973,000). These increases
were offset by 1996 outlot sales which did not recur ($5,106,000), the closing
of the Handy Andy stores ($2,876,000) and the dispositions in 1996 of Beachwood
Place ($1,055,000) and Victor Village ($416,000).
<PAGE>
OPERATING AND INTEREST EXPENSES. In the second quarter of 1997,
operating expenses decreased $3,255,000, or 8.1%, to $36,798,000 from
$40,053,000 for the second quarter of 1996. Interest expense for the second
quarter of 1997 increased $67,000, or .3%, to $22,366,000 compared to
$22,299,000 for the second quarter of 1996. The decrease in operating expenses
is primarily attributable to the decrease in costs associated with the sale of
land in 1996 ($3,441,000) which did not recur in 1997 and the closing or sale of
properties during 1996 ($994,000). This decrease was offset by increases in
operating expenses from the opening of new retail properties ($937,000), costs
associated with increased hotel occupancy ($230,000) and increased real estate
taxes and wages expense ($487,000). Interest expense for the second quarter 1996
included a loss on sale of interest rate caps (approximately $1,500,000) which
did not recur in 1997. This decrease was offset by an increase in interest
expense attributable to the opening of new properties.
During the six months ended July 31, 1997, operating and interest expenses
increased $113,000 and $2,308,000 (.1% and 5.3%), respectively, over the
comparable period in 1996 to $76,039,000 and $46,199,000, respectively. The
increase in operating expenses is primarily attributable to the increase in
costs due to the opening of new retail properties ($2,922,000), increased hotel
occupancy ($809,000) and increased real estate taxes and wages expense
($1,265,000), offset by costs associated with the sale of land in 1996
($3,441,000) which did not recur in 1997 and costs associated with properties
which were sold or closed during 1996 ($1,508,000). The increase in interest
expense is attributable to the opening of new properties.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $514,000, or
1.8%, in the second quarter of 1997 to $29,496,000 from $28,982,000 in second
quarter of 1996. This increase reflects the acquisitions of Emerald Palms in
Miami, Florida ($73,000), Museum Tower in Philadephia, Pennsylvania ($688,000)
and Colony Woods in Bellevue, Washington ($347,000.) In addition, portfolio
revenues improved over last year ($1,258,000), net of the loss of revenue due to
the sale of Toscana in February, 1997 ($1,745,000 - see "Sale of Toscana"
below).
Revenues for the Residential Group increased by $16,502,000, or 29.3%, in the
six months ended July 31, 1997 to $72,847,000 from $56,345,000 for the
comparable period in 1996. This increase reflects proceeds from the Toscana
litigation settlement ($15,000,000 - see "Sale of Toscana" below) and the
acquisitions of Emerald Palms ($980,000), Museum Tower ($688,000) and Colony
Woods ($347,000).
OPERATING AND INTEREST EXPENSES. Operating expenses increased by
$403,000, or 2.7%, to $15,539,000 in the second quarter of 1997 from $15,136,000
in the second quarter of 1996. Interest expense decreased $305,000, or 3.7%, to
$7,951,000 in the second quarter of 1997 from $8,256,000 in the second quarter
of 1996. The majority of the increase in operating expenses reflected the
acquisitions of Museum Tower ($300,000), Colony Woods ($232,000) and Emerald
Palms ($74,000) and normal inflationary growth of the residential portfolio
operating expenses (approximately $300,000), offset by cost reduction due to the
sale of Toscana ($661,000). The decrease in interest expense is primarily the
result of the sale of Toscana ($1,026,000 - see "Sale of Toscana" below), offset
by increases due to acquisition mortgages.
<PAGE>
Operating expenses increased by $613,000, or 2.0%, to $31,015,000 in the second
quarter of 1997 from $30,402,000 in the second quarter of 1996. Interest expense
decreased by $1,411,000, or 8.7 %, to $14,730,000 in the six months ended July
31, 1997 from $16,141,000 in the first half of 1996. The increase in operating
expenses is primarily attributable to the acquisitions of Museum Tower
($300,000), Colony Woods ($232,000) and Emerald Palms ($408,000) and normal
inflationary growth on the portfolio (approximately $565,000), offset by cost
reduction due to the sale of Toscana ($1,475,000). The decrease in interest
expenses is primarily the result of the sale of Toscana ($2,025,000), offset by
increases due to acquisition mortgages.
LAND GROUP
REVENUES. Revenues for the Land Group decreased by $5,118,000, or
51.7%, from $9,894,000 in the second quarter of 1996 to $4,776,000 in the second
quarter of 1997. In the second quarter of 1996, the Land Group had significant
residential and commercial land sales activity at Silver Lakes near Fort
Lauderdale, Florida, which did not recur in the second quarter of 1997.
Revenues for the Land Group decreased by $7,338,000, or 50.1%, from $14,655,000
in the six months ended July 31, 1996 to $7,317,000 in the first half of 1997.
This decline is also primarily attributable to 1996 activity at Silver Lakes,
which did not recur in 1997.
OPERATING AND INTEREST EXPENSES. Operating expenses and interest
expense decreased by $5,129,000 and $231,000 (or 56.9% and 13.9%), respectively,
in the second quarter of 1997 to $3,886,000 and $1,426,000, respectively, from
$9,015,000 and $1,657,000, respectively, in the second quarter of 1996. The
decrease in operating expenses primarily reflects the fluctuation in sales
volume from the prior year. The decrease in interest expense is primarily due to
the reduction of principal during 1996 on the acquisition and development
mortgages relating to the Seven Hills project in Henderson, Nevada and the
Silver Lakes project in Florida.
Operating expenses and interest expense decreased by $7,084,000 and $709,000 (or
52.5% and 20.8%), respectively, in the six months ended July 31, 1997 to
$6,410,000 and $2,693,000, respectively, from $13,494,000 and $3,402,000,
respectively, in the six months ended July 31, 1996. The decrease in operating
expenses primarily reflects the fluctuation in sales volume from the prior year.
The decrease in interest expense is primarily due to the reduction of principal
throughout 1996 on the acquisition and development mortgages relating to the
Seven Hills and Silver Lakes projects.
<PAGE>
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group increased by $820,000,
or 2.7%, from $29,980,000 in the second quarter 1996 to $30,800,000 in the
second quarter of 1997. The increase was primarily due to an increase in the
volume at Forest City/Babin, a wholesaler of major appliances, cabinets and
hardware to housing contractors ($1,421,000).
Revenues of the Lumber Trading Group increased by $5,051,000, or 9.1%, from
$55,352,000 in the six months ended July 31, 1996 to $60,403,000 in the six
months ended July 31, 1997. The increase was primarily due to an increase in
volume at Forest City/Babin ($2,453,000) and an increase in the Lumber Trading
Group's margins as a result of higher commodity lumber prices in 1997.
OPERATING AND INTEREST EXPENSES. Operating expenses in the Lumber
Trading Group increased in the second quarter of 1997 by $1,068,000, or 4.0%,
from $26,407,000 in the second quarter of 1996 to $27,475,000. This increase
reflected the fluctuation in variable expenses due to increased sales volume.
Interest expense for the second quarter of 1997 decreased by $125,000, or 8.3%,
to $1,385,000 from $1,510,000 in the second quarter of 1996. This decrease in
interest expense was the result of a reduced rate of interest on Lumber Trading
Group's lines of credit.
Operating expenses in the Lumber Trading Group increased in the six months ended
July 31, 1997 by $4,355,000, or 8.9%. from $49,167,000 in the six months ended
July 31, 1996. This increase reflected the fluctuation in variable expenses due
to increased sales volume. Interest expense for the six months ended July 31,
1997 decreased by $515,000, or 16.6% to $2,590,000 from $3,105,000 in the same
period for 1996. This decrease in interest expense was the result of a reduced
rate of interest on Lumber Trading Group's lines of credit.
CORPORATE ACTIVITIES
REVENUES. Revenues of the Corporate Activities increased $1,608,000, or
247.8%, in the second quarter of 1997 to $2,257,000 from $649,000 in the second
quarter of 1996. Revenues of the Corporate Activities increased $1,289,000, or
76.0%, for the six month ended July 31, 1997 to $2,985,000 compared to
$1,696,000 for the same period in 1996. Corporate Activities revenues consists
primarily of interest income on advances made by the Company on behalf of our
partners, and vary from year to year depending on interest rates and the amount
of loans outstanding.
OPERATING AND INTEREST EXPENSES. Operating expenses decreased $885,000,
or 35.3%, in the second quarter of 1997 to $1,624,000 from $2,509,000 in the
second quarter of 1996. Operating expenses decreased $2,523,000, or 49.6%, in
the six months ended July 31, 1997 to $2,563,000 from $5,086,000 for the first
half of 1996. These decreases are primarily the result of adjustments to
reserves. Interest expense, net of capitalized interest on development projects,
decreased $2,446,000 in the second quarter of 1997 to ($2,631,000) from
($185,000) in the second quarter of 1996. Interest expense, net of capitalized
interest on development projects, decreased $2,617,000 for the six months ended
July 31, 1997 to ($2,606,000) from $11,000 for the six months ended July 31,
1997. Interest expense consists primarily of interest expense on the Term Loan
and Revolving Credit Facility that has not been allocated to a principal
business unit, net of interest capitalized on development projects.
<PAGE>
LOSS ON DISPOSITION OF PROPERTIES
During the second quarter of 1997, the Company sold its interest in Woodridge, a
land development project in suburban Chicago, Illinois and recorded a loss on
disposition of $1,894,000, after tax. During the first quarter of 1997, the
Company recorded a loss on disposition of Toscana, as discussed in the next
paragraph.
SALE OF TOSCANA / EXTRAORDINARY GAIN
During February, 1997, the Company sold Toscana, a 563-unit apartment complex in
Irvine, California, back to the original land owner and settled litigation
related to the property. As a result, the Company recorded a loss on disposition
of property of $21,463,000, after tax, and an extraordinary gain of $14,187,000,
after tax, related to the extinguishment of a portion of the property's
nonrecourse mortgage debt. During the second quarter of 1997, the income tax
estimate on the extraordinary gain was reduced by $3,142,000. Proceeds from the
litigation settlement resulted in EBDT of $6,991,000 for the first quarter of
1997 and six months ended July 31, 1997. The result of the these transactions to
the Company is after-tax income of $1,882,000.
NET EARNINGS
In the second quarter of 1997, the Company's net earnings were $6,089,000, or
$.42 per share of common stock, compared to net earnings of $3,729,000, or $.28
per share of common stock, in the second quarter of 1996. Proforma per share
amounts, reflecting the issuance of 1,955,000 shares of Class A common stock in
May 1997, are $.40 and $.25 for the second quarter of 1997 and 1996,
respectively.
For the six months ended July 31, 1997, the Company's net earnings were
$5,870,000, or $.42 per share of common stock, compared to net earnings of
$2,783,000, or $.21 per share of common stock, for the six months ended July 31,
1996. Proforma per share amounts, reflecting the issuance of 1,955,000 shares of
Class A common stock in May 1997, are $.39 and $.19 for the six months ended
1997 and 1996, respectively.
Earnings per share for the six months ended July 31, 1997 does not equal the sum
of the two quarterly earnings per share because of the sale of 1,955,000 shares
of Class A common stock in May 1997 and the resultant effect on second quarter
weighted average common shares outstanding.
EBDT
Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT") is
defined 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 gain. 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 income taxes has not
been significant and is not expected to be significant in the foreseeable
future. The provision for decline in real estate is excluded from EBDT because
it is 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, not 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.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
On May 20, 1997, the Company sold 1,955,000 new shares of its Class A common
stock at $42 per share and realized net proceeds, after offering costs, of
approximately $76,300,000. The proceeds were used to repay the outstanding
balance on the Revolving Credit Facility ($71,000,000) and the remainder was
allocated for working capital. The Company plans to draw on the Revolving Credit
Facility for its equity investment in development projects.
The Company believes that its sources of liquidity and capital are adequate. The
Company's principal sources of funds are cash provided by operations, the
Revolving 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 Lumber Trading Group
are not recourse to the Company. Accordingly, the liquidity of Lumber Trading
Group is discussed separately below under "Lumber Trading Group Liquidity."
MORTGAGE REFINANCINGS / OUTLOOK FOR 1997
During the first six months of 1997, the Company completed $231,000,000 in
financings, including $133,000,000 in refinancings, $57,000,000 for new
development projects and $41,000,000 in acquisition mortgages. The Company
anticipates its nonrecourse mortgage indebtedness will either be refinanced
with new nonrecourse mortgage indebtedness or extended as it matures.
LONG-TERM DEBT
At July 31, 1997, the Company had recourse debt of $74,000,000 outstanding,
comprised of $40,000,000 under a $70,000,000 Term Loan maturing July 1, 2001 and
$34,000,000 under an $80,000,000 Revolving Credit Facility maturing July 25,
1998. As discussed above, the outstanding amount under Revolving Credit Facility
was repaid on May 21, 1997 by proceeds from the Company's sale of Class A common
stock. The Company is required to make quarterly principal payments of
$2,500,000 under the Term Loan. The Term Loan and Revolving Credit Facility
provide for the maintenance of a specified level of net worth and cash flows (as
defined) and a restriction on dividend payments.
<PAGE>
INTEREST RATE EXPOSURE
At July 31, 1997, the composition of nonrecourse mortgage debt is as follows:
Amount Rate (1)<F1>
------ --------
(in thousands)
Fixed $ 946,234 7.92%
Variable -
Taxable (2)<F2> 758,848 7.68%
Tax-Exempt 133,965 4.41%
UDAG and other subsidized loans 77,291 2.60%
--------------------------
$ 1,916,338 7.36%
--------------------------
[FN]
<F1>(1) The weighted average interest rates shown above include both the base
index and the lender margin.
<F2>(2) At July 31, 1997, $415,480,000 of this variable-rate debt is subject to
interest rate swaps as described below.
</FN>
The Company generally does not hedge tax-exempt debt because, since 1992, the
low base rate of this type of financing has average 3.25% and has never exceeded
5.75%. 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 $758,848,000 in taxable variable-rate debt
outstanding at July 31, 1997, $415,480,000 was protected by interest rate swaps
with a weighted average rate of 7.78% and an average term of 2.0 years,
effectively reducing the Company's taxable variable-rate debt to $343,368,000 as
of July 31, 1997. In addition, the Company has purchased interest rate cap
protection for its variable-rate debt portfolio in the amount of $73,500,000,
$253,600,000 and $320,600,000 for the fiscal years ending January 31, 1998, 1999
and 2000, respectively.
At July 31, 1997, a 100 basis point increase in taxable interest rates would
increase the annual pre-tax interest cost of the Company's taxable variable-rate
debt by approximately $3,400,000. Although tax-exempt 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 increase
the annual pre-tax interest cost of the Company's tax-exempt variable-rate debt
by approximately $1,300,000.
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two lines of credit and an
accounts receivable sale program. These credit facilities are not recourse to
the Company.
<PAGE>
The Lumber Trading Group's two lines of credit total $46,000,000. These credit
lines are secured by the assets of the Lumber Trading Group, and are used by the
Trading Group to finance its working capital needs. At July 31, 1997, the Lumber
Trading Group had $46,000,000 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 Trading Group uses
this program to finance its working capital needs. At July 31, 1997, $74,000,000
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 $46,897,000 and $44,808,000 for
the six months ended July 31, 1997 and 1996, respectively. The increase in cash
provided by operating activities in 1997 compared to 1996 is primarily the
result of receipt of the Toscana litigation settlement ($10,000,000), increase
in collection of notes and accounts receivable ($41,947,000) primarily from
Lumber Trading Group, decrease in interest paid ($2,944,000) and decrease in
lumber inventories ($4,957,000). These increases are offset by a decrease in
accounts payable and accrued expenses ($57,282,000).
Net cash used in investing activities totaled $163,478,000 and $75,048,000 for
the six months ended July 31, 1997 and 1996, respectively. Capital expenditures,
other than development and acquisition activities, totaled $21,138,000
(including both recurring and investment capital expenditures) in the first half
of 1997 and were financed primarily with cash provided by operating activities.
In the first half of 1997, net cash used in investing activities reflected the
Company's use of $105,947,000 of funds for acquisition and development
activities, which were financed with $87,957,000 in new mortgage indebtedness
(see below for discussion of Cash Flows from Financing Activities) cash on hand
at the beginning of the year and the remainder from cash provided by operating
activities. In addition, $27,290,000 was used for investments in and advances to
affiliates, and includes investments in syndicated residential projects, The
Grand in North Bethesda, Maryland ($9,700,000) and The Enclave in San Jose,
California ($926,000); Land Group's investments in Silver Lakes ($1,500,000) and
Silver Shores ($3,000,000) in Ft. Lauderdale, Florida and Seven Hills in
Henderson, Nevada ($500,000); advances to our New York affiliate ($8,083,000);
and temporary advances for financing commitments ($2,600,000).
Net cash provided by financing activities totaled $106,976,000 and $18,974,000
in the six months ended July 31, 1997 and 1996, respectively. The Company's
refinancing of mortgage indebtedness is discussed above in "Mortgages
Refinancings/Outlook for 1997" and borrowings under new mortgage indebtedness
for acquisition and development activities is included in the preceding
paragraph discussing net used in investing activities. In addition, net cash
provided by financing activities in the first half of 1997 reflected net
repayment of $18,716,000 on Lumber Trading Group's lines of credit, repayment of
the $6,365,000 note payable relating to the purchase of the Company's addition
33-1/3% interest in the Pittsburgh Mall and repayment of a land note of
$5,521,000. In addition, financing activities for the first half of 1997 include
the release of $3,600,000 in restricted cash related to the financing of
Atlantic Center in Brooklyn, New York, payment of deferred financing costs of
$3,412,000 and payment of $1,691,000 of dividends.
<PAGE>
STOCK SPLIT, DIVIDENDS, CAPITALIZATION AND TREASURY STOCK PURCHASE
A three for two stock split of both the Company's Class A and Class B common
stock, was 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.
Quarterly cash dividends of $.06 per share (post-split) on shares of both Class
A and Class B common stock were paid on March 17, 1997 and June 16, 1997. The
third 1997 quarterly dividend of $.06 per share on shares of both Class A and
Class B common stock will be paid on September 15, 1997 to shareholders of
record at the close of business on September 2, 1997. The fourth 1997 quarterly
dividend of $.06 per share on shares of both Class A and Class B common stock
will be paid on December 15, 1997 to shareholders of record at the close of
business on December 1, 1997.
On June 10, 1997, the shareholders approved an amendment to the Company's
Articles of Incorporation to increase the Company's capitalization to a)
48,000,000 shares of Class A common stock from 16,000,000 shares; 18,000,000
shares of Class B common stock from 6,000,000 shares; and c) 5,000,000 shares of
preferred stock from 1,000,000 shares.
On August 18, 1997, the Company purchased 77,700 shares of Class A common stock
owned by Richard Miller, Aaron Miller and Gabrielle Miller, the children of
Samuel H. Miller, the Company's Co-Chairman of the Board of Directors, and Ruth
Miller, who died on November 26, 1996. The repurchase provided funds necessary
to pay taxes on the estate of Ruth Miller. The shares were purchased at a price
of $36.50 per share plus 8.0% interest from May 7, 1997 to August 18, 1997, less
any dividends paid between those two dates, for a total of $2,896,000.
NEW ACCOUNTING STANDARDS
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
in its 1997 Annual Report, but does not expect this statement to have a material
impact on EPS.
<PAGE>
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Quarterly 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.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC.
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE SECOND QUARTER ENDED JULY 31, 1997 AND 1996
(IN THOUSANDS)
<CAPTION>
Commercial Group Residential Group Land Group
------------------- -------------------- ----------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 74,706 $ 78,987 $ 29,496 $ 28,982 $ 4,776 $ 9,894
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 36,798 40,053 15,539 15,136 3,886 9,015
Interest expense 22,366 22,299 7,951 8,256 1,426 1,657
Income tax provision 738 (743) 1,306 (68) (208) (307)
--------- --------- --------- --------- ---------- ----------
59,902 61,609 24,796 23,324 5,104 10,365
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 14,804 $ 17,378 $ 4,700 $ 5,658 ($ 328) ($ 471)
========= ========= ========= ========= ========== ==========
Lumber Trading Group Corporate Activities Total
------------------- -------------------- ----------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
Revenues $ 30,800 $ 29,980 $ 2,257 $ 649 $ 142,035 $ 148,492
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 27,475 26,407 1,624 2,509 85,322 93,120
Interest expense 1,385 1,510 (2,631) (185) 30,497 33,537
Income tax provision 839 816 (1,184) 316 1,491 14
--------- --------- --------- --------- ---------- ----------
29,699 28,733 (2,191) 2,640 117,310 126,671
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 1,101 $ 1,247 $ 4,448 ($ 1,991) $ 24,725 $ 21,821
========= ========= ========= ========= ========== ==========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes (EBDT) $ 24,725 $ 21,821
Depreciation and amortization - real estate Groups (17,604) (17,249)
Deferred taxes - real estate Groups (2,280) (2,315)
Provision for decline in real estate, net of tax 0 0
Gain (loss) on disposition of properties, net of tax (1,894) 565
Extraordinary gain, net of tax 3,142 907
---------- ----------
Net earnings $ 6,089 $ 3,729
========== ==========
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC.
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
(IN THOUSANDS)
<CAPTION>
Commercial Group Residential Group Land Group
------------------- -------------------- ----------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 149,551 $ 149,415 $ 72,847 $ 56,345 $ 7,317 $ 14,655
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 76,039 75,926 31,015 30,402 6,410 13,494
Interest expense 46,199 43,891 14,730 16,141 2,693 3,402
Income tax provision 752 (1,486) 8,099 (679) (698) (886)
--------- --------- --------- --------- ---------- ----------
122,990 118,331 53,844 45,864 8,405 16,010
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 26,561 $ 31,084 $ 19,003 $ 10,481 ($ 1,088) ($ 1,355)
========= ========= ========= ========= ========== ==========
Lumber Trading Group Corporate Activities Total
------------------- -------------------- ----------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ---------- ----------
Revenues $ 60,403 $ 55,352 $ 2,985 $ 1,696 $ 293,103 $ 277,463
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 53,522 49,167 2,563 5,086 169,549 174,075
Interest expense 2,590 3,105 (2,606) 11 63,606 66,550
Income tax provision 1,884 1,218 (3,261) 893 6,776 (940)
--------- --------- --------- --------- ---------- ----------
57,996 53,490 (3,304) 5,990 239,931 239,685
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 2,407 $ 1,862 $ 6,289 ($ 4,294) $ 53,172 $ 37,778
========= ========= ========= ========= ========== ==========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes (EBDT) $ 53,172 $ 37,778
Depreciation and amortization - real estate Groups (34,439) (33,242)
Deferred taxes - real estate Groups (3,694) (3,225)
Provision for decline in real estate, net of tax 0 0
Gain (loss) on disposition of properties, net of tax (23,356) 565
Extraordinary gain, net of tax 14,187 907
---------- ----------
Net earnings $ 5,870 $ 2,783
========== ==========
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The ownership of 50% (i.e., a 33-1/3% interest in the project) of the
Company's interest in the Pittsburgh Mall project, which is currently under
development, is under dispute in litigation pending in Common Pleas Court in
Cuyahoga County, Ohio, between a subsidiary of the Company ("RMI") and Simon
DeBartolo Group, L.P. ("SDG"). SDG has sought injunctive relief concerning its
alleged rights to such interest, as well as $20 million compensatory and $10
million punitive damages. The Company believes it has meritorious defenses to
these claims, and intends to defend against them vigorously. No assurance,
however, can be given that such litigation will not delay or hinder the
development of this project; if decided in a manner adverse to RMI, such
litigation could adversely affect the potential value of this project to the
Company. The Company's General Counsel is of the opinion that these claims would
not have a material adverse effect on the Company.
The Company is involved in various other claims and lawsuits incidental to
its business. The Company's General Counsel is of the opinion that none of these
other claims and lawsuits will have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No. 10.35 - Letter agreement, dated August 14, 1997, adjusting the
interest rate in the Stock Purchase Agreement, dated
May 7, 1997, between Forest City Enterprises, Inc.
and Richard Miller, Aaron Miller and Gabrielle Miller.
No. 10.36 - Fourth Amendment to Credit Agreement, dated as of
January 1, 1997, among Forest City Rental Properties
Corporation, the banks named therein and KeyBank
National Association, f/k/a Society National Bank, as
agent.
No. 10.37 - Fourth Amendment to Guaranty of Payment of Debt, dated
as of January 1, 1997, among Forest City Enterprises,
Inc., the banks named therein and KeyBank National
Association, f/k/a Society National Bank, as agent.
(b) Reports on Form 8-K - none.
<PAGE>
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 12, 1997 /s/ Thomas G. Smith
------------------ ------------------------
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date September 12, 1997 /s/ Linda M. Kane
------------------ ----------------------
Linda M. Kane, Vice President,
Corporate Controller
BAKER & HOSTETLER LLP
COUNSELLORS AT LAW
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
August 14, 1997
VIA MESSENGER
William Warren, Esq.
Forest City Enterprises, Inc.
10800 Brookpark Road
Cleveland, Ohio 44130
Re: STOCK PURCHASE AGREEMENT DATED MAY 7, 1997 BETWEEN
FOREST CITY ENTERPRISES, INC. AND THE MILLERS
Dear Bill:
I have been advised that the parties to the Stock Purchase Agreement
dated May 7, 1997 have agreed to adjust the interest rate to 8% (based on a
360-day year). As attorney for the Millers, this letter is to confirm their
agreement to this modification of the Stock Purchase Agreement.
Sincerely,
Paul H. Feinberg
cc: Richard Miller
Aaron Miller
Gabrielle Miller
Sally P. Gries
Calvin B. Kirchick, Esq.
FOURTH AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT is made and entered
into as of the 1st day of January, 1997 by and among FOREST CITY RENTAL
PROPERTIES CORPORATION, an Ohio corporation ("Borrower"), NATIONAL CITY BANK,
THE HUNTINGTON NATIONAL BANK, COMERICA BANK, FIRST NATIONAL BANK OF OHIO, and
KEYBANK NATIONAL ASSOCIATION, f/k/a/ SOCIETY NATIONAL BANK (collectively the
"Banks" and individually a "Bank"), and KEYBANK NATIONAL ASSOCIATION, f/k/a/
SOCIETY NATIONAL BANK, as Agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Banks, and the Agent entered into a
certain Credit Agreement dated as of July 25, 1994 (the "Credit Agreement"); and
WHEREAS, the Borrower, the Banks, and the Agent have entered into
First, Second, and Third Amendments to Credit Agreement dated as of September
12, 1995, April 4, 1996, and December 18, 1996, respectively, amending the
Credit Agreement as therein provided; and
WHEREAS, Borrower, the Banks, and the Agent desire to make
certain additional amendments to the Credit Agreement on the terms and
conditions herein set forth;
NOW, THEREFORE, it is mutually agreed as follows:
1. AMENDMENTS. Borrower acknowledges that certain amendments of
the Guaranty have been, with Borrower's advance knowledge, entered into by
and among Guarantor, the Banks and the Agent from time to time. The
Agreement is hereby amended by adding to the copy of the Guaranty attached
as Exhibit B to the Agreement a copy of such amendments, namely, the First,
Second, and Third Amendments to the Guaranty, dated as of September 12,
1995, April 4, 1996, and December 18, 1996, respectively, the letter
agreement dated as of May 22, 1997, and the Fourth Amendment to the
Guaranty of even date herewith. A copy of each such amendment is attached
hereto as Exhibit A to this Fourth Amendment.
2. DEFINITIONS. Terms used in this Fourth Amendment to Credit
Agreement that are defined in the Credit Agreement shall have the
respective meanings ascribed to them in the Credit Agreement.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to the Agent and each of the Banks that all of the representations
and warranties of the Borrower set forth in Article VIII of the Credit
Agreement are true and correct on and as of the date hereof and that no
Event of Default or Possible Default exists on such date.
4. NO WAIVER. The execution and delivery of the Fourth Amendment
to Credit Agreement by the Agent and the Banks shall not constitute a
waiver of release of any obligation or liability of the Borrower under the
Credit Agreement as in effect prior to the effectiveness of this Fourth
Amendment to Credit Agreement or as amended hereby or waive or release any
Event of Default or Possible Default existing at any time.
<PAGE>
5. CONDITIONS TO EFFECTIVENESS. The amendments to the Credit
Agreement herein provided for shall become effective upon receipt by the
Agent and the Banks of such opinions of counsel to the Borrower and the
Parent, certified copies of resolutions of the boards of directors of the
Borrower and the Parent, and such other documents as shall be required by
the Agent, the Banks, or their respective counsel to evidence and confirm
the due authorization, execution, and delivery of this Fourth Amendment to
Credit Agreement.
6. CONFIRMATION OF CREDIT AGREEMENT. The Borrower, the Agent, and
the Banks hereby confirm that the Credit Agreement is in full force and
effect on the date hereof, and that, upon the amendments herein provided
becoming effective, the Credit Agreement will continue in full force and
effect in accordance with its terms, as hereby amended.
IN WITNESS WHEREOF, the parties hereto, each by an officer
thereunto duly authorized, have caused this Fourth Amendment to Credit Agreement
to be executed and delivered as of the date first above written.
FOREST CITY RENTAL NATIONAL CITY BANK
PROPERTIES CORPORATION
By:__________________________ By:__________________________
Thomas G. Smith Anthony J. DiMare
Title: Senior Vice President, Title: Senior Vice President
Chief Financial Officer, and
Secretary
THE HUNTINGTON NATIONAL BANK COMERICA BANK
By:__________________________ By:_________________________
James R. Logan David J. Campbell
Title: Senior Vice President Title: Vice President
FIRST NATIONAL BANK OF OHIO KEYBANK NATIONAL ASSOCIATION
Individually and as Agent
By:_________________________ By:_________________________
John F. Neumann Michael D. Mitro
Title: Vice President Title: Vice President
FOURTH AMENDMENT TO GUARANTY OF PAYMENT OF DEBT
-----------------------------------------------
THIS FOURTH AMENDMENT TO GUARANTY OF PAYMENT
OF DEBT is made and entered into as of the lst day of January, 1997 by and
among FOREST CITY ENTERPRISES, INC., an Ohio corporation ("Parent"),
NATIONAL CITY BANK, THE HUNTINGTON NATIONAL BANK, COMERICA BANK, FIRST
NATIONAL BANK OF OHIO, AND KEYBANK NATIONAL ASSOCIATION, f/k/a/ SOCIETY
NATIONAL BANK (collectively the "Banks" and individually a "Bank"), and
KEYBANK NATIONAL ASSOCIATION f/k/a/ SOCIETY NATIONAL BANK, as Agent for
the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, Forest City Rental Properties Corporation
("Borrower"), the Banks, and the Agent entered into a certain Credit
Agreement dated as of July 25, 1994 (the "Credit Agreement");
WHEREAS, the Banks required, as a condition to entering into
the Credit Agreement, that Parent execute and deliver to the Agent and the
Banks a certain Guaranty of Payment of Debt dated July 25, 1994 (the
"Guaranty") and Parent agreed to and did execute and deliver the Guaranty
to the Agent and the Banks;
WHEREAS, Borrower, the Banks and the Agent entered into First,
Second and Third Amendments to Credit Agreement dated as of September 12,
1995, April 4, 1996, and December 18, 1996, respectively, amending the
Credit Agreement as therein provided and Borrower, Parent, the Banks and
the Agent entered into First, Second and Third Amendments to Guaranty of
Payment of Debt dated as of September 12, 1995, April 4, 1996, and
December 18, 1996, respectively, a letter agreement, dated as of May 22,
1997, and each amending the Guaranty of Payment of Debt as therein
provided (as so amended, the "Guaranty"); and
WHEREAS, Borrower, Parent, the Banks, and the Agent desire to
make certain additional amendments to the Guaranty;
NOW, THEREFORE, it is mutually agreed as follows:
1. AMENDMENTS.
(a) Section 7 is amended by adding the following paragraph
at the end of such Section:
Guarantor further represents and warrants that Guarantor has
provided to the Bank three copies of all promissory notes or
other writings evidencing any Trading Loans outstanding on the
date hereof and that Guarantor has no other intercompany
indebtedness for borrowed money or funded indebtedness
outstanding from any subsidiary.
<PAGE>
(b) Section 9.10(d) is amended by replacing the words
"clause (f) of Section 9.13 hereof" with "clause (f) of Section 9.12
hereof" and by replacing the words "One Million Five Hundred Thousand
Dollars ($1,500,000)" with the words "Four Million Five Hundred
Thousand Dollars ($4,500,000)".
(c) Section 9.10 is amended further by deleting the word
"or" at the end of clause (e) thereof, by replacing the period at the
end of clause (f) thereof with a comma and adding the following new
clause (g) thereto:
(g) any loans that are now or hereafter outstanding from
Forest City Trading Group, Inc. (but not from any other
lender, whether or not such lender is a Subsidiary of
Guarantor) to Guarantor, provided that each of the following
conditions is satisfied as to any and all such loans
(individually, a "Trading Loan" and, collectively, the
"Trading Loans") :
(i) the aggregate of all the Trading Loans may not
exceed Ten Million Dollars ($10,000,000);
(ii) no interest shall accrue or be payable with respect
to any Trading Loan;
(iii) there shall be no scheduled principal payments
prior to the maturity date of any Trading Loan, as any such
Revolving Note or Term Note may be extended from time to
time; no principal payments shall be made on any Trading
Loan at any time that an Event of Default or Possible
Default exists under the Guaranty or the Agreement, or at
any time that the Agent has determined, in its sole
discretion, that there has been a material adverse change in
the financial condition of the Guarantor; and the Trading
Loans, either individually or in the aggregate, shall not be
revolving loans and, if any principal payments are made on
any Trading Loan, the Ten Million Dollar ($10,000,000)
maximum amount of permissible Trading Loans set forth above
shall automatically and irrevocably decline by like amount
upon such payment;
(iv) each Trading Loan shall be expressly subordinate in
right of payment to the prior payment in full of the
indebtedness under the Guaranty or the Agreement, whether
arising due to a Term Loan, a Revolving Loan or otherwise;
<PAGE>
(v) an event of default as to any Trading Loan(s) will
automatically constitute an Event of Default under the
Agreement, the Term Notes, the Revolving Notes and the
Guaranty; and
(vi) each Trading Loan shall be evidenced by a written
promissory note, including the terms set forth above in
clauses (i)- (v) and otherwise in form and substance
approved in advance by the Agent, executed on behalf of
Guarantor and Forest City Trading Group, Inc. and, in the
case of any Trading Loan(s) on or after the date hereof,
executed by such parties not later than the date of the
first disbursement of such Trading Loan, a copy of which
note shall be provided to the Agent within ten (10) days
after execution.
2. DEFINITIONS. Terms used in this Fourth Amendment to
Guaranty of Payment of Debt that are defined in the Guaranty or the Credit
Agreement shall have the respective meanings ascribed to them in the
Guaranty or the Credit Agreement, as the case may be.
3. REPRESENTATIONS AND WARRANTIES. Parent represents and
warrants to the Agent and each of the banks that all of the
representations and warranties of the Parent set forth in Section 7 of the
Guaranty are true and correct on and as of the date hereof and that no
Event of Default or Possible Default exists on such date.
4. NO WAIVER. The acceptance, execution and/or delivery of the
Fourth Amendment to Guaranty of Payment of Debt by the Agent and the Banks
shall not constitute a waiver or release of any obligation or liability of
the Parent under the Guaranty as in effect prior to the effectiveness of
this Fourth Amendment to Guaranty of Payment of Debt or as amended hereby
or waive or release any Event of Default or Possible Default existing at
any time.
5. CONDITIONS TO EFFECTIVENESS. The amendments to the Guaranty
herein provided for shall become effective upon receipt by the Agent and
the Banks of such opinions of counsel to the Borrower and the Parent,
certified copies of resolutions of the boards of directors of the Borrower
and the Parent, and such other documents as shall be required by the
Agent, the Banks, or their respective counsel to evidence and confirm the
due authorization, execution, and delivery of this Fourth Amendment to
Guaranty of Payment of Debt.
<PAGE>
6. CONFIRMATION OF GUARANTY. The Parent hereby confirms that the
Guaranty is in full force and effect on the date hereof, and that, upon
the amendment herein provided becoming effective, the Guaranty will
continue in full force and effect in accordance with its terms, as hereby
amended.
IN WITNESS WHEREOF, the parties hereto, each by an officer
thereunto duly authorized, have caused this Fourth Amendment to Guaranty
of Payment of Debt to be executed and delivered as of the date first above
written.
FOREST CITY ENTERPRISES, INC. THE HUNTINGTON NATIONAL BANK
By: ________________________ By:__________________________
Thomas G. Smith James R. Logan
Title: Senior Vice President, Title: Senior Vice President
Chief Financial Officer, and
Secretary
NATIONAL CITY BANK COMERICA BANK
By:_________________________ By:___________________________
Anthony J. DiMare David J. Campbell
Title: Senior Vice President Title: Vice President
FIRST NATIONAL BANK OF OHIO KEYBANK NATIONAL ASSOCIATION
Individually and as Agent
By:_________________________ By:__________________________
John F. Neumann Michael D. Mitro
Title: Vice President Title: Vice President
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