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, 1998
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.)
1100 Terminal Tower
50 Public Square Cleveland, Ohio 44113
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 216-621-6060
(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 10, 1998
Class A Common Stock, $.33 1/3 par value 19,225,872 shares
Class B Common Stock, $.33 1/3 par value 10,752,680 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, 1998
(Unaudited) and January 31, 1998 3
Consolidated Statements of Earnings and Retained
Earnings (Unaudited) - Three and Six Months
Ended July 31, 1998 and 1997 4
Consolidated Statements of Cash Flows (Unaudited)- 5 - 6
Six Months Ended July 31, 1998 and 1997
Notes to Consolidated Financial Statements
(Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 25
Part II. Other Information
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28 - 35
Signatures 36
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, 1998 January 31, 1998
---------------- ----------------
(Unaudited)
(dollars in thousands, except per share data)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties $ 2,492,613 $ 2,409,545
Projects under development 389,879 251,416
Land held for development or sale 54,332 43,599
------------- -------------
2,936,824 2,704,560
Less accumulated depreciation (463,669) (448,634)
------------- -------------
Total Real Estate 2,473,155 2,255,926
Cash 38,705 54,854
Notes and accounts receivable, net 173,885 191,719
Inventories 51,419 58,696
Investments in and advances to affiliates 240,935 202,409
Other assets 200,516 199,749
------------- -------------
$ 3,178,615 $ 2,963,353
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $ 2,104,640 $ 2,018,931
Accounts payable and accrued expenses 351,806 361,398
Notes payable 7,436 34,819
Long-term debt 45,000 114,000
8.5% Senior notes 200,000 -
Deferred income taxes 131,539 117,723
Deferred profit 33,819 34,537
------------- -------------
Total Liabilities 2,874,240 2,681,408
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value;
5,000,000 shares authorized; no shares issued. - -
Common stock - $.33 1/3 par value
Class A, 96,000,000 and 48,000,000 shares authorized,
19,853,172 and 19,813,372 shares issued, 19,225,872
and 19,186,072 outstanding, respectively. 6,619 6,602
Class B, convertible, 36,000,000 and 18,000,000 shares
authorized, 11,030,780 and 11,070,580 shares issued,
10,752,680 and 10,792,480 outstanding, respectively. 3,678 3,688
------------- --------------
10,297 10,290
Additional paid-in capital 114,269 114,276
Retained earnings 191,294 168,864
-------------- --------------
315,860 293,430
Less treasury stock, at cost: 627,300 Class A
and 278,100 Class B shares. (11,485) (11,485)
------------- --------------
Total Shareholders' Equity 304,375 281,945
------------- --------------
$ 3,178,615 $ 2,963,353
============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 165,707 $ 142,035 $ 314,330 $ 293,103
----------- ----------- ----------- -----------
Operating expenses 100,127 84,557 187,363 168,077
Interest expense 37,531 30,497 74,278 63,606
Depreciation and amortization 19,804 18,369 41,232 35,911
---------- ---------- ----------- -----------
157,462 133,423 302,873 267,594
---------- ----------- ----------- -----------
Gain (loss) on disposition of properties 18,607 (3,132) 30,054 (38,637)
---------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 26,852 5,480 41,511 (13,128)
---------- ----------- ----------- -----------
INCOME TAX EXPENSE (BENEFIT)
Current 1,549 4,354 3,100 1,650
Deferred 9,467 (1,821) 14,067 (6,461)
---------- ----------- ----------- -----------
11,016 2,533 17,167 (4,811)
---------- ----------- ----------- -----------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN 15,836 2,947 24,344 (8,317)
Extraordinary gain, net of tax 334 3,142 334 14,187
---------- ----------- ----------- -----------
NET EARNINGS 16,170 6,089 24,678 5,870
Retained earnings at beginning of period 176,323 150,954 168,864 152,077
Dividends on common stock - $.04 per share
and $.075 per share in 1998, respectively,
and $.03 and $.06 per share in 1997,
respectively. (1,199) (899) (2,248) (1,803)
----------- ----------- ----------- -----------
Retained earnings at end of period $ 191,294 $ 156,144 $ 191,294 $ 156,144
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE
Weighted average common shares outstanding 29,978,552 29,326,452 29,978,552 27,800,914
=========== =========== =========== ===========
Net earnings (loss) before extraordinary gain $ 0.53 $ 0.10 $ 0.81 $ (0.30)
Extraordinary gain, net of tax .01 0.11 0.01 0.51
----------- ----------- ----------- -----------
NET EARNINGS $ 0.54 $ 0.21 $ 0.82 $ 0.21
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE
Weighted average common shares outstanding 30,204,018 29,367,175 30,181,977 27,833,125
=========== =========== =========== ===========
Net earnings (loss) before extraordinary gain $ 0.53 $ 0.10 $ 0.81 $ (0.30)
Extraordinary gain, net of tax .01 0.11 0.01 0.51
----------- ----------- ----------- -----------
NET EARNINGS $ 0.54 $ 0.21 $ 0.82 $ 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,
-----------------------------
1998 1997
----------- ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received $ 314,099 $ 312,573
Proceeds from land sales 14,076 11,467
Land development expenditures (19,646) (9,105)
Operating expenditures (194,509) (201,632)
Interest paid (68,265) (66,406)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 45,755 46,897
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (281,149) (136,188)
Proceeds from disposition of assets 31,622 -
Investments in and advances to affiliates (38,526) (27,290)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (288,053) (163,478)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes 200,000 -
Payments of senior notes issuance costs (5,685) -
Increase in nonrecourse mortgage and long-term debt 361,320 160,430
Principal payments on nonrecourse mortgage debt
on real estate (183,284) (21,446)
Payments on long-term debt (114,000) (76,494)
Increase in notes payable 6,613 12,704
Payments on notes payable (33,996) (43,061)
Decrease in restricted cash 6,830 3,600
Payment of deferred financing costs (9,551) (3,412)
Net proceeds from sale of common stock - 76,346
Dividends paid to shareholders (2,098) (1,691)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 226,149 106,976
---------- -----------
NET DECREASE IN CASH (16,149) (9,605)
CASH AT BEGINNING OF PERIOD 54,854 41,302
---------- -----------
CASH AT END OF PERIOD $ 38,705 $ 31,697
========== ===========
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended July 31,
------------------------------
1998 1997
------------ -------------
(in thousands)
<S> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS $ 24,678 $ 5,870
Depreciation 30,773 29,360
Amortization 10,459 6,551
Increase (decrease) in deferred income taxes 13,816 (742)
(Gain) loss on disposition of properties (30,054) 38,637
Extraordinary gain (552) (18,272)
Increase in land held for development or sale (10,733) (1,376)
Decrease in notes and accounts receivable 17,269 39,230
Decrease in inventories 7,277 4,957
(Increase) decrease in other assets (3,958) 1,257
Decrease in accounts payable and accrued expenses (12,502) (57,282)
Decrease in deferred profit (718) (1,293)
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 45,755 $ 46,897
========== ===========
</TABLE>
Supplemental Non-Cash Disclosure:
The following items represent the effect of non-cash transactions for 1998:
* Disposition of Summit Park Mall
* Disposition of Trolley Plaza
The following items represent the effect of non-cash transactions for 1997:
* Increase in interest in Skylight Office Tower
* Disposition of Toscana
* Reduction of interest in MIT Phase II
* Exchange of Woodridge
<TABLE>
<S> <C> <C>
Operating Activities
Notes and accounts receivable $ 565 $ (5,072)
Other assets 1,138 (121)
Accounts payable and accrued expenses 2,760 (6,900)
Deferred taxes - 164
---------- -----------
Total effect on operating activities $ 4,463 $ (11,929)
========== ===========
Investing Activities
Additions to completed rental property $ - $ (3,498)
Dispositions of completed rental property 42,312 56,568
Investments in and advances to affiliates - 4,131
---------- -----------
Total effect on investing activities $ 42,312 $ 57,201
========== ===========
Financing Activities
Assumption of non-recourse mortgage debt $ - $ 3,185
Reduction of non-recourse mortgage debt (46,775) (48,988)
Notes payable - 531
---------- -----------
Total effect on financing activities $ (46,775) $ (45,272)
========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. SENIOR NOTES
On March 16, 1998, the Company issued $200,000,000 of 8.50% Senior
Notes, due March 15, 2008, in a public offering. Proceeds were used to
repay $114,000,000 of its term loan and revolving credit loans. The
remaining proceeds will be used to finance projects currently under
development and to pursue new real estate opportunities. Accrued
interest is payable on March 15 and September 15 of each year. The
Senior Notes are unsecured senior obligations of the Company, however,
they are subordinated to all existing and future indebtedness and other
liabilities of the Company's subsidiaries, including the $220,000,000
revolving credit facility. The indenture contains covenants providing,
among other things, limitations on the incurrence of additional debt
and payment of dividends.
The Senior Notes may be redeemed by the Company, in whole or in part,
at any time on or after March 15, 2003 at redemption prices beginning
at 104.25% for the year beginning March 15, 2003 and systematically
reduced to 100% in the years thereafter. The Company may also redeem up
to 33% of the original principal amount prior to March 15, 2001 from
proceeds of one or more common stock public offerings at a redemption
price of 108.50%.
B. STOCK SPLIT
A two-for-one stock split of the Company's Class A and Class B common
stock was paid on July 16, 1998 to shareholders of record on July 1,
1998. The stock split is given retroactive effect to the beginning of
the earliest period presented in the accompanying Consolidated Balance
Sheets by transferring the par value of the additional shares issued
from the additional paid-in capital account to the common stock
accounts. All share and per share data presented in these financial
statements have been restated to reflect the stock split.
C. DIVIDENDS
The Board of Directors declared regular quarterly cash dividends on
both Class A and Class B common shares as follows:
Amount
Date Date of Payment Per Share
Declared Record Date (Post-Split)
-------- ------- -------- ------------
March 18, 1998 June 1, 1998 June 15, 1998 $.035
June 9, 1998 September 1, 1998 September 15, 1998 $.04
September 8, 1998 December 1, 1998 December 15, 1998 $.04
<PAGE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. EARNINGS PER SHARE
The reconciliation of the numerator and denominator of basic earnings
per share ("EPS") with diluted EPS is as follows:
Net Earnings Weighted Net Earnings
(Loss) Before Average (Loss) Before
Extraordinary Shares Extraordinary
Gain Outstanding Gain
(Numerator) (Denominator) Per Share
------------- ------------- -------------
Three Months Ended
July 31, 1998:
Basic EPS $15,836,000 29,978,552 $0.53
Dilutive effect
of stock options - 225,466
Diluted EPS $15,836,000 30,204,018 $0.53
Six Months Ended
July 31, 1998:
Basic EPS $24,344,000 29,978,552 $0.81
Dilutive effect
of stock options - 203,425
Diluted EPS $24,344,000 30,181,977 $0.81
Three Months Ended
July 31, 1997:
Basic EPS $ 2,947,000 29,326,452 $0.10
Dilutive effect
of stock options - 40,723
Diluted EPS $ 2,947,000 29,367,175 $0.10
Six Months Ended
July 31, 1997:
Basic EPS ($8,317,000) 27,800,914 ($0.30)
Dilutive effect
of stock options - 32,211
Diluted EPS ($8,317,000) 27,833,125 ($0.30)
E. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
which is required to be adopted in years beginning after June 15, 1999.
Management does not anticipate that the adoption of the new Statement
will have a significant effect on earnings or the financial position of
the Company.
<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, 1998 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, 1998 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 10.1% (or 7.1% per share) in the second quarter of
1998 to $27,223,000, or $.90 per share of common stock, from $24,725,000, or
$.84 per share, of common stock, for the second quarter of 1997. EBDT for the
six months ended July 31, 1998 was $51,818,000, or $1.72 per share, compared to
$53,172,000, or $1.91 per share, for the six months ended July 31, 1997. EBDT
for the first half of 1998 grew by 12.2%, excluding $6,991,000 in EBDT for the
first half of 1997 related to the litigation settlement for Toscana, a 563-unit
apartment complex in Irvine, California (see "-Other Transactions - Sale of
Toscana"). All per share figures are fully diluted and are adjusted for the
Company's two-for-one stock split paid in July 1998.
The increase in EBDT is primarily attributable to the acquisitions or opening of
fifteen properties during the first half of 1998 and a full six months of
operations for the eleven properties which opened during 1997.
<PAGE>
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal
business groups as it believes it 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.
NET OPERATING INCOME FROM REAL ESTATE OPERATIONS - NOI from the
combined Commercial Group and Residential Group for the second quarter of 1998
was $62,331,000 compared to $53,050,000 for the second quarter of 1997, an
increase of 17.5%. NOI from the combined Commercial Group and Residential Group
for the six months ended July 31, 1998 was $122,400,000 compared to $116,656,000
for the first half of 1997, an increase of 4.9%. NOI in 1997 was affected by the
non-recurring $15,000,000 Toscana litigation settlement income (see "Sale of
Toscana" below). Adjusting for this item, NOI for the first half increased by
20.4%.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group increased $17,062,000, or 22.5%,
to $92,953,000 in the second quarter of 1998 from $75,891,000 in the second
quarter of 1997. This increase is primarily the result of property openings and
acquisitions. During the first half of 1998, Forest City acquired the 292-room
Sheraton Hotel at Station Square in Pittsburgh, Pennsylvania and the
325,000-square-foot Fairmont Plaza office building in San Jose, California,
which increased revenues over last year's second quarter by $4,848,000 and
$857,000, respectively. Phase II of University Park at MIT in Cambridge,
Massachusetts opened during the second quarter of 1998. This mixed-use facility,
owned in partnership with MIT, consists of 76,000 square feet of office space,
95,000 square feet of retail space, a 210-room hotel and a 960-space parking
facility and generated $602,000 of revenues during the second quarter of 1998.
Revenues for the second quarter also increased from the openings of properties
in the New York City area during 1997 including Nine MetroTech office building
in Brooklyn ($1,494,000), Gun Hill Road retail center in the Bronx ($150,000),
and two retail properties in Queens, Northern Boulevard ($1,030,000) and Grand
Avenue ($507,000). Richmond Avenue, a retail center in Staten Island, New York,
opened during the first half of 1998 and generated additional revenues of
$368,000 and Atlantic Center, a shopping center which opened in 1996 in
Brooklyn, New York, realized a $266,000 increase in revenues over the second
quarter of 1997. In addition, the Company's increased ownership in two
properties resulted in increases to revenues: Antelope Valley Mall in Palmdale,
California increased from 40% in 1997 to 78% in 1998 ($951,000) and Station
Square in Pittsburgh, Pennsylvania increased from 25% in 1997 to 100% in 1998
($2,020,000). In addition, the Commercial Group recorded $765,000 in increased
revenues from the Ritz-Carlton Hotel in Cleveland, Ohio, $3,309,000 from
commercial land sales and $1,960,000 in revenue increases from its existing
properties. These increases were partially offset by a decrease in revenues due
to the disposition of the Company's interest in three commercial properties
during the first half of 1998: the 469,000-square-foot San Vicente office
building in Brentwood, California ($922,000), the 695,000-square-foot Summit
Park Mall in Wheatfield, New York ($648,000) and the Courtyard strip shopping
center in Flint, Michigan ($270,000).
Revenues of the Commercial Group increased $27,494,000, or 18.2%, to
$178,357,000 for the six months ended July 31, 1998 from $150,863,000 for the
comparable period for the prior year. This increase is primarily the result of
the 1998 acquisitions of Sheraton Hotel at Station Square ($4,848,000) and
Fairmont Plaza ($857,000) and the 1997 acquisitions of additional interests in
Antelope Valley Mall ($1,698,000) and Station Square ($3,554,000). Additionally,
the openings of several properties in the New York City area in 1997 and 1998
resulted in increased revenues: Nine MetroTech ($2,827,000), Northern Boulevard
($1,842,000), Grand Avenue ($1,061,000), Richmond Avenue ($596,000) and Gun Hill
Road ($380,000). Phase II of University Park at MIT opened during the second
quarter of 1998 and generated $602,000 in revenues, commercial land sales
revenues increased by $3,739,000, the Ritz-Carlton Hotel recorded first half
revenue of $1,138,000 over 1997 and existing properties revenues increased by
approximately $5,300,000. Revenues from two properties which opened in 1996 have
improved over the first half of last year: Atlantic Center in Brooklyn, New York
($779,000) and Showcase in Las Vegas, Nevada ($527,000). These increases were
partially offset by a decrease in revenues due to the disposition of the
Company's interest in three commercial properties during the first half of 1998:
San Vicente ($1,418,000), Summit Park Mall ($839,000) and Courtyard shopping
center ($281,000).
OPERATING AND INTEREST EXPENSES. During the second quarter of 1998,
operating expenses for the Commercial Group increased $11,017,000, or 30.0%, to
$47,815,000 from $36,798,000 in the second quarter of 1997. The increase in
operating expenses was attributable primarily to costs associated with the
acquisitions of the Sheraton Hotel at Station Square ($3,134,000) and Fairmont
Plaza ($411,000), commercial land sales ($2,665,000), the openings of Phase II
at University Park at MIT ($256,000), Nine MetroTech ($493,000) and new retail
properties in the New York City boroughs ($604,000), and increased occupancy at
the Ritz-Carlton Hotel ($443,000). In addition, operating expenses increased due
to the 1997 acquisitions of increased ownership percent in Antelope Valley Mall
($377,000) and Station Square ($1,415,000), and general portfolio operating
expenses increased approximately $2,000,000 as a result of increased occupancy.
These increases were partially offset by decreases in operating expenses of
$513,000 and $398,000 as a result of the dispositions of Summit Park Mall and
San Vicente, respectively. Interest expense for the second quarter of 1998
increased by $3,778,000, or 20.5%, to $22,185,000 from $18,407,000 for the
second quarter of 1997. The increase in interest expense is attributable
primarily to the opening of new properties in the New York City area and the
acquisitions of Sheraton Hotel at Station Square and Fairmont Plaza and
increased ownership percent in Antelope Valley Mall and Station Square.
During the six months ended July 31, 1998, operating and interest expenses
increased $12,245,000 and $4,203,000 (16.1% and 10.3%), respectively, over the
comparable period in 1997 to $88,284,000 and $45,026,000, respectively. The
increase in operating expenses is primarily attributable to costs associated
with the acquisitions of the Sheraton Hotel at Station Square ($3,134,000) and
Fairmont Plaza ($411,000), commercial land sales ($2,665,000), the openings of
Phase II at University Park at MIT ($256,000), Nine MetroTech ($930,000) and new
retail properties in the New York City boroughs ($999,000), and increased
occupancy at the Ritz-Carlton Hotel ($735,000). In addition, operating expenses
increased due to the 1997 acquisitions of increased ownership percent of
Antelope Valley Mall ($751,000) and Station Square ($2,680,000), and general
portfolio operating expenses increased approximately $1,200,000 as a result of
increased occupancy. These increases were partially offset by decreases in
operating expenses of $702,000 and $762,000 as a result of the dispositions of
Summit Park Mall and San Vicente, respectively. The increase in interest expense
is attributable primarily to the opening of new properties in the New York City
area and the acquisitions of Sheraton Hotel at Station Square and Fairmont Plaza
and additional interests in Antelope Valley Mall and Station Square.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $3,501,000,
or 11.9%, in the second quarter of 1998 to $32,997,000 from $29,496,000 in the
second quarter of 1997. This increase was primarily attributable to the 1997
acquisitions of Museum Towers in Philadelphia, Pennsylvania ($227,000) and
Whitehall Terrace in Kent, Ohio ($340,000) and the 1998 acquisitions of a 50%
interest in the 342-unit Park Plaza in Mayfield Heights, Ohio ($145,000) and an
additional 20% interest in the 450-unit Studio Colony apartment community in Los
Angeles, California ($352,000). In addition, revenues increased $310,000 over
the second quarter of last year from the expansion of 294 units during 1997 to
three apartment communities in Cleveland, Ohio. Revenues of the existing
operating portfolio of the Residential Group increased approximately $1,100,000
and development and syndication fees increased $1,070,000 during the second
quarter of 1998 compared to the second quarter of 1997.
Revenues for the Residential Group decreased by $8,586,000 in the six months
ended July 31, 1998 to $64,261,000 from $72,847,000 for the comparable period in
1997. Excluding the $15,000,000 in proceeds from the Toscana litigation
settlement received in 1997 (see "Sale of Toscana" below), first half 1998
revenues increased $6,414,000, or 11.1%, over the comparable period of 1997.
This increase was primarily attributable to the 1997 acquisitions of Museum
Towers ($1,121,000) and Whitehall Terrace ($666,000) and the 1998 acquisitions
of Park Plaza ($145,000) and an additional 20% interest in Studio Colony
($352,000). In addition, revenues increased $607,000 over the first half of last
year from the expansion of 294 units during 1997 to three apartment communities
in Cleveland, Ohio. Revenues of the existing operating portfolio of the
Residential Group increased approximately $2,000,000 and development and
syndication fees increased $1,471,000 during the first half of 1998 compared to
1997.
OPERATING AND INTEREST EXPENSES. Operating expenses for the Residential
Group for the second quarter of 1998 increased by $265,000, or 1.7%, to
$15,804,000 from $15,539,000 in the second quarter of 1997. The increase in
operating expenses is attributable primarily to the 1997 acquisitions of Colony
Woods ($167,000) and Whitehall Terrace ($152,000). Interest expense for the
second quarter of 1998 decreased by $671,000, or 8.9%, to $6,877,000 from
$7,548,000 in the second quarter of 1997.
Operating expenses for the Residential Group for the six months ended July 31,
1998 increased by $919,000, or 3.0%, to $31,934,000 from $31,015,000 in the
first half of 1997. The increase in operating expenses is attributable primarily
to the 1997 acquisitions of Museum Towers ($322,000), Colony Woods ($564,000)
and Whitehall Terrace ($298,000), partially offset by a decrease in operating
expenses of the apartment portfolio due to operating efficiencies. Interest
expense for the six months ended July 31, 1998 increased negligibly by $7,000 to
$13,977,000 from $13,970,000 in the first half of 1997.
LAND GROUP
REVENUES. Revenues for the Land Group increased by $3,119,000, or
65.3%, to $7,895,000 in the second quarter of 1998 from $4,776,000 in the second
quarter of 1997. Revenues for the Land Group increased by $5,530,000, or 75.6%,
from $7,317,000 in the six months ended July 31, 1997 to $12,847,000 in the
first half of 1998. Sales of land and related earnings vary from period to
period, depending on management's decisions regarding the disposition of
significant land holdings.
OPERATING AND INTEREST EXPENSES. Operating expenses and interest
expense increased by $2,106,000 and $768,000 (or 54.2% and 53.9%), respectively,
in the second quarter of 1998 to $5,992,000 and $2,194,000, respectively, from
$3,886,000 and $1,426,000, respectively, in the second quarter of 1997. The
fluctuation in operating expenses primarily reflects costs associated with land
sales volume in each period. The increase in interest expense was due primarily
to a higher level of interest-bearing debt.
Operating expenses and interest expense increased by $4,056,000 and $1,601,000
(or 63.3% and 59.5%), respectively, in the six months ended July 31, 1998 to
$10,466,000 and $4,294,000, respectively, from $6,410,000 and $2,693,000,
respectively, in the six months ended July 31, 1997. The fluctuation in
operating expenses primarily reflects costs associated with land sales volume in
each period. The increase in interest expense was due primarily to a higher
level of interest-bearing debt.
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group increased by $748,000,
or 2.4%, to $31,548,000 in the second quarter of 1998 from $30,800,000 in the
second quarter of 1997. The increase was due primarily to a higher level of
trading activity in 1998 compared to 1997 ($721,000) and an increase in volume
at Forest City/Babin, a wholesaler of major appliances, cabinets and hardware to
housing contractors ($27,000).
Revenues for the Lumber Trading Group for the six months ended July 31, 1998
decreased $2,525,000, or 4.2%, to $57,878,000 from $60,403,000 for the first
half of 1997. The decrease was due primarily to a reduced level of trading
activity in 1998 compared to 1997 ($2,224,000) and a decrease in volume at
Forest City/Babin, a wholesaler of major appliances, cabinets and hardware to
housing contractors ($301,000).
OPERATING AND INTEREST EXPENSES. Operating expenses in the Lumber
Trading Group increased in the second quarter of 1998 by $869,000, or 3.2% to
$28,344,000 from $27,475,000 in the second quarter of 1997. This increase
reflected the fluctuation in variable expenses due to higher trading sales
volume. Interest expense for the second quarter of 1998 increased by $355,000,
or 25.6% to $1,740,000 from $1,385,000 in the second quarter of 1997. This
increase in interest expense was primarily due to higher average borrowings
under Lumber Trading Group's credit facility.
Operating expenses in the Lumber Trading Group decreased in the six months ended
July 31, 1998 by $972,000, or 1.8% to $52,550,000 from $53,522,000 in the first
half of 1997. This decrease reflected the fluctuation in variable expenses due
to reduced trading sales volume. Interest expense for the six months ended July
31, 1998 increased by $466,000, or 18.0% to $3,056,000 from $2,590,000 in the
first half of 1997. This increase in interest expense was primarily due to
higher average borrowings under Lumber Trading Group's credit facility.
CORPORATE ACTIVITIES
REVENUES. Corporate Activities' revenues decreased $758,000, or 70.7%,
in the second quarter of 1998 to $314,000 from $1,072,000 in the second quarter
of 1997. Corporate Activities' revenues decreased $686,000, or 41.0%, for the
six months ended July 31, 1998 to $987,000 compared to $1,673,000 for the same
period in 1997. Corporate Activities revenues consists primarily of interest
income on investments made by the Company and vary from year to year depending
on interest rates and the amount of loans outstanding.
OPERATING AND INTEREST EXPENSES. Operating expenses of Corporate
Activities increased $1,462,000, or 90.0%, in the second quarter of 1998 to
$3,086,000 from $1,624,000 in the second quarter of 1997. Operating expenses
increased for the six months ended July 31, 1998 by $3,229,000, or 126.0%, to
$5,792,000 from $2,563,000 for the first half of 1997. These increases represent
general corporate expenses. Interest expense increased $2,804,000, or 162.0% in
the second quarter of 1998 to $4,535,000 from $1,731,000 in the second quarter
of 1997. Interest expense for the six months ended July 31, 1998 increased
$4,395,000, or 124.5%, to $7,925,000 from $3,530,000 for the first half of 1997.
Corporate Activities interest expense consists primarily of interest expense on
the 8.50% Senior Notes (issued on March 16, 1998) and the FCRPC Credit Facility
that has not been allocated to a principal business group (see -"Financial
Condition and Liquidity"). Beginning in the fourth quarter of 1997, capitalized
interest on development projects, which was previously reported as Corporate
Activities, is reported by the principal business group developing the project.
Prior years' interest expense for Corporate Activities, Commercial Group and
Residential Group have been restated to reflect this presentation.
OTHER TRANSACTIONS
GAIN (LOSS) ON DISPOSITION OF PROPERTIES - Gain (loss) on disposition of
properties, net of tax, totaled a gain of $11,248,000 in the second quarter of
1998 compared to a loss of $1,894,000 in the second quarter of 1997. Gain (loss)
on disposition of properties, net of tax, totaled a gain of $18,168,000 for the
six months ended July 31, 1998 compared to a loss of $23,356,000 for the six
months ended July 31, 1997.
During the second quarter of 1998, the Company disposed of its interests in
Summit Park Mall, a regional shopping center in suburban Buffalo, New York and
Trolley Plaza, an apartment community in downtown Detroit, Michigan and
recognized pre-tax gains of $14,088,000 and $4,941,000. During the first quarter
of 1998, the Company sold its interests in San Vicente, an office building in
Brentwood, California and Courtyard, a strip shopping center in Flint, Michigan.
The Company recognized pre-tax gains on disposition of $10,809,000 on San
Vicente and $638,000 on Courtyard. During the second quarter of 1997, the
Company recorded a loss of $3,132,000 ($1,894,000 after tax) on the disposition
of its interest in Woodbridge, a land development project in suburban Chicago,
Illinois. During the first quarter of 1997, the Company recorded a loss on
disposition of Toscana of $35,505,000 ($21,462,000 after tax - see "Sale of
Toscana).
EXTRAORDINARY GAIN - Extraordinary gain, net of tax, totaled $334,000 and
$3,142,000, in the second quarter of 1998 and 1997, respectively. Extraordinary
gain, net of tax, totaled $334,000 and $14,187,000 for the six months ended July
31, 1998 and 1997, respectively. The 1998 extraordinary gain represents
extinguishment of $552,000 of non-recourse debt related to Trolley Plaza which
was disposed of during the second quarter. The 1997 extraordinary gain
represented pre-tax earnings of $18,272,000 for the extinguishment of
nonrecourse debt and related accrued interest of Toscana (see "- Sale of
Toscana).
SALE OF TOSCANA - 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
operating income of $9,157,000, after tax, a loss on disposition of property of
$21,462,000, 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. Proceeds from the litigation settlement resulted in EBDT of
$6,991,000 for the year ended January 31, 1998. The net result of these
transactions to the Company was after-tax income of $1,882,000.
INCOME TAXES - Income tax expense for the second quarter of 1998 and 1997
totaled $11,016,000 and $2,533,000, respectively. Income tax expense (benefit)
for the six months ended July 31, 1998 and 1997 totaled $17,167,000 and
($4,811,000), respectively. At January 31, 1998, the Company had a tax net
operating loss carryforward ("NOL") of $89,903,000 (generated primarily over
time in the ordinary course of business from the significant impact of
depreciation expense from real estate properties on the Company's net earnings)
which will expire in the years ending January 31, 2005 through January 31, 2011
and general business credits carryovers of $3,205,000 which will expire in the
years ending January 31, 2003 through January 31, 2011. The Company's policy is
to utilize its NOL before it expires and will consider a variety of strategies
to implement that policy.
NET EARNINGS - In the second quarter of 1998, the Company's net earnings grew
to $16,170,000, or $.54 per share of common stock, from $6,089,000, or $.21 per
share of common stock, in the second quarter of 1997. For the six months ended
July 31, 1998, the Company's net earnings grew to $24,678,000, or $.82 per share
of common stock, from $5,870,000, or $.21 per share of common stock, for the
first half of 1997. All per share amounts are adjusted for the two-for-one stock
split which was effective July 16, 1998.
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 related to real estate operations
from EBDT because they are non-cash items and the Company believes the values of
its properties, in general, have appreciated, over time, in excess of their
original cost. Deferred income taxes from real estate operations 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.
FINANCIAL CONDITION AND LIQUIDITY
On March 16, 1998, the Company sold $200,000,000 in 8.50% senior notes due March
15, 2008 in a public offering. Proceeds from the sale of these notes were
initially used to repay $114,000,000 outstanding under the FCRPC Credit
Agreement (defined below) with the remainder to be used to finance projects
currently under development and to pursue new real estate opportunities that
arise from current favorable market conditions.
On December 10, 1997, and as amended on January 20, 1998 and March 6, 1998, the
Company replaced its $37,500,000 term loan due July 1, 2001 and its $80,000,000
revolving credit facility with a Forest City Rental Properties Corporation
("FCRPC", a significant subsidiary of the Company) Credit Agreement. The FCRPC
Credit Agreement with a group of nine banks is a $225,000,000 revolving credit
facility maturing December 10, 2000, unless extended, and provides for a
quarterly reduction of $2,500,000 commencing April 1, 1998 and allows for up to
$30,000,000 in outstanding letters of credit, which reduces the revolving credit
available to the Company. As of July 31, 1998, the Company had $45,000,000
recourse debt outstanding under the FCRPC Credit Agreement.
The FCRPC Credit Agreement provides, among other things, for 1) interest rates
ranging from 1/4% to 3/4% over the prime rate or 2% to 2-1/2% over the London
Interbank Offered Rate ("LIBOR"); 2) maintenance of debt service coverage ratio,
specified level of net worth and cash flow (as defined) and 3) restriction on
dividend payments. The Company has purchased LIBOR interest rate caps for the
debt under the FCRPC credit agreement in the amount of $25,000,000 at 6.5% for
1998 and $45,000,000 at 7.5% for 1999.
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 non-recourse 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
During the six months ended July 31, 1998, the Company completed $500,000,000 in
financings, including $211,000,000 in refinancings, $201,000,000 for new
development projects and $88,000,000 in acquisition mortgages. The Company is
pursuing the refinancing of its nonrecourse mortgage debt which matures within
the next 12 months. In addition, the Company is attempting to extend the
maturities and/or refinance the nonrecourse debt that is coming due in 1999 and
2000, generally pursuing long-term fixed rate debt to take advantage of the
recent low interest rate levels. The Company has purchased $170,850,000
(including its partners' share) in Treasury options to ensure Treasury rates
will not exceed 6.00% for construction debt which is anticipated to be converted
to permanent fixed-rate debt by February 1, 2000.
INTEREST RATE EXPOSURE
At July 31, 1998, the composition of nonrecourse mortgage debt is as follows:
Amount Rate (1)
------------- --------
(in thousands)
Fixed $ 1,298,765 7.76%
Variable -
Swapped (2) 248,496 8.09%
Adjustable 326,897 7.30%
Tax-Exempt 155,343 4.84%
UDAG and other subsidized loans (fixed) 75,139 2.49%
-----------
$2,104,640 7.40%
===========
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) Interest rates swaps have an average term of 1.6 years as of July 31, 1998.
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. In addition, the Company has purchased interest rate cap protection for
its variable-rate debt portfolio in the amount of $293,675,000, $394,503,000 and
$366,751,000 for the fiscal years ending January 31, 1999, 2000 and 2001,
respectively. The Company generally does not hedge tax-exempt debt because,
since 1990, the base rate of this type of financing has averaged only 3.80% and
has never exceeded 7.90%.
At July 31, 1998, 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 $3,300,000. 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 $1,600,000.
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 without recourse
to the Company.
At July 31, 1998 Lumber Trading Group's two lines of credit totaled a
$67,000,000 commitment expiring June 30, 1999. 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, 1998, no borrowings were
outstanding 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 $91,800,000 and uses this program
to finance its working capital needs. At July 31, 1998, $72,000,000 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.
CASH FLOWS
Net cash provided by operating activities was $45,755,000 and $46,897,000 for
the six months ended July 31, 1998 and 1997, respectively. The slight decrease
in net cash provided by operating activities in 1998 from 1997 is primarily the
result of an increase of $10,541,000 in expenditures for land held for
development, partially offset by a $2,609,000 increase in proceeds from land
sales and a $7,123,000 reduction in operating expenditures.
Net cash used in investing activities totaled $288,053,000 and $163,478,000 for
the six months ended July 31, 1998 and 1997, respectively. Capital expenditures,
other than development and acquisition activities, totaled $24,537,000 during
the six months of 1998 (including both recurring and investment capital
expenditures) and were financed primarily from cash provided by operating
activities. During the first half of 1998, net cash used in investing
activities reflected the Company's use of $256,612,000 of funds for acquisition
and development activities, which were financed with $170,180,000 in new
mortgage indebtedness, proceeds from the issuance of senior notes, and
borrowings under the FCRPC Credit Agreement. In addition, $38,526,000 was used
for investments in and advances to affiliates, and includes approximately
$4,500,000 in advances to various projects on behalf of our partners and
investments in The Grand, a syndicated project in North Bethesda, Maryland
($5,246,000) and The Enclave ($9,397,000) and 101 San Fernando ($19,312,000),
both syndicated Residential Group projects in San Jose, California. Net cash
used in investing activities for the six months ended July 31, 1997 included
$21,138,000 in capital expenditures other than development and acquisition
activities (including both recurring and investment capital expenditures) and
were financed primarily with cash provided by operating activities. In addition,
the first half of 1997 reflected the use of $105,947,000 of funds for
development and acquisition activities, which were financed with $87,957,000 in
new mortgage indebtedness, cash on hand at the beginning of 1997 and the
remainder from cash provided by operating activities.
Net cash provided by financing activities totaled $226,149,000 and $106,976,000
in the six months ended July 31, 1998 and 1997, respectively. Net proceeds from
the issuance of senior notes in March 1998 were $194,315,000, which were
initially used to repay $114,000,000 outstanding under the FCRPC Credit
Agreement. The Company's refinancing of mortgage indebtedness is discussed above
in "Mortgages Refinancings" and borrowings under new mortgage indebtedness for
acquisition and development activities is included in the preceding paragraph
discussing net cash used in investing activities. Net cash provided by financing
activities in the first half of 1998 reflected a reduction of $6,830,000 in
restricted cash related to the financing of The Enclave apartment project in San
Jose, California. In addition for the first half of 1998, the Company reported a
net decrease of $27,383,000 in notes payable (primarily as a result of repayment
of $19,024,000 of borrowings under Lumber Trading Group's lines of credit and
$3,818,000 repayment of a note payable by the Land Group), payment of deferred
financing costs of $9,551,000 and payment of $2,098,000 of dividends. During the
first six months of 1997, cash provided by financing activities included
proceeds from the sale of common stock of $76,346,000, repayment of $18,716,000
on Lumber Trading Group's lines of credit, the release of $3,600,000 in
restricted cash related to the Atlantic Center retail project in Brooklyn, New
York, repayment of a $6,365,000 note payable relating to the purchase of the
Company's additional 33-1/3% interest in the Pittsburgh Mall, payment of
deferred financing costs of $3,412,000 and payment of $1,691,000 of dividends.
SHELF REGISTRATION
On December 3, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the potential offering on a delayed basis
of up to $250,000,000 in debt or equity securities. This registration is in
addition to the shelf registration filed March 4, 1997 of up to $250,000,000 in
debt or equity securities. The Company has sold approximately $82,000,000
through an equity offering completed on May 20, 1997, $200,000,000 through a
debt offering completed on March 16, 1998 and currently has available on the
second shelf registration statement approximately $218,000,000 of debt, equity
or any combination thereof.
STOCK SPLIT, CAPITALIZATION AND DIVIDENDS
The Board of Directors has approved a two-for-one stock split of both the
Company's Class A and Class B Common Stock, effective July 16, 1998 to
shareholders of record at the close of business on July 1, 1998. The stock split
was effected as a stock dividend.
On June 9, 1998, the Board of Directors voted to increase the 1998 quarterly
dividend, adjusted for the two-for-one stock split, to $.04 per share on both
Class A and Class B, representing a 14.3% annual increase in the previous
quarterly dividend.
The first 1998 quarterly dividend of $.07 per share (on a pre-split basis) on
shares of both Class A and Class B Common Stock was paid on March 16, 1998 to
shareholders of record at the close of business on March 2, 1998. The second
1998 quarterly dividend of $.07 per share (on a pre-split basis) on shares of
both Class A and Class B Common Stock was paid on June 15, 1998 to shareholders
of record at the close of business on June 1, 1998. The third 1998 quarterly
dividend of $.04 per share (post-split) on shares of both Class A and Class B
Common Stock will be paid on September 15, 1998 to shareholders of record at the
close of business on September 1, 1998. The fourth 1998 quarterly dividend of
$.04 per share (post-split) on shares of both Class A and Class B Common Stock
will be paid on December 15, 1998 to shareholders of record at the close of
business on December 1, 1998.
On June 9, 1998, the shareholders approved an amendment to the Company's
Articles of Incorporation to increase the Company's capitalization to a)
96,000,000 shares of Class A Common Stock from 48,000,000 shares and b)
36,000,000 shares of Class B Common Stock from 18,000,000 shares. The 5,000,000
Preferred shares remained unchanged.
YEAR 2000
Forest City Enterprises, Inc. has undertaken a program to prepare the Company's
financial and operating computer systems and ancillary embedded applications for
the year 2000. All necessary modifications are expected to occur in a timely
manner at a cost which is not expected to be material to the Company's operating
results.
During 1997, the Company completed the final phases of the replacement of older
mainframe systems. All major systems were replaced with newly purchased year
2000 compliant software or software with definitive plans for upgrades to year
2000 code. This conversion covered the Company's corporate organization and
three business groups, Commercial, Residential and Land. Also in 1997, Lumber
Trading Group successfully converted their internal systems to year 2000
compliant code. Forest City/Babin, a division of Lumber Trading Group, has also
completed the upgrade of its software to year 2000 compliant code.
The Company's plan concentrates on testing the compliant systems and identifying
other systems, such as embedded or operational systems, that are not part of the
new software. The specific steps of the plan include:
* Capturing an inventory of all systems including:
* The new Year 2000 compliant software.
* Computer related hardware and peripherals.
* Internal systems that may have been developed utilizing the compliant
code.
* Embedded or operational systems, including our telephone, heating and
air conditioning systems, fire alarm systems, security systems, and
elevator systems.
* Obtaining compliance letters from all vendors in the inventory;
* Testing systems for compliance;
* Upgrading or replacing software and operational or embedded systems as
needed;
* Contacting our major business partners (suppliers, contractors, utilities,
financial institutions, etc.) to insure that they have an active Year 2000
compliance program.
The Company has completed a software inventory and obtained compliance letters
from most vendors and considers its software assessment complete. Forest City is
completing the inventory of embedded systems and is contacting its business
partners to determine their year 2000 readiness. This phase of the assessment
will be complete by the third quarter 1998.
The testing phase is planned to be completed by the fourth quarter 1998 and the
Company recently acquired software that will test internally developed systems
for Year 2000 compliance. Purchase order forms now require that all products and
services are Year 2000 compliant and Forest City has incorporated Year 2000
compliance in their due diligence for the acquisition of all properties.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This 10Q, 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. AND SUBSIDIARIES
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE SECOND QUARTER ENDED JULY 31, 1998 AND 1997
(IN THOUSANDS)
<CAPTION>
Commercial Group Residential Group Land Group
-------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 92,953 $ 75,891 $ 32,997 $ 29,496 $ 7,895 $ 4,776
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 47,815 36,798 15,804 15,539 5,992 3,886
Interest expense 22,185 18,407 6,877 7,548 2,194 1,426
Income tax provision 2,067 506 1,221 1,306 (114) (208)
--------- --------- --------- --------- ---------- ----------
72,067 55,711 23,902 24,393 8,072 5,104
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 20,886 $ 20,180 $ 9,095 $ 5,103 $ (177) $ (328)
========= ========= ========= ========= ========== ==========
Lumber Trading Group Corporate Activities Total
-------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- ---------- ----------
Revenues $ 31,548 $ 30,800 $ 314 $ 1,072 $ 165,707 $ 142,035
Operating expenses,
including depreciation
and amortization for non-
real estate groups 28,344 27,475 3,086 1,624 101,041 85,322
Interest expense 1,740 1,385 4,535 1,731 37,531 30,497
Income tax provision 741 839 (4,003) (952) (88) 1,491
--------- --------- --------- --------- ---------- ----------
30,825 29,699 3,618 2,403 138,484 117,310
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred tax
(EBDT) $ 723 $ 1,101 ($3,304) ($ 1,331) $ 27,223 $ 24,725
========= ========= ========= ========= ========== ==========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes (EBDT) $ 27,223 $ 24,725
Depreciation and amortization - real estate Groups (18,890) (17,604)
Deferred taxes - real estate Groups (3,745) (2,280)
Gain on disposition of properties, net of tax 11,248 (1,894)
Extraordinary gain, net of tax 334 3,142
---------- ----------
Net earnings $ 16,170 $ 6,089
========== ==========
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997
(IN THOUSANDS)
<CAPTION>
Commercial Group Residential Group Land Group
-------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $178,357 $150,863 $ 64,261 $ 72,847 $12,847 $ 7,317
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 88,284 76,039 31,934 31,015 10,466 6,410
Interest expense 45,026 40,823 13,977 13,970 4,294 2,693
Income tax provision 3,343 570 1,728 8,099 (754) (698)
--------- --------- --------- --------- ---------- ----------
136,653 117,432 47,639 53,084 14,006 8,405
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 41,704 $ 33,431 $16,622 $19,763 $(1,159) $(1,088)
========= ========= ========= ========= ========== ==========
Lumber Trading Group Corporate Activities Total
-------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- ---------- ----------
Revenues $ 57,878 $ 60,403 $ 987 $ 1,673 $ 314,330 $ 293,103
Operating expenses,
including depreciation
and amortization for non-
real estate groups 52,550 53,522 5,792 2,563 189,026 169,549
Interest expense 3,056 2,590 7,925 3,530 74,278 63,606
Income tax provision 1,156 1,884 (6,265) (3,079) (792) 6,776
--------- --------- --------- --------- ---------- ----------
56,762 57,996 7,452 3,014 262,512 239,931
--------- --------- --------- --------- ---------- ----------
Earnings before
depreciation, amortization
and deferred tax
(EBDT) $ 1,116 $ 2,407 ($6,465) ($ 1,341) $ 51,818 $ 53,172
========= ========= ========= ========= ========== ==========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes (EBDT) $ 51,818 $ 53,172
Depreciation and amortization - real estate Groups (39,569) (34,439)
Deferred taxes - real estate Groups (6,073) (3,694)
Gain on disposition of properties, net of tax 18,168 (23,356)
Extraordinary gain, net of tax 334 14,187
---------- ----------
Net earnings $ 24,678 $ 5,870
========== ==========
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
An action was filed in August 1997 against Forest City Trading Group,
Inc. (a wholly-owned subsidiary of the Company) and 10 of its subsidiaries, all
of which are in the business of trading lumber. The complaint alleges improper
calculation and underpayment of commissions and other related claims. Plaintiffs
purport to represent a class of 300 to 500 traders who are current and former
employees of Forest City Trading Group, Inc. and its 10 subsidiaries. Plaintiffs
have not moved for class certification as of this date and no class has been
certified. The judge has given the plaintiffs until mid-September 1998 to file
for class certification. The Company believes that any exposure will be limited
to Forest City Trading Group, Inc. and its subsidiaries. The Company intends to
defend the suit vigorously and the litigation is not expected to have a material
adverse effect upon the financial condition, results of operations or cash flows
of the Company.
The Company, through subsidiaries, owns a 14.6% interest in the Seven
Hills development, located in Henderson, Nevada, which is owned by the Silver
Canyon Partnership and is being developed in conjunction with a golf course. In
August 1997, a class-action lawsuit was filed by the current homeowners in Seven
Hills against the Silver Canyon Partnership, the golf course developers, and
other entities, including the Company. In addition, separate lawsuits were filed
by some of the production homebuilding companies at Seven Hills, against some of
the same parties, not including the Company. Each of these lawsuits seek a
commitment for public play on the golf course, as well as damages, The Silver
Canyon Partnership, the Company and its subsidiaries are responding to each of
these suits, and are attempting to reach an appropriate resolution with all
parties involved. Sales efforts are continuing at the Seven Hills development,
and because these events are recent, it is not yet possible to determine the
extent of any impact on the Partnership's financial performance. The Company
believes it has meritorious defenses to these claims and intends to defend
against them vigorously. The Company believes that any exposure will be limited
to the Silver Canyon Partnership and is not expected to have a material adverse
effect upon the financial condition, results of operations or cash flows of the
Company.
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders.
On June 9, 1998, the Company held its annual meeting of shareholders. At that
meeting, the shareholders elected three directors by holders of Class A Common
Stock and nine directors by holders of Class B Common Stock, each to hold office
until the next shareholder meeting and until his or her successor shall be
elected and qualified; approved an amendment to the Articles of Incorporation to
increase the number of shares of Class A Common Stock to 96,000,000 shares and
Class B Common Stock to 36,000,000 shares; approved an amendment to the 1994
Stock Option Plan to increase the number of shares authorized to be issued under
the Plan to 1,125,000 shares (pre-split); and elected Pricewaterhouse Coopers
LLP as independent auditors for the Company for the fiscal year ending January
31, 1999.
It was reported that 8,735,748 shares of Class A Common Stock representing
8,735,748 votes and 5,198,665 shares of Class B Common Stock representing
51,986,650 votes were represented in person and by proxy and that these shares
represented a quorum. The votes cast for the aforementioned matters were as
follows:
Abstentions
and/or
Broker
For Against Non-votes
-------- --------- -----------
(1) Election of directors by Class A shareholders
Michael P. Esposito, Jr. 8,604,346 -- 131,402
Joan K. Shafran 8,604,346 -- 131,402
J Maurice Struchen 8,604,346 -- 131,402
(2) Election of directors by Class B shareholders
Scott S. Cowen 51,948,030 -- 38,620
Jerry V. Jarrett 51,948,030 -- 38,620
Samuel H. Miller 51,948,030 -- 38,620
Albert B. Ratner 51,948,030 -- 38,620
Brian J. Ratner 51,948,030 -- 38,620
Charles A. Ratner 51,948,030 -- 38,620
James A. Ratner 51,948,030 -- 38,620
Ronald A. Ratner 51,948,030 -- 38,620
Deborah Ratner-Salzberg 51,948,030 -- 38,620
(3) Amendment to Articles of Incorporation
to increase Class A and Class B
authorized shares 59,310,335 1,360,422 51,641
(4) Amendment to 1994 Stock Option Plan to
increase the shares authorized to be
issued under the Plan 56,031,314 599,742 60,474
(5) Election of independent auditors
Pricewaterhouse Coopers LLP 52,524,199 5,854 22,064
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Amended Articles of Incorporation adopted as of October 11, 1983,
incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q
for the quarter ended October 31, 1983 (File No. 1-4372).
3.2 Code of Regulations as amended June 14, 1994, incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the fiscal
year ended January 31, 1997 (File No.1-4372).
3.3 Certificate of Amendment by Shareholders to the Articles of
Incorporation of Forest City Enterprises, Inc. dated June 24, 1997,
incorporated by reference to Exhibit 4.14 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41437).
3.4 Certificate of Amendment by Shareholders to the Articles of
Incorporation of Forest City Enterprises, Inc. dated June 16, 1998,
incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-8 (Registration No. 333-61925).
4.1 Form of Senior Subordinated Indenture between the Company and National
City Bank, as Trustee thereunder, incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-22695).
4.2 Form of Junior Subordinated Indenture between the Company and National
City Bank, as Trustee thereunder, incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-3 (Registration
No. 333-22695).
4.3 Form of Senior Subordinated Indenture between the Company and The Bank
of New York, as Trustee thereunder, incorporated by reference to
Exhibit 4.22 to the Company's Registration Statement on Form S-3
(Registration No. 333-41437).
10.1 Credit Agreement, dated as of December 10, 1997, by and among Forest
City Rental Properties Corporation, the banks named therein, KeyBank
National Association, as administrative agent, and National City Bank,
as syndication agent incorporated by reference to Exhibit 10.38 to the
Company's Form 10-Q for the quarter ended October 31, 1997 (File
No.1-4372).
10.2 Guaranty of Payment of Debt, dated as of December 10, 1997, by and
among Forest City Enterprises, Inc., the banks named therein, KeyBank
National Association, as administrative agent, and National City Bank,
as syndication agent, incorporated by reference to Exhibit 10.39 to
the Company's Form 10-Q for the quarter ended October 31, 1997 (File
No.1-4372).
10.3 First Amendment to Credit Agreement, dated as of January 20, 1998, by
and among Forest City Rental Properties Corporation, the banks named
therein, KeyBank National Association, as administrative agent, and
National City Bank, as syndication agent, incorporated by reference to
Exhibit 4.19 to the Company's Registration Statement on Form S-3 (File
No. 333-41437).
10.4 First Amendment to Guaranty of Payment of Debt, dated as of the banks
named therein, KeyBank National Association, as dministrative agent,
and National City Bank, as syndication agent, incorporated by
reference to Exhibit 4.20 to the Company's Registration Statement on
Form S-3 (File No. 333-41437).
10.5 Letter Agreement, dated as of February 25, 1998, by and among Forest
City Enterprises, Inc., Forest City Rental Properties Corporation, the
banks named therein, KeyBank National Association, as administrative
agent, and National City Bank, as syndication agent, incorporated
byreference to Exhibit 4.21 to the Company's Registration Statement on
Form S-3 (File No.333-41437).
10.6 Second Amendment to Credit Agreement, dated as of March 6, 1998, by
and among Forest City Rental Properties Corporation, the banks named
therein, KeyBank National Association, as administrative agent, and
National City Bank, as syndication agent, incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K, dated March 6, 1998 (File No.
1-4372).
10.7 Second Amendment to Guaranty of Payment of Debt, dated as of March 6,
1998, by and among Forest City Enterprises, Inc., the banks named
therein, KeyBank National Association, as administrative agent, and
National City Bank, as syndication agent, incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K, dated March 6, 1998 (File No.
1-4372).
10.8 Stock Purchase Agreement, dated May 7, 1997, between Forest City
Enterprises, Inc. and Richard Miller, Aaron Miller and Gabrielle
Miller, incorporated by reference to Exhibit 10.34 to the Company's
Form 10-Q for the quarter ended April 30, 1997 (File No. 1-4372).
10.9 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, incorporated by reference to Exhibit 10.35 to the Company's
Form 10-Q for the quarter ended July 31, 1997 (File No. 1-4372).
10.10 Supplemental Unfunded Deferred Compensation Plan for Executives,
incorporated by reference to Exhibit 10.9 to the Company's Form 10-K
for the year ended January 31, 1997 (File No. 1-4372).
10.11 Deferred Compensation Agreement between Forest City Enterprises, Inc.
and Thomas G. Smith, dated December 27, 1995, incorporated by
reference to Exhibit 10.33 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.12 1994 Stock Option Plan, including forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement, incorporated by
reference to Exhibit 10.10 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.13 Employment Agreement entered into as of September 25, 1989 by the
Company and Albert B. Ratner, incorporated by reference to Exhibit
10.11 to the Company's Form 10-K for the year ended January 31, 1997
(File No.1-4372).
10.14 First Amendment to Employment Agreement entered into as of December
6, 1996 by the Company and Albert B. Ratner, incorporated by reference
to Exhibit 10.12 to the Company's Form 10-K for the year ended January
31, 1997 (File No. 1-4372).
10.15 Employment Agreement entered into on April 6, 1998, effective as of
February 1, 1997, by the Company and Samuel H. Miller, incorporated by
reference to Exhibit 10.15 to the Company's Form 10-K for the year
ended January 31, 1998 (File No. 1-4372).
10.16 Employment Agreement entered into on April 6, 1998, effective as of
February 1, 1997, by the Company and Charles A. Ratner, incorporated
by reference to Exhibit 10.16 to the 10-K for the year ended January
31, 1998 (File No. 1-4372).
10.17 First Amendment to Employment Agreement (dated April 6, 1998) entered
into as of April 24, 1998 by the Company and Charles A. Ratner,
incorporated by reference to Exhibit 10.17 to the Company's Form 10-K
for the year ended January 31, 1998 (File No. 1-4372).
10.18 First Amendment to Employment Agreement (dated December 6, 1996 and
superseded by Employment Agreement dated April 6, 1998) entered into
as of December 6, 1996 by the Company and Charles A. Ratner,
incorporated by reference to Exhibit 10.18 to the Company's Form 10-K
for the year ended January 31, 1997 (File No.1-4372).
10.19 Employment Agreement entered into on April 6, 1998, effective as of
February 1, 1997, by the Company and James A. Ratner,incorporated by
reference to Exhibit 10.19 to the Company's Form 10-K for the year
ended January 31, 1998 (File No. 1-4372).
10.20 Employment Agreement entered into on April 6, 1998, effective as of
February 1, 1997, by the Company and Ronald A. Ratner, incorporated by
reference to Exhibit 10.20 to the Company's Form 10-K for the year
ended January 31, 1998 (File No. 1-4372).
10.21 Employment Agreement entered into as of September 25, 1989 by the
Company and Nathan P. Shafran, incorporated by reference to Exhibit
10.14 to the Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.22 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Deborah Ratner Salzberg and Forest City
Enterprises, Inc., insuring the lives of Albert Ratner and Audrey
Ratner, dated June 26, 1996, incorporated by reference to Exhibit
10.19 to the Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.23 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Brian J. Ratner and Forest City
Enterprises, Inc., insuring the lives of Albert Ratner and Audrey
Ratner, dated June 26, 1996, incorporated by reference to Exhibit
10.20 to the Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.24 Letter Supplement to Split Dollar Insurance Agreement and Assignment
of Life Insurance Policy as Collateral between Brian J. Ratner and
Forest City Enterprises, Inc., insuring the lives of Albert Ratner and
Audrey Ratner, effective June 26, 1996, incorporated by reference to
Exhibit 10.21 to the Company's Form 10-K for the year ended January
31, 1997 (File No.1-4372).
10.25 Letter Supplement to Split Dollar Insurance Agreement and Assignment
of Life Insurance Policy as Collateral between Deborah Ratner Salzberg
and Forest City Enterprises, Inc., insuring the lives of Albert Ratner
and Audrey Ratner, effective June 26, 1996, incorporated by reference
to Exhibit 10.22 to the Company's Form 10-K for the year ended January
31, 1997 (File No.1-4372).
10.26 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Charles Ratner 1992 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the lives of Charles Ratner
and Ilana Horowitz (Ratner), dated November 2, 1996, incorporated by
reference to Exhibit 10.23 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.27 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.24 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.28 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Max Ratner 1988 Grandchildren's Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.25 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.29 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Max Ratner 1988 Grandchildren's Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.26 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.30 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Max Ratner 1988 Grandchildren's Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.27 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.31 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Max Ratner 1988 Grandchildren's Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.28 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.32 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.29 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.33 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.30 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.34 Split Dollar Insurance Agreement and Assignment of Life Insurance
Policy as Collateral between Albert B. Ratner and James Ratner,
Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to Exhibit 10.31 to
the Company's Form 10-K for the year ended January 31, 1997 (File No.
1-4372).
10.35 Letter Supplement to Split Dollar Insurance Agreement and Assignment
of Life Insurance Policy as Collateral between James Ratner and Albert
Ratner, Trustees under the Charles Ratner 1992 Irrevocable Trust
Agreement and Forest City Enterprises, Inc., insuring the lives of
Charles Ratner and Ilana Ratner, effective November 2, 1996,
incorporated by reference to Exhibit 10.32 to the Company's Form 10-K
for the year ended January 31, 1997 (File No. 1-4372).
10.36 First Amendment to the 1994 Stock Option Plan dated as of June 9,
1998, incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-8 (Registration No. 333-61925).
10.37 First Amendment to the forms of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement, incorporated by reference to
Exhibit 4.8 to the Company's Registration Statement on Form S-8
(Registration No.333-61925).
* 27 Financial Data Schedules.
* - Filed herewith.
(b) Reports on Form 8-K:
The Company filed a Form 8-K, dated March 6, 1998, to submit the
Second Amendments to the Credit Agreement and the Guaranty of
Payment of Debt.
<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 14, 1998 /s/ Thomas G. Smith
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date September 14, 1998 /s/ Linda M. Kane
Linda M. Kane, Vice President,
Corporate Controller
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