<PAGE> 1
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 October 31, 1999
-----------------
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 December 7, 1999
----- -------------------------------
Class A Common Stock, $.33 1/3 par value 19,370,606 shares
Class B Common Stock, $.33 1/3 par value 10,659,096 shares
<PAGE> 2
FOREST CITY ENTERPRISES, INC.
Index
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets - October 31, 1999
(Unaudited) and January 31, 1999 3
Consolidated Statements of Earnings
(Unaudited) - Three and Nine Months
Ended October 31, 1999 and 1998 4
Consolidated Statements of Shareholders' Equity
(Unaudited) - Nine Months Ended
October 31, 1999 and 1998 5
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended October 31, 1999 and 1998 6 - 7
Notes to Consolidated Financial Statements
(Unaudited) 8 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 29
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 30 - 32
Part II. Other Information
Item 1. Legal Proceedings 33
Item 6. Exhibits and Reports on Form 8-K 34 - 42
Signatures 43
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item I. Financial Statements.
- -----------------------------
<TABLE>
<CAPTION>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1999 January 31, 1999
------------------ ------------------
(Unaudited)
ASSETS (dollars in thousands, except per share data)
<S> <C> <C>
Real Estate
Completed rental properties $ 2,789,780 $ 2,625,589
Projects under development 507,597 412,072
Land held for development or sale 55,977 49,837
------------------ ------------------
3,353,354 3,087,498
Less accumulated depreciation (540,104) (491,293)
------------------ ------------------
Total Real Estate 2,813,250 2,596,205
Cash and equivalents 62,137 78,629
Notes and accounts receivable, net 193,004 229,714
Inventories 47,744 47,299
Investments in and advances to affiliates 334,489 301,735
Other assets 182,849 183,528
------------------ ------------------
$ 3,633,473 $ 3,437,110
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse $ 2,335,473 $ 2,173,872
Accounts payable and accrued expenses 375,471 398,499
Notes payable 25,342 43,929
Long-term debt 157,000 105,000
8.5% Senior notes 200,000 200,000
Deferred income taxes 157,564 150,150
Deferred profit 33,052 33,552
------------------ ------------------
Total Liabilities 3,283,902 3,105,002
------------------ ------------------
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 shares authorized, 19,907,756
and 19,904,556 shares issued, 19,331,606 and 19,281,606
outstanding, respectively. 6,637 6,636
Class B, convertible, 36,000,000 shares authorized, 10,976,196
and 10,979,396 shares issued, 10,698,096 and 10,701,296
outstanding, respectively. 3,660 3,661
------------------ ------------------
10,297 10,297
Additional paid-in capital 113,725 114,270
Retained earnings 232,048 218,967
------------------ ------------------
356,070 343,534
Less treasury stock, at cost; 576,150 Class A and 278,100 Class B
shares and 622,950 Class A and 278,100 Class B shares, respectively. (10,797) (11,426)
Accumulated other comprehensive income 4,298 -
------------------ ------------------
Total Shareholders' Equity 349,571 332,108
------------------ ------------------
$ 3,633,473 $ 3,437,110
================= ================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------------ -----------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- ----------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES $ 188,167 $ 176,902 $ 568,812 $ 491,232
----------------- ----------------- ----------------- ----------------
Operating expenses 111,474 106,388 350,580 293,751
Interest expense 38,421 39,274 119,165 113,552
Provision for decline in real estate and other 5,062 - 5,062 -
Depreciation and amortization 20,963 22,780 64,306 64,012
----------------- ----------------- ----------------- ----------------
175,920 168,442 539,113 471,315
----------------- ----------------- ----------------- ----------------
Gain on disposition of properties - 1,027 - 31,081
----------------- ----------------- ----------------- ----------------
EARNINGS BEFORE INCOME TAXES 12,247 9,487 29,699 50,998
----------------- ----------------- ----------------- ----------------
INCOME TAX EXPENSE (BENEFIT)
Current 2,307 (552) 7,521 2,548
Deferred 2,907 4,871 5,111 18,938
----------------- ----------------- ----------------- ----------------
5,214 4,319 12,632 21,486
----------------- ----------------- ----------------- ----------------
NET EARNINGS BEFORE EXTRAORDINARY GAIN 7,033 5,168 17,067 29,512
Extraordinary gain, net of tax - 10,618 214 10,952
----------------- ----------------- ----------------- ----------------
NET EARNINGS $ 7,033 $ 15,786 $ 17,281 $ 40,464
================= ================= ================= ================
BASIC EARNINGS PER COMMON SHARE
Net earnings before extraordinary gain, net of tax $ 0.23 $ 0.17 $ 0.57 $ 0.98
Extraordinary gain, net of tax - 0.36 0.01 0.37
----------------- ----------------- ----------------- ----------------
NET EARNINGS $ 0.23 $ 0.53 $ 0.58 $ 1.35
================= ================= ================= ================
DILUTED EARNINGS PER COMMON SHARE
Net earnings before extraordinary gain, net of tax $ 0.23 $ 0.17 $ 0.56 $ 0.98
Extraordinary gain, net of tax - 0.35 0.01 0.36
----------------- ----------------- ----------------- ----------------
NET EARNINGS $ 0.23 $ 0.52 $ 0.57 $ 1.34
================= ================= ================= ================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------------------
Comprehensive Class A Class B Paid-In Retained
------------------------------------------
Income Shares Amount Shares Amount Capital Earnings
--------------- -------------------------------------------------------------------
(in thousands, except per share data)
NINE MONTHS ENDED OCTOBER 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 31, 1999 19,905 $6,636 10,979 $3,661 $114,270 $218,967
Comprehensive income
Net earnings $17,281 17,281
Other comprehensive income, net of tax
Unrealized gain on securities 4,298
---------------
Total comprehensive income $21,579
===============
Dividends: $.14 per share (4,200)
Conversion of Class B shares
to Class A shares 3 1 (3) (1)
Exercise of stock options 2
Restricted stock issued (605)
Amortization of unearned compensation 58
--------------------------------------------------------------------
BALANCES AT OCTOBER 31, 1999 19,908 $6,637 10,976 $3,660 $113,725 $232,048
====================================================================
SIX MONTHS ENDED OCTOBER 31, 1998
Balances at January 31, 1998, as restated
for a two-for-one stock split effective
July 16, 1998 19,813 $6,606 11,071 $3,691 $114,270 $168,864
Comprehensive income
Net earnings $40,464 40,464
Other comprehensive income, net of tax
None -
---------------
Total comprehensive income $40,464
===============
Dividends: $.115 per share (3,447)
Conversion of Class B shares
to Class A shares 87 29 (87) (29)
Exercise of stock options
--------------------------------------------------------------------
BALANCES AT OCTOBER 31, 1998 19,900 $6,635 10,984 $3,662 $114,270 $205,881
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Treasury Stock Comprehensive Shareholders'
-----------------------
Shares Amount Income Equity
---------------------------------------------------------
(in thousands, except per share data)
NINE MONTHS ENDED OCTOBER 31, 1999
<S> <C> <C> <C> <C>
Balances at January 31, 1999 901 $ (11,426) $ - $332,108
Comprehensive income
Net earnings 17,281
Other comprehensive income, net of tax
Unrealized gain on securities 4,298 4,298
Total comprehensive income
Dividends: $.14 per share (4,200)
Conversion of Class B shares
to Class A shares -
Exercise of stock options (2) 24 26
Restricted stock issued (45) 605 -
Amortization of unearned compensation 58
----------------------------------------------------
BALANCES AT OCTOBER 31, 1999 854 $ (10,797) $4,298 $349,571
====================================================
SIX MONTHS ENDED OCTOBER 31, 1998
Balances at January 31, 1998, as restated
for a two-for-one stock split effective
July 16, 1998 905 $ (11,486) $ - $281,945
Comprehensive income
Net earnings 40,464
Other comprehensive income, net of tax
None - -
Total comprehensive income
Dividends: $.115 per share (3,447)
Conversion of Class B shares
to Class A shares -
Exercise of stock options (4) 60 60
----------------------------------------------------
BALANCES AT OCTOBER 31, 1998 901 $ (11,426) $ - $319,022
====================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
FOREST CITY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended October 31,
-------------------------------------
1999 1998
------------------ -----------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received $ 580,437 $ 468,440
Proceeds from land sales 24,585 28,527
Land development expenditures (23,058) (31,652)
Operating expenditures (345,552) (292,458)
Interest paid (118,765) (107,800)
------------------ -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 117,647 65,057
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (279,305) (355,684)
Proceeds from disposition of assets - 33,345
Investments in and advances to affiliates (37,816) (73,806)
------------------ -----------------
NET CASH USED IN INVESTING ACTIVITIES (317,121) (396,145)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes - 200,000
Payments on senior notes issuance costs - (6,274)
Increase in nonrecourse mortgage and long-term debt 340,162 563,377
Principal payments on nonrecourse mortgage debt on real estate (125,561) (284,069)
Payments on long-term debt - (114,000)
Increase in notes payable 51,541 12,340
Payments on notes payable (70,128) (39,273)
Change in restricted cash and book overdrafts (4,825) 10,974
Payment of deferred financing costs (4,335) (11,155)
Exercise of stock options 26 62
Dividends paid to shareholders (3,898) (3,297)
------------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 182,982 328,685
------------------ -----------------
NET DECREASE IN CASH AND EQUIVALENTS (16,492) (2,403)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 78,629 54,854
------------------ -----------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 62,137 $ 52,451
================== =================
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
FOREST CITY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended October 31,
-------------------------------------
1999 1998
------------------ -----------------
(in thousands)
<S> <C> <C>
RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS $ 17,281 $ 40,464
Depreciation 51,654 46,525
Amortization 12,652 17,487
Deferred income taxes 4,602 25,684
Gain on disposition of properties - (31,081)
Provision for decline in real estate and other 5,062 -
Extraordinary gain (353) (18,118)
Decrease in commercial land held for sale 13,240 2,248
Increase in land held for development or sale (6,140) (11,545)
Decrease in notes and accounts receivable 36,710 8,621
(Increase) decrease in inventories (445) 17,762
Decrease (increase) in other assets 3,366 (7,688)
Decrease in accounts payable and accrued expenses (19,482) (25,122)
Decrease in deferred profit (500) (180)
------------------ -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 117,647 $ 65,057
================== =================
SUPPLEMENTAL NON-CASH DISCLOSURE:
The following items represent the effect of non-cash transactions for 1999:
o
The following items represent the effect of non-cash transactions for 1998:
o Disposition of Summit Park Mall and Trolley Plaza
Operating Activities
Notes and accounts receivable $ - $ 565
Other assets - 1,138
Accounts payable and accrued expenses - 2,760
------------------ -----------------
Total effect on operating activities $ - $ 4,463
================== =================
Investing Activities
Additions to completed rental properties $ - $ -
Dispositions of completed rental properties - 42,312
Investments in and advances to affiliates - -
------------------ -----------------
Total effect on investing activities $ - $ 42,312
================== =================
Financing Activities
Assumption of nonrecourse mortgage and long-term debt $ - $ -
Disposition of nonrecourse mortgage and long-term debt - (46,775)
Notes payable - -
------------------ -----------------
Total effect on financing activities $ - $ (46,775)
================== =================
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. EXTRAORDINARY ITEM
The extraordinary gain ($353,000 pre-tax) recorded in the first quarter
of 1999 represents extinguishment of non-recourse debt related to Plaza
at Robinson Town Centre located in Pittsburgh, Pennsylvania.
B. DIVIDENDS
The Board of Directors declared regular quarterly cash dividends on
both Class A and Class B common shares as follows:
<TABLE>
<CAPTION>
Date Date of Payment Amount
Declared Record Date Per Share
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
March 11, 1999 June 1, 1999 June 15, 1999 $.04
June 8, 1999 September 1, 1999 September 15, 1999 $.05
September 8, 1999 December 1, 1999 December 15, 1999 $.05
December 14, 1999 March 1, 2000 March 15, 2000 $.05
</TABLE>
C. EARNINGS PER SHARE
Reconciliations of the numerator and denominator of basic earnings per
share (EPS) with diluted EPS follows:
<TABLE>
<CAPTION>
Net Earnings Net Earnings
Before Weighted Average Before
Extraordinary Gain Shares Outstanding Extraordinary Gain
(Numerator) (Denominator) (Per Share)
----------- ------------- -----------
<S> <C> <C> <C>
Three Months Ended
October 31, 1999:
Basic EPS $ 7,033,000 30,029,702 $0.23
Dilutive effect of
stock options - 74,920 -
------------ ---------- -----
Diluted EPS $ 7,033,000 30,104,622 $0.23
============ ========== =====
Nine Months Ended
October 31, 1999:
Basic EPS $ 17,067,000 30,011,745 $0.57
Dilutive effect of
stock options - 137,763 (.01)
------------ ---------- -----
Diluted EPS $ 17,067,000 30,149,508 $0.56
============ ========== =====
</TABLE>
8
<PAGE> 9
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. STOCK-BASED COMPENSATION
In April 1999, the Compensation Committee of the Board of Directors
granted 372,800 Class A fixed stock options under the 1994 Stock Option
Plan. The options have a term of 10 years, vest over two to four years
and have an exercise price of $22.375.
During the second quarter the Compensation Committee granted 45,000
shares of restricted Class A common stock to certain key employees. The
restricted shares were awarded out of treasury stock with rights to
vote the shares and receive dividends while being subject to
restrictions on disposition and transferability and risk of forfeiture.
The shares become nonforfeitable over a period of four years. In
accordance with APBO 25, the market value on the date of grant of
$1,114,000 was initially recorded as unearned compensation to be
charged to expense over the respective vesting periods. The unearned
compensation is being reported in Additional Paid-In Capital in the
accompanying Consolidated Balance Sheets. At October 31, 1999, unearned
compensation amounted to $1,056,000. The treasury stock had a cost
basis of $605,000.
E. LONG-TERM DEBT
The termination date for the Company's revolving credit agreement was
extended by one year to December 10, 2001.
F. PRIOR YEAR RECLASSIFICATIONS
Certain prior year figures were reclassified to conform to the current
year presentation.
G. NEW ACCOUNTING STANDARDS
Effective February 1, 1999, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities", which requires
start-up costs and organizational costs be expensed as incurred. The
adoption of this accounting principle had no material effect on
earnings and financial position.
In June 1999, the Financial Accounting Standards Board (FASB) issued
SFAS 137, which defers the effective date of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", to all fiscal quarters
of fiscal years beginning after June 15, 2000. Therefore, the Company
plans to implement SFAS 133 for the fiscal quarters in its fiscal year
ending January 31, 2002.
9
<PAGE> 10
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
H. RESTATEMENT
During the third quarter ended October 31, 1999, Forest City was
informed by one of its partners (the project manager) in a land
development partnership of cost overruns that will reduce the
anticipated sales margins from the project which requires the
restatement of second quarter earnings. The restatement decreases the
Company's previously reported second quarter earnings by $1,535,000, or
$.05 per share, and increases third quarter earnings by $1,535,000, or
$.05 per share. The restatement does not affect earnings for the nine
months ended October 31, 1999. The Company will file an amended second
quarter Form 10-Q with the Securities and Exchange Commission prior to
December 31, 1999.
I. PROVISION FOR DECLINE IN REAL ESTATE AND OTHER
During the third quarter of 1999, the Company recorded a Provision for
Decline in Real Estate and Other of $5,062,000 ($3,060,000 net of tax)
related to the write-down to fair value of the Land Group's investment
in Granite Development Partners L.P. (Granite). The Company owns a
43.75% interest in Granite as the result of capital contribution of
land, which was classified as Investments In and Advances to
Affiliates on the Company's consolidated balance sheet. Granite owns
an interest in several raw land developments held for resale, the most
significant of which is a one-third interest in Seven Hills in
Henderson, Nevada. The Company has been informed by one of its
partners (the project manager) of cost overruns that will, in turn,
reduce the anticipated sales margins of the Seven Hills project. The
revised projection of costs to complete the project indicates that the
Company may not recover its capital investment in Granite.
J . SEGMENT INFORMATION
Principal business groups are determined by the type of customer served
or the product sold. The Commercial Group owns, develops, acquires and
operates shopping centers, office buildings and mixed-use projects,
including hotels. The Residential Group develops or acquires and
operates the Company's multi-family properties. Real Estate Groups are
the combined Commercial and Residential Groups. The Land Group owns and
develops raw land into master planned communities and other residential
developments for resale to users principally in Arizona, Colorado,
Florida, Nevada, New York, North Carolina and Ohio. The Lumber Trading
Group operates the Company's lumber wholesaling business. Corporate
includes interest on corporate borrowings and general administrative
expenses.
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.
10
<PAGE> 11
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
I . SEGMENT INFORMATION (CONTINUED)
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 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 items.
The following table summarizes selected financial data for the
Commercial, Residential, Land and Lumber Trading Groups and Corporate.
11
<PAGE> 12
<TABLE>
<CAPTION>
I. Segment Information (continued)
-------------------------------
All amounts, including footnotes, are presented in thousands.
OCTOBER 31, January 31,
1999 1999
--------------------------------------
IDENTIFIABLE ASSETS
-----------------------------
<S> <C> <C> <C> <C>
Commercial Group....................................................$ 2,551,134 $ 2,330,624
Residential Group................................................... 772,819 722,160
Land Group.......................................................... 100,795 100,501
Lumber Trading Group................................................ 180,799 218,551
Corporate........................................................... 27,926 65,274
-----------------------------
Consolidated....................................................$ 3,633,473 $ 3,437,110
=============================
Three Months Ended Oct. 31, Nine Months Ended Oct. 31,
------------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------------
REVENUES
------------------------------------------------------------------------
Commercial Group................. $ 106,970 $ 93,236 $ 316,905 $ 271,593
Residential Group................ 43,060 35,599 115,960 99,860
Land Group....................... 5,488 15,090 21,557 27,937
Lumber Trading Group (1)........ 32,539 32,781 114,012 90,659
Corporate........................ 110 196 378 1,183
------------------------------------------------------------------------
Consolidated................ $ 188,167 $ 176,902 $ 568,812 $ 491,232
========================================================================
DEPRECIATION AND AMORTIZATION EXPENSE
------------------------------------------------------------------------
Commercial Group................. $ 16,251 $ 17,755 $ 48,296 $ 49,103
Residential Group................. 3,790 4,108 13,556 12,329
Land Group........................ 131 119 187 442
Lumber Trading Group.............. 549 498 1,555 1,568
Corporate......................... 242 300 712 570
Gain on disposition of properties
Provision for decline in real
estate and other (3)..........
------------------------------------------------------------------------
Consolidated.................. $ 20,963 $ 22,780 $ 64,306 $ 64,012
========================================================================
Commercial Group..........................................................................................
Residential Group.........................................................................................
Land Group................................................................................................
Lumber Trading Group......................................................................................
Corporate.................................................................................................
Consolidated.........................................................................................
RECONCILIATION TO NET EARNINGS:
Depreciation and amortization - Real Estate Groups........................................................
Deferred taxes - Real Estate Groups.......................................................................
Provision for decline in real estate and other, net of tax................................................
Gain on disposition of properties, net of tax.............................................................
Extraordinary gain, net of tax............................................................................
Net earnings..........................................................................................
</TABLE>
<TABLE>
<CAPTION>
I. Segment Information (continued)
-------------------------------
All amounts, including footnotes, are presented in thousands.
Three Months Ended Oct. 31, Nine Months Ended Oct. 31,
--------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------
EXPENDITURES FOR ADDITIONS TO REAL ESTATE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Group...................................................$ 84,671 $ 61,403 $ 208,546 $ 291,269
Residential Group.................................................. 20,379 12,565 49,663 68,955
Land Group......................................................... 3,660 10,133 29,619 30,939
Lumber Trading Group............................................... 1,315 799 3,161 2,132
Corporate.......................................................... 206 171 2,288 426
--------------------------------------------------------
Consolidated...................................................$ 110,231 $ 85,071 $ 293,277 $ 393,721
========================================================
<CAPTION>
Three Months Ended Oct. 31, Nine Months Ended Oct. 31,
---------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------
INTEREST EXPENSE
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Group.................$ 22,493 $ 23,864 $ 70,344 $ 68,890
Residential Group................ 5,779 6,167 20,006 20,144
Land Group....................... 2,053 2,633 6,079 6,927
Lumber Trading Group (1)........ 1,429 1,197 3,845 4,253
Corporate........................ 6,667 5,413 18,891 13,338
---------------------------------------------------------------------
Consolidated................ $ 38,421 $ 39,274 $ 119,165 $ 113,552
=====================================================================
<CAPTION>
EARNINGS BEFORE INCOME TAXES (EBIT) (2)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Group................. $ 12,371 $ 4,322 $ 34,059 $ 18,022
Residential Group................ 14,826 10,141 27,472 20,269
Land Group....................... (2,072) (282) (8,124) (2,195)
Lumber Trading Group............. 1,324 2,102 9,222 4,373
Corporate........................ (9,140) (7,823) (27,868) (20,552)
Gain on disposition of properties - 1,027 - 31,081
Provision for decline in real
estate and other (3)......... (5,062) - (5,062) -
---------------------------------------------------------------------
Consolidated................. $ 12,247 $ 9,487 $ 29,699 $ 50,998
=====================================================================
<CAPTION>
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Group.................. $ 25,720 $ 22,848 $ 73,728 $ 64,552
Residential Group................. 15,572 11,207 34,039 27,829
Land Group........................ (1,276) (206) (4,984) (1,365)
Lumber Trading Group.............. 682 1,168 5,483 2,284
Corporate......................... (5,095) (4,624) (16,554) (11,089)
--------------------------------------------------------------------
Consolidated................. 35,603 30,393 91,712 82,211
RECONCILIATION TO NET EARNINGS:
Depreciation and amortization - Real Estate Groups........... (20,042) (21,863) (61,853) (61,432)
Deferred taxes - Real Estate Groups.......................... (5,468) (3,916) (9,732) (9,989)
Provision for decline in real estate and other, net of tax.... (3,060) - (3,060) -
Gain on disposition of properties, net of tax................ - 554 - 18,722
Extraordinary gain, net of tax............................... - 10,618 214 10,952
----------------------------------------------------------------
Net earnings.............................................$ 7,033 $ 15,786 $ 17,281 $ 40,464
================================================================
</TABLE>
(1) The Company recognizes the gross margin on lumber brokerage sales as
Revenues. Sales invoiced for the three months ended October 31, 1999
and 1998 were approximately $923,000 and $776,000, respectively. Sales
invoiced for the nine months ended October 31, 1999 and 1998 were
approximately $2,897,000 and $2,294,000, respectively.
(2) See Consolidated Statements of Earnings for reconciliation of EBIT to
net earnings.
(3) Represents the write-down to fair value of the Company's investment in
Granite Development Partners, L.P.
12
<PAGE> 13
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 nine months ended
October 31, 1999 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, 1999 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 17.1% (or 16.8% per share) in the third quarter of
1999 to $35,603,000 or $1.18 per share of common stock, from $30,393,000, or
$1.01 per share of common stock for the third quarter of 1998. EBDT for the nine
months ended October 31, 1999 grew by 11.6% (or 11.8% per share) to $91,712,000,
or $3.04 per share of common stock, from $82,211,000, or $2.72 per share of
common stock for the nine months ended October 31, 1998. The increase in EBDT is
the result of improved comparable property operations and the opening of new
developments and acquisitions made during, or subsequent to, the third quarter
of 1998.
During the third quarter ended October 31, 1999, the Company was informed by
the project manager/partner of a Land Group development partnership of cost
overruns, which required the restatement of second quarter 1999 earnings. The
restatement decreases the Company's previously reported second quarter earnings
by $1,535,000 or $0.05 per share. Third quarter earnings were increased by
$1,535,000, or $0.05 per share. As a result, the restatement does not
affect earnings for the nine months ended October 31, 1999 and has no affect on
prior year's earnings. The Company will file an amended second quarter Form
10-Q with the Securities and Exchange Commission prior to December 31, 1999.
13
<PAGE> 14
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
entitled "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 GROUPS - NOI for the combined Commercial
Group and Residential Group ("Real Estate Groups") for the third quarter of
1999 was $75,510,000 compared to $66,357,000 for the third quarter of 1998, a
13.8% increase. NOI for the Real Estate Groups for the nine months ended
October 31, 1999 was $213,733,000 compared to $188,757,000 for the nine months
ended October 31, 1998, a 13.2 % increase.
COMMERCIAL GROUP
REVENUES - Revenues for the Commercial Group increased $13,734,000, or 14.7%, to
$106,970,000 in the third quarter of 1999 from $ 93,236,000 in the third quarter
of 1998. This increase is primarily the result of property openings and
acquisitions. Increased revenues of $3,221,000 were generated by Millennium, an
office building at University Park at MIT in Cambridge, Massachusetts which
opened in February 1999. During 1998, Forest City acquired the
324,000-square-foot Fairmont Plaza office building which increased revenues over
last year by $542,000. Phase Two of University Park at MIT 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, 96,000 square feet of retail
space, a 210-room hotel and a 960-space parking facility and generated revenues
of $1,307,000 over the third quarter of 1998. Revenues also increased $295,000
as a result of improved operations at The Avenue at Tower City Center in
Cleveland, Ohio, expansion at Ballston Common in Arlington, Virginia ($349,000),
the acquisition of Freight House Shops in Pittsburgh, Pennsylvania
($1,069,000), the Company's hotel portfolio ($575,000) and openings in the
Company's urban retail portfolio in New York including Columbia Park, Kaufman
Studios and 1131 Bay Street ($835,000). The Commercial Group also recorded
additional land sales of $3,118,000 in the third quarter of 1999 compared to
the prior year. The remainder of the increase in revenue was generally due to
improved operations.
Revenues for the Commercial Group increased $45,312,000, or 16.7%, to
$316,905,000 in the nine months ended October 31, 1999 from $271,593,000 for the
comparable period in 1998. This increase is primarily due to the opening of
Millennium ($8,551,000) and Phase Two of University Park at MIT ($5,640,000) and
the 1998 acquisitions of the 292-room Sheraton Hotel at Station Square in
Pittsburgh, Pennsylvania ($5,240,000), Fairmont Plaza
14
<PAGE> 15
($5,685,000) and Pavilion ($727,000). Revenues also increased as a result of
improved operations at Liberty Center ($1,867,000), The Avenue at Tower City
Center ($2,117,000) and openings in the Company's urban retail portfolio in New
York ($2,129,000). These increases were partially offset by a decrease in
revenues due to the 1998 disposition Summit Park Mall ($2,229,000). The
Commercial Group also recorded additional land sales of $15,845,000 in the nine
months ended October 31, 1999 compared to the same period last year.
OPERATING AND INTEREST EXPENSES - Operating expenses for the Commercial Group
increased $8,561,000, or 18.1%, to $55,855,000 in the third quarter of 1999 from
$47,294,000 in the third quarter of 1998. This increase was attributable
primarily to costs associated with the opening of Millennium ($1,309,000) and
Phase Two at University Park at MIT ($313,000) and the 1998 acquisition of
Fairmont Plaza ($91,000). Operating expenses also increased at Liberty Center
($176,000). In addition, development expenses increased $250,000 and incremental
costs associated with increased land sales were $1,314,000 compared to the third
quarter of last year. Interest expense decreased by $1,371,000, or 5.7%, to
$22,493,000 in the third quarter of 1999 from $ 23,864,000 in the third quarter
of 1998. This decrease is primarily attributable to increased capitalized
interest during 1999 compared to the same period last year.
Operating expenses for the Commercial Group increased $28,628,000, or 21.0%, to
$164,206,000 in the nine months ended October 31, 1999 from $135,578,000 for the
comparable period in 1998. This increase was attributable primarily to costs
associated with the 1999 opening of Millennium ($1,921,000) and 1998 opening of
Phase Two at MIT ($3,191,000) and the 1998 acquisitions of Sheraton Hotel at
Station Square ($2,617,000), Fairmont Plaza ($1,901,000) and Pavilion
($364,000). Operating expenses also increased at Liberty Center ($1,082,000) and
The Avenue at Tower City ($571,000). In addition, development expenses increased
$1,705,000 and incremental costs associated with increased land sales were
$8,687,000 compared to the same period in 1998. Interest expense increased by
$1,454,000, or 2.1%, to $70,344,000 in the nine months ended October 31, 1999
from $68,890,000 for the comparable period in 1998. This increase is primarily
attributable to 1998 and 1999 additions to the Commercial Group portfolio which
was partially offset by an increase in capitalized interest.
RESIDENTIAL GROUP
REVENUES - Revenues for the Residential Group increased by $7,461,000, or 21.0%,
to $43,060,000 in the third quarter of 1999 from $35,599,000 in the third
quarter of 1998. This increase was attributable to proceeds from the litigation
settlement relating to Toscana, a 563-unit apartment complex in Irvine,
California ($4,500,000), the recognition of development and syndication fees on
several projects including The Grand in North Bethesda, Maryland, The Drake in
Philadelphia, Pennsylvania and The Enclave and 101 San Fernando both in San
Jose, California ($2,253,000), the Company's Senior Housing properties
($227,000) and lease-up at Colony Woods in Bellevue, Washington ($398,000).
Revenues for the Residential Group increased by $16,100,000, or 16.1%, to
$115,960,000 in the nine months ended October 31, 1999 from $99,860,000 for the
comparable period in
15
<PAGE> 16
1998. This increase was attributable to proceeds from the Toscana litigation
settlement ($4,500,000), the recognition of development and syndication fees
on several projects including The Grand, The Enclave, The Drake and 101 San
Fernando all of which recently opened or are scheduled to open in 2000
($6,857,000), 1998 acquisitions of the 534-unit Woodlake Apartments in Silver
Spring, Maryland ($2,585,000) and a 50% interest in the 342-unit Park Plaza in
Mayfield Heights, Ohio ($511,000). In addition, revenues increased at Bayside
Village, in San Francisco, California ($525,000), the Company's Senior Housing
properties ($945,000) and as a result of lease-up at Colony Woods ($1,640,000).
These increases were partially offset by a decrease due to the sale in the
second quarter of 1998 of Trolley Plaza ($1,508,000).
OPERATING AND INTEREST EXPENSES - Operating expenses for the Residential Group
increased by $3,481,000, or 22.9%, to $18,665,000 in the third quarter of 1999
from $15,184,000 in the third quarter of 1998. The increase in operating
expenses was primarily due to a reduction in a reserve for collection of a note
receivable in 1998 from Millender Center, a mixed-use facility in downtown
Detroit, Michigan ($2,500,000), additional costs associated with the generation
of increased development fees ($720,000), and the 1998 acquisitions of Woodlake
Apartments ($178,000). Interest expense decreased by $388,000, or 6.3%, to
$5,779,000 in the third quarter of 1999 from $6,167,000 in the third quarter of
1998. This decrease is primarily the result of lower interest rates on variable
tax-exempt financing.
Operating expenses for the Residential Group increased by $7,808,000, or 16.6%,
to $54,926,000 in the nine months ended October 31, 1999 from $47,118,000 for
the comparable period in 1998. The increase in operating expenses was primarily
due to a reduction in a reserve in 1998 for collection of a note receivable from
Millender Center ($3,500,000), additional costs associated with the generation
of increased development fees ($2,695,000), and the 1998 acquisitions of
Woodlake Apartments ($1,324,000) and Park Plaza ($284,000). These increases
were partially offset by a decrease due to the sale of Trolley Plaza
($1,183,000). Interest expense decreased by $138,000, or .7%, to $20,006,000 in
the nine months ended October 31, 1999 from $20,144,000 for the comparable
period in 1998.
LAND GROUP
REVENUES - Revenues for the Land Group decreased by $9,602,000 to $5,488,000 in
the third quarter of 1999 from $15,090,000 in the third quarter of 1998. This
decrease is primarily the result of forgiveness of interest income relating to
Granite ($4,001,000), decreased revenues at Seven Hills in Henderson, Nevada
($4,787,000) and decreased land sales at The Greens at Birkdale Village in
Huntersville, North Carolina ($2,771,000) due to a large commercial sale in
1998. These decreases were partially offset by increases in revenues at
Canterbury Crossing, a new project in Parker, Colorado ($1,930,000).
Revenues for the Land Group decreased by $6,380,000 to $21,557,000 in the nine
months ended October 31, 1999 from $27,937,000 for the comparable period in
1998. This decrease is primarily the result of forgiveness of interest income
relating to Granite ($4,001,000), decreased revenues at Seven Hills
($6,057,000), The Greens at Birkdale Village ($2,173,000)
16
<PAGE> 17
and Eaton Estates in Sagamore Hills, Ohio ($536,000). These increases were
partially offset by increases at Westwood Lakes in Tampa, Florida ($3,827,000),
Canterbury Crossing in Parker, Colorado ($2,126,000) and Chestnut Lakes in North
Ridgeville, Ohio ($529,000).
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 decreased by $7,233,000 for
the third quarter of 1999 to $5,506,000 from $12,739,000 for the third quarter
of 1998. This decrease is primarily the result of a decrease in costs related to
lower sales volume at Seven Hills ($2,916,000) and The Greens at Birkdale
Village ($1,971,000). These decreases were partially offset by increases in
operating expenses related to increased sales volume at Canterbury Crossing
($1,916,000) and Westwood Lakes in Tampa, Florida ($753,000). Operating expenses
increased by $397,000 to $23,602,000 in the nine months ended October 31, 1999
from $23,205,000 for the comparable period in 1998. The increase is primarily
the result of increased operating expenses due to higher sales volume at
Westwood Lakes ($2,591,000), Canterbury Crossing ($2,315,000) and The Cascades
in Brooklyn, Ohio ($1,728,000). These increases were partially offset by
decreases in operating expenses due to lower sales volume at The Greens at
Birkdale Village ($1,270,000) and at Seven Hills ($906,000). Operating expenses
also decreased during the third quarter and nine months ended October 31, 1999
by $4,729,000 due to an adjustment to accruals for potential valuation losses
related to Land Group investments. These accruals are reviewed periodically and
adjusted to reflect management's estimated value of the Land Group's portfolio.
Interest expense decreased by $580,000 in the third quarter of 1999 to
$2,053,000 from $2,633,000 in the third quarter of 1998. Interest expense
decreased by $848,000 in the nine months ended October 31, 1999 to $6,079,000
from $6,927,000 for the comparable period in 1998.
LUMBER TRADING GROUP
REVENUES - Revenues for the Lumber Trading Group decreased by $242,000 in the
third quarter of 1999 to $32,539,000 from $32,781,000 in the third quarter of
1998. The decrease was primarily due to decreased lumber trading margins in the
third quarter of 1999 compared to the third quarter of 1998 ($472,000) which was
partially offset by an increase in volume at Forest City/Babin, a wholesaler of
major appliances, cabinets and hardware to housing contractors ($249,000).
Revenues for the Lumber Trading Group increased by $23,353,000 in the nine
months ended October 31, 1999 to $114,012,000 from $90,659,000 for the
comparable period in 1998. The increase was primarily due to increased lumber
trading margins of $23,090,000 in the nine months ended October 31, 1999
compared to the same period in 1998.
OPERATING AND INTEREST EXPENSES - Operating expenses for the Lumber Trading
Group increased by $303,000 in the third quarter of 1999 to $29,786,000 from
$29,483,000 in the third quarter of 1998. Operating expenses for the Lumber
Trading Group increased by
17
<PAGE> 18
$18,912,000 in the nine months ended October 31,1999 to $100,945,000 from
$82,033,000 for the comparable period in 1998. The increases in the third
quarter and nine months ended October 31, 1999 reflected higher variable
expenses due to increased trading margins compared to 1998. Interest expense
increased by $232,000 in the third quarter of 1999 to $1,429,000 from $1,197,000
in the third quarter of 1998. Interest expense decreased by $408,000 in the nine
months ended October 31,1999 to $3,845,000 from $4,253,000 for the comparable
period in 1998.
CORPORATE ACTIVITIES
REVENUES - Corporate Activities' revenues decreased $86,000 in the third quarter
of 1999 to $110,000 from $196,000 in the third quarter of 1998. Corporate
Activities' revenues decreased $805,000 in the nine months ended October 31,
1999 to $378,000 from $1,183,000 for the comparable period in 1998. Corporate
Activities' revenues consist primarily of interest income from investments made
by the Company and vary from year to year depending on interest rates and the
amount of loans and investments outstanding.
OPERATING AND INTEREST EXPENSES - Operating expenses for Corporate Activities
decreased $22,000 in the third quarter of 1999 to $2,583,000 from $2,605,000 in
the third quarter of 1998. Operating expenses for Corporate Activities increased
$957,000 in the nine months ended October 31, 1999 to $9,354,000 from $8,397,000
for the comparable period in 1998. The increase for the nine months ended
October 31, 1999 represents additional general corporate expenses including
charitable contributions and facilities expense. Interest expense increased
$1,254,000 in the third quarter of 1999 to $6,667,000 from $5,413,000 in the
third quarter of 1998. Interest expense increased $5,553,000 in the nine months
ended October 31, 1999 to $18,891,000 from $13,338,000 the comparable period in
1998. Corporate Activities' interest expense consists primarily of interest
expense on the 8.50% Senior Notes (issued on March 16, 1998) and borrowings
under the Revolving Credit Agreement that has not been allocated to a principal
business group (see "Financial Condition and Liquidity").
OTHER TRANSACTIONS
PROVISION FOR DECLINE IN REAL ESTATE AND OTHER - During the third quarter of
1999, the Company recorded a Provision for Decline in Real Estate and Other of
$5,062,000 ($3,060,000 net of tax) related to the write-down to fair value of
the Land Group's investment in Granite Development Partners L.P. (Granite). The
Company owns a 43.75% interest in Granite as the result of capital contribution
of land, which was classified as Investments In and Advances to Affiliates on
the Company's consolidated balance sheet. Granite owns an interest in several
raw land developments held for resale, the most significant of which is a
one-third interest in Seven Hills in Henderson, Nevada. The Company has been
informed by one of its partners (the project manager) of cost overruns that
will, in turn, reduce the anticipated sales margins of the Seven Hills project.
The revised projection of costs to complete the project indicates that the
Company may not recover its capital investment in Granite.
18
<PAGE> 19
GAIN OR LOSS ON DISPOSITION OF PROPERTIES - No properties were disposed of
during the third quarter of 1999. Gain (loss) on disposition of properties, net
of tax, totaled a gain of $554,000 in the third quarter of 1998. Gain (loss) on
disposition of properties, net of tax, totaled a gain of $18,722,000 for the
nine months ended October 31, 1998.
During the third quarter of 1998, the Company sold its 20% interests in three
apartment buildings in Houston, Texas (Copper Creek, Greenbriar and Woodforest
Glen) and recorded a pre-tax gain on disposition of $1,027,000. 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, respectively. 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 and recognized pre-tax gains on disposition of $10,403,000 and
$622,000, respectively.
EXTRAORDINARY GAIN - Extraordinary gain, net of tax, totaled $214,000 for the
nine months ended October 31, 1999, all of which occurred in the first quarter
representing extinguishment of $353,000 of non-recourse debt related to Plaza at
Robinson Town Centre in Pittsburgh, Pennsylvania. Extraordinary gain, net of
tax, totaled $10,618,000 in the third quarter of 1998. Extraordinary gain, net
of tax, totaled $10,952,000 for the nine months ended October 31, 1998. The 1998
extraordinary gain recorded in the third quarter represents extinguishment of
non-recourse debt related to Terminal Tower ($13,947,000 pre-tax) and Skylight
Office Tower ($3,619,000 pretax), both located in Cleveland, Ohio and the
disposition of Trolley Plaza in Philadelphia, Pennsylvania ($552,000 pre-tax).
INCOME TAXES - Income tax expense for the third quarter of 1999 and 1998 totaled
$5,214,000 and $4,319,000, respectively. Income tax expense for the nine months
ended October 31, 1999 and 1998 totaled $12,632,000 and $21,486,000,
respectively. At January 31, 1999, the Company had a net operating loss
carryforward ("NOL") for tax purposes of $76,433,000 (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, 2006 through January 31, 2011
and general business credits carryovers of $2,432,000 which will expire in the
years ending January 31, 2004 through January 31, 2013. 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 third quarter of 1999, the Company's net earnings were
$7,033,000 or $.23 per share of common stock, compared to $15,786,000, or $.52
per share of common stock in the third quarter of 1998. For the nine months
ended October 31, 1999, the Company's net earnings were $17,281,000, or $.57 per
share of common stock, compared to $40,464,000, or $1.34 per share of common
stock for the nine months ended October 31, 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 items. The Company
excludes depreciation and amortization
19
<PAGE> 20
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. 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 land or land held by the
Land Group as nonrecurring items. Extraordinary items 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
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 development and acquisitions of real
estate projects, capital expenditures for its existing portfolio and payments on
nonrecourse mortgage debt on real estate.
REVOLVING CREDIT FACILITY - At October 31, 1999, the Company had $157,000,000
outstanding under its $225,000,000 revolving credit facility. The Company's
revolving credit facility matures December 10, 2001, unless extended, and allows
for up to a combined amount of $30,000,000 in outstanding letters of credit or
surety bonds. Outstanding letters of credit reduce the credit available to the
Company, and $9,245,000 were outstanding as of October 31, 1999. On each
anniversary date, the maturity date may be extended by one year by unanimous
consent of the nine participating banks. At the maturity date, the outstanding
revolving credit loans, if any, may be converted by the Company to a four-year
term loan. The revolving credit available is reduced quarterly by $2,500,000
beginning April 1, 1998. At October 31, 1999, the revolving credit line was
$207,500,000. The revolving credit facility provides, among other things, for:
1) interest rates of 2% over LIBOR or 1/4% over the prime rate; 2) maintenance
of debt service coverage ratios and specified levels of net worth and cash flow
(as defined); and 3) restriction on dividend payments.
The Company has entered into a one-year 5.125% LIBOR contract expiring January
3, 2000 on $75,000,000 of the revolving credit line. To further protect
borrowings under this facility from variable interest rates, the Company has
purchased a 6.50% LIBOR interest rate cap for 2000 and an average 6.75% LIBOR
interest rate cap for 2001 at notional amounts of $100,620,000 and $83,280,000,
respectively.
SENIOR NOTES - On March 16, 1998, the Company issued $200,000,000 in 8.50%
senior notes due March 15, 2008 in a public offering. Net proceeds were
contributed to the capital of Forest City Rental Properties Corporation, a
wholly-owned subsidiary, and were then used to repay $114,000,000 outstanding on
its term loan and revolving credit loans. The remaining proceeds were used to
finance acquisition and development of real estate projects.
20
<PAGE> 21
Accrued interest on the senior notes is payable semiannually on March 15 and
September 15. 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 borrowings under the
revolving credit facility. The indenture contains covenants providing, among
other things, limitations on incurring additional debt and payment of dividends.
LUMBER TRADING GROUP - The Lumber Trading Group is financed separately from the
rest of the Company's principal business groups. The financing obligations of
Lumber Trading Group are without recourse to the Company. Accordingly, the
liquidity of Lumber Trading Group is discussed separately below under "Lumber
Trading Group Liquidity."
MORTGAGE REFINANCINGS
During the nine months ended October 31, 1999, the Company completed
$297,000,000 in financings, including $151,000,000 in refinancings and
$146,000,000 for new development projects. The Company continues to seek
long-term fixed rate debt for those project loans that mature within the next 12
months. In addition, the Company is actively seeking permanent financing for
those projects that will begin operations within the next 12 months, generally
pursuing long-term fixed rate loans.
INTEREST RATE EXPOSURE
At October 31, 1999, the composition of nonrecourse mortgage debt is as follows:
Amount Rate(1)
(in thousands)
----------------------------------
Fixed $ 1,501,549 7.52%
Variable -
Hedged (2) 195,893 7.43%
Unhedged (3) 414,865 7.24%
Tax-Exempt 153,295 4.32%
UDAG and other
subsidized loans (fixed) 69,871 2.57%
-----------------
$ 2,335,473 7.10%
=================
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) The variable hedged debt of $195,893 represents LIBOR-based interest rate
swaps that have a weighted average life of 1.23 years.
(3) The variable unhedged debt of $414,865 is protected with $396,203 of LIBOR
interest caps as described below.
Interest rate caps and swaps are purchased to reduce short-term variable
interest rate risk. The Company has purchased 6.50% LIBOR interest rate cap
protection for its variable-rate debt portfolio in the amount of $396,203,000
and $584,330,000 for the years ending January 31, 2000 and 2001, respectively.
In addition, LIBOR interest rate caps averaging 6.75% in the amount of
$572,709,000 and $79,929,000 have been purchased for the year ending January 31,
2002 and the three-year period ending September 1, 2003, respectively. In order
21
<PAGE> 22
to reduce the risk associated with increases in interest rates, the Company has
purchased 10-year Treasury Options on the outstanding development portfolio debt
that is anticipated to be refinanced during 2000 and 2001. The Company owns
$206,409,000 of 10-year Treasury Options at strike rates ranging from 6.00% to
7.00% with exercise dates ranging from February 2000 to August 2001.
Additionally, the Company owns $43,010,000 of 5-year Treasury Options at a
strike rate of 7.00% with an exercise date of August 2001. The Company generally
does not hedge tax-exempt debt because, since 1990, the base rate of this type
of financing has averaged only 3.60% and has never exceeded 7.90%.
At October 31, 1999, 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 $4,150,000. 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 $1,500,000.
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two revolving lines of
credit and a nonrecourse accounts receivable sale program. These credit
facilities are without recourse to the Company.
During the second quarter of 1999, Lumber Trading Group's lines of credit were
increased by $20,000,000. At October 31, 1999, Lumber Trading Group's two lines
of credit totaled a $87,000,000 commitment expiring June 30, 2000. 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 October 31, 1999, 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 $102,000,000 and uses this
program to finance its working capital needs. At October 31, 1999, $75,000,000
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 totaled $117,647,000 and $65,057,000
for the nine months ended October 31,1999 and 1998, respectively. This increase
was a result of a $111,997,000 increase in rents and other revenues received and
a $8,594,000 decrease in land development expenditures, partially offset by a
$3,942,000 decrease in proceeds from land sales, a $53,094,000 increase in
operating expenses and an increase of $10,965,000 in interest paid. Of the
$111,997,000 increase in rents and other revenues received, $53,274,000 is
attributable to increased volume in Lumber Trading Group, $45,312,000 from new
properties opening in the Commercial Group and $16,100,000 from various sources
in
22
<PAGE> 23
the Residential Group (see "Results of Operations"). The $53,094,000 increase
in operating expenses, $26,866,000 relates to the increased Lumber Trading Group
revenue volume and $20,031,000 is related to the opening of new Commercial Group
properties.
Net cash used in investing activities totaled $317,121,000 and
$396,145,000 for the nine months ended October 31, 1999 and 1998, respectively.
Capital expenditures, other than development and acquisition activities, totaled
$25,046,000 and $43,664,000 (including both recurring and investment capital
expenditures) in the nine months ended October 31, 1999 and 1998, respectively,
and were financed with cash on hand at the beginning of the year and cash
provided from operating activities. The Company invested $254,159,000 and
$312,020,000 in acquisition and development of real estate projects in the nine
months ended October 31, 1999 and 1998, respectively. These expenditures were
financed with approximately $120,000,000 and $189,000,000 in new mortgage
indebtedness incurred in nine months ended October 31, 1999 and 1998,
respectively, borrowings under the revolving credit facility in 1999 and 1998,
proceeds from the refinancing of existing properties in 1999 and proceeds from
the issuance of senior notes in 1998. The Company invested $37,816,000 and
$73,806,000 in investments in and advances to affiliates in the nine months
ended October 31, 1999 and 1998, respectively. The investments and advances made
during the nine months ended October 31, 1999 were primarily related to New York
City area urban development ($11,397,000) and the following syndicated
residential projects: The Grand, a 546-unit luxury high-rise apartment building
in North Bethesda, Maryland that opened in February 1999 ($9,608,000), Philip
Morris at Tobacco Row, a 175-unit apartment renovation project currently under
construction in Richmond, Virginia ($5,936,000), 101 San Fernando, a 316-unit
apartment complex currently under construction in San Jose, California
($5,614,000) and Grand Lowry Lofts, a 261-unit rehabilitation project in Denver,
Colorado ($3,267,818). The investments and advances made during the nine months
ended October 31, 1998 were primarily related to New York City area urban
development ($7,700,000), the Promenade in Temecula regional mall ($4,224,000),
101 San Fernando ($19,312,000), The Enclave ($12,754,000) apartment project in
San Jose, California, The Grand ($5,556,000), Philip Morris ($3,358,000), The
Drake, a 258-unit apartment rehabilitation project in Philadelphia, Pennsylvania
($12,125,000), and four apartment communities in the Hamptons/Newport News area
of Virginia ($7,950,000). In addition, during the nine months ended October 31,
1998, $33,345,000 was collected in proceeds from the disposition of the
Company's interests in San Vicente ($27,244,000), Courtyard ($4,378,000) and
three apartment buildings in Houston, Texas ($1,723,000).
Net cash provided by financing activities totaled $182,982,000 and $328,685,000
for the nine months ended October 31, 1999 and 1998, respectively. The Company's
refinancing of mortgage indebtedness is discussed above in "Mortgage
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 for
the nine months ended October 31, 1999 also reflected a net decrease of
$18,587,000 in notes payable, an increase in restricted cash and book overdrafts
of $4,825,000, payment of $4,335,000 for deferred financing costs and payment of
$3,898,000 of dividends. During the nine months ended October 31, 1998, the
Company received net proceeds from the issuance of senior notes in March 1998 of
$193,726,000, which were initially used to repay $114,000,000 of long-term debt.
In addition, net cash provided by
23
<PAGE> 24
financing activities reflected the reduction of $10,974,000 in restricted cash
and book overdrafts, a net decrease of $26,933,000 in notes payable (primarily
from repayment of $14,968,000 of borrowings under Lumber Trading Group's lines
of credit and $8,117,000 repayment of a note payable by the Land Group), payment
of deferred financing costs of $11,115,000 and payment of $3,297,000 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 was 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 a common equity offering completed on May 20, 1997 and $200,000,000
through a debt offering completed on March 16, 1998. The Company currently has
available approximately $218,000,000 on the second shelf registration statement
of debt, equity or any combination thereof.
INCREASED DIVIDEND
The first 1999 quarterly dividend of $.04 per share on shares of both Class A
and Class B Common Stock was paid on June 15, 1999 to shareholders of record at
the close of business on June 1, 1999. The second 1999 quarterly dividend of
$.05 per share, representing a 25% increase over the previous quarter's
dividend, on shares of both Class A and Class B Common Stock was paid on
September 15, 1999 to shareholders of record at the close of business on
September 1, 1999. The third and fourth 1999 quarterly dividend of $.05 per
share on shares of both Class A and Class B Common Stock were declared on
September 8, 1999 and December 14, 1999, respectively, and will be paid on
December 15, 1999 and March 15, 2000, respectively, to shareholders of record at
the close of business on December 1, 1999 and March 1, 2000, respectively.
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 alleged improper
calculation and underpayment of commissions and other related claims. On
September 11, 1998 Plaintiffs filed a Motion for Class Certification. On
December 8, 1998 the court posted an order denying class certification. On April
5, 1999 the original four Plaintiffs filed a notice of dismissal of this lawsuit
without prejudice in state court. On April 16, 1999, the case was re-filed in
Federal court against Forest City Trading Group, Inc. and four of its
subsidiaries. On November 30, 1999, the U.S. District Court for the District of
Oregon dismissed the federal claims with
24
<PAGE> 25
prejudice and the state law claims without prejudice. Plaintiffs have thirty
days from December 1, 1999 to appeal.
The Company, through subsidiaries, owns a 14.6% interest in the Seven Hills
housing development, located in Henderson, Nevada, which is owned by the Silver
Canyon Partnership ("Silver Canyon") 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 home-building companies at Seven
Hills, against some of the same parties, not including the Company. Each of
these lawsuits sought a commitment for public play on the golf course, as well
as damages and, in October 1998, the court granted play rights. In February 1999
the owner of the golf course filed a cross-claim against the Silver Canyon
Partnership and the Company. Silver Canyon has since reached an agreement in
principle with the Plaintiff homeowners and with certain of Silver Canyon's
insurance carriers to settle the claims of the Plaintiff homeowners. In
addition, Silver Canyon has reached a settlement agreement with the owner of the
golf course which is expected to be executed in the near future. A hearing on
damages for claims of the production builders will be held in mid-January. 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 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.
On September 21, 1999, a complaint was filed in state court in Los Angeles
County against Forest City Enterprises, Inc., Forest City California Residential
Development, Inc., and Forest City Residential West, Inc. Plaintiffs are 63
construction workers who claim to have been exposed to asbestos and mold and
mildew while engaged in renovation work at a construction site in Washington.
Three of the plaintiffs also claim to have been exposed to lead paint and
asbestos at a construction site in California. Plaintiffs seek damages for
unspecified personal injuries, lost income, and diminished earning capacity and
also seek punitive and treble damages. The case is in an early stage of
discovery.
NEW ACCOUNTING STANDARDS
In the first quarter of 1999, the Company adopted SOP 98-5, "Reporting on the
Costs of Start-up Activities." This statement requires that start-up costs and
organization costs be expensed as incurred. The adoption of this accounting
principle had no material effect on earnings or financial position.
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS 137,
which defers the effective date of SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", to all fiscal quarters of fiscal years
beginning after June 15, 2000. Therefore, the Company plans to implement SFAS
133 for the fiscal quarters in its fiscal year ending January 31, 2002.
25
<PAGE> 26
YEAR 2000
The Company has completed its program to prepare its financial and operating
computer systems and embedded applications for the Year 2000.
For business reasons unrelated to the Year 2000, the Company's computer systems
have been moved from a mainframe environment to a distributed environment. Major
processing systems were replaced with Year 2000-compliant software. The cost of
this project was approximately $4 million.
The Company has completed updates relating to its general ledger, financial
reporting, human resources and Commercial Group and Residential Group property
management systems.
The Company has identified concerns related to hardware, software and embedded
systems and developed a contingency plan to respond to each concern. For
hardware, the most likely worst case scenario would be if a specific computer or
server would not be compliant. In that case, the Company would use other
compliant hardware that is located on-site and available to regenerate data from
our backup systems.
For software, the most likely worst case scenario would be if the automated
software scheduling routines would not properly schedule in the Year 2000 and
beyond. Each of these automated scheduling systems has a manual function, which
has been tested.
For embedded systems, the Company's primary concern is that these systems,
despite testing, would not function properly in the Year 2000. All of these
systems have manual reset functions allowing Year 2000 date issues to be
corrected. Additionally, the Company will have appropriate personnel and outside
contractors, if necessary, on site starting the evening of December 31, 1999 and
the ensuing weekend to reset the functions if necessary. The Company does not
believe any of the systems related to the safety of the properties' tenants or
customers will be affected.
Similar to other companies, Forest City is highly dependent upon systems in the
public sector, such as utilities, mail, government agencies and transportation
systems. Failures in those systems, upon which the Company has no control, could
materially affect operations. The property sites have well defined emergency
plans in place, and these would be activated if necessary. The Year 2000 plan is
aimed at identifying and correcting all issues upon which Forest City has direct
control or indirect control through its vendors and business partners. The
Company feels that the recent successful completion of its Year 2000 program
will minimize the effect the Year 2000 issue will have on operations.
INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This Form 10-Q, 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,
26
<PAGE> 27
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 nationwide 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.
27
<PAGE> 28
FOREST CITY ENTERPRISES, INC.
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE THIRD QUARTER ENDED OCTOBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Commercial Group Residential Group Land Group
---------------------------- --------------------------- ------------------------
1999 1998 1999 1998 1999 1998
------------- ------------ ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 106,970 $ 93,236 $ 43,060 $ 35,599 $ 5,488 $ 15,090
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 55,855 47,294 18,665 15,184 5,506 12,739
Interest expense 22,493 23,864 5,779 6,167 2,053 2,633
Income tax provision 2,902 (770) 3,044 3,041 (795) (76)
------------- ----------- ------------- ----------- ------------ ----------
81,250 70,388 27,488 24,392 6,764 15,296
------------- ----------- ------------- ----------- ------------ ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 25,720 $ 22,848 $ 15,572 $ 11,207 ($ 1,276) ($ 206)
============= ============= ============= ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Lumber Trading Group Corporate Activities Total
-------------------------- --------------------------- --------------------------------
1999 1998 1999 1998 1999 1998
------------- ----------- ------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 32,539 $ 32,781 $ 110 $ 196 $ 188,167 $ 176,902
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 29,786 29,483 2,583 2,605 112,395 107,305
Interest expense 1,429 1,197 6,667 5,413 38,421 39,274
Income tax provision 642 933 (4,045) (3,198) 1,748 (70)
------------ --------- ----------- ---------- ------------- ---------------
31,857 31,613 5,205 4,820 152,564 146,509
------------ --------- ----------- ---------- ------------- ---------------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 682 $ 1,168 ($ 5,095) ($ 4,624) $ 35,603 $ 30,393
============= ========= ============ =========== ============= ===============
RECONCILIATION TO NET EARNINGS:
EARNINGS BEFORE DEPRECIATION,
AMORTIZATION AND DEFERRED TAXES (EBDT) $ 35,603 $ 30,393
DEPRECIATION AND AMORTIZATION - REAL
ESTATE GROUPS (20,042) (21,863)
DEFERRED TAXES - REAL ESTATE GROUPS (5,468) (3,916)
PROVISION FOR DECLINE IN REAL ESTATE AND
OTHER, NET OF TAX (3,060) 0
GAIN ON DISPOSITION OF PROPERTIES, NET OF TAX 0 554
EXTRAORDINARY GAIN, NET OF TAX 0 10,618
------------- -------------
NET EARNINGS $ 7,033 $ 15,786
============= =============
</TABLE>
28
<PAGE> 29
FOREST CITY ENTERPRISES, INC.
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Commercial Group Residential Group Land Group
---------------------------- --------------------------- ------------------------
1999 1998 1999 1998 1999 1998
------------- ------------ ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 316,905 $ 271,593 $ 115,960 $ 99,860 $ 21,557 $ 27,937
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 164,206 135,578 54,926 47,118 23,602 23,205
Interest expense 70,344 68,890 20,006 20,144 6,079 6,927
Income tax provision 8,627 2,573 6,989 4,769 (3,140) (830)
------------- ------------- ------------- ----------- ------------- ----------
243,177 207,041 81,921 72,031 26,541 29,302
------------- ------------- ------------- ----------- ------------- ----------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 73,728 $ 64,552 $ 34,039 $ 27,829 ($ 4,984) ($ 1,365)
============= ============= ============= =========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
Lumber Trading Group Corporate Activities Total
-------------------------- --------------------------- --------------------------------
1999 1998 1999 1998 1999 1998
------------- ----------- ------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 114,012 $ 90,659 $ 378 $ 1,183 $ 568,812 $ 491,232
Operating expenses,
including depreciation
and amortization for non-
real estate Groups 100,945 82,033 9,354 8,397 353,033 296,331
Interest expense 3,845 4,253 18,891 13,338 119,165 113,552
Income tax provision 3,739 2,089 (11,313) (9,463) 4,902 (862)
----------- ----------- ------------ ---------- ------------- --------------
108,529 88,375 16,932 12,272 477,100 409,021
----------- ----------- ------------- ---------- ------------- --------------
Earnings before
depreciation, amortization
and deferred taxes
(EBDT) $ 5,483 $ 2,284 ($ 16,554) ($ 11,089) $ 91,712 $ 82,211
============ =========== ============= ============ ============== ==============
RECONCILIATION TO NET EARNINGS:
EARNINGS BEFORE DEPRECIATION,
AMORTIZATION AND DEFERRED TAXES (EBDT) $ 91,712 $ 82,211
DEPRECIATION AND AMORTIZATION - REAL ESTATE GROUPS (61,853) (61,432)
DEFERRED TAXES - REAL ESTATE GROUPS (9,732) (9,989)
PROVISION FOR DECLINE IN REAL ESTATE AND OTHER,
NET OF TAX (3,060) 0
GAIN (LOSS) ON DISPOSITION OF PROPERTIES,
NET OF TAX 0 18,722
EXTRAORDINARY GAIN, NET OF TAX 214 10,952
-------------- -------------
NET EARNINGS $ 17,281 $ 40,464
============== =============
</TABLE>
29
<PAGE> 30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary market risk exposure is interest rate risk. At October 31,
1999, the Company had $610,758,000 of variable-rate debt outstanding.
Additionally, the Company has interest rate risk associated with fixed-rate debt
at maturity.
To reduce the effects of significant increases in interest rates on the interest
(expense) payable with respect to the Company's variable-rate debt, the Company
makes use of interest rate exchange agreements, including interest rate caps and
swaps, to manage interest rate risk. The Company had purchased London Interbank
Offered Rate ("LIBOR") interest rate caps as follows.
<TABLE>
<CAPTION>
Maximum
LIBOR Principal
Rate Period Outstanding
---- ------- -----------
<S> <C> <C> <C>
6.50% 02/01/99 - 01/31/00 $ 396,203,000
6.50% 02/01/00 - 01/31/01 584,330,000
6.50% 02/01/01 - 07/31/01 315,358,000
7.00% 08/01/01 - 02/01/02 315,358,000
7.00% 02/01/01 - 02/01/02 257,351,000
6.75% 09/01/00 - 09/01/03 79,929,000
</TABLE>
The Company intends to convert a significant portion of its committed
variable-rate debt to fixed-rate debt. To offset the effect of upward
fluctuations in future interest rates, the Company has purchased Treasury
Options as follows:
<TABLE>
<CAPTION>
Exercise
Notional Strike Term Date
-------- ------ ---- --------
<S> <C> <C> <C> <C>
$ 47,600,000 6.00% 10 yrs. 02/01/00
45,700,000 6.76% 10 yrs. 11/01/00
33,180,000 7.00% 10 yrs. 02/01/01
41,252,000 6.00% 10 yrs. 04/01/01
38,677,000 6.00% 10 yrs. 08/01/01
------------- ----
$206,409,000 6.33%
43,010,000 7.00% 5 yrs. 08/01/01
------------ ----
$249,419,000 6.45%
------------ ----
</TABLE>
These options protect the Company from increases in Treasury Rates above the
strike price through the exercise date outlined in the table.
30
<PAGE> 31
At October 31, 1999, the Company had $157,000,000 outstanding under its
$225,000,000 revolving credit facility, which bears interest at LIBOR plus 2%.
The Company has entered into a one-year 5.125% LIBOR contract expiring January
3, 2000 on $75,000,000 for its revolving credit line. Additionally, the Company
has purchased a 6.50% LIBOR interest rate cap for 2000 and an average 6.75%
LIBOR interest rate cap for 2001 at notional amounts of $100,620,000 and
$83,280,000, respectively.
At October 31, 1999, the Company estimates that a 100 basis point decrease in
market interest rates would have changed the fair value of fixed-rate debt at
that date of $1,624,300,000 to a liability of approximately $1,716,703,000. The
sensitivity to changes in interest rates of the Company's fixed-rate debt was
determined with a valuation model based upon changes that measure the net
present value of such obligation which arise from the hypothetical estimate as
discussed above. The Company intends to monitor and manage interest costs on its
variable debt portfolio and may enter into swap positions based on market
fluctuations.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates.
31
<PAGE> 32
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------------------------------------------------------------------
LONG-TERM DEBT 1999 2000 2001 2002
---------------------------------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
FIXED:
Fixed rate debt (1) 8,716,895 93,741,638 80,625,083 43,686,781
Weighted average interest rate 7.95% 8.06% 8.25% 7.50%
UDAG (1) 13,034 1,049,021 10,481,224 541,722
Weighted average interest rate 6.85% 0.35% 7.99% 7.73%
Senior notes - - - -
Weighted average interest rate
------------ ------------- ------------- -------------
Total Fixed Rate Debt 8,729,929 94,790,659 91,106,307 44,228,503
------------ ------------- ------------- -------------
VARIABLE:
Variable rate debt (1) (2) 75,129,421 300,858,498 32,986,054 119,577,426
Weighted average interest rate
Tax Exempt (1) - 55,980,001 32,636,622 -
Weighted average interest rate
Revolving Credit Facility - 157,000,000 - -
Weighted average interest rate
------------ ------------- ------------- -------------
Total Variable Rate Debt 75,129,421 513,838,499 65,622,676 119,577,426
------------ ------------- ------------- -------------
TOTAL LONG-TERM DEBT $ 83,859,350 $ 608,629,158 $ 156,728,983 $ 163,805,929
============ ============= ============= =============
(1) Represents nonrecourse debt.
(2) As of October 31, 1999, $195,893,000 of
variable-rate debt has been hedged via
LIBOR-based swaps that have a remaining
average life of 1.23 years.
</TABLE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------------------------------------------------------------------
TOTAL FAIR MARKET
OUTSTANDING VALUE
LONG-TERM DEBT 2003 THEREAFTER 10/31/99 10/31/99
---------------------------------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
FIXED:
Fixed rate debt (1) 85,939,979 1,188,838,309 1,501,548,685 1,398,772,270
Weighted average interest rate 8.20% 7.38% 7.52%
UDAG (1) 163,085 57,623,143 69,871,229 39,528,030
Weighted average interest rate 2.78% 1.58% 2.57%
Senior notes - 200,000,000 200,000,000 186,000,000
Weighted average interest rate 8.50% 8.50%
------------- -------------- -------------- ---------------
Total Fixed Rate Debt 86,103,064 1,446,461,452 1,771,419,914 1,624,300,300
------------- -------------- -------------- ---------------
VARIABLE:
Variable rate debt (1) (2) 60,869,699 21,337,042 610,758,140 610,758,140
Weighted average interest rate 7.30%
Tax Exempt (1) - 64,679,000 153,295,623 153,295,623
Weighted average interest rate 4.32%
Revolving Credit Facility 157,000,000 157,000,000
Weighted average interest rate - - 7.39%
------------- -------------- -------------- ---------------
Total Variable Rate Debt 60,869,699 86,016,042 921,053,763 921,053,763
------------- -------------- -------------- ---------------
TOTAL LONG-TERM DEBT $ 146,972,763 $1,532,477,494 $2,692,473,677 $2,545,354,063
============= ============== ============== ===============
(1) Represents nonrecourse debt.
(2) As of October 31, 1999, $195,893,000 of
variable-rate debt has been hedged via
LIBOR-based swaps that have a remaining
average life of 1.23 years.
</TABLE>
32
<PAGE> 33
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 alleged improper
calculation and underpayment of commissions and other related claims. On
September 11, 1998 Plaintiffs filed a Motion for Class Certification. On
December 8, 1998 the court posted an order denying class certification. On April
5, 1999 the original four Plaintiffs filed a notice of dismissal of this lawsuit
without prejudice in state court. On April 16, 1999, the case was re-filed in
Federal court against Forest City Trading Group, Inc. and four of its
subsidiaries. On November 30, 1999, the U.S. District Court for the District of
Oregon dismissed the federal claims with prejudice and the state law claims
without prejudice. Plaintiffs have thirty days from December 1, 1999 to appeal.
The Company, through subsidiaries, owns a 14.6% interest in the Seven Hills
housing development, located in Henderson, Nevada, which is owned by the Silver
Canyon Partnership ("Silver Canyon") 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 home-building companies at Seven
Hills, against some of the same parties, not including the Company. Each of
these lawsuits sought a commitment for public play on the golf course, as well
as damages and, in October 1998, the court granted play rights. In February 1999
the owner of the golf course filed a cross-claim against the Silver Canyon
Partnership and the Company. Silver Canyon has since reached an agreement in
principle with the Plaintiff homeowners and with certain of Silver Canyon's
insurance carriers to settle the claims of the Plaintiff homeowners. In
addition, Silver Canyon has reached a settlement agreement with the owner of the
golf course which is expected to be executed in the near future. A hearing on
damages for claims of the production builders will be held in mid-January. 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 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.
On September 21, 1999, a complaint was filed in state court in Los Angeles
County against Forest City Enterprises, Inc., Forest City California Residential
Development, Inc., and Forest City Residential West, Inc. Plaintiffs are 63
construction workers who claim to have been exposed to asbestos and mold and
mildew while engaged in renovation work at a construction site in Washington.
Three of the plaintiffs also claim to have been exposed to lead paint and
asbestos at a construction site in California. Plaintiffs seek damages for
unspecified personal injuries, lost income, and diminished earning capacity and
also seek punitive and treble damages. The case is in an early stage of
discovery.
33
<PAGE> 34
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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).
34
<PAGE> 35
Exhibit
Number Description of Document
------- -----------------------
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 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
administrative 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 by reference
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).
35
<PAGE> 36
Exhibit
Number Description of Document
------- -----------------------
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).
36
<PAGE> 37
Exhibit
Number Description of Document
------- -----------------------
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
Form 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).
37
<PAGE> 38
Exhibit
Number Description of Document
------- -----------------------
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).
38
<PAGE> 39
Exhibit
Number Description of Document
------- -----------------------
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).
39
<PAGE> 40
Exhibit
Number Description of Document
------- -----------------------
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).
10.38 - Amended and Restated form of Stock Option Agreement,
effective as of July 16, 1998, incorporated by reference to
Exhibit 10.38 to the Company's Form 10-Q for the quarter
ended October 31, 1998 (File No. 1-4372).
40
<PAGE> 41
Exhibit
Number Description of Document
------- -----------------------
10.39 - Third Amendment to Credit Agreement, dated as of January
29, 1999, 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 incorporation by reference to
Exhibit 20.1 to the Company's Form 8-K, dated January 29,
1999 (File No. 1-4372).
10.40 - Third Amendment to Guaranty of Payment of Debt, dated as
of January 29, 1999, 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 20.2
to the Company's Form 8-K, dated January 29, 1999 (File No.
1-4372).
10.41 - Subordination Agreement, dated as of January 29, 1999, by
and among Forest City Enterprises, Inc., St. Paul Fire and
Marine Insurance Company, St. Paul Mercury Insurance
Company, St. Paul Guardian Insurance Company, Seaboard
Surety Company, Economy Fire & Casualty Company, Asset
Guaranty Insurance Company, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent, incorporated by reference to Exhibit 20.3 to the
Company's Form 8-K, dated January 29, 1999 (File No.
1-4372).
10.42 - Dividend Reinvestment and Stock Purchase Plan,
incorporated by reference to Exhibit 10.42 to the Company's
Form 10-K for the year ended January 31, 1999 (File No.
1-4372).
10.43 - Deferred Compensation Plan for Executives, effective as of
January 1, 1999, incorporated by reference to Exhibit 10.43
to the Company's Form 10-K for the year ended January 31,
1999 (File No. 1-4372).
10.44 - Deferred Compensation Plan for Nonemployee Directors,
effective as of January 1, 1999, incorporated by reference
to Exhibit 10.44 to the Company's Form 10-K for the year
ended January 31, 1999 (File No. 1-4372).
10.45 - Amended and Restated Credit Agreement, dated as of June
25, 1999, 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 20.1 to the Company's Form 8-K, dated June 25, 1999
(File No. 1-4372).
41
<PAGE> 42
Exhibit
Number Description of Document
------- -----------------------
10.46 - Amended and Restated Guaranty of Payment of Debt, dated as
of June 25, 1999, 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 20.2
to the Company's Form 8-K, dated June 25, 1999 (File No.
1-4372).
10.47 - Employment Agreement entered into on May 31, 1999,
effective January 1, 1999, by the Company and Albert B.
Ratner, incorporated by reference to Exhibit 10.47 to the
Company's Form 10-Q for the quarter ended July 31,1999.
(File No. 1-4372).
10.48 - Employment Agreement entered into on May 31, 1999,
effective January 1, 1999, by the Company and Samuel H.
Miller, incorporated by reference to Exhibit 10.48 to the
Company's Form 10-Q for the quarter ended July 31, 1999.
(File No. 1-4372).
* 10.49 - Agreement (re death benefits) entered into on May 31, 1999,
by the Company and Thomas G. Smith.
* 27 - Financial Data Schedules.
- -----------------
* - Filed herewith.
(b) Reports on Form 8-K:
None.
42
<PAGE> 43
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 December 15, 1999 /s/ Thomas G. Smith
-------------------------- --------------------------------
Thomas G. Smith, Senior Vice President
and Chief Financial Officer
Date December 15, 1999 /s/ Linda M. Kane
-------------------------- -----------------------------------------
Linda M. Kane, Vice President,
Corporate Controller
43
<PAGE> 1
Exhibit 10.49
AGREEMENT
- ---------
THIS AGREEMENT MADE AND ENTERED INTO at Cleveland, Ohio this 31st day
of May, 1999, by and between FOREST CITY ENTERPRISES, INC., an Ohio corporation,
of Terminal Tower, 50 Public Square, Suite 1100, Cleveland, Ohio, 44113-2267,
hereinafter referred to as "Company", and THOMAS G. SMITH of 2585 Fairwood
Drive, Pepper Pike, Ohio 44124, hereinafter referred to as "Employee".
WHEREAS, the Company desires to grant to the Employee a benefit to his
Estate upon his death, and
WHEREAS, the Compensation Committee of this Company has recommended
such benefit to be paid to his Estate, and
NOW THEREFORE, it is agreed that in consideration of the Employee
working for the Company, it is agreed that:
In consideration of his employment, if the Employee dies while in the
employ of the Company, the Company agrees to pay to the beneficiaries of the
Employee as stipulated in his Will, or designated by written notice to the
Company from the Employee during his lifetime, or designated by operation of law
if the Employee dies intestate, an amount equal to one hundred percent (100%) of
the salary paid to the Employee for the last calendar year prior to the death,
for a period of five (5) years following the decease of said Employee; said sum
to be payable in quarterly installments to said beneficiaries of said deceased
Employee.
The parties hereto have set their hands the day and year first above
written.
FOREST CITY ENTERPRISES, INC.
By:
-----------------------------------
Charles A. Ratner, President
And:
----------------------------------
James A. Ratner, Executive Vice
President
---------------------------------
THOMAS G. SMITH, Employee
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<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 62,137
<SECURITIES> 0
<RECEIVABLES> 202,383
<ALLOWANCES> 9,379
<INVENTORY> 47,744
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<DEPRECIATION> 540,104
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0
0
<COMMON> 10,297
<OTHER-SE> 345,773
<TOTAL-LIABILITY-AND-EQUITY> 3,633,473
<SALES> 0
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