<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended January 31,1999
----------------------------------
OR
[ ] TRANSITION REPORT R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-4372
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FOREST CITY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-0863886
- ---------------------------------------- --------------------------
(State of incorporation) (I.R.S. Employer
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
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ---------------------------------------- --------------------------
Class A Common Stock ($.33 1/3 par value) New York Stock Exchange
Class B Common Stock ($.33 1/3 par value) New York Stock Exchange
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 1, 1999 the aggregate market value of the voting stock held by
non-affiliates of the registrant amounted to $276,261,359 and $57,914,494 for
Class A and Class B common stock, respectively.
The number of shares of registrant's common stock outstanding on March 1, 1999
was 19,281,816 and 10,701,296 for Class A and Class B common stock,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended January 31, 1999 (1998 Annual Report to Shareholders) are incorporated by
reference into Parts I and II of this Form 10-K. Portions of the Proxy Statement
for the Annual Meeting of Shareholders to be held June 8, 1999 are incorporated
by reference into Part III of this Form 10-K.
<PAGE>
FOREST CITY ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
JANUARY 31, 1999
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 4A. Executive Officers of the Registrant 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 8
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 11
PART III
Item 10 Directors and Executive Officers of the Registrant 12
Item 11 Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 13
Signatures 25
<PAGE>
PART I
Item 1. Business
Founded 79 years ago and publicly traded since 1960, Forest City
Enterprises, Inc. (with its Subsidiaries, the "Company" or "Forest City") owns,
develops, acquires and manages commercial and residential real estate projects
in 21 states and the District of Columbia. At January 31, 1999, the Company had
$3.4 billion in consolidated assets, of which approximately $3.1 billion was
invested in real estate.
The Company is organized into four principal business groups:
* The Commercial Group, which owns, develops, acquires and operates
shopping centers, office buildings and mixed-use projects
including hotels.
* The Residential Group, which develops, acquires, owns and
operates the Company's multi-family properties.
* The Land Group, which owns and develops raw land into master
planned communities and other residential developments for
resale.
* The Lumber Trading Group, which operates the Company's lumber
wholesaling business.
Each group operates autonomously and both the Commercial Group and the
Residential Group have separate development, acquisition, leasing, property and
financial management functions. As a result, each of these groups is able to
perform all of the tasks necessary to develop and maintain a property from
selecting a project site to financing the project to managing the completed
project. The Company's "Corporate" Activities relate to general corporate items.
Commercial Group
The Company has developed retail projects for more than 50 years and
office, mixed-use and hotel projects for more than 30 years. Today, the
Commercial Group owns a diverse portfolio in both urban and suburban locations
in 12 states. The Commercial Group targets densely populated locations where it
uses its expertise to develop complex projects, often employing public/private
partnerships. As of January 31, 1999, the Commercial Group owned interests in 65
completed projects, including 35 retail properties, 23 office properties and
seven hotels.
The Company opened its first strip shopping center in 1948, and its first
enclosed regional mall in 1962. Since then, it has developed urban retail
centers, entertainment based centers, community centers and power centers
focused on "big box" retailing (collectively, "Specialty Retail Centers"), as
well as regional malls. As of January 31, 1999, the Commercial Group's existing
shopping center portfolio consisted of 13 regional malls with a total GLA of
3.9 million square feet and 22 Specialty Retail Centers with a total GLA of 4.3
million square feet.
Malls are generally developed in collaboration with anchor stores that
usually own their own facilities as integral parts of the mall structure and
environment and which do not generate significant direct payments to the
Company. In contrast, anchor stores at specialty retail and power centers
generally are tenants under long-term leases which contribute significant rental
payments to the Company.
<PAGE>
Item 1. Business (continued)
While the Company continues to develop regional malls in strong markets,
the Company recently has pioneered the concept of bringing "big box" retailing
to urban locations previously ignored by major retailers. With high population
densities and disposable income levels at or near those of the suburbs, urban
development is proving to be economically advantageous for the Company, for the
tenants who realize high sales per square foot and for the cities, which benefit
from the new jobs created in the urban locations.
At January 31, 1999, the Company's operating portfolio of office/mixed-use
and hotel projects consists of 23 office buildings containing 6.9 million square
feet, including mixed-use projects with an aggregate of 259,000 gross leasable
square feet of retail space and seven hotels with 2,032 rooms.
In its office development activities, Forest City is primarily a
build-to-suit developer which works with tenants to meet their highly
specialized requirements. The Company's office development has focused primarily
on mixed-use projects in urban developments, often built in conjunction with
hotels and shopping centers or as part of a major office campus. As a result of
this focus on new urban developments, 50% of the Company's office buildings were
built within the last eight years and are concentrated in four new urban
developments located in Brooklyn, New York, Cleveland, Ohio, Cambridge,
Massachusetts and Pittsburgh, Pennsylvania.
Residential Group
The Company's Residential Group develops, acquires, owns, leases and
manages residential rental property in 16 states and the District of Columbia.
The Company has been engaged in apartment community development for over 50
years beginning in northeast Ohio and gradually expanding nationally. Its
portfolio includes mature middle-market apartments in geographically attractive
suburbs, newer and higher end apartments in unique urban locations and newer
apartments in the suburbs. The Residential Group, which focuses on large
apartment complexes, does not develop or operate single-family housing or
condominium projects.
At January 31, 1999, the Residential Group's operating portfolio consists
of 33,692 units in 114 properties in which Forest City has an ownership
interest, including 7,695 units of syndicated senior citizen subsidized housing
in 45 buildings that the Company manages and in which it owns a residual
interest.
Land Group
The Company has been in the land business since the 1930's. The Land Group
acquires and sells both raw land and developed lots to residential, commercial
and industrial customers. The Land Group projects attract national, regional and
local builders. The Land Group develops raw land into master planned
communities, mixed-use and other residential developments and currently owns
more than 5,400 acres of undeveloped land for this purpose. The Company
currently has major land development projects in seven states.
Historically, the Land Group's activities focused on land development
projects in northeast Ohio. Over time, the Group's activities expanded to
larger, more complex projects, and regional expansion into western New York
State. In the last ten years, the Group has extended its activities on a
national basis, first in Arizona, and more recently in North Carolina, Florida,
Nevada and Colorado.
In addition to the sales activities of the Land Group, the Company also
sells land acquired by its Commercial Group and Residential Group adjacent to
their respective projects. Proceeds from such land sales are included in the
revenues of such Groups.
<PAGE>
Item 1. Business (continued)
Forest City Trading Group
The Company's original business was selling lumber to homebuilders. The
Company expanded this business in 1969 through its acquisition of Forest City
Trading Group, Inc., which is a lumber wholesaler to customers in all 50 states
and all Canadian provinces. Through 11 strategically located trading offices in
the United States and Canada, employing over 300 traders, Forest City sold the
equivalent of eight billion board feet of lumber in 1998, with a gross sales
volume of nearly $3 billion, making the Company one of the largest lumber
wholesalers in North America.
The Lumber Trading Group currently has offices in nine states and
Vancouver, British Columbia. The Company opens offices in response to the
changing demands of the lumber industry.
The Lumber Trading Group's core business is supplying lumber for new home
construction and to the repair and remodeling markets. Approximately 65% of the
Lumber Trading Group's sales for 1998 involve back-to-back trades in which the
Company brings together a buyer and seller for an immediate purchase and sale.
The balance of transactions are trades in which the Company takes a short-term
ownership position and is at risk for lumber market fluctuations. This risk,
however, is reduced by the implementation of our lumber hedging strategy.
Competition
The real estate industry is highly competitive in all major markets. With
regard to the Commercial and Residential Groups, there are numerous other
developers, managers and owners of commercial and residential real estate that
compete with the Company nationally, regionally and/or locally in seeking
management and leasing revenues, land for development, properties for
acquisition and disposition and tenants for properties, some of whom may have
greater financial resources than the Company. There can be no assurance that the
Company will successfully compete for new projects or have the ability to react
to competitive pressures on existing projects caused by factors such as
declining occupancy rates or rental rates. In addition, tenants at the Company's
retail properties face continued competition in attracting customers from
retailers at other shopping centers, catalogue companies, warehouse stores,
large discounters, outlet malls, wholesale clubs and direct mail and
telemarketers. The existence of competing developers, managers and owners and
competition to the Company's tenants could have a material adverse effect on the
Company's ability to lease space in its properties and on the rents charged or
concessions granted, could materially and adversely affect the Company's results
of operations and cash flows, and could affect the realizable value of assets
upon sale.
With regard to the Lumber Trading Group, the lumber wholesaling business is
highly competitive. Competitors in the lumber brokerage business include
numerous brokers and in-house sales departments of lumber manufacturers, many of
which are larger and have greater resources than the Company.
Forest City was incorporated in Ohio in 1960 as a successor to a business
started in 1921.
Number of Employees
The Company had 3,860 employees as of January 31,1999, of which 2,871 were
full-time and 989 were part-time.
Segments of Business
Financial information about industry segments required by this item is
incorporated by reference to Note K "Segment Information" which appears on page
36 of the 1998 Annual Report to Shareholders.
<PAGE>
Item 2. Properties
The Corporate headquarters of Forest City Enterprises, Inc. is located in
Cleveland, Ohio and is owned by the Company. Regional offices are located in New
York, Los Angeles, Boston, Tucson, Washington, D. C., Denver, and San Francisco.
Forest City Trading Group, Inc. maintains its headquarters in Portland, Oregon.
It has seven other offices and one processing plant located in Oregon, nine
additional offices in eight other states and one sales office in Canada.
The "Forest City Rental Properties Corporation Portfolio of Real Estate,"
presented on pages 22 and 23 of the 1998 Annual Report to Shareholders, lists
the shopping centers, office buildings, hotels and apartments in which Forest
City Rental Properties Corporation has an interest and is incorporated herein by
reference.
Item 3. 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. The Defendants will vigorously defend the allegations. This
litigation is not expected to have a material adverse effect upon the financial
condition, results of operations or cash flows of the Company.
The Company, through subsidiaries, owns a 14.6% interest in the Seven Hills
housing development, located in Henderson, Nevada, which is owned by the Silver
Canyon Partnership and is being developed in conjunction with a golf course. In
August 1997, a class-action lawsuit was filed by the current homeowners in Seven
Hills against the Silver Canyon Partnership, the golf course developers and
other entities, including the Company. In addition, separate lawsuits were filed
by some of the production homebuilding companies at Seven Hills, against some of
the same parties, not including the Company. Each of these lawsuits 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. 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter.
<PAGE>
Item 4 (A). Executive Officers of the Registrant
The following list is included as an unnumbered Item in Part I of this
Report in lieu of being included in the Proxy Statement for the Annual Meeting
of Shareholders to be held on June 8, 1999.
The names, ages and positions held by the executive officers of the Company
are presented in the following list. Each individual has been appointed to serve
for the period which ends with the Annual Meeting of Shareholders scheduled for
June 8, 1999.
<TABLE>
<CAPTION>
Date
Name and Position(s) Held Appointed Age
- --------------------------------------------- --------- ---
<S> <C> <C>
Albert B. Ratner
Co-Chairman of the Board of Directors of
the Company since June 1995, Vice Chairman
of the Board of the Company from June 1993
to June 1995, Chief Executive Officer prior
to July 1995 and President prior to July 1993. 6-13-95 71
Samuel H. Miller
Co-Chairman of the Board of Directors of
the Company since June 1995, Chairman of the
Board of the Company from June 1993 to June
1995 and Vice Chairman of the Board, Chief
Operating Officer of the Company prior to June 1993,
Treasurer of the Company since December 1992. 6-13-95 77
Nathan Shafran
Honorary Vice Chairman of the Board of Directors
since June 1997, Vice Chairman of the Board of
Directors of the Company prior to June 1997. 3-11-87 85
Charles A. Ratner
President of the Company since June 1993,
Chief Executive Officer of the Company since
June 1995, Chief Operating Officer from June
1993 to June 1995 and Executive Vice
President prior to June 1993, Director. 6-13-95 57
James A. Ratner
Executive Vice President, Director, Officer
of various subsidiary corporations. 3-09-88 54
Ronald A. Ratner
Executive Vice President, Director, Officer
of various subsidiary corporations. 3-09-88 52
Thomas G. Smith
Senior Vice President, Chief Financial Officer,
Secretary, Officer of various subsidiary corporations. 9-03-85 58
William M. Warren
Senior Vice President, General Counsel and
Assistant Secretary. 5-16-72 70
</TABLE>
<PAGE>
Item 4 (A). Executive Officers of the Registrant (continued)
<TABLE>
<CAPTION>
Date
Name and Position(s) Held Appointed Age
- ---------------------------------------------- --------- ---
<S> <C> <C>
Brian J. Ratner
Senior Vice President--East Coast Development
since January 1997, Vice President--Urban
Entertainment from June 1995 to December 1996,
Vice President from May 1994 to June 1995
and an officer of various subsidiaries. 1-01-97 41
Linda M. Kane
Vice President and Corporate Controller since
April 1995, Asset Manager--Commercial Group
from July 1992 to April 1995 and Financial
Manager--Residential Group from October 1990
to July 1992. 4-01-95 41
</TABLE>
Note: Nathan Shafran is the uncle of Charles A. Ratner, James A. Ratner and
Ronald A. Ratner, who are brothers, and is the uncle of Albert B.
Ratner. Albert B. Ratner is the father of Brian J. Ratner and Deborah
Ratner Salzberg and is first cousin to Charles A. Ratner, James A.
Ratner and Ronald A. Ratner.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information required by this item is incorporated by reference to
"Quarterly Consolidated Financial Data (Unaudited)" which appears on page 42 of
the 1998 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to
"Selected Financial Data" on page 24 of the 1998 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 43 through 51 of the 1998 Annual Report to Shareholders.
Item 7 (A). Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. At
January 31, 1999, the Company had approximately $633,400,000 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
amounts 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, primarily to manage interest rate risk associated with variable-rate
debt. The Company had purchased London Interbank Offered Rate ("LIBOR") interest
rate caps as follows.
<TABLE>
<CAPTION>
Cap
Strike Principal
Rate Period Outstanding
---- ------------------- ------------
<S> <C> <C>
6.50% 02/01/99 - 01/31/00 $394,503,000
6.50% 02/01/00 - 01/31/01 457,613,000
6.50% 02/01/01 - 07/31/01 362,577,000
7.00% 08/01/01 - 02/01/02 362,577,000
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. In addition, to reduce the effect of
upward fluctuations in future interest rates, the Company has purchased 10-year
Treasury Options at a strike rate of 6.00% in the amounts of $170,850,000,
$41,252,000 and $38,677,000 with the exercise dates of February 2000, April 2001
and August 2001, respectively.
<PAGE>
Item 7 (A). Quantitative and Qualitative Disclosures About Market Risk
(continued)
At January 31, 1999, the Company had $105,000,000 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 option 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 $42,387,000 and $37,423,000,
respectively.
At January 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 $1,836,321,000 to a liability of approximately $1,953,000,000. 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 table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
----------------------------------------------------------------
Long-Term Debt 1999 2000 2001 2002
- --------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Fixed:
Fixed rate debt (1) $ 161,922,344 $ 93,540,672 $ 82,559,907 $ 55,709,175
Weighted average interest rate 7.60% 8.10% 8.27% 7.66%
UDAG (1) 49,561 1,033,055 10,481,224 541,722
Weighted average interest rate 6.96% 0.35% 7.99% 7.73%
Senior notes - - - -
Weighted average interest rate
---------------- --------------- --------------- ---------------
Total Fixed Rate Debt 161,971,905 94,573,727 93,041,131 56,250,897
---------------- --------------- --------------- ---------------
Variable:
Variable rate debt (1) (2) 86,303,633 121,648,500 17,302,492 89,540,811
Weighted average interest rate
Tax exempt (1) 1,175,000 55,980,001 32,156,689 -
Weighted average interest rate
Revolving credit facility - 105,000,000 - -
Weighted average interest rate
------------- --------------- --------------- ---------------
Total Variable Rate Debt 87,478,633 282,628,501 49,459,181 89,540,811
------------- --------------- --------------- ---------------
Total Long-Term Debt $ 249,450,538 $ 377,202,228 $ 142,500,312 $ 145,791,708
============= =============== =============== ===============
Expected Maturity Date Total Fair Market
---------------------------- Outstanding Value
Long-Term Debt 2003 Thereafter 1/31/99 1/31/99
- --------------------------------------------------- --------------- --------------- ---------------
Fixed:
Fixed rate debt (1) $ 85,395,730 $ 1,096,603,124 $ 1,575,730,952 $ 1,590,449,430
Weighted average interest rate 8.32% 7.44% 7.59%
UDAG (1) 163,085 57,489,122 69,757,769 44,871,490
Weighted average interest rate 2.78% 1.57% 2.57%
Senior notes - 200,000,000 200,000,000 201,000,000
Weighted average interest rate 8.50% 8.50%
------------- --------------- --------------- ---------------
Total Fixed Rate Debt 85,558,815 1,354,092,246 1,845,488,721 1,836,320,920
------------- --------------- --------------- ---------------
Variable:
Variable rate debt (1) (2) 33,814,478 25,354,127 373,964,041 373,964,041
Weighted average interest rate 7.09%
Tax exempt (1) - 65,107,999 154,419,689 154,419,689
Weighted average interest rate 3.66%
Revolving credit facility - - 105,000,000 105,000,000
Weighted average interest rate 7.13%
------------- --------------- --------------- ---------------
Total Variable Rate Debt 33,814,478 90,462,126 633,383,730 633,383,730
------------- --------------- --------------- ---------------
Total Long-Term Debt $ 119,373,293 $ 1,444,554,372 2,478,872,451 $ 2,469,704,650
============= =============== =============== ===============
<FN>
(1) Represents nonrecourse debt.
(2) As of January 31, 1999, $219,003,000 of variable-rate debt has been
hedged via $133,479,000 of 1-year LIBOR contracts and $85,524,000 of
LIBOR-based swaps that have a combined remaining average life of 0.65
years.
</FN>
</TABLE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are
incorporated by reference to "Report of Independent Accountants," "Consolidated
Financial Statements," "Notes to Consolidated Financial Statements" and
"Quarterly Consolidated Financial Data (Unaudited)" located on pages 25 through
42 of the 1998 Annual Report to Shareholders.
Financial Statement Schedule II, "Valuation and Qualifying Accounts" and
Schedule III, "Real Estate and Accumulated Depreciation" are included in Part
IV, Item 14(d).
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors is contained in a definitive proxy
statement which the registrant anticipates will be filed by May 3,
1999 and is incorporated herein by reference.
(b) Pursuant to General Instruction G of Form 10-K and Item 401(b) of
Regulation S-K, Executive Officers of the Registrant are reported in
Part I of this Form 10-K.
(c) The disclosure of delinquent filers, if any, under Section 16(a) of
the Securities Exchange Act of 1934 is contained in a definitive proxy
statement which the registrant anticipates will be filed by May 3,
1999 and is incorporated herein by reference.
Item 11. Executive Compensation; Item 12. Security Ownership of Certain
Beneficial Owners and Management; and Item 13. Certain Relationships and Related
Transactions
Information required under these sections is contained in a definitive
proxy statement which the registrant anticipates will be filed by May 3, 1999
and is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents filed as part of this report.
1. The following financial statements and supplementary data
included in the 1998 Annual Report to Shareholders are
incorporated by reference in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets - January 31, 1999 and 1998
Consolidated Statements of Earnings for the three years ended
January 31, 1999
Consolidated Statements of Shareholders' Equity for the three
years ended January 31, 1999
Consolidated Statements of Cash Flows for the three years ended
January 31, 1999
Notes to Consolidated Financial Statements
Quarterly Consolidated Financial Data (Unaudited)
Individual financial statements of 50% or less owned persons
accounted for by the equity method have been omitted because such
50% or less owned persons considered in the aggregate as a single
subsidiary would not constitute a significant subsidiary.
2. Financial statement schedules required by Part II, Item 8 are
included in Part IV, Item 14(d):
Page No.
Schedule II - Valuation and Qualifying Accounts
for the years ended January 31, 1999, 1998 and 1997 21
Schedule III - Real Estate and Accumulated Depreciation
at January 31, 1999 with reconciliations for the years
ended January 31, 1999, 1998 and 1997 22-23
The report of the independent accountants with respect to the
above listed financial statement schedules appears on page 20.
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown in the consolidated financial statements or notes
thereto. Columns omitted from schedules filed have been omitted
because the information is not applicable.
3. Exhibits - see (c) below.
(b) Reports on Form 8-K filed during the three months ended January
31, 1999: None.
(c) Exhibits.
Exhibit
Number Description of Document
3.1 Amended Articles of Incorporation adopted as of October
11, 1983, incorporated by reference to Exhibit 3.1 to
the Company's Form 10-Q for the quarter ended October
31, 1983 (File No. 1-4372).
3.2 Code of Regulations as amended June 14, 1994,
incorporated by reference to Exhibit 3.2 to the
Company's Form 10-K for the fiscal year ended January
31, 1997 (File No.1-4372).
<PAGE>
Exhibit
Number Description of Document
3.3 Certificate of Amendment by Shareholders to the
Articles of Incorporation of Forest City Enterprises,
Inc. dated June 24, 1997, incorporated by reference to
Exhibit 4.14 to the Company's Registration Statement on
Form S-3 (Registration No. 333-41437).
3.4 Certificate of Amendment by Shareholders to the
Articles of Incorporation of Forest City Enterprises,
Inc. dated June 16, 1998, incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (Registration No. 333-61925).
4.1 Form of Senior Subordinated Indenture between the
Company and National City Bank, as Trustee thereunder,
incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-22695).
4.2 Form of Junior Subordinated Indenture between the
Company and National City Bank, as Trustee thereunder,
incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-3
(Registration No. 333-22695).
4.3 Form of Senior Subordinated Indenture between the
Company and The Bank of New York, as Trustee
thereunder, incorporated by reference to Exhibit 4.22
to the Company's Registration Statement on Form S-3
(Registration No. 333-41437).
10.1 Credit Agreement, dated as of December 10, 1997, by and
among Forest City Rental Properties Corporation, the
banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as
syndication agent, incorporated by reference to Exhibit
10.38 to the Company's Form 10-Q for the quarter ended
October 31, 1997 (File No. 1-4372).
10.2 Guaranty of Payment of Debt, dated as of December 10,
1997, by and among Forest City Enterprises, Inc., the
banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as
syndication agent, incorporated by reference to Exhibit
10.39 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).
<PAGE>
Exhibit
Number Description of Document
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).
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).
<PAGE>
Exhibit
Number Description of Document
10.14 First Amendment to Employment Agreement entered into as
of December 6, 1996 by the Company and Albert B.
Ratner, incorporated by reference to Exhibit 10.12 to
the Company's Form 10-K for the year ended January 31,
1997 (File No. 1-4372).
10.15 Employment Agreement entered into on April 6, 1998,
effective as of February 1, 1997, by the Company and
Samuel H. Miller, incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the year ended
January 31, 1998 (File No. 1-4372).
10.16 Employment Agreement entered into on April 6, 1998,
effective as of February 1, 1997, by the Company and
Charles A. Ratner, incorporated by reference to Exhibit
10.16 to the 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).
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).
<PAGE>
Exhibit
Number Description of Document
10.24 Letter Supplement to Split Dollar Insurance Agreement
and Assignment of Life Insurance Policy as Collateral
between Brian J. Ratner and Forest City Enterprises,
Inc., insuring the lives of Albert Ratner and Audrey
Ratner, effective June 26, 1996, incorporated by
reference to Exhibit 10.21 to the Company's Form 10-K
for the year ended January 31, 1997 (File No. 1-4372).
10.25 Letter Supplement to Split Dollar Insurance Agreement
and Assignment of Life Insurance Policy as Collateral
between Deborah Ratner Salzberg and Forest City
Enterprises, Inc., insuring the lives of Albert Ratner
and Audrey Ratner, effective June 26, 1996,
incorporated by reference to Exhibit 10.22 to the
Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.26 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1992 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the lives of Charles Ratner
and Ilana Horowitz (Ratner), dated November 2, 1996,
incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.27 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.24 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.28 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.25 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.29 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.26 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.30 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.27 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
<PAGE>
Exhibit
Number Description of Document
10.31 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.28 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.32 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.29 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.33 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.30 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.34 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.31 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.35 Letter Supplement to Split Dollar Insurance Agreement
and Assignment of Life Insurance Policy as Collateral
between James Ratner and Albert Ratner, Trustees under
the Charles Ratner 1992 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the lives of
Charles Ratner and Ilana Ratner, effective November 2,
1996, incorporated by reference to Exhibit 10.32 to the
Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.36 First Amendment to the 1994 Stock Option Plan dated as
of June 9, 1998, incorporated by reference to Exhibit
4.7 to the Company's Registration Statement on Form S-8
(Registration No. 333-61925).
10.37 First Amendment to the forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement,
incorporated by reference to Exhibit 4.8 to the
Company's Registration Statement on Form S-8
(Registration No.333-61925).
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).
10.39 Third Amendment to Credit Agreement, dted as of January
29, 1999, by and among Forest City Rental Properties
Corporation, the banks named therein, KeyBank National
Association, as administravtive 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.
<PAGE>
Exhibit
Number Description of Document
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.
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.
* 10.42 Dividend Reinvestment and Stock Purchase Plan.
* 10.43 Deferred Compensation Plan for Executives,
effective as of January 1, 1999.
* 10.44 Deferred Compensation Plan for Nonemployee
Directors, effective as of January 1, 1999.
* 13 1998 Annual Report to Shareholders.
* 21 Subsidiaries of the Registrant. See page 24.
* 23 Consent of PricewaterhouseCoopers LLP regarding
Forms S-3 (Registration No. 333-22695 and 333-41437)
and Forms S-8 (Registration No. 33-65054, 33-65058 and
333-61925).
* 24 Powers of attorney.
* 27 Financial Data Schedules.
- -----------------
* Filed herewith.
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Forest City Enterprises, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 10, 1999 appearing on page 25 of the 1998 Annual Report to
Shareholders of Forest City Enterprises, Inc. and subsidiaries (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedules
listed in Item 14(a)(2) of this Form 10-K. In our opinion, these financial
statement schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 10, 1999
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts
January 31, 1999 $ 8,169 $ 4,017 $ 4,698 (a) $ 7,488
January 31, 1998 $ 4,994 $ 4,794 $ 1,619 (a) $ 8,169
January 31, 1997 $ 3,687 $ 2,714 $ 1,407 (a) $ 4,994
<FN>
(a) Uncollectible accounts written off.
</FN>
Reserve for
project write-off's
January 31, 1999 $ 9,551 $ 2,291(b) $ 0 $ 11,842
January 31, 1998 $ 9,491 $ 60(b) $ 0 $ 9,551
January 31, 1997 $ 9,491 $ 0(b) $ 0 $ 9,491
<FN>
(b) Additions charged to costs and expenses were recorded net of abandoned
development projects written off of $7,305, $6,774 and $6,497 for the years
ended January 31, 1999, 1998 and 1997, respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<CAPTION>
Gross amount at
which carried
Initial cost Cost capitalized at close of
to Company subsequent January 31, 1999
Amount of -------------------- acquisition --------------------------------
Encumbrance Buildings ---------------------- Buildings
At January 31, and Carrying and Total
Description of Property 1999 Land Improvements Improvements costs Land Improvements (A) (B)
- ----------------------- -------------- --------------------- ---------------------- ---------------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Miscellaneous investments $ 499,327 $59,341 $ 477,797 $ 58,389 $ 28,798 $ 69,053 $ 555,272 $ 624,325
Shopping Centers:
Miscellaneous investments 746,679 67,652 651,078 154,354 50,588 80,765 842,907 923,672
Office Buildings:
Miscellaneous investments 787,380 27,058 815,712 143,781 70,500 31,013 1,026,038 1,057,051
Leasehold improvements
and other equipment:
Miscellaneous investments - - 20,541 - - - 20,541 20,541
Under Construction:
Miscellaneous investments 115,610 46,532 365,540 - - 46,532 365,540 412,072
Undeveloped Land:
Miscellaneous investments 24,876 49.837 - - - 49,837 - 49,837
------ ------ ------- ------- ------ ------ ------- ------
Total $ 2,173,872 $ 250,420 $ 2,330,668 $ 356,524 $ 149,886 $277,200 $2,810,298 $3,087,498
=========== ========= =========== ========= ========= ======== ========== ==========
Range of lives
(in years) on
which depreciation in
Accumulated latest income
depreciation statement is computed
at January 31, Date of Date ---------------------
1999(C) construction acquired Bldg Improvements
------------- ------------ -------- ---------------------
Apartments:
Miscellaneous investments $ 123,485 Various - Various Various
Shopping Centers:
Miscellaneous investments 160,552 Various - Various Various
Office Buildings:
Miscellaneous investments 193,215 Various - Various Various
Leasehold improvements
and other equipment:
Miscellaneous investments 14,041 - Various Various Various
Under Construction:
Miscellaneous investments -
Undeveloped Land:
Miscellaneous investments -
---------
Total $ 491,293
=========
<FN>
(A) The aggregate cost at January 31, 1999 for federal income tax purposes was $2,879,517.
For (B) and (C) refer to the following pages.
</FN>
</TABLE>
(Continued)
<PAGE>
<TABLE>
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<CAPTION>
For the Years Ended January 31,
--------------------------------------------------------------
1999 1998 1997
--------- -------------- ---------
(in thousands)
<S> <C> <C> <C>
(B) Reconciliations of total real estate carrying value are as follows:
Balance at beginning of period $2,704,560 $2,520,179 $2,425,083
Additions during period -
Improvements 327,471 205,051 148,025
Other acquisitions 156,879 90,438 22,264
---------- ---------- -------
484,350 295,489 170,289
---------- ---------- -------
Deductions during period -
Cost of real estate sold (101,412) (111,108) (75,193)
---------- ---------- --------
Balance at end of period $3,087,498 $2,704,560 $2,520,179
========== ========== ==========
(C) Reconciliations of accumulated depreciation are as follows:
Balance at beginning of period $448,634 $399,830 $347,912
Additions during period -
Charged to profit or loss 61,908 56,923 52,979
Deductions during period -
Retirement and sales (19,249) (8,119) (1,061)
-------- ------- -------
Balance at end of period $491,293 $ 448,634 $ 399,830
======== ========= =========
</TABLE>
<PAGE>
Item 14. Exhibit 21 - Parents and Subsidiaries
The voting securities of the subsidiaries below are in each case owned by Forest
City Enterprises, Inc. except where a subsidiary's name is indented, in which
case that subsidiary's voting securities are owned by the next preceding
subsidiary whose name is not so indented.
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Owned By State of
Name of Subsidiary Immediate Parent Incorporation
- --------------------------------------- ----------------- -------------
<S> <C> <C>
Forest City Rental Properties Corporation 100 Ohio
Forest City Commercial Group, Inc. 100 Ohio
Central Station Limited Partnership 100 Illinois
Temecula Power Center LLC 100 Ohio
Forest City Residential Group, Inc. 100 Ohio
Forest City Trading Group, Inc. 100 Oregon
Sunrise Development Company 100 Ohio
Sunrise Land Company 100 Ohio
FC Granite, Inc. 100 Ohio
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 27, 1999 BY: /s/ Charles A. Ratner
-------------- --------------------------
(Charles A. Ratner, President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------- ----------------------------------------- -------------
<S> <C> <C>
/s/ Albert B. Ratner Co-Chairman of the Board and Director April 27, 1999
(Albert B. Ratner)
/s/ Samuel H. Miller Co-Chairman of the Board, Treasurer April 27, 1999
(Samuel H. Miller) and Director
* President, Chief Executive Officer April 27, 1999
(Charles A. Ratner) and Director (Principal Executive Officer)
/s/ Thomas G. Smith Senior Vice President, Chief April 27, 1999
(Thomas G. Smith) Financial Officer and Secretary
(Principal Financial Officer)
/s/ Linda M. Kane Vice President and Corporate Controller April 27, 1999
(Linda M. Kane) (Principal Accounting Officer)
/s/ James A. Ratner Executive Vice President and Director April 27, 1999
(James A. Ratner)
/s/ Ronald A. Ratner Executive Vice President and Director April 27, 1999
(Ronald A. Ratner)
/s/ Brian J. Ratner Senior Vice President and Director April 27, 1999
(Brian J. Ratner)
/s/ Deborah Ratner Salzberg Director April 27, 1999
(Deborah Ratner Salzberg)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ --------- --------------
<S> <C> <C>
/s/ Michael P. Esposito, Jr. Director April 27, 1999
(Michael P. Esposito, Jr.)
/s/ Scott S. Cowen Director April 27, 1999
(Scott S. Cowen)
/s/ Jerry V. Jarrett Director April 27, 1999
(Jerry V. Jarrett)
/s/ Joan K. Shafran Director April 27, 1999
(Joan K. Shafran)
/s/ Louis Stokes Director April 27, 1999
(Louis Stokes)
</TABLE>
The Registrant plans to furnish security holders a copy of the Annual Report and
Proxy material by May 3, 1999.
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and Officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and
execute this Form 10-K on behalf of each of the persons noted above, in the
capacities indicated.
By: /s/ Charles A. Ratner April 27, 1999
(Charles A. Ratner, Attorney-in-Fact)
<PAGE>
Exhibit Index
-------------
Exhibit
Number Description of Document
3.1 Amended Articles of Incorporation adopted as of October
11, 1983, incorporated by reference to Exhibit 3.1 to
the Company's Form 10-Q for the quarter ended October
31, 1983 (File No. 1-4372).
3.2 Code of Regulations as amended June 14, 1994,
incorporated by reference to Exhibit 3.2 to the
Company's Form 10-K for the fiscal year ended January
31, 1997 (File No.1-4372).
3.3 Certificate of Amendment by Shareholders to the
Articles of Incorporation of Forest City Enterprises,
Inc. dated June 24, 1997, incorporated by reference to
Exhibit 4.14 to the Company's Registration Statement on
Form S-3 (Registration No. 333-41437).
3.4 Certificate of Amendment by Shareholders to the
Articles of Incorporation of Forest City Enterprises,
Inc. dated June 16, 1998, incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (Registration No. 333-61925).
4.1 Form of Senior Subordinated Indenture between the
Company and National City Bank, as Trustee thereunder,
incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-22695).
4.2 Form of Junior Subordinated Indenture between the
Company and National City Bank, as Trustee thereunder,
incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-3
(Registration No. 333-22695).
4.3 Form of Senior Subordinated Indenture between the
Company and The Bank of New York, as Trustee
thereunder, incorporated by reference to Exhibit 4.22
to the Company's Registration Statement on Form S-3
(Registration No. 333-41437).
10.1 Credit Agreement, dated as of December 10, 1997, by and
among Forest City Rental Properties Corporation, the
banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as
syndication agent, incorporated by reference to Exhibit
10.38 to the Company's Form 10-Q for the quarter ended
October 31, 1997 (File No. 1-4372).
10.2 Guaranty of Payment of Debt, dated as of December 10,
1997, by and among Forest City Enterprises, Inc., the
banks named therein, KeyBank National Association, as
administrative agent, and National City Bank, as
syndication agent, incorporated by reference to Exhibit
10.39 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).
<PAGE>
Exhibit
Number Description of Document
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).
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).
<PAGE>
Exhibit
Number Description of Document
10.14 First Amendment to Employment Agreement entered into as
of December 6, 1996 by the Company and Albert B.
Ratner, incorporated by reference to Exhibit 10.12 to
the Company's Form 10-K for the year ended January 31,
1997 (File No. 1-4372).
10.15 Employment Agreement entered into on April 6, 1998,
effective as of February 1, 1997, by the Company and
Samuel H. Miller, incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the year ended
January 31, 1998 (File No. 1-4372).
10.16 Employment Agreement entered into on April 6, 1998,
effective as of February 1, 1997, by the Company and
Charles A. Ratner, incorporated by reference to Exhibit
10.16 to the 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).
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).
<PAGE>
Exhibit
Number Description of Document
10.24 Letter Supplement to Split Dollar Insurance Agreement
and Assignment of Life Insurance Policy as Collateral
between Brian J. Ratner and Forest City Enterprises,
Inc., insuring the lives of Albert Ratner and Audrey
Ratner, effective June 26, 1996, incorporated by
reference to Exhibit 10.21 to the Company's Form 10-K
for the year ended January 31, 1997 (File No. 1-4372).
10.25 Letter Supplement to Split Dollar Insurance Agreement
and Assignment of Life Insurance Policy as Collateral
between Deborah Ratner Salzberg and Forest City
Enterprises, Inc., insuring the lives of Albert Ratner
and Audrey Ratner, effective June 26, 1996,
incorporated by reference to Exhibit 10.22 to the
Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.26 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1992 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the lives of Charles Ratner
and Ilana Horowitz (Ratner), dated November 2, 1996,
incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.27 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.24 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.28 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.25 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.29 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.26 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.30 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.27 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
<PAGE>
Exhibit
Number Description of Document
10.31 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Max Ratner 1988
Grandchildren's Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.28 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.32 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.29 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.33 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.30 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.34 Split Dollar Insurance Agreement and Assignment of Life
Insurance Policy as Collateral between Albert B. Ratner
and James Ratner, Trustees under the Charles Ratner
1989 Irrevocable Trust Agreement and Forest City
Enterprises, Inc., insuring the life of Charles Ratner,
dated October 24, 1996, incorporated by reference to
Exhibit 10.31 to the Company's Form 10-K for the year
ended January 31, 1997 (File No. 1-4372).
10.35 Letter Supplement to Split Dollar Insurance Agreement
and Assignment of Life Insurance Policy as Collateral
between James Ratner and Albert Ratner, Trustees under
the Charles Ratner 1992 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the lives of
Charles Ratner and Ilana Ratner, effective November 2,
1996, incorporated by reference to Exhibit 10.32 to the
Company's Form 10-K for the year ended January 31, 1997
(File No. 1-4372).
10.36 First Amendment to the 1994 Stock Option Plan dated as
of June 9, 1998, incorporated by reference to Exhibit
4.7 to the Company's Registration Statement on Form S-8
(Registration No. 333-61925).
10.37 First Amendment to the forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement,
incorporated by reference to Exhibit 4.8 to the
Company's Registration Statement on Form S-8
(Registration No.333-61925).
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).
10.39 Third Amendment to Credit Agreement, dted as of January
29, 1999, by and among Forest City Rental Properties
Corporation, the banks named therein, KeyBank National
Association, as administravtive 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.
<PAGE>
Exhibit
Number Description of Document
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.
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.
* 10.42 Dividend Reinvestment and Stock Purchase Plan.
* 10.43 Deferred Compensation Plan for Executives,
effective as of January 1, 1999.
* 10.44 Deferred Compensation Plan for Nonemployee
Directors, effective as of January 1, 1999.
* 13 1998 Annual Report to Shareholders.
* 21 Subsidiaries of the Registrant. See page 24.
* 23 Consent of PricewaterhouseCoopers LLP regarding
Forms S-3 (Registration No. 333-22695 and 333-41437)
and Forms S-8 (Registration No. 33-65054, 33-65058 and
333-61925).
* 24 Powers of attorney.
* 27 Financial Data Schedules.
- -----------------
* Filed herewith.
Exhibit 10.42
Dividend
Reinvestment
and Stock
Purchase
Plan
DEAR SHAREHOLDER:
We cordially invite you to participate in the Forest City Enterprises, Inc.
Dividend Reinvestment and Stock Purchase Plan. You only need to be a shareholder
of record to join either or both of the Plan's two convenient options. Under
Option I you may have all or a portion of your dividends automatically
reinvested in shares of Common Stock of Forest City. Under Option II, whenever
you wish, you may make monthly cash payments (but not more frequently than once
a month), which will be used to buy additional shares of Common Stock for you.
Option III combines both Options I and II. All costs and service charges
incurred in purchasing Common Stock through the Plan are paid by the Company.
However, you will incur brokerage commissions on shares sold under the Plan.
This Plan provides you with an economical and convenient method for
investing in additional shares of Forest City Enterprises, Inc. Common Stock.
Your participation in the Plan is, of course, completely voluntary, and may be
discontinued at any time.
Details of the Plan are contained in this brochure. We recommend that you
read it carefully and retain if for future reference.
All questions, inquiries, remittances, and other correspondence in
connection with the Plan should be addressed to the Plan Administrator, National
City Bank.
Sincerely,
Samuel H. Miller
Co-Chairman of the Board
and Treasurer
Albert B. Ratner
Co-Chairman of the Board
Charles A. Ratner
President and Chief Executive Officer
<PAGE>
DESCRIPTION OF THE PLAN
WHAT IS THE PURPOSE OF THE PLAN?
The Dividend Reinvestment and Stock Purchase Plan ("Plan") offers you an
opportunity under the Dividend Reinvestment Option ("Option I") to purchase
shares of Common Stock of Forest City Enterprises, Inc. (the "Company") with all
or a portion of your dividends, at a 3% discount to market price at the time of
purchase. Under the Stock Purchase Option ("Option II") you may purchase shares
of Common Stock with cash payments ranging from a minimum of $10 to a maximum of
$5,000 monthly, although you may make cash payments less frequently if you wish.
Both Options in the Plan provide you with a 3% discount to market price at the
time of purchase and both Options are offered through National City Bank (the
"Bank"). These Options have been designed for you as a shareholder of the
Company whether you own many shares or just a few. You may choose either Option
or both. Details of the Plan, the Options, and their benefits to you as a
shareholder of the Company are contained in this brochure.
WHAT ARE THE BENEFITS OF THE PLAN?
You do not pay a commission as you would if you invested through a broker.
Your dividend or cash is invested in full and fractional shares at a 3% discount
to market price, and the Company pays the Bank's service charges and the
brokerage commissions for purchases under both Option I and Option II. However,
you will incur brokerage commissions on shares sold under the Plan.
You will receive an acknowledgment from the Bank each time you send cash to
invest. You also will receive a statement from the Bank each time your dividends
or cash payments are invested.
Your dollars are invested in full and fractional shares to three decimal
places.
. You may reinvest all or a portion of your dividends.
All Common Shares purchased through the Plan are held by the Bank for you as
beneficial owner, in the name of the Bank or the Bank's nominee. This
convenience provides protection against certificates being lost, misplaced or
stolen.
Even small dividend payments may be fully utilized.
The Plan is entirely voluntary, and you may terminate your participation at
any time.
. You may send the Bank your other Forest City share certificates for
safekeeping, free of charge.
. You maintain the voting rights on full and fractional shares in the Plan.
WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN?
If you are a holder of Class A Common Stock or Class B Common Stock and your
shares are registered in your name, you are eligible to participate in the Plan.
If your shares are registered in a name other than your own and you would like
to participate, you must make arrangements with your broker, bank or other
entity acting in a representative capacity to have all or a portion of your
shares transferred into your name.
<PAGE>
HOW DOES THE PLAN WORK?
OPTION I DIVIDEND REINVESTMENT OPTION
Under this Option, you authorize the Company to pay all of your dividends
or, if you prefer, a portion of your dividends on Class A Common Stock and/or
Class B Common Stock to the Bank for the purchase of Class A Common Stock and/or
Class B Common Stock, as the case may be, on the open market. Dividends from a
specific Class of Common Stock can only be reinvested in that Class of Common
Stock. When the Bank makes the purchase, your account is credited with the
number of full and fractional shares purchased with your dividends. Fractional
shares are carried to three decimal places. All full and fractional shares in
your account will earn future dividends for you, thereby further increasing your
shareholdings in the Company. Dividends and cash payments held by the Bank on
dividend payment dates will be invested as promptly as practicable.
OPTION II STOCK PURCHASE OPTION
If you take advantage of this Option, you may send the Bank a check or money
order payable to "National City Bank" in any amount from $10 to $5,000, along
with instructions for the Bank to purchase shares of Forest City Common Stock
for your account. You may only purchase the same Class of Common Stock as you
hold. If you hold both Class A Common Stock and Class B Common Stock, you may
purchase either Class of Common Stock under this Option. Please be certain to
include your name, address and Social Security (or taxpayer identification)
number along with any communication to the Bank.
You may do this from time to time as you wish, but not more frequently than
once a month. The Bank will purchase shares at a 3% discount to market price and
credit your account with such purchases. Cash payments will be invested on the
fifteenth of each month or as soon thereafter as practicable. You may wish to
time your cash payments accordingly. No interest will be paid on the uninvested
cash that remains in your account between monthly purchases.
Under Option II, you will continue to receive your dividend checks on Class
A Common Stock and Class B Common Stock of the Company registered in your name,
unless you also elect to participate in Option I. Dividends on shares purchased
through Option II and held by the Bank will be reinvested automatically.
OPTION III BOTH OPTIONS
Under both Options, the Bank will combine dividends received on record
shares and on issued shares for a participant's ("Participant") account with any
cash payments made by the Participant.
Each time funds are invested, you will receive a detailed statement of your
account, showing dividends and any cash payments received, shares purchased,
price per share, brokerage commissions paid and total shares held for you by the
Bank. Your statement will include a detachable form to be used to give the Bank
notice of a change of address, to provide instructions for the sale or
withdrawal of shares, to make cash payments under Option II, or to terminate
your participation in the Plan.
For your convenience, the Bank will retain your shares for you, unless you
request a share certificate. You may terminate your participation in either
Option at any time as provided in the Dividend Reinvestment and Stock Purchase
Plan Agreement ("Agreement"). Should you terminate your participation, you will
receive share certificates issued in your name for your full shares and cash for
the fractional shares sold for your account. You also may elect to have all of
your shares sold and receive cash upon termination of your participation. You
will incur brokerage commissions on shares sold under the Plan.
As a Participant in the Plan you may direct the voting of all full and
fractional shares in your account and will continue to receive all literature
sent to shareholders of the Company.
<PAGE>
HOW DO I ENROLL IN THE PLAN?
As a shareholder of record, you may enroll in the Plan by signing the
enclosed authorization card, checking Option I or Option II or Option III, and
returning the card to the Bank at the address shown in this brochure.
OPTION I WILL BEGIN ON THE NEXT DIVIDEND RECORD DATE AFTER YOUR CARD IS
RECEIVED.
Forest City's regular quarterly dividends, to the extent declared by the
Board of Directors, are usually payable to shareholders of record on the first
business day of March, June, September and December.
Forest City's dividends are usually paid on the 15th day of March, June,
September and December. When the 15th day is a Saturday, Sunday or holiday, the
dividend is usually paid on the next business day.
OPTION II WILL START WHEN YOUR FIRST REMITTANCE IS RECEIVED.
HOW MAY A PARTICIPANT CHANGE OPTIONS UNDER THE PLAN?
As a Participant, you may change your investment option at any time by
completing a new Authorization Card and returning it to the Plan Administrator,
National City Bank, at the address shown in this brochure.
ARE THERE ANY EXPENSES TO PARTICIPANTS IN CONNECTION WITH PURCHASES UNDER THE
PLAN?
Participants incur no service charges or brokerage commissions for
purchases made under the Plan. However, Participants will incur brokerage
commissions on shares sold under the Plan.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE PLAN?
Participants in the Plan have the same Federal income tax obligations with
respect to their dividends as do shareholders who do not participate in the
Plan. Therefore, reinvested dividends are taxable as having been received in
cash even though the Participant uses them to purchase additional shares under
the Plan. In addition, the amount of the 3% discount from the market price,
which amount will be paid on behalf of the Participants by the Company, will be
taxable as ordinary income. Also, the Internal Revenue Service has ruled that
the amount of brokerage commissions paid by the Company for shares purchased on
a Participant's behalf is to be treated as a distribution to the Participant
which is subject to income tax in the same manner as dividends. The amount of
such brokerage commissions and discount amount will increase the Participant's
tax basis for those shares purchased under the Plan. Thus, a Participant's tax
basis for shares purchased under the Plan with reinvested dividends or optional
cash payments will be equal to the amount paid by the participant for the shares
plus the amount of brokerage commissions included as a distribution to the
Participant, plus the amount of the discount.
A Form 1099-DIV will be sent to you annually reporting the dividends earned
and brokerage commissions and discount paid by the company for that year. These
amounts should be reported on your Federal income tax return. A Form 1099-B will
be sent to you if you sold shares under the Plan. All statements pertaining to
your account should be retained for the purpose of computing income tax upon the
sale of any shares held in your account.
Participants are advised to consult their personal tax advisor to determine
the tax consequences that may result from their participation in the Plan and
from subsequent sales or other dispositions of shares purchased under the Plan.
<PAGE>
HOW DO I TERMINATE MY PARTICIPATION IN THE PLAN?
You may terminate your account at any time by notifying the Bank in
writing. See the Agreement below for details and specific instructions.
Dividend Reinvestment and Stock
Purchase Agreement
1. The Bank, as agent for the Participant, will:
a.Apply cash dividends on all, or any portion of, the Class A Common Stock
and/or Class B Common Stock of the Company held by the Participant and on
any full shares or fractional interest in one share (to three decimal
places) acquired through the Plan.
b.Apply cash payments of $10 to $5,000 (but not more than once a month)
received from the Participant for such purpose under Option II, as the
Participant may elect, to the purchase of full and fractional shares of
Class A Common Stock or Class B Common Stock (or both, as the case may be)
of the Company for the Participant's account. Such purchases may be made on
any securities exchange where such shares are traded, in the
over-the-counter market, or in negotiated transactions, and may be on such
terms as to price, delivery, and otherwise as the Bank, in its sole
discretion, may determine.
2. In making purchases for the Participant's account, the Bank may commingle the
Participant's dividends and cash payments with those of other Participants. In
the case of each purchase, the price at which the Bank shall be deemed to have
acquired shares for the Participants' accounts shall be the average price of all
shares purchased by it from funds used for such purchase. The Bank may hold the
shares of all Participants together in its name or in the name of its nominee.
The Bank shall have sole discretion as to (i) the price per share of Common
Stock of the Company it purchases or sells on behalf of a Participant, (ii)
where such purchases or sales may be made, whether on any securities exchange
where the shares of Common Stock of the Company are traded, in the
over-the-counter market, or in negotiated transactions, (iii) the terms of the
purchase or sale, including the timing thereof and the method of delivery, and
(iv) the selection of the Broker or other agent from, to or through, which such
purchases or sales are made. The Bank shall have no responsibility as to the
market value of the Common Stock of the Company acquired for the Participant's
account. Dividends will be reinvested by the Bank promptly after the dividend
payment date, and in no event will dividends or cash payments be invested by the
Bank later than thirty days after receipt of dividends or thirty-five days after
receipt of cash payments. It is understood that, in any event, the Bank shall
have no liability in connection with its inability to purchase shares for
reasons beyond the Bank's control. Participants' funds held by the Bank will not
bear interest. A Participant may withdraw any cash payment by written notice
providing that the notice is received by the Bank not less than two business
days before the payment is to be invested.
3. Following each purchase, the Bank will send to each Participant an
information statement concerning the transaction and showing the current shares
in the account.
4. No certificates will be issued to the Participant for shares in the account
unless the Participant so requests the Bank in writing or unless the account is
terminated. The Participant may request that a certificate be sent to the
Participant for full shares credited to the account without terminating the
account. Requests for account termination will be processed by the bank without
charge to the Participant. No certificate for a fractional share will be issued.
5. All of the Bank's service charges and all brokerage commissions as well as 3%
of the purchase price for each share purchase will be paid by the Company on
behalf of the Participants. However, Participants will incur brokerage
commissions on shares sold under the Plan. The Bank may charge for any
additional services it performs at the request of the Participant which are not
provided for herein.
<PAGE>
6. It is understood that the reinvestment of dividends does not relieve the
Participant of his or her obligation to pay any taxes due on such dividends. The
Bank will report annually to each Participant and to the Federal Government the
amount of dividends credited to the Participant's account during the year,
brokerage commissions and discount amount paid on the Participant's behalf, and
any sales transactions.
7. The Bank will send to every Participant a form of proxy representing the
Common Shares of the Company held by the Participant in his or her account. If a
Participant does not direct the Bank as to how to vote the shares, the Bank will
not vote them.
8. a. A Participant may terminate his or her account at any time by notifying
the Bank. All dividends having a record date after receipt of such letter
will be paid directly to the Participant. In requesting termination, a
Participant may elect to receive either shares or cash for the full shares
in the account. If cash is elected, the Bank will sell such shares and send
the net proceeds to the Participant as soon as practicable less any
brokerage commissions. If no election is made in the request for
termination, a certificate for all full shares held in the Participant's
account will be issued.
b. The Bank may terminate any Participant's account at any time at its
discretion.
c. In any case, the Participant will receive cash in lieu of any fractional
interest in a share at the then current market value of Common Shares of
the Company.
d. If a Participant in Option I of the Plan disposes of all shares
registered in his or her name on the books of the Company, and such
disposal occurs after a dividend record date so that the Bank thereafter
receives a dividend payment, then the Bank at its discretion may continue
to reinvest the dividends paid on the shares in the Participant's account
until otherwise notified in writing by the Participant.
e. The Participant may sell part of the shares or request partial delivery
of the shares in his or her account without terminating the account.
Brokerage commissions on shares sold under the Plan will be incurred by the
Participant.
9. a. It is understood that share dividends, share splits or proceeds of
sale of stock purchase rights on shares held for the Participant under the
Plan will be credited to the Participant's account.
b. It is further understood that dividends on shares belonging to the
Participant under Option I will be credited to the Participant's account.
c. In the event that the Company makes available to its Shareholders,
rights to purchase additional shares, debentures or other securities, the
Bank shall sell such rights accruing to shares held by the Bank for
Participants and invest the resulting funds in Common Shares on the next
investment date. The Bank may at its sole discretion, hold the shares of
all Participants together in its name or in the name of its nominee. In the
event the Participant desires to personally exercise any rights which may
accrue from time to time to shares held in the Participant's account, the
Participant must request distribution of certificates as provided for in
Paragraph 4 above, prior to the time such rights accrue.
10. The Participant may elect to send the Bank the Participant's other Company
share certificates for safekeeping by the Bank without charge to the
Participant. Since they bear the risk of loss during transit, Participants are
advised to send certificates by registered mail, properly insured, return
receipt requested. Such certificates should not be endorsed.
<PAGE>
11. The Bank shall not be liable hereunder for any act or failure to act,
including without limitation, any claim of liability (a) arising out of a
failure to terminate the Participant's account upon such Participant's death or
adjudication of incompetency prior to receipt of notice in writing of the death
or incompetency; (b) with respect to the prices at which such shares are
purchased or sold for a Participant's account; and (c) certificates which are
sent by the Participant to the Bank and are lost in transit prior to receipt by
the Bank.
12. The Participant agrees to notify the Bank promptly in writing of any change
of address. Notices to the Participant may be given by letter addressed to the
Participant at the last known address as reflected by the records of the Bank.
13. This Agreement may be amended, modified, or supplemented at any time by the
Bank with thirty (30) days' prior notice to the Participant of such amendment,
modification, or supplement, mailed to the Participant at the last known address
as reflected by the records of the Bank. The Bank retains the right to terminate
or suspend the Bank's duty of making purchases or sales on behalf of a
Participant under the Plan, in the event that the Company notifies the Bank that
the Company believes that any purchases or sales of Common Shares of the Company
by the Bank would be in violation of any rule or regulation of the Securities
Exchange Commission or of any exchange, including the over-the-counter market,
on which the Common Shares of the Company are traded or would be in violation of
any other federal or state securities' law and the Company so notifies the Bank
in writing. In such event, the Bank shall promptly notify each Participant by
notice mailed to the Participant as set forth above of such termination or
suspension.
14. This Agreement, the authorization card signed by the Participant (which is
deemed a part of this Agreement), and the account shall all be governed by and
construed in accordance with the laws of the State of Ohio and the rules and
regulations of the Securities and Exchange Commission as they may be changed or
amended from time to time.
<PAGE>
Forest City Enterprises, Inc.
1100 Terminal Tower
50 Public Square
Cleveland, Ohio 44113
Agent:
NATIONAL CITY BANK
Corporate Trust Department
Dividend Reinvestment Plan
P.O. Box 94946
Cleveland, Ohio 44101-4946
Telephone 1-800-622-6757
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Forest City Enterprises, Inc.
1100 Terminal Tower
50 Public Square
Cleveland, Ohio
Return Service Requested
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FOREST CITY ENTERPRISES, INC. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
AUTHORIZATION
I hereby authorize Forest City Enterprises, Inc. to pay to National City
Bank ("Agent") dividends and other distributions payable to me on shares of
Forest City Class A Common Stock registered in my name, as indicated below, and
appoint the Agent as my agent to purchase full and fractional shares of Forest
City Class A Common Stock for such dividends and/or optional cash payments as I
may make. My participation in the Plan and this authorization are subject to the
terms and conditions of the Plan Agreement of which I have a copy. I understand
that I may terminate my participation at any time.
|_|I Dividend Reinvestment Option: Mail this authorization to:
Reinvest the dividends on shares of
class A Common Stock which are National City Bank
registered in my name as follows: P.O. Box 94946
|_|100% |_| % Cleveland, Ohio 44101-4946
|_|II Stock Purchase Option: CHECK ONE OF THE BOXES AND
SIGN BELOW.
I shall from time to time make cash An optional cash paymenT of
payments to purchase additional shares of $ is enclosed.
of Class A Common Stock. Dividends on
such shares purchased under the Plan DATE
will be reinvested. All dividends on
shares registered in my name, other SIGNATURE(S)
than in the Plan, are to be paid
directly to me. (All owners must sign exactly
as shown on stock certificates.)
|_|III Both Options:
Reinvest the dividends on shares of
Class A Common Stock held by me as
follows:
|_| 100% |_| %
I shall also make optional cash payments
from time to time to purchase shares of
Class A Common Stock on which dividends
are to be reinvested.
PRINT NAME: ACCOUNT NO.
(AS IT APPEARS ON YOUR CERTIFICATES)
TAXPAYER I.D. NO.:
ADDRESS:
(Include Zip Code)
NOTE: Please sign the reverse side,
and check (x) the desired option.
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FOREST CITY ENTERPRISES, INC. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
AUTHORIZATION
I hereby authorize Forest City Enterprises, Inc. to pay to National City
Bank ("Agent") dividends and other distributions payable to me on shares of
Forest City Class B Common Stock registered in my name, as indicated below, and
appoint the Agent as my agent to purchase full and fractional shares of Forest
City Class B Common Stock for such dividends and/or optional cash payments as I
may make. My participation in the Plan and this authorization are subject to the
terms and conditions of the Plan Agreement of which I have a copy. I understand
that I may terminate my participation at any time.
|_|I Dividend Reinvestment Option: Mail this authorization to:
Reinvest the dividends on shares of
Class B Common Stock which are National City Bank
registered in my name as follows: P.O. Box 94946
|_|100% |_| % Cleveland, Ohio 44101-4946
|_|II Stock Purchase Option: CHECK ONE OF THE BOXES AND
SIGN BELOW.
I shall from time to time make cash An optional cash payment
payments to purchase additional shares of $ is enclosed.
of Class B Common Stock. Dividends on
such shares purchased under the Plan DATE
will be reinvested. All dividends on
shares registered in my name, other SIGNATURE(S)
than in the Plan, are to be paid
directly to me. (All owners must sign exactly as
shown on stock certificates.)
|_|III Both Options:
Reinvest the dividends on shares of
Class B Common Stock held by me as
follows:
|_| 100% |_| %
I shall also make optional cash payments
from time to time to purchase shares of
Class B Common Stock on which dividends
are to be reinvested.
PRINT NAME: ACCOUNT NO.
(AS IT APPEARS ON YOUR CERTIFICATES)
TAXPAYER I.D. NO.:
ADDRESS:
(Include Zip Code)
NOTE: Please sign the reverse side,
and check (x) the desired option.
Exhibit 10.43
FOREST CITY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
Forest City Enterprises, Inc. hereby establishes, effective as of January
1, 1999, the Forest City Enterprises, Inc. Deferred Compensation Plan For
Executives on the terms and conditions hereinafter set forth. Such Plan provides
a select group of management or highly compensated employees of the Company with
the opportunity to defer base salary, or incentive compensation payments which
may be paid to such executives under any plan which the Committee (as defined
below) may designate from time to time, in accordance with the provisions of the
Plan.
ARTICLE I
DEFINITIONS
For the purposes hereof, the following words and phrases shall have the
meanings set forth below, unless their context clearly requires a different
meaning:
1. "Account" shall mean the bookkeeping account maintained by the Committee
on behalf of each Participant pursuant to Section 4 of Article II that is
credited with Base Salary or Incentive Compensation which is deferred by a
Participant, and the interest on such amounts as determined in accordance with
Section 4 of Article II.
2. "Base Salary" shall mean the annual fixed or base compensation, payable
monthly or otherwise to a Participant.
3. "Beneficiary" or "Beneficiaries" shall mean the person or persons,
including one or more trusts, designated by a Participant in accordance with the
Plan to receive payment of the remaining balance of the Participant's Account in
the event of the death of the Participant prior to receipt of the entire amount
credited to the Participant's Account.
4. "Board" shall mean the Board of Directors of the Company.
5. "Change in Control" shall mean that:
(i) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the securities of such corporation or person that are outstanding
immediately following the consummation of such transaction is held in the
aggregate by either (a) the holders of Voting Stock (as hereinafter
defined) of the Company immediately prior to such transaction or (b)
Permitted Holders;
(ii) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined voting
power of the securities of such corporation or person that are outstanding
immediately following the consummation of such sale or transfer is held in
the aggregate by either (a) the holders of Voting Stock (as hereinafter
defined) of the Company immediately prior to such sale or transfer or (b)
Permitted Holders;
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(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report) thereto, each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) other than a Permitted
Holder has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of securities representing 20 percent or more of
the combined voting power of the then-outstanding securities entitled to
vote generally in the election of the Board (the "Voting Stock");
(iv) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction, other than with respect to a Permitted Holder; or
(v) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board cease for any reason
to constitute at least a majority of the members thereof, unless the
election, or the nomination for election by the Company's stockholders, of
each member of the Board first elected during such period was approved by a
vote of at least two-thirds of the members of the Board then still in
office who were members of the Board at the beginning of any such period.
Notwithstanding the foregoing provisions of subsection (iii) or (iv) hereof, a
"Change in Control" shall not be deemed to have occurred for purposes of the
Plan, either (1) solely because the Company, a Subsidiary, or any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company, files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) under the Exchange
Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 20 percent or otherwise, or because the Company reports that a change
in control of the Company has or may have occurred or will or may occur in the
future by reason of such beneficial ownership or (2) solely because of a change
in control of any Subsidiary by which any Participant may be employed.
Notwithstanding the foregoing provisions of subsections (i-iv) hereof, if, prior
to any event described in subsections (i-iv) hereof that may be instituted by
any person who is not an officer or director of the Company, or prior to any
disclosed proposal that may be instituted by any person who is not an officer or
director of the Company that could lead to any such event, management proposes
any restructuring of the Company that ultimately leads to an event described in
subsections (i-iv) hereof pursuant to such management proposal, then a "Change
in Control" shall not be deemed to have occurred for purposes of the Plan.
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6. "Committee" shall mean the Compensation Committee of the Board or such
other Committee as may be authorized by the Board to administer the Plan.
7."Company" shall mean Forest City Enterprises, Inc. and its successors,
including, without limitation, the surviving corporation resulting from any
merger or consolidation of Forest City Enterprises, Inc. with any other
corporation or corporations.
8. "Disability" shall have the meaning given to such term in the Company's
Long Term Disability Plan, as amended from time to time.
9. "Election Agreement" shall mean an agreement in substantially the form
attached hereto as Exhibit A, as such form shall be modified from time to time
by the Committee.
10. "Eligible Employee" shall mean an employee of the Company (or a
Subsidiary that has adopted the Plan) who is, as determined by the Committee, a
member of a "select group of management or highly compensated employees," within
the meaning of Sections 201, 301 and 401 of ERISA, and who is selected by the
Committee to participate in the Plan. Unless otherwise determined by the
Committee, an Eligible Employee shall continue as such until termination of
employment.
11. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
12. "Incentive Compensation" shall mean cash incentive compensation payable
pursuant to an incentive compensation plan, whether such plan is now in effect
or hereafter established by the Company, which the Committee may designate from
time to time.
13. "Insolvent" shall mean that the Company has become subject to a pending
voluntary or involuntary proceeding under the United States Bankruptcy Code or
has become unable to pay its debts as they mature.
14. "Participant" shall mean any Eligible Employee who has at any time
elected to defer the receipt of Base Salary or Incentive Compensation in
accordance with the Plan and who, in conjunction with his or her Beneficiary,
has not received a complete distribution of the amount credited to his or her
Account.
15. "Permitted Holder" shall mean (i) any of Samuel H. Miller, Albert B.
Ratner, Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Nathan Shafran or
any spouse of any of the foregoing, and any trusts for the benefit of any of the
foregoing, (ii) RMS, Limited Partnership and any general partner or limited
partner thereof and any person (other than a creditor) that upon the dissolution
or winding up of RMS, Limited Partnership receives a distribution of capital
stock of the Company, (iii) any group (as defined in Section 13(d) of the
Exchange Act) of two or more persons or entities that are specified in the
immediately preceding clauses (i) and (ii), and (iv) any successive
recombination of the persons or groups that are specified in the immediately
preceding clauses (i), (ii) and (iii).
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16. "Plan" shall mean this deferred compensation plan, which shall be known
as the Forest City Enterprises, Inc. Deferred Compensation Plan For Executives.
The Plan is unfunded and is maintained by the Company primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees of the Company.
17. "Subsidiary" shall mean any corporation, joint venture, partnership,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest and directly or indirectly owns or
controls 50 percent or more of the total combined voting or other
decision-making power.
18. "Year" shall mean a calendar year.
ARTICLE II
ELECTION TO DEFER
1. Eligibility. Subject to Section 3 of this Article, an Eligible Employee
may elect to defer receipt of all or a specified part of his or her Base Salary
or Incentive Compensation for any Year in accordance with Section 2 of this
Article. An Eligible Employee's entitlement to defer shall cease with respect to
the Year following the Year in which he or she ceases to be an Eligible
Employee.
2. Election to Defer. An Eligible Employee who desires to defer all or part
of his or her Base Salary or Incentive Compensation pursuant to the Plan must
complete and deliver an Election Agreement to the Committee before the first day
of the Year for which such compensation would otherwise be paid. An Eligible
Employee who timely delivers an executed Election Agreement to the Committee
shall be a Participant. An Election Agreement that is timely delivered to the
Committee shall be effective for the succeeding Year and, except as otherwise
specified by an Eligible Employee in his or her Election Agreement, shall
continue to be effective from Year to Year until revoked or modified by written
notice to the Committee or until terminated automatically upon either the
termination of the Plan, the Company becoming Insolvent or the Eligible
Employee's termination of employment. In order to be effective to revoke or
modify an election relating to Base Salary otherwise payable in any particular
Year or Incentive Compensation otherwise earned during any particular Year, a
revocation or modification must be delivered prior to the beginning of the first
Year of service for which such compensation is payable. Notwithstanding the
above, in the event that an employee first becomes an Eligible Employee during
the course of a Year, rather than as of the first day of a Year, the Eligible
Employee's Election Agreement must be filed no later than thirty (30) days
following the date the employee first becomes an Eligible Employee, and such
Election Agreement shall be effective only with regard to Base Salary and
Incentive Compensation earned following the filing of the Election Agreement
with the Committee.
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3. Amount Deferred; Period of Deferral. A Participant shall designate on
the Election Agreement the percentage or the dollar amount of his or her Base
Salary or Incentive Compensation that is to be deferred, provided, however, that
the maximum deferral by a Participant during any one Year shall be, with respect
to such Year, the lesser of (i) $100,000 and (ii) 25% of the sum of the Base
Salary which the Participant would otherwise receive during such Year and the
Incentive Compensation which the Participant earned during such Year. A
Participant may specify in the Election Agreement that different percentages or
dollar amounts shall apply to Incentive Compensation payable under different
incentive compensation plans. Unless the Committee permits deferral until a
later date, the applicable percentage(s) or dollar amount(s) of Base Salary or
Incentive Compensation shall be deferred until the date the Participant ceases
to be an employee by death, retirement or Disability or otherwise ceases
employment.
4. Accounts. Base Salary and Incentive Compensation that a Participant
elects to defer shall be treated as if it were set aside in an Account on the
date the Base Salary or Incentive Compensation would otherwise have been paid to
the Participant. Such Account will be credited with interest at such rate and in
such manner as is determined from time to time by the Committee.
5. Payment of Account. The amount of a Participant's Account shall be paid
as provided in this Section 5.
(i) The amount of a Participant's Account attributable to deferral of
Base Salary and Incentive Compensation shall be paid to the Participant in
a lump sum or in a number of approximately equal annual installments (not
in excess of fifteen (15) installments) as designated by the Participant in
the Election Agreement. The lump sum payment or the first annual
installment, as the case may be, shall be made as soon as practicable
following the end of the period of deferral as specified in Section 3 of
this Article. In the event that the Account is paid in installments, the
amount of such Account remaining unpaid shall continue to bear interest, as
provided in Section 4 of this Article.
(ii) Notwithstanding the payment terms designated by a Participant on
the Election Agreement, but subject to the approval of the Committee as
described below in this Section, a Participant may elect to change the form
of payment of his or her Account to a form of payment otherwise permitted
under Section 5(i) of this Article II; provided such election shall be in
writing on a form provided by the Committee, and provided further that any
election made less than one year prior to the Participant's termination of
employment by death, retirement, Disability or otherwise shall not be
valid, and in such case, payment shall be made in accordance with the
Participant's original Election Agreement. Any such election may be changed
or revoked by the Participant at any time and from time to time by the
filing of a later written election with the Committee provided that any
election made less than one year prior to a Participant's termination of
employment by death, retirement, Disability or otherwise shall not be
valid, and in such case, payment shall be made in accordance with the
latest valid election of the Participant. The payment of a lump sum amount,
or the payment of a number of approximately equal annual installments, not
in excess of fifteen (15) payments, as designated by the Participant in the
Election Agreement, to a Participant (or his or her Beneficiary) pursuant
to this Section shall discharge all obligations of the Company to such
Participant (or his or her Beneficiary) under the Plan.
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6. Death of a Participant. In the event of the death of a Participant, the
remaining amount of the Participant's Account shall be paid to the Beneficiary
or Beneficiaries designated in a writing substantially in the form attached
hereto as Exhibit B (the "Beneficiary Designation") in accordance with the
Participant's latest valid election, or in accordance with a special payment
election filed by the Participant with the Committee that is to be operative and
override any other payment election filed by the Participant in the event of the
death of the Participant. A Participant's Beneficiary Designation may be changed
at any time prior to his or her death by the execution and delivery of a new
Beneficiary Designation. The Beneficiary Designation on file with the Company
that bears the latest date at the time of the Participant's death shall govern.
In the absence of a Beneficiary Designation or the failure of any Beneficiary to
survive the Participant, the amount of the Participant's Account shall be paid
to the Participant's estate in a lump sum amount within 90 days after the
appointment of an executor or administrator. In the event of the death of the
Beneficiary or Beneficiaries after the death of a Participant, any amount
remaining in the Account shall be paid in a lump sum to the estate of the last
surviving Beneficiary within 90 days after the appointment of an executor or
administrator.
7. Small Payments. Notwithstanding the foregoing, if installment payments
elected by a Participant would result in a payment of less than $500, the entire
amount of the Participant's Account may at the discretion of the Committee be
paid in a lump sum in accordance with Section 5 of this Article.
8. Acceleration.
(i) Notwithstanding the above, in the event of an unforeseeable
emergency, as defined in section 1.457-2(h)(4) and (5) of the Income Tax
Regulations, that is caused by an event beyond the control of the
Participant or Beneficiary and that would result in severe financial
hardship to the individual if acceleration were not permitted, the
Committee may in its sole discretion accelerate the payment to the
Participant or Beneficiary of the amount of his or her Account, but only up
to the amount necessary to meet the emergency.
(ii) Notwithstanding any other provision of the Plan, the Participant,
or his or her Beneficiary in the event of his or her death, shall be
permitted, at any time, to make an election to receive, payable as soon as
practicable after such election is received by the Committee, the remaining
amount of the Account in the form of a single lump sum, if (and only if)
the Account is reduced by 10%, which 10% amount shall thereupon irrevocably
be forfeited.
9. Termination of Participation. Notwithstanding any other provision of the
Plan, a Participant's participation in the Plan shall terminate upon a
determination by the Committee that the Participant is not a member of a select
group of management or highly compensated employees of his or her employer,
within the meaning of ERISA. Upon such a determination, the Company or the
Subsidiary, as the case may be, that employs the Participant shall make an
immediate lump sum payment to the Participant equal to the amount credited to
his or her Account.
<PAGE>
ARTICLE III
ADMINISTRATION
The Company, through the Committee, shall be responsible for the general
administration of the Plan and for carrying out the provisions hereof. The
Committee shall have all such powers as may be necessary to carry out the
provisions of the Plan, including the power to (i) resolve all questions
relating to eligibility for participation in the Plan and the amount in the
Account of any Participant and all questions pertaining to claims for benefits
and procedures for claim review, (ii) resolve all other questions arising under
the Plan, including any factual questions and questions of construction, and
(iii) take such further action as the Company shall deem advisable in the
administration of the Plan. The actions taken and the decisions made by the
Committee hereunder shall be final and binding upon all interested parties. In
accordance with the provisions of Section 503 of ERISA, the Committee shall
provide a procedure for handling claims of Participants or their Beneficiaries
under the Plan. Such procedure shall be in accordance with regulations issued by
the Secretary of Labor and shall provide adequate written notice within a
reasonable period of time with respect to the denial of any such claim as well
as a reasonable opportunity for a full and fair review by the Committee of any
such denial.
ARTICLE IV
AMENDMENT AND TERMINATION
The Company reserves the right to amend or terminate the Plan at any time
by action of the Board; provided, however, that no such action shall adversely
affect any Participant or Beneficiary who has an Account, or result in any
change in the timing or manner of payment of the amount of any Account (except
as otherwise permitted under the Plan), without the consent of the Participant
or Beneficiary.
ARTICLE V
MISCELLANEOUS
1. Non-alienation of Deferred Compensation. Except as permitted by the
Plan, no right or interest under the Plan of any Participant or Beneficiary
shall, without the written consent of the Company, be (i) assignable or
transferable in any manner, (ii) subject to alienation, anticipation, sale,
pledge, encumbrance, attachment, garnishment or other legal process or (iii) in
any manner liable for or subject to the debts or liabilities of the Participant
or Beneficiary.
2. Participation by Employees of Subsidiaries. An Eligible Employee who is
employed by a Subsidiary (that has adopted the Plan) and who elects to
participate in the Plan shall participate on the same basis as an Eligible
Employee of the Company. The Account of a Participant employed by a Subsidiary
shall be paid in accordance with the Plan solely by such Subsidiary to the
extent attributable to Base Salary or Incentive Compensation that would have
been paid by such Subsidiary in the absence of deferral pursuant to the Plan,
unless the Committee otherwise determines that the Company shall be the obligor.
<PAGE>
3. Interest of Participant. The obligation of the Company under the Plan to
make payment of amounts reflected in an Account merely constitutes the unsecured
promise of the Company to make payments from its general assets and no
Participant or Beneficiary shall have any interest in, or a lien or prior claim
upon, any property of the Company. Further, no Participant or Beneficiary shall
have any claim whatsoever against any Subsidiary for amounts reflected in an
Account. Nothing in the Plan shall be construed as guaranteeing future
employment to Eligible Employees. It is the intention of the Company that the
Plan be unfunded for tax purposes and for purposes of Title I of ERISA. The
Company may create a trust to hold funds to be used in payment of its
obligations under the Plan, and may fund such trust; provided, however, that any
funds contained therein shall remain liable for the claims of the Company's
general creditors. Notwithstanding the above, upon the earlier to occur of (i) a
Change in Control or (ii) a declaration by the Board that a Change in Control is
imminent, the Company shall promptly to the extent it has not previously done
so:
(a) establish an irrevocable trust (the funds of which shall be
subject to the claims of the Company's general creditors) to hold funds to
be used in payment of its obligations under the Plan; and
(b) transfer to the trustee of such trust, to be added to the
principal thereof, an amount equal to (I) the aggregate amount credited to
the Accounts of all of the Participants and Beneficiaries under the Plan,
less (II) the balance, if any, in the trust at such time.
4. Claims of Other Persons. The provisions of the Plan shall in no event be
construed as giving any other person, firm or corporation any legal or equitable
right as against the Company or any Subsidiary or the officers, employees or
directors of the Company or any Subsidiary, except any such rights as are
specifically provided for in the Plan or are hereafter created in accordance
with the terms and provisions of the Plan.
5. Severability. The invalidity and unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable provision
were omitted.
6. Governing Law. Except to the extent preempted by federal law, the
provisions of the Plan shall be governed and construed in accordance with the
laws of the State of Ohio.
7. Relationship to Other Plans. The Plan is intended to serve the purposes
of and to be consistent with any incentive compensation plan approved by the
Committee for purposes of the Plan.
EXECUTED at Cleveland, Ohio on December 29, 1998
FOREST CITY ENTERPRISES, INC.
By: THOMAS T. KMIECIK
Title: Assistant Treasurer
<PAGE>
EXHIBIT A
FOREST CITY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
ELECTION AGREEMENT
I,__________ , hereby elect to participate in the Forest City Enterprises,
Inc. Deferred Compensation Plan For Executives (the "Plan") with respect to Base
Salary which I otherwise would be entitled to receive beginning on or after
January 1, 1999 and with respect to Incentive Compensation that I may earn on or
after January 1, 1999. I hereby elect to defer payment of the Base Salary and
Incentive Compensation which I otherwise would be entitled to receive as
follows:
1. Deferral of Base Salary Otherwise Payable During 1999. Percentage or
dollar amount of Base Salary, if any, otherwise payable during 1999 (check one):
defer ____% defer $____
2. Deferral of Incentive Compensation Otherwise Earned During 1999.
Percentage or dollar amount of Incentive Compensation, if any, which I may earn
during 1999 (check one):
defer ____% defer $____
NOTE: AMOUNTS EARNED UNDER THE STRATEGIC PLAN FOR THE FOUR-YEAR PERIOD ENDING IN
1999 ARE NOT ELIGIBLE FOR DEFERRAL UNDER THE PLAN.
3. Form of Distributions. Please make payment of the above specified
deferrals, together with accrued interest reflected in my Account, as follows
(check one):
a. ___ Pay in a lump sum
b. ___ Pay in ___ (not more than 15) approximately equal annual
installments
4. Special Death Election. If I die before I receive the entire amount
credited to my Account, without regard to any other election I have made on this
Election Agreement, please defer payment or make payment of the first annual
installment to my Beneficiary as follows (check one and complete blank if
necessary):
a. ___ Defer until ____ year(s) (not more than 2) after my death
and pay to my Beneficiary in a lump sum or in ____ (not more
than 15) approximately equal annual installments (check one
and complete blank if necessary)
b. ___ Defer until my death and pay to my Beneficiary in a lump sum
or in ____ (not more than 15) approximately equal annual
installments (check one and complete blank if necessary)
I acknowledge that I have reviewed the Plan and understand that my
participation will be subject to the terms and conditions contained in the Plan.
I understand that this Election Agreement must be returned to the Committee no
later than December 31, 1998 to be effective. I also understand that the maximum
dollar amount which I may defer during 1999 is the lesser of (i) $100,000 and
(ii) 25% of the sum of my Base Salary otherwise payable during 1999 and my
Incentive Compensation earned during 1999. Capitalized terms used, but not
otherwise defined, in this Election Agreement shall have the respective meanings
assigned to them in the Plan.
I understand that (i) this Election Agreement shall continue to be
effective for all payments of Base Salary which would otherwise be paid to me
after 1999 and any Incentive Compensation which I may earn after 1999 and (ii) I
may not revoke or modify this Election Agreement with respect to the deferral of
Base Salary otherwise payable during 1999 and Incentive Compensation which I may
earn during 1999, although I may elect to terminate the future deferral of Base
Salary and Incentive Compensation as of the first day of any later Year by
delivering written notice to the Committee prior to the first day of such Year.
I also understand that I may change the form of payment of my Account to a form
of payment otherwise permitted under the Plan, provided that if I make an
election to change my form of payment less than one year prior to my termination
of employment by death, retirement, Disability or otherwise, such election will
not be effective and, in such case, payment shall be made in accordance with my
latest valid election.
<PAGE>
I acknowledge that I have been advised to consult with my own financial,
tax, estate planning and legal advisors before making this election to defer in
order to determine the tax effects and other implications of my participation in
the Plan.
Dated this___day of______, 1998.
_____________________________ _________________________________
(Signature) (Print or type name)
<PAGE>
Exhibit B
FOREST CITY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
BENEFICIARY DESIGNATIONS
In accordance with the terms and conditions of the Forest City Enterprises,
Inc. Deferred Compensation Plan For Executives (the "Plan"), I hereby designate
the person(s) indicated below as my beneficiary(ies) to receive the amounts
payable under said Plan.
Name ___________________________ Name ____________________________
Portion of Account ________% Portion of Account _________%
Address _________________________ Address _________________________
_________________________________ _________________________________
_________________________________ _________________________________
Social Sec. No. of Social Sec. No. of
Beneficiary _____________________ Beneficiary _____________________
Relationship ____________________ Relationship ___________________
Date of Birth ___________________ Date of Birth __________________
In the event that the above-named beneficiary(ies) predecease(s) me, I
hereby designate the following person as beneficiary(ies);
Name ___________________________ Name ____________________________
Portion of Account ________% Portion of Account _________%
Address _________________________ Address _________________________
_________________________________ _________________________________
_________________________________ _________________________________
Social Sec. No. of Social Sec. No. of
Beneficiary _____________________ Beneficiary _____________________
Relationship ____________________ Relationship ___________________
I hereby expressly revoke all prior designations of beneficiary(ies),
reserve the right to change the beneficiary(ies) herein designated and agree
that the rights of said beneficiary(ies) shall be subject to the terms of the
Plan. In the event that there is no beneficiary living at the time of my death,
I understand that the amounts payable under the Plan will be paid to my estate.
_______________ _____________________ ______________________________
Date (Signature) (Print or type name)
Exhibit 10.44
FOREST CITY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
Forest City Enterprises, Inc. hereby establishes, effective as of January
1, 1999, the Forest City Enterprises, Inc. Deferred Compensation Plan For
Nonemployee Directors on the terms and conditions hereinafter set forth. The
purpose of the Plan is to provide funds upon termination of service by death,
retirement, Disability or otherwise for nonemployee Directors of Forest City
Enterprises, Inc. or their beneficiaries. It is intended that the Plan will
assist in attracting and retaining qualified individuals to serve as Directors.
ARTICLE I
DEFINITIONS
For the purposes hereof, the following words and phrases shall have the
meanings set forth below, unless their context clearly requires a different
meaning:
1. "Account" shall mean the bookkeeping account maintained by the Committee
on behalf of each Participant pursuant to Section 4 of Article II that is
credited with Fees which are deferred by a Participant, and the interest on such
amounts as determined in accordance with Section 4 of Article II.
2. "Beneficiary" or "Beneficiaries" shall mean the person or persons,
including one or more trusts, designated by a Participant in accordance with the
Plan to receive payment of the remaining balance of the Participant's Account in
the event of the death of the Participant prior to receipt of the entire amount
credited to the Participant's Account.
3. "Board" shall mean the Board of Directors of the Company.
4. "Change in Control" shall mean that:
(i) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the securities of such corporation or person that are outstanding
immediately following the consummation of such transaction is held in the
aggregate by either (a) the holders of Voting Stock (as hereinafter
defined) of the Company immediately prior to such transaction or (b)
Permitted Holders;
(ii) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined voting
power of the securities of such corporation or person that are outstanding
immediately following the consummation of such sale or transfer is held in
the aggregate by either (a) the holders of Voting Stock (as hereinafter
defined) of the Company immediately prior to such sale or transfer or (b)
Permitted Holders;
<PAGE>
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report) thereto, each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) other than a Permitted
Holder has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of securities representing 20 percent or more of
the combined voting power of the then-outstanding securities entitled to
vote generally in the election of the Board (the "Voting Stock");
(iv) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction, other than with respect to a Permitted Holder; or
(v) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board cease for any reason
to constitute at least a majority of the members thereof, unless the
election, or the nomination for election by the Company's stockholders, of
each member of the Board first elected during such period was approved by a
vote of at least two-thirds of the members of the Board then still in
office who were members of the Board at the beginning of any such period.
Notwithstanding the foregoing provisions of subsection (iii) or (iv) hereof, a
"Change in Control" shall not be deemed to have occurred for purposes of the
Plan, either (1) solely because the Company, a Subsidiary, or any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company, files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) under the Exchange
Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 20 percent or otherwise, or because the Company reports that a change
in control of the Company has or may have occurred or will or may occur in the
future by reason of such beneficial ownership or (2) solely because of a change
in control of any Subsidiary. Notwithstanding the foregoing provisions of
subsections (i-iv) hereof, if, prior to any event described in subsections
(i-iv) hereof that may be instituted by any person who is not an officer or
director of the Company, or prior to any disclosed proposal that may be
instituted by any person who is not an officer or director of the Company that
could lead to any such event, management proposes any restructuring of the
Company that ultimately leads to an event described in subsections (i-iv) hereof
pursuant to such management proposal, then a "Change in Control" shall not be
deemed to have occurred for purposes of the Plan.
5. "Committee" shall mean the Compensation Committee of the Board or such
other Committee as may be authorized by the Board to administer the Plan.
<PAGE>
6. "Company" shall mean Forest City Enterprises, Inc. and its successors,
including, without limitation, the surviving corporation resulting from any
merger or consolidation of Forest City Enterprises, Inc. with any other
corporation or corporations.
7. "Director" shall mean a member of the Board.
8. "Disability" shall have the meaning given to such term in the Company's
Long Term Disability Plan, as amended from time to time.
9. "Election Agreement" shall mean an agreement in substantially the form
attached hereto as Exhibit A, as such form shall be modified from time to time
by the Committee.
10. "Eligible Director" shall mean a Director who is not an employee of the
Company or any of its Subsidiaries. An Eligible Director shall continue as such
until the earlier of the date he or she (i) ceases to be a Director or (ii)
becomes an employee of the Company or any of its Subsidiaries.
11. "Fee" or "Fees" shall mean any compensation payable in cash to a
Director for his or her services as a member of the Board or any committee
thereof.
12. "Insolvent" shall mean that the Company has become subject to a pending
voluntary or involuntary proceeding under the United States Bankruptcy Code or
has become unable to pay its debts as they mature.
13. "Participant" shall mean any Eligible Director who has at any time
elected to defer the receipt of Fees in accordance with the Plan and who, in
conjunction with his or her Beneficiary, has not received a complete
distribution of the amount credited to his or her Account.
14. "Permitted Holder" shall mean (i) any of Samuel H. Miller, Albert B.
Ratner, Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Nathan Shafran or
any spouse of any of the foregoing, and any trusts for the benefit of any of the
foregoing, (ii) RMS, Limited Partnership and any general partner or limited
partner thereof and any person (other than a creditor) that upon the dissolution
or winding up of RMS, Limited Partnership receives a distribution of capital
stock of the Company, (iii) any group (as defined in Section 13(d) of the
Exchange Act) of two or more persons or entities that are specified in the
immediately preceding clauses (i) and (ii), and (iv) any successive
recombination of the persons or groups that are specified in the immediately
preceding clauses (i), (ii) and (iii).
15. "Plan" shall mean this deferred compensation plan, which shall be known
as the Forest City Enterprises, Inc. Deferred Compensation Plan For Nonemployee
Directors.
16. "Subsidiary" shall mean any corporation, joint venture, partnership,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest and directly or indirectly owns or
controls 50 percent or more of the total combined voting or other
decision-making power.
<PAGE>
17. "Year" shall mean a calendar year.
ARTICLE II
ELECTION TO DEFER
1. Eligibility_and_Participation. An Eligible Director may elect to defer
receipt of 50% or 100% of his or her Fee for any Year in accordance with Section
2 of this Article. An Eligible Director's entitlement to defer shall cease with
respect to the Year following the Year in which he or she ceases to be an
Eligible Director.
2. Election to Defer. An Eligible Director who desires to defer all or part
of his or her Fee pursuant to the Plan must defer 50% or 100% of such Fee
pursuant to the Plan and must complete and deliver an Election Agreement to the
Committee before the first day of the Year for which such compensation would
otherwise be paid. An Eligible Director who timely delivers an executed Election
Agreement to the Committee shall be a Participant. An Election Agreement that is
timely delivered to the Committee shall be effective for the succeeding Year
and, except as otherwise specified by an Eligible Director in his or her
Election Agreement, shall continue to be effective from Year to Year until
revoked or modified by written notice to the Committee or until terminated
automatically upon either the termination of the Plan, the Company becoming
Insolvent or the Participant ceasing to be a Director. In order to be effective
to revoke or modify an election relating to Fees otherwise payable in any
particular Year, a revocation or modification must be delivered prior to the
beginning of the first Year of service for which such compensation is payable.
Notwithstanding the above, in the event that a Director first becomes an
Eligible Director during the course of a Year, rather than as of the first day
of a Year, the Eligible Director's Election Agreement must be filed no later
than thirty (30) days following the date the Director first becomes an Eligible
Director, and such Election Agreement shall be effective only with regard to
Fees earned following the filing of the Election Agreement with the Committee.
3.Amount Deferred; Period of Deferral. A Participant shall designate on
the Election Agreement whether 50% or 100% of his or her Fee is to be deferred.
Unless the Committee permits deferral until a later date, the applicable
percentage of Fees shall be deferred until the date the Participant ceases to be
a Director by death, retirement, Disability or otherwise.
4. Accounts. Fees that a Participant elects to defer shall be treated as if
they were set aside in an Account on the date the Fees would otherwise have been
paid to the Participant. Such Account will be credited with interest at such
rate and in such manner as is determined from time to time by the Committee.
5. Payment of Account. The amount of a Participant's Account shall be paid
as provided in this Section 5.
(i) The amount of a Participant's Account attributable to deferral of
Fees shall be paid to the Participant in a lump sum or in a number of
approximately equal annual installments (not in excess of fifteen (15)
installments) as designated by the Participant in the Election Agreement.
The lump sum payment or the first annual installment, as the case may be,
shall be made as soon as practicable following the end of the period of
deferral as specified in Section 3 of this Article. In the event that the
Account is paid in installments, the amount of such Account remaining
unpaid shall continue to bear interest, as provided in Section 4 of this
Article.
<PAGE>
(ii) Notwithstanding the payment terms designated by a Participant on
the Election Agreement, but subject to the approval of the Committee as
described below in this Section, a Participant may elect to change the form
of payment of his or her Account to a form of payment otherwise permitted
under Section 5(i) of this Article II; provided such election shall be in
writing on a form provided by the Committee, and provided further that any
election made less than one year prior to the date the Participant ceases
to be a Director by death, retirement, Disability or otherwise shall not be
valid, and in such case, payment shall be made in accordance with the
Participant's original Election Agreement. Any such election may be changed
or revoked by the Participant at any time and from time to time by the
filing of a later written election with the Committee provided that any
election made less than one year prior to the date the Participant ceases
to be a Director by death, retirement, Disability or otherwise shall not be
valid, and in such case, payment shall be made in accordance with the
latest valid election of the Participant. The payment of a lump sum amount,
or the payment of a number of approximately equal annual installments, not
in excess of fifteen (15) payments, as designated by the Participant in the
Election Agreement, to a Participant (or his or her Beneficiary) pursuant
to this Section shall discharge all obligations of the Company to such
Participant (or his or her Beneficiary) under the Plan.
6. Death of a Participant.In the event of the death of a Participant, the
remaining amount of the Participant's Account shall be paid to the Beneficiary
or Beneficiaries designated in a writing substantially in the form attached
hereto as Exhibit B (the "Beneficiary Designation") in accordance with the
Participant's latest valid election, or in accordance with a special payment
election filed by the Participant with the Committee that is to be operative and
override any other payment election filed by the Participant in the event of the
death of the Participant. A Participant's Beneficiary Designation may be changed
at any time prior to his or her death by the execution and delivery of a new
Beneficiary Designation. The Beneficiary Designation on file with the Company
that bears the latest date at the time of the Participant's death shall govern.
In the absence of a Beneficiary Designation or the failure of any Beneficiary to
survive the Participant, the amount of the Participant's Account shall be paid
to the Participant's estate in a lump sum amount within 90 days after the
appointment of an executor or administrator. In the event of the death of the
Beneficiary or Beneficiaries after the death of a Participant, any amount
remaining in the Account shall be paid in a lump sum to the estate of the last
surviving Beneficiary within 90 days after the appointment of an executor or
administrator.
7. Small Payments. Notwithstanding the foregoing, if installment payments
elected by a Participant would result in a payment of less than $500, the entire
amount of the Participant's Account may at the discretion of the Committee be
paid in a lump sum in accordance with Section 5 of this Article.
8. Acceleration.
(i) Notwithstanding the above, in the event of an unforeseeable
emergency, as defined in section 1.457-2(h)(4) and (5) of the Income Tax
Regulations, that is caused by an event beyond the control of the
Participant or Beneficiary and that would result in severe financial
hardship to the individual if acceleration were not permitted, the
Committee may in its sole discretion accelerate the payment to the
Participant or Beneficiary of the amount of his or her Account, but only up
to the amount necessary to meet the emergency.
<PAGE>
(ii) Notwithstanding any other provision of the Plan, the Participant,
or his or her Beneficiary in the event of his or her death, shall be
permitted, at any time, to make an election to receive, payable as soon as
practicable after such election is received by the Committee, the remaining
amount of the Account in the form of a single lump sum, if (and only if)
the Account is reduced by 10%, which 10% amount shall thereupon irrevocably
be forfeited.
ARTICLE III
ADMINISTRATION
The Company, through the Committee, shall be responsible for the general
administration of the Plan and for carrying out the provisions hereof. The
Committee shall have all such powers as may be necessary to carry out the
provisions of the Plan, including the power to (i) resolve all questions
relating to eligibility for participation in the Plan and the amount in the
Account of any Participant and all questions pertaining to claims for benefits
and procedures for claim review, (ii) resolve all other questions arising under
the Plan, including any factual questions and questions of construction, and
(iii) take such further action as the Company shall deem advisable in the
administration of the Plan. The actions taken and the decisions made by the
Committee hereunder shall be final and binding upon all interested parties. The
Committee shall provide a procedure for handling claims of Participants or their
Beneficiaries under the Plan. Such procedure shall provide adequate written
notice within a reasonable period of time with respect to the denial of any such
claim as well as a reasonable opportunity for a full and fair review by the
Committee of any such denial.
ARTICLE IV
AMENDMENT AND TERMINATION
The Company reserves the right to amend or terminate the Plan at any time
by action of the Board; The Company reserves the right to amend or terminate the
Plan at any time by action of the Board; provided, however, that no such action
shall adversely affect any Participant or Beneficiary who has an Account, or
result in any change in the timing or manner of payment of the amount of any
Account (except as otherwise permitted under the Plan), without the consent of
the Participant or Beneficiary.
ARTICLE V
MISCELLANEOUS
1. Non-alienation of Deferred Compensation. Except as permitted by the
Plan, no right or interest under the Plan of any Participant or Beneficiary
shall, without the written consent of the Company, be (i) assignable or
transferable in any manner, (ii) subject to alienation, anticipation, sale,
pledge, encumbrance, attachment, garnishment or other legal process or (iii) in
any manner liable for or subject to the debts or liabilities of the Participant
or Beneficiary.
<PAGE>
2. Interest of Participant. The obligation of the Company under the Plan to
make payment of amounts reflected in an Account merely constitutes the unsecured
promise of the Company to make payments from its general assets and no
Participant or Beneficiary shall have any interest in, or a lien or prior claim
upon, any property of the Company. Further, no Participant or Beneficiary shall
have any claim whatsoever against any Subsidiary for amounts reflected in an
Account. Nothing in the Plan shall be construed as guaranteeing that an Eligible
Director shall remain a Director. It is the intention of the Company that the
Plan be unfunded for tax purposes. The Company may create a trust to hold funds
to be used in payment of its obligations under the Plan, and may fund such
trust; provided, however, that any funds contained therein shall remain liable
for the claims of the Company's general creditors. Notwithstanding the above,
upon the earlier to occur of (i) a Change in Control or (ii) a declaration by
the Board that a Change in Control is imminent, the Company shall promptly to
the extent it has not previously done so:
(a) establish an irrevocable trust (the funds of which shall be
subject to the claims of the Company's general creditors) to hold funds to
be used in payment of its obligations under the Plan; and
(b) transfer to the trustee of such trust, to be added to the
principal thereof, an amount equal to (I) the aggregate amount credited to
the Accounts of all of the Participants and Beneficiaries under the Plan,
less (II) the balance, if any, in the trust at such time.
3. Claims of Other Persons. The provisions of the Plan shall in no event be
construed as giving any other person, firm or corporation any legal or equitable
right as against the Company or any Subsidiary or the officers, employees or
directors of the Company or any Subsidiary, except any such rights as are
specifically provided for in the Plan or are hereafter created in accordance
with the terms and provisions of the Plan.
4. Severability. The invalidity and unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable provision
were omitted.
5. Governing Law. The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
EXECUTED at Cleveland, Ohio on December 29, 1998.
FOREST CITY ENTERPRISES, INC.
By: THOMAS T. KMIECIK
Title: Assistant Teasurer
<PAGE>
EXHIBIT A
FOREST CITY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
ELECTION AGREEMENT
I,_________ , hereby elect to participate in the Forest City Enterprises,
Inc. Deferred Compensation Plan For Nonemployee Directors (the "Plan") with
respect to Fees which I otherwise would be entitled to receive beginning on or
after January 1, 1999. I hereby elect to defer payment of the Fees which I
otherwise would be entitled to receive as follows:
1. Deferral of Fees Otherwise Payable During 1999. Percentage of Fees, if
any, otherwise payable during 1999 (check one):
____ defer 50% ___ defer 100%
2. Form of Distributions. Please make payment of the above specified
deferrals, together with all accrued interest reflected in my Account, as
follows (check one):
a. ___ Pay in a lump sum
b. ___ Pay in ___ (not more than 15) approximately equal annual
installments
3. Special Death Election. If I die before I receive the entire amount
credited to my Account, without regard to any other election I have made on this
Election Agreement, please defer payment or make payment of the first annual
installment to my Beneficiary as follows (check one and complete blank if
necessary):
a. ___ Defer until ____ year(s) (not more than 2) after my death and pay to
my Beneficiary in a lump sum or in ____ (not more than 15)
approximately equal annual installments (check one and complete
blank if necessary)
b. ___ Defer until my death and pay to my Beneficiary in a lump sum or
in ____ (not more than 15) approximatelyequal annual installments
(check one and complete blank if necessary)
I acknowledge that I have reviewed the Plan and understand that my
participation will be subject to the terms and conditions contained in the Plan.
I understand that this Election Agreement must be returned to the Committee no
later than December 31, 1998 to be effective. Capitalized terms used, but not
otherwise defined, in this Election Agreement shall have the respective meanings
assigned to them in the Plan.
I understand that (i) this Election Agreement shall continue to be
effective for all payments of Fees which would otherwise be paid to me after
1999 and (ii) I may not revoke or modify this Election Agreement with respect to
the deferral of Fees otherwise payable during 1999, although I may elect to
terminate the future deferral of Fees as of the first day of any later Year by
delivering written notice to the Committee prior to the first day of such Year.
I also understand that I may change the form of payment of my Account to a form
of payment otherwise permitted under the Plan, provided that if I make an
election to change my form of payment less than one year prior to the date I
cease to be a Director by death, retirement, Disability or otherwise, such
election will not be effective and, in such case, payment shall be made in
accordance with my latest valid election.
I acknowledge that I have been advised to consult with my own financial,
tax, estate planning and legal advisors before making this election to defer in
order to determine the tax effects and other implications of my participation in
the Plan.
Dated this___day of______, 1998.
_____________________________ _________________________________
(Signature) (Print or type name)
<PAGE>
Exhibit B
FOREST CITY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
BENEFICIARY DESIGNATIONS
In accordance with the terms and conditions of the Forest City Enterprises,
Inc. Deferred Compensation Plan For Executives (the "Plan"), I hereby designate
the person(s) indicated below as my beneficiary(ies) to receive the amounts
payable under said Plan.
Name ___________________________ Name ____________________________
Portion of Account ________% Portion of Account _________%
Address _________________________ Address _________________________
_________________________________ _________________________________
_________________________________ _________________________________
Social Sec. No. of Social Sec. No. of
Beneficiary _____________________ Beneficiary _____________________
Relationship ____________________ Relationship ___________________
Date of Birth ___________________ Date of Birth __________________
In the event that the above-named beneficiary(ies) predecease(s) me, I
hereby designate the following person as beneficiary(ies);
Name ___________________________ Name ____________________________
Portion of Account ________% Portion of Account _________%
Address _________________________ Address _________________________
_________________________________ _________________________________
_________________________________ _________________________________
Social Sec. No. of Social Sec. No. of
Beneficiary _____________________ Beneficiary _____________________
Relationship ____________________ Relationship ___________________
Date of Birth ___________________ Date of Birth __________________
I hereby expressly revoke all prior designations of beneficiary(ies),
reserve the right to change the beneficiary(ies) herein designated and agree
that the rights of said beneficiary(ies) shall be subject to the terms of the
Plan. In the event that there is no beneficiary living at the time of my death,
I understand that the amounts payable under the Plan will be paid to my estate.
_______________ _____________________ ______________________________
Date (Signature) (Print or type name)
<TABLE>
Forest City Enterprises, Inc. and Subsidiaries
Selected Financial Data
<CAPTION>
For the Years Ended January 31,
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $ 696,649 $ 632,669 $ 610,449 $ 529,433 $ 522,608
===================================================================
Operating earnings, net of tax (1) $ 19,963 $ 24,539 $ 6,986 $ 13,490 $ 6,774
Provision for decline in real estate, net of tax - - (7,413) (6,073) (4,986)
Gain (loss) on disposition of properties, net of tax 18,444 (23,356) 9,598 (478) (20,321)
-------------------------------------------------------------------
Net earnings (loss) before extraordinary gain 38,407 1,183 9,171 6,939 (18,533)
Extraordinary gain, net of tax 16,343 19,356 2,900 1,847 60,449
-------------------------------------------------------------------
Net earnings $ 54,750 $ 20,539 $ 12,071 $ 8,786 $ 41,916
===================================================================
Diluted Earnings per Common Share
Net earnings (loss) before extraordinary gain $ 1.27 $ 0.04 $ 0.35 $ 0.26 $ (0.68)
Extraordinary gain, net of tax 0.54 0.67 0.11 0.07 2.24
-------------------------------------------------------------------
Net earnings $ 1.81 $ 0.71 $ 0.46 $ 0.33 $ 1.56
===================================================================
Cash dividends declared-Class A and Class B $ 0.155 $ 0.125 $ 0.137 $ 0.083 $ 0.067
===================================================================
<CAPTION>
January 31,
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Financial Position:
Consolidated assets $ 3,437,110 $ 2,963,353 $ 2,760,673 $ 2,642,756 $ 2,584,734
Real estate portfolio, at cost $ 3,087,498 $ 2,704,560 $ 2,520,179 $ 2,425,083 $ 2,322,136
Long-term debt, primarily nonrecourse mortgages $ 2,478,872 $ 2,132,931 $ 1,991,428 $ 1,940,059 $ 1,878,270
- -----------------------------------------------------------------------------------------------------------------------
Forest City Rental Properties Corporation - Real Estate Activity (2)
Total real estate - end of year
Completed rental properties, before depreciation$ 2,605,048 $ 2,390,969 $ 2,227,859 $ 2,085,284 $ 1,995,629
Projects under development 412,072 251,416 215,960 246,240 230,802
-------------------------------------------------------------------
3,017,120 2,642,385 2,443,819 2,331,524 2,226,431
Accumulated depreciation (477,253) (436,377) (387,733) (338,216) (293,465)
-------------------------------------------------------------------
Rental properties, net of depreciation $ 2,539,867 $ 2,206,008 $ 2,056,086 $ 1,993,308 $ 1,932,966
===================================================================
Real Estate Activity during the year
Completed rental properties
Capital additions $ 127,065 $ 166,740 $ 160,690 $ 89,028 $ 77,265
Acquisitions 156,879 90,438 22,264 28,587 32,811
Dispositions (69,865)(3) (94,068)(4) (40,379) (27,960) (215,975)(5)
-------------------------------------------------------------------
214,079 163,110 142,575 89,655 (105,899)
-------------------------------------------------------------------
Projects under development
New development 243,106 154,746 98,403 58,798 49,585
Transferred to completed rental properties (82,450) (119,290) (128,683) (43,360) (32,894)
-------------------------------------------------------------------
160,656 35,456 (30,280) 15,438 16,691
-------------------------------------------------------------------
Increase (decrease) in rental properties, at cost $ 374,735 $ 198,566 $ 112,295 $ 105,093 $ (89,208)
===================================================================
</TABLE>
(1) Excludes the provision for decline in real estate and gain (loss) on
disposition of properties, net of tax.
(2) The table includes only the real estate activity for Forest City Rental
Properties Corporation.
(3) Primarily reflects the dispositions via tax-free exchanges of Summit Park
Mall, Trolley Plaza and San Vicente office building. Summit Park contains
695,000 square feet located in Wheatfield, New York. Trolley Plaza is a
351-unit apartment complex in Detroit, Michigan. San Vicente contains
469,000 square feet in Los Angeles, California.
(4) Reflects the sale of Toscana, a residential complex containing 563 units in
Irvine, California
(5) Reflects the sale of Park LaBrea Towers, a residential complex containing
2,825 units in Los Angeles, California.
Management's Report
The management of Forest City Enterprises, Inc. is responsible for the
accompanying consolidated financial statements. These statements have been
prepared by the Company in accordance with generally accepted accounting
principles and include amounts based on judgments of management. The financial
information contained elsewhere in this annual report conforms with that in the
consolidated financial statements.
The Company maintains a system of internal accounting control which
provides reasonable assurance in all material respects that the assets are
safeguarded and transactions are executed in accordance with management's
authorization and accurately recorded in the Company's books and records. The
concept of reasonable assurance recognizes that limitations exist in any system
of internal accounting control based upon the premise that the cost of such
controls should not exceed the benefits derived.
The Audit Committee, composed of four members of the Board of Directors who
are not employees of the Company, meets regularly with representatives of
management, the independent accountants and the Company's internal auditors to
monitor the functioning of the accounting and control systems and to review the
results of the auditing activities. The Audit Committee recommends the
appointment of the independent accountants for approval by the shareholders. The
Committee reviews the scope of the audit and the fee arrangements. The
independent accountants conduct an objective, independent examination of the
consolidated financial statements.
The Audit Committee reviews results of the audit effort with the
independent accountants. The Audit Committee also meets with the independent
accountants and the internal auditors without management present to ensure that
they have open access to the Audit Committee.
Report of Independent Accountants
To the Shareholders and Board of Directors
Forest City Enterprises, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings and shareholders' equity and cash
flows present fairly, in all material respects, the financial position of Forest
City Enterprises, Inc. and its Subsidiaries (the "Company") at January 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 10, 1999
<TABLE>
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
January 31,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
Assets
Real Estate
Completed rental properties $ 2,625,589 $ 2,407,045
Projects under development 412,072 251,416
Land held for development or sale 49,837 46,099
----------------------------------------
3,087,498 2,704,560
Less accumulated depreciation (491,293) (448,634)
----------------------------------------
Total Real Estate 2,596,205 2,255,926
Cash and equivalents 78,629 54,854
Notes and accounts receivable, net 229,714 191,719
Inventories 47,299 58,696
Investments in and advances to affiliates 301,735 202,409
Other assets 183,528 199,749
---------------------------------------
$ 3,437,110 $ 2,963,353
=======================================
Liabilities and Shareholders' Equity
Liabilities
Mortgage debt, nonrecourse $ 2,173,872 $ 2,018,931
Accounts payable and accrued expenses 398,499 361,398
Notes payable 43,929 34,819
Long-term debt 105,000 114,000
8.5% Senior notes 200,000 -
Deferred income taxes 150,150 117,723
Deferred profit 33,552 34,537
----------------------------------------
Total Liabilities 3,105,002 2,681,408
----------------------------------------
Shareholders' Equity
Preferred stock - convertible, without par value
5,000,000 shares authorized; no shares issued - -
Common stock - $.33 1/3 par value
Class A, 96,000,000 and 48,000,000 shares authorized; 19,904,556 and 19,813,372
shares issued, 19,281,606 and 19,186,072 outstanding, respectively 6,636 6,606
Class B, convertible, 36,000,000 and 18,000,000 shares authorized; 10,979,396 and
11,070,580 shares issued, 10,701,296 and 10,792,480 outstanding, respectively 3,661 3,691
---------------------------------------
10,297 10,297
Additional paid-in capital 114,270 114,270
Retained earnings 218,967 168,864
---------------------------------------
343,534 293,431
Less treasury stock, at cost; 1999: 622,950 Class A and 278,100 Class B shares,
1998: 627,300 Class A and 278,100 Class B shares (11,426) (11,486)
---------------------------------------
Total Shareholders' Equity 332,108 281,945
---------------------------------------
$ 3,437,110 $ 2,963,353
=======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Earnings
<CAPTION>
For the Years Ended January 31,
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues $ 696,649 $ 632,669 $ 610,449
---------------------------------------------
Operating expenses 424,097 379,531 386,970
Interest expense 149,960 136,322 133,364
Provision for decline in real estate - - 12,263
Depreciation and amortization 87,068 74,793 73,304
--------------------------------------------
661,125 590,646 605,901
Gain (loss) on disposition of properties 30,557 (38,638) 17,574
--------------------------------------------
Earnings before income taxes 66,081 3,385 22,122
--------------------------------------------
Income tax expense (benefit)
Current (86) (1,478) 1,935
Deferred 27,760 3,680 11,016
--------------------------------------------
27,674 2,202 12,951
--------------------------------------------
Net earnings before extraordinary gain 38,407 1,183 9,171
Extraordinary gain, net of tax 16,343 19,356 2,900
--------------------------------------------
Net earnings $ 54,750 $ 20,539 $ 12,071
============================================
Basic earnings per common share
Net earnings before extraordinary gain $ 1.28 $ .04 $ .35
Extraordinary gain, net of tax .55 .67 .11
--------------------------------------------
Net earnings $ 1.83 $ .71 $ .46
============================================
Diluted earnings per common share
Net earnings before extraordinary gain $ 1.27 $ .04 $ .35
Extraordinary gain, net of tax .54 .67 .11
--------------------------------------------
Net earnings $ 1.81 $ .71 $ .46
=============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity
<CAPTION>
Common Stock
----------------------------------
Class A Class B Additional Treasury Stock
---------------------------------- Paid-In Retained ---------------
Shares Amount Shares Amount Capital Earnings Shares Amount Total
- --------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 31, 1996,
as previously reported 7,907 $2,635 5,580 $1,859 $44,014 $143,590 116 $(2,509) $189,589
Two-for-one stock split
effective July 16, 1998
applied retroactively, plus
rounding adjustments 7,906 2,639 5,581 1,862 (4,500) 115 (1)
-------------------------------------------------------------------------------------------
Balances at January 31, 1996,
as restated 15,813 5,274 11,161 3,721 39,514 143,590 231 (2,510) 189,589
Net earnings 12,071 12,071
Dividends:
Annual 1996 -$.107 per share (2,797) (2,797)
Quarterly 1997-$.03 per share
(one quarter) (787) (787)
Conversion of Class B
shares to Class A shares 50 16 (50) (16) -
Purchase of treasury stock 518 (6,080) (6,080)
Cash in lieu of fractional shares
from three-for-two stock split (18) (18)
--------------------------------------------------------------------------------------------
Balances at January 31, 1997,
as restated 15,863 5,290 11,111 3,705 39,496 152,077 749 (8,590) 191,978
Net earnings 20,539 20,539
Dividends:
$.03 per share (three quarters) (2,703) (2,703)
$.035 per share (one quarter) (1,049) (1,049)
Issuance of Class A common shares
in public offering 3,910 1,302 74,774 76,076
Conversion of Class B
shares to Class A shares 40 14 (40) (14) -
Purchase of treasury stock 156 (2,896) (2,896)
--------------------------------------------------------------------------------------------
Balances at January 31, 1998,
as restated 19,813 6,606 11,071 3,691 114,270 168,864 905 (11,486) 281,945
Net earnings 54,750 54,750
Dividends:
$.035 per share (one quarter) (1,049) (1,049)
$.04 per share (three quarters) (3,598) (3,598)
Conversion of Class B shares
to Class A shares 92 30 (92) (30) -
Sale of treasury stock (4) 60 60
--------------------------------------------------------------------------------------------
Balances at January 31, 1999 19,905 $6,636 10,979 $3,661 $114,270 $218,967 901 $(11,426) $332,108
============================================================================================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended January 31,
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Reconciliation of Net Earnings to Cash Provided by Operating Activities
Net Earnings $ 54,750 $ 20,539 $ 12,071
Depreciation 61,908 56,923 52,979
Amortization 25,160 17,870 20,325
Deferred income taxes 32,427 2,071 10,377
(Gain) loss on disposition of properties (30,557) 38,638 (17,574)
Provision for decline in real estate - - 12,263
Extraordinary gain (27,036) (22,174) (4,797)
(Increase) decrease in land held for development or sale (6,571) 396 8,980
(Increase) decrease in notes and accounts receivable (38,560) 10,019 (40,579)
Decrease (increase) in inventories 11,397 (9,927) (7,583)
Increase in other assets (13,794) (27,168) (20,918)
Increase (decrease) in accounts payable and accrued expenses 25,353 (12,704) 24,696
Decrease in deferred profit (985) (1,218) (1,962)
-------------------------------------
Net cash provided by operating activities $ 93,492 $ 73,265 $ 48,278
=====================================
</TABLE>
<TABLE>
Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended January 31,
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Rents and other revenues received $604,363 $587,851 $532,177
Proceeds from land sales 50,035 46,619 44,297
Land development expenditures (45,784) (32,670) (25,741)
Operating expenditures (369,536) (394,536) (367,901)
Interest paid (145,586) (133,999) (134,554)
-------------------------------------
Net cash provided by operating activities 93,492 73,265 48,278
-------------------------------------
Cash Flows from Investing Activities
Capital expenditures (440,716) (242,831) (157,601)
Proceeds from disposition of properties 33,345 - 26,040
Investments in and advances to affiliates (99,326) (33,737) (8,048)
-------------------------------------
Net cash used in investing activities (506,697) (276,568) (139,609)
-------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of senior notes 200,000 - -
Payment of senior notes issuance costs (6,297) - -
Increase in nonrecourse mortgage and long-term debt 704,722 385,807 174,409
Principal payments on nonrecourse mortgage debt (370,970) (102,518) (55,880)
Payments on long-term debt (114,000) (109,000) (23,000)
Increase in notes payable 50,491 48,574 23,613
Payments on notes payable (41,381) (57,407) (10,195)
Change in restricted cash and book overdrafts 35,417 (6,149) 3,455
Payment of deferred financing costs (16,565) (12,142) (10,037)
Sale of common stock, net - 76,076 -
Sale (purchase) of treasury stock 60 (2,896) (6,080)
Dividends paid to shareholders (4,497) (3,490) (2,797)
-------------------------------------
Net cash provided by financing activities 436,980 216,855 93,488
-------------------------------------
Net increase in cash and equivalents 23,775 13,552 2,157
Cash and equivalents at beginning of year 54,854 41,302 39,145
-------------------------------------
Cash and equivalents at end of year $ 78,629 $ 54,854 $ 41,302
=====================================
Supplemental Non-Cash Disclosure:
The schedule below represents the effect of the following non-cash transactions
for the years ended January 31:
1999 o Disposition of interest in Summit Park Mall and Trolley
Plaza
1998 o Increase in interest in Skylight Office Tower, Antelope
Valley Mall and Station Square
o Disposition of interest in Toscana
o Reduction of interest in MIT Phase II
o Exchange of Woodridge
1997 o Reduction of interest in Granite Development Partners, L.P.
and the Clark Building
o Disposition of interest in Beachwood Place
Operating Activities
Land held for development or sale $ - $ 3,022 $ 15,650
Notes and accounts receivable 565 (5,072) 3,797
Other assets 1,138 (1,125) 5,175
Accounts payable and accrued expenses 2,760 (3,470) (5,311)
Deferred taxes - 164 -
-------------------------------------
Total effect on operating activities $ 4,463 $ (6,481) $ 19,311
=====================================
Investing Activities
Additions to completed rental properties $ - $(45,272) $ -
Disposition of completed rental properties 42,312 53,547 16,085
Investments in and advances to affiliates - 4,131 3,338
-------------------------------------
Total effect on investing activities $ 42,312 $ 12,406 $ 19,423
=====================================
Financing Activities
Assumption of nonrecourse debt $ - $ 38,375 $ -
Disposition of nonrecourse mortgage debt (46,775) (48,988) (39,362)
Notes payable - 4,688 628
-------------------------------------
Total effect on financing activities $(46,775) $ (5,925) $(38,734)
=====================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
A. Summary of Significant Acccounting Policies
NATURE OF BUSINESS
Forest City Enterprises, Inc. is a major, verticaly integrated national
real estate company with four principal business groups. The Commercial Group
owns, develops, acquires and operates shopping centers, office buildings and
mixed-use projects including hotels. The Residential Group develops or acquires,
owns 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. The Lumber Trading Group operates the Company's lumber wholesaling
business.
Forest City Enterprises, Inc. owns approximately $3.1 billion of properties
at cost in 21 states and Washington, D.C. The Company's executive offices are in
Cleveland, Ohio. Regional offices are located in New York, Los Angeles, Boston,
Tucson, Washington, D.C., San Francisco and Denver.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Forest City
Enterprises, Inc. and all wholly-owned subsidiaries ("Company"). The Company
also includes its proportionate share of the assets, liabilities and results of
operations of its real estate partnerships, joint ventures and majority-owned
corporations. These entities are included as of their respective fiscal
year-ends (generally December 31).
All significant intercompany accounts and transactions between consolidated
entities have been eliminated. Entities which the Company does not control are
accounted for on the equity method. Undistributed earnings of such entities are
included in retained earnings, with no significant amounts at January 31, 1999.
The Company is required to make estimates and assumptions when preparing
its financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
The Company does not necessarily own or hold any direct or indirect
ownership interest in the various real estate assets consolidated in its
financial statements but generally holds this ownership through its direct or
indirect subsidiaries, except for certain parcels of land held for development
or sale.
The Company has adopted SFAS 131, "Disclosure About Segments of an
Enterprise and Related Information," that established standards for reporting
information about operating segments. Operating segments are defined as
components of an enterprise that are used in decisions made by senior
management. The adoption of SFAS 131 did not significantly change the segment
information historically provided in the Company's annual financial statements.
Certain prior years' amounts in the accompanying financial statements have
been reclassified to conform to the current year's presentation.
FISCAL YEAR
The years 1998, 1997 and 1996 refer to the fiscal years ended January 31,
1999, 1998 and 1997, respectively.
LAND OPERATIONS
Land held for development or sale is stated at the lower of carrying amount
or fair market value less cost to sell
RECOGNITION OF REVENUE AND PROFIT
Real Estate Sales - The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) 66, "Accounting for Sales of Real Estate"
for reporting the disposition of properties.
Leasing Operations - The Company enters into leases with tenants in its
rental properties. The lease terms of tenants occupying space in the shopping
centers and office buildings range from 1 to 25 years, excluding leases with
anchor tenants. Leases with most shopping center tenants provide for percentage
rents when the tenants' sales volumes exceed stated amounts. Minimum and
percentage rent revenues are recognized when due from tenants. The Company is
also reimbursed for certain expenses related to operating its commercial
properties.
Lumber Brokerage - The Company recognizes the gross margin on these sales
as revenue. Sales invoiced for the years 1998, 1997 and 1996 were approximately
$2,979,000,000, $2,940,000,000 and $2,884,000,000, respectively.
Construction - Revenue and profit on long-term fixed-price contracts are
reflected under the percentage-of-completion method. On reimbursable cost-plus
fee contracts, revenues are recorded in the amount of the accrued reimbursable
costs plus proportionate fees at the time the costs are incurred.
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes.
For financial reporting purposes, interest and real estate taxes during
development and construction are capitalized as a part of the project cost.
Depreciation is generally computed on a straight-line method over the
estimated useful asset lives. The estimated useful lives of buildings range from
20 to 50 years.
Major improvements are capitalized and expensed through depreciation
charges. Repairs, maintenance and minor improvements are expensed as incurred.
Costs and accumulated depreciation applicable to assets retired or sold are
eliminated from the respective accounts and any resulting gains or losses are
reported in the Consolidated Statements of Earnings.
The Company periodically reviews its properties to determine if its
carrying costs will be recovered from future operating cash flows. In cases
where the Company does not expect to recover its carrying costs, an impairment
loss is recorded as a provision for decline in real estate.
CASH AND EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
The Company maintains operating cash and reserve for replacement balances
in financial institutions. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000.
INVENTORIES
The lumber brokerage inventories are stated at the lower of cost or market.
Inventory cost is determined by specific identification and average cost
methods.
OTHER ASSETS
Included in other assets are costs incurred in connection with obtaining
financing which are deferred and amortized over the life of the related debt.
Costs incurred in connection with leasing space to tenants are also included in
other assets and are deferred and amortized using the straight-line method over
the lives of the related leases. Additionally, restricted deposits and funded
reserves are included in other assets and represent deposits with mortgage
lenders for taxes and insurance, security deposits, capital replacement,
improvement and operating reserves, bond funds and development and construction
escrows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the estimated fair value of its debt and hedging
instruments by aggregating the various types (i.e., fixed-rate versus
variable-rate debt) and discounting future cash payments at interest rates that
the Company believes approximates the current market. There was no material
difference in the carrying amount and the estimated fair value of the Company's
total mortgage debt and hedging instruments.
INTEREST RATE PROTECTION AGREEMENTS
The Company maintains a practice of hedging its variable interest rate risk
by purchasing interest rate caps or entering into interest rate swap agreements
for periods of one to five years. The principal risk to the Company through its
interest rate hedging strategy is the potential inability of the financial
institution from which the interest rate protection was purchased to cover all
of its obligations. To mitigate this exposure, the Company purchases its
interest rate protection from either the institution that holds the debt or from
institutions with a minimum A credit rating.
The cost of interest rate protection is capitalized in other assets in the
Consolidated Balance Sheets and amortized over the benefit period as interest
expense in the Consolidated Statements of Earnings.
INCOME TAXES
Deferred tax assets and liabilities reflect the tax consequences on future
years of differences between the tax and financial statement basis of assets and
liabilities at year-end. The Company has recognized the benefits of its tax loss
carryforward and general business tax credits which it expects to use as a
reduction of the deferred tax expense.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion (APBO) 25,
"Accounting for Stock Issued to Employees", and related Interpretations to
account for stock-based compensation. As such, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount the employee is required to
pay for the stock.
STOCK SPLIT
All common shares and per share amounts have been adjusted to give
retroactive effect to the earliest period presented in the accompanying
Consolidated Financial Statements for a two-for-one stock split distributed on
July 16, 1998 (See Note O).
CAPITAL STOCK
Class B common stock is convertible into Class A common stock on a
share-for-share basis. The 5,000,000 authorized shares of preferred stock
without par value, none of which have been issued, are convertible into Class A
common stock.
Class A common shareholders elect 25% of the members of the Board of
Directors and Class B common shareholders elect the remaining directors
annually. The Company currently has 12 directors.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilutive effect of the Company's stock
option plan by adjusting the denominator using the treasury stock method. The
sum of the four quarters' earnings per share may not equal the annual earnings
per share due to the weighting of stock and option activity occurring during the
year. All earnings per share disclosures appearing in these financial statements
were computed assuming dilution unless otherwise indicated.
NEW ACCOUNTING STANDARDS
In the first quarter of 1999, the Company will adopt 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. In the first quarter of
2000, the Company will adopt SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires recognition of all derivatives
as either assets or liabilities and measurement of those instruments at fair
value. The Company anticipates that the adoption of both SOP 98-5 and SFAS 133
will not have a material effect on its earnings or financial position.
B. Real Estate and Related Accumulated Depreciation and Nonrecourse Mortgage
Debt
The components of real estate cost and related nonrecourse mortgage
debt are presented below.
<TABLE>
<CAPTION>
January 31, 1999
- --------------------------------------------------------------------------------------------------
Less Accumulated Nonrecourse
Total Cost Depreciation Net Cost Mortgage Debt
- --------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Completed rental properties
Residential $ 624,325 $ 123,485 $ 500,840 $ 499,327
Commercial
Shopping centers 923,672 160,552 763,120 746,679
Office and other buildings 1,057,051 193,215 863,836 787,380
Corporate and other equipment 20,541 14,041 6,500 -
------------------------------------------------------------------
2,625,589 491,293 2,134,296 2,033,386
------------------------------------------------------------------
Projects under development
Residential 43,119 - 43,119 6,562
Commercial
Shopping centers 177,465 - 177,465 24,763
Office and other buildings 191,488 - 191,488 84,285
------------------------------------------------------------------
412,072 - 412,072 115,610
------------------------------------------------------------------
Land held for development or sale 49,837 - 49,837 24,876
------------------------------------------------------------------
$ 3,087,498 $ 491,293 $ 2,596,205 $ 2,173,872
==================================================================
</TABLE>
C. Notes and Accounts Receivable, Net
Notes and accounts receivable are summarized below.
<TABLE>
<CAPTION>
January 31,
- --------------------------------------------------------
1999 1998
- --------------------------------------------------------
(in thousands)
<S> <C> <C>
Lumber brokerage $ 166,400 $ 134,197
Real estate sales 18,688 18,278
Syndication activities 13,604 12,197
Receivable from tenants 15,802 16,050
Other receivables 22,708 19,166
---------------------------
237,202 199,888
Allowance for doubtful
accounts (7,488) (8,169)
---------------------------
$ 229,714 $ 191,719
===========================
</TABLE>
Notes receivable at January 31, 1999 of $50,973,000, included in the table
above, are collectible primarily over five years, with $11,163,000 being due
within one year. The weighted average interest rate at January 31, 1999 and 1998
was 8.08% and 8.43%, respectively.
In July 1996, the Lumber Trading Group entered into a three-year agreement
under which it is selling an undivided interest in a pool of accounts receivable
up to a maximum of $91,800,000. At January 31, 1999, the Company had received
$44,000,000 in net proceeds under this agreement. The program is nonrecourse to
the Company and the Company bears no risk as to the collectability of the
accounts receivable.
D. Other Assets
Other assets are as follows.
<TABLE>
<CAPTION>
January 31,
- --------------------------------------------------------
1999 1998
- --------------------------------------------------------
(in thousands)
<S> <C> <C>
Unamortized costs, net $ 96,571 $ 90,320
Restricted funds and deposits 51,994 81,738
Prepaid expenses 34,963 27,691
--------------------------
$ 183,528 $ 199,749
==========================
</TABLE>
E. Accounts Payable and Accrued Expenses
Included in accounts payable and accrued expenses at January 31, 1999 and
1998 are book overdrafts of approximately $66,060,000 and $57,222,000,
respectively. The overdrafts are a result of the Company's cash management
program and represent checks issued but not yet presented to a Company bank for
collection.
F. Notes Payable
The components of notes payable, which represent indebtedness whose
original maturity dates are within one year of issuance, are as follows.
<TABLE>
<CAPTION>
January 31,
- --------------------------------------------------------
1999 1998
- --------------------------------------------------------
(in thousands)
<S> <C> <C>
Payable to
Banks $ 17,275 $ 19,024
Other 26,654 15,795
--------------------------
$ 43,929 $ 34,819
==========================
</TABLE>
Notes payable to banks reflects borrowings on the Lumber Trading Group's
$67,000,000 bank lines of credit. The bank lines of credit allow for up to
$5,000,000 in outstanding letters of credit ($1,138,000 of which were
outstanding at January 31, 1999) which reduce the credit available to the Lumber
Trading Group. Borrowings under these bank lines of credit, which are
nonrecourse to the Company, are collateralized by all the assets of the Lumber
Trading Group, bear interest at the lender's prime rate or 2.25% over LIBOR, and
have a fee of 1/5% per annum on the unused portion of the available commitment.
These bank lines of credit are subject to review and extension annually.
Other notes payable relate to improvements and construction funded by
tenants, property and liability insurance premium financing and advances from
affiliates and partnerships.
The weighted average interest rate on notes payable was 8.14% and 7.89% at
January 31, 1999 and 1998, respectively.
Interest incurred on notes payable was $7,331,000 in 1998, $6,068,000 in
1997 and $5,978,000 in 1996. Interest paid on notes payable was $5,664,000 in
1998, $6,407,000 in 1997 and $5,250,000 in 1996.
G. Mortgage Debt, Nonrecourse
Mortgage debt, which is collateralized by completed rental properties,
projects under development and certain undeveloped land, is as follows.
<TABLE>
<CAPTION>
January 31,
- ----------------------------------------------------------
1999 1998
- ----------------------------------------------------------
(dollars in thousands)
Rate(1) Rate(1)
------ ------
<S> <C> <C> <C> <C>
Fixed $ 1,575,731 7.59% $ 1,118,748 7.88%
Variable -
Hedged(2) 219,003 7.23% 283,710 7.97%
Unhedged 154,960 6.90% 388,969 7.94%
Tax-Exempt 154,420 3.66% 151,051 4.76%
UDAG and other
subsidized
loans 69,758 2.57% 76,453 2.36%
------------ -----------
$ 2,173,872 7.07% $ 2,018,931 7.46%
=========== ===========
<FN>
(1) The weighted average interest rates shown above include both the
base index and the lender margin.
(2) The hedged debt of $219,003 represents $133,479 of 1-year LIBOR
contracts and $85,524 of LIBOR-based swaps that have a combined
remaining average life of 0.65 years as of January 31, 1999.
</FN>
</TABLE>
Debt related to projects under development at January 31, 1999 totals
$115,610,000 out of a total commitment from lenders of $367,874,000. Of this
outstanding debt, $104,747,000 is variable-rate debt and $10,863,000 is
fixed-rate debt. The Company generally borrows funds for development and
construction projects with maturities of two to seven years utilizing
variable-rate financing. Upon opening and achieving stabilized operations, the
Company generally obtains long-term fixed-rate financing.
As of January 31, 1999, the Company had purchased London Interbank Offered
Rate ("LIBOR") interest rate caps as follows.
<TABLE>
<CAPTION>
Cap Principal
Strike Rate Period Outstanding
- ---------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
6.50% 02/01/99 - 01/31/00 $ 394,503
6.50% 02/01/00 - 01/31/01 457,613
6.50%* 02/01/01 - 07/31/01 362,577
7.00%* 08/01/01 - 02/01/02 362,577
6.75% 09/01/00 - 09/01/03 79,929
<FN>
* Protection for the year ending January 31, 2002 was purchased in
February and March 1999.
</FN>
</TABLE>
Interest rate caps and swaps are purchased to reduce short-term variable
interest rate risk. The Company intends to convert a significant portion of its
committed variable- rate debt to fixed-rate debt. In order to reduce the risk
associated with increases in interest rates, the Company has purchased 10-year
Treasury Options at a strike rate of 6.00% in the amounts of $170,850,000,
$41,252,000 and $38,677,000 with exercise dates of February 2000, April 2001 and
August 2001, respectively. Treasury Options totaling $79,929,000 were purchased
in February 1999.
The Urban Development Action Grants (UDAG) and other subsidized loans bear
interest at rates which are below prevailing commercial lending rates and are
granted to the Company as an inducement to develop real estate in economically
under-developed areas. A right to participate by the local government in the
future cash flows of the project is generally a condition of these loans.
Participation in annual cash flows generated from operations is recognized as an
expense in the period earned. Participation in appreciation and cash flows
resulting from a sale or refinancing is recorded as an expense at the time of
sale or is capitalized as additional basis and amortized if amounts are paid
prior to the disposition of the property.
Mortgage debt maturities for the next five years ending January 31 are as
follows: 2000, $249,451,000; 2001, $272,202,000; 2002, $142,500,000; 2003,
$145,792,000; and 2004, $119,373,000.
The Company is engaged in discussions with its current lenders and is
actively pursuing new lenders to extend and refinance maturing mortgage debt. As
of January 31, 1999, $134,179,000 of debt with upcoming maturities have
refinancing commitments in place.
Interest incurred on mortgage debt was $144,890,000 in 1998, $138,546,000
in 1997 and $127,531,000 in 1996. Interest paid on mortgage debt was
$148,959,000 in 1998, $136,799,000 in 1997 and $130,213,000 in 1996.
H. Long-Term Debt
Long-term debt is as follows.
<TABLE>
<CAPTION>
January 31,
- -----------------------------------------------------
1999 1998
- -----------------------------------------------------
(in thousands)
<S> <C> <C>
Revolving credit loans $ 105,000 $ 54,000
Term loan - 60,000
---------------------
$ 105,000 $114,000
=====================
</TABLE>
At January 31, 1999, the Company had $105,000,000 outstanding under its new
$225,000,000 revolving credit facility. The new revolving credit line replaced
the $80,000,000 revolving credit facility and $60,000,000 term loan in place at
January 31, 1998. The new revolving credit facility matures December 10, 2000,
unless extended, and allows for up to $30,000,000 in outstanding letters of
credit ($22,413,000 of which were outstanding at January 31, 1999) that reduce
the credit available to the Company. On each anniversary date, the maturity date
of the revolving credit facility may be extended by one year by unanimous
consent of the nine participating banks. At its 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 January 31, 1999, the revolving credit line was
$215,000,000.
The revolving credit agreement 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. At January 31, 1999, retained
earnings of $8,801,000 was available for payment of dividends.
The Company has entered into a one-year 5.125% LIBOR option expiring
January 3, 2000 on $75,000,000 of the 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 $42,387,000 and
$37,423,000, respectively. This protection was purchased in February and March
1999.
Interest incurred on long-term debt was $6,317,000 in 1998, $7,811,000 in
1997 and $7,880,000 in 1996. Interest paid on long-term debt was $6,010,000 in
1998, $6,896,000 in 1997 and $7,116,000 in 1996.
I. Senior Notes
On March 16, 1998, the Company issued $200,000,000 of 8.50% senior notes,
due March 15, 2008, in a public offering. Net proceeds in the amount of
$195,500,000 were contributed to the capital of Forest City Rental Properties
Corporation, a wholly-owned subsidiary, and were then used to repay $114,000,000
of its term loan and revolving credit loans (Note H). The remaining proceeds
were used to finance acquisitions and development of real estate projects.
Accrued interest 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 the revolving credit facility. The
indenture contains covenants providing, among other things, limitations on
incurring additional debt and payment of dividends. The dividend limitation is
not as restrictive as that imposed by the Company's revolving credit facility
(Note H).
The senior notes may be redeemed by the Company, in whole or in part, at
any time on or after March 15, 2003 at redemption prices beginning at 104.25%
for the year beginning March 15, 2003 and systematically reduced to 100% in the
years thereafter. The Company may also redeem up to 33% of the original
principal amount prior to March 15, 2001 from proceeds of one or more common
stock public offerings at a redemption price of 108.50%.
Interest incurred on the senior notes was $14,922,000 and $1,781,000 in
1998 and 1997, respectively. Interest paid was $8,453,000 and $1,781,000 in 1998
and 1997, respectively. Interest incurred and paid in 1997 was for the purchase
of a treasury option to fix the interest rate on the senior notes. Because the
treasury option was not advantageous, the option was not exercised and its cost
was expensed in 1997.
Consolidated Interest
Total interest incurred on all forms of indebtedness (included in Notes F,
G, H and I) was $173,460,000 in 1998, $154,206,000 in 1997 and $141,389,000 in
1996 of which $23,500,000, $17,884,000 and $8,025,000 was capitalized,
respectively. Interest paid on all forms of indebtedness was $169,086,000 in
1998, $151,883,000 in 1997 and $142,579,000 in 1996.
J. Income Taxes
The income tax provision (benefit) consists of the following components.
<TABLE>
<CAPTION>
For the Years Ended January 31,
- ----------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current
Federal $ (570) $ (2,706) $ 896
Foreign 409 330 580
State 75 898 459
--------------------------------
(86) (1,478) 1,935
--------------------------------
Deferred
Federal 21,996 4,301 6,985
Foreign 16 32 (126)
State 5,748 (653) 4,157
--------------------------------
27,760 3,680 11,016
--------------------------------
Total provision $ 27,674 $ 2,202 $ 12,951
================================
</TABLE>
The effective tax rate for income taxes varies from the federal statutory
rate of 35% for 1998, 1997 and 1996 due to the following items.
<TABLE>
<CAPTION>
For the Years Ended January 31,
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Statement earnings
before income taxes $ 66,081 $ 3,385 $ 22,122
-------------------------------
Income taxes computed at
the statutory rate $ 23,129 $ 1,185 $ 7,742
Increase (decrease) in tax
resulting from:
State taxes, net of
federal benefit 3,452 83 3,000
Contribution
carryover 1,113 1,032 811
Nondeductible
lobbying costs - - 811
Adjustment of prior
estimated taxes (116) (134) (111)
Valuation allowance 165 - 351
Other items (69) 36 347
-------------------------------
Total provision $ 27,674 $ 2,202 $ 12,951
===============================
</TABLE>
An analysis of the deferred tax provision is as follows.
<TABLE>
<CAPTION>
For the Years Ended January 31,
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Excess of tax over
statement depreciation
and amortization $ 4,356 $ 2,194 $ 4,730
Allowance for doubtful
accounts deducted
for statement purposes (389) (585) (349)
Costs on land and rental
properties under
development expensed
for tax purposes 5,688 100 3,244
Revenues and expenses
recognized in different
periods for tax and
statement purposes 11,986 3,843 851
Development fees deferred
for statement purposes - (395) (109)
Provision for decline
in real estate - - (1,650)
Deferred state taxes, net
of federal benefit 3,019 (530) 2,392
Interest on construction
advances deferred for
statement purposes 975 (1,207) (189)
Utilization and (benefits)
of tax loss carry-forward
recognized against
deferred taxes 5,423 (1,509) 3,187
Deferred compensation (106) 1,703 2,061
Valuation allowance 165 - 351
Alternative minimum tax
credits (3,357) 66 (3,503)
------------------------------
Deferred provision $ 27,760 $ 3,680 $ 11,016
==============================
</TABLE>
The types of differences that gave rise to significant portions of the
deferred income tax liability are presented in the following table.
<TABLE>
<CAPTION>
January 31,
- -------------------------------------------------------------
Temporary Differences Deferred Tax
- -------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Depreciation $ 244,697 $ 235,337 $ 96,778 $ 93,076
Capitalized costs 201,992 137,599 79,888 54,420
Net operating losses (76,433) (89,903) (26,938) (32,527)
Federal tax credits - - (14,165) (9,686)
Other 19,614 10,667 14,587 12,440
-----------------------------------------
$ 389,870 $ 293,700 $ 150,150 $ 117,723
=========================================
</TABLE>
Income taxes paid totaled $3,740,000, $6,247,000 and $830,000 in 1998, 1997
and 1996, respectively. At January 31, 1999, the Company had a net operating
loss carryforward for tax purposes of $76,433,000 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 deferred tax liability at January 31, 1999 is comprised of
deferred liabilities of $268,872,000, deferred assets of $123,634,000 and a
valuation allowance related to state taxes and general business credits of
$4,912,000.
K. 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. 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 tables summarize selected financial data for the Commercial,
Residential, Land and Lumber Trading Groups and Corporate. All amounts,
including footnotes, are presented in thousands.
<TABLE>
<CAPTION>
January 31, For the Years Ended January 31,
-------------------------------------------------------------------------
Identifiable Assets Expenditures for Additions to Real Estate
-------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Group $ 2,330,624 $ 1,956,418 $ 1,749,539 $ 369,342 $ 234,766 $ 109,088
Residential Group 722,160 646,574 646,024 75,258 57,868 43,586
Land Group 100,501 87,909 88,953 41,706 30,397 25,741
Lumber Trading Group 218,551 199,602 209,901 2,301 2,254 2,958
Corporate 65,274 72,850 66,256 426 931 922
-------------------------------------------------------------------------
Consolidated $ 3,437,110 $ 2,963,353 $ 2,760,673 $ 489,033 $ 326,216 $ 182,295
=========================================================================
For the Years Ended January 31,
----------------------------------------------------------------------------------------------------------
Revenues Interest Expense Depreciation & Amortization Expense
----------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Group $ 380,264 $ 330,117 $ 314,762 $ 91,291 $ 87,035 $ 81,507 $ 65,527 $ 56,996 $ 54,875
Residential Group 139,003 135,253 116,878 27,342 28,884 32,947 18,128 14,682 15,419
Land Group 52,611 44,614 53,888 6,814 5,575 6,813 562 740 748
Lumber Trading Group(1) 123,325 122,169 124,491 5,262 5,254 5,166 2,045 2,202 2,140
Corporate 1,446 516 430 19,251 9,574 6,931 806 173 122
----------------------------------------------------------------------------------------------------------
Consolidated $ 696,649 $ 632,669 $ 610,449 $ 149,960 $ 136,322 $ 133,364 $ 87,068 $ 74,793 $ 73,304
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Earnings (Loss) Before Earnings Before Depreciation,
Income Taxes (EBIT) (2) Amortization & Deferred Taxes (EBDT)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Group $ 27,480 $ 18,979 $ 9,914 $ 94,027 $ 73,773 $ 66,032
Residential Group 27,285 28,153 7,148 38,614 31,985 24,818
Land Group 5,265 5,184 6,007 3,186 3,326 3,929
Lumber Trading Group 6,066 9,242 8,966 3,227 5,199 5,053
Corporate (30,572) (19,535) (15,224) (21,200) (7,373) (9,428)
Provision for decline in real estate - - (12,263) - - -
Gain (loss) on disposition of properties 30,557 (38,638) 17,574 - - -
-------------------------------------------------------------------------
Consolidated $ 66,081 $ 3,385 $ 22,122 117,854 106,910 90,404
=====================================
Reconciliation of EBDT to net earnings:
Depreciation and amortization - Real Estate Groups (83,655) (71,678) (70,221)
Deferred taxes - Real Estate Groups (14,236) (10,693) (13,197)
Provision for decline in real estate, net of tax - - (7,413)
Gain (loss) on disposition of properties, net of tax 18,444 (23,356) 9,598
Extraordinary gain, net of tax 16,343 19,356 2,900
-------------------------------------
Net earnings $ 54,750 $ 20,539 $ 12,071
=====================================
<FN>
(1) The Company recognizes the gross margin on lumber brokerage sales as
Revenues. Sales invoiced for the years ended January 31, 1999, 1998 and
1997 were approximately $2,979,000, $2,940,000 and $2,884,000,
respectively.
(2) See Consolidated Statements of Earnings on page 27 for reconciliation of
EBIT to net earnings.
</FN>
</TABLE>
L. Leases
The Company as Lessor
The following summarizes the minimum future rental income to be received on
noncancelable operating leases of commercial properties that generally extend
for periods of more than one year.
<TABLE>
<CAPTION>
Minimum
Future
For the Years Ending January 31, Rentals
- -----------------------------------------------------
(in thousands)
<S> <C>
2000 $ 182,462
2001 174,883
2002 161,710
2003 151,114
2004 140,640
Later years 960,290
----------
$1,771,099
==========
</TABLE>
Most of the commercial leases include provisions for reimbursements of
other charges including real estate taxes and operating costs. Total
reimbursements amounted to $67,659,000, $63,479,000 and $61,300,000 in 1998,
1997 and 1996, respectively.
The Company as Lessee
The Company is a lessee under various operating leasing arrangements for
real property and equipment having terms expiring through 2095, excluding
optional renewal periods.
Minimum fixed rental payments under long-term leases (over one year) in
effect at January 31, 1999 are as follows.
<TABLE>
<CAPTION>
Minimum
Lease
For the Years Ending January 31, Payments
- -----------------------------------------------------
(in thousands)
<S> <C>
2000 $ 9,493
2001 9,000
2002 8,454
2003 7,039
2004 6,676
Later years 193,487
---------
$ 234,149
=========
</TABLE>
Rent expense was $10,267,000, $10,273,000 and $8,813,000 for 1998, 1997 and
1996, respectively.
M. Contingent Liabilities
As of January 31, 1999, the Company has guaranteed loans totaling
$2,960,000 and has $23,551,000 in outstanding letters of credit, including
$1,138,000 which relates to the Lumber Trading Group.
The Company customarily guarantees lien-free completion of its
construction. Upon completion the guarantees are released. The Company is also
involved in certain claims and litigation related to its operations. Based upon
the facts known at this time, management is of the opinion that the ultimate
outcome of all such claims and litigation will not have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company.
N. Stock Option Plan
Shares may be awarded under the 1994 Stock Option Plan ("Plan") to key
employees in the form of either incentive stock options or non-qualified stock
options. The aggregate number of shares that may be awarded during the term of
the Plan was increased by shareholder approval on June 9, 1998 to 2,250,000
shares, subject to adjustments under the Plan. The maximum number of shares that
may be awarded to an employee during any calendar year is 75,000 shares. An
option's maximum term is 10 years. The exercise price of all non-qualified and
incentive stock options shall be at least equal to the fair market value of a
share on the date the option is granted unless the grantee of incentive stock
options constructively owns more than ten percent of the total combined voting
power of all classes of stock of the Company, in which case the exercise price
of each incentive stock option shall be at least 110% of the fair market value
of a share on the date granted. The Plan is administered by the Compensation
Committee of the Board of Directors. The Company granted 390,800 options in 1998
and 361,800 options in 1996. All options granted were Class A fixed stock
options, have a term of 10 years and vest over two to four years.
The Company applies APBO 25 and related Interpretations in accounting for
its Plan. Accordingly, no compensation cost has been recognized for its Plan.
Had compensation cost been determined in accordance with SFAS 123 "Accounting
for Stock-Based Compensation", net earnings and earnings per share for 1998,
1997 and 1996 would have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
For the Years Ended January 31,
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (in thousands)
As reported $ 54,750 $ 20,539 $ 12,071
Pro forma $ 53,150 $ 19,974 $ 11,846
Basic earnings per share
As reported $ 1.83 $ .71 $ .46
Pro forma $ 1.77 $ .69 $ .45
Diluted earnings per share
As reported $ 1.81 $ .71 $ .46
Pro forma $ 1.77 $ .69 $ .45
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
the grants in 1998 and 1996, respectively: dividend yield of .5% in both years;
expected volatility of 38.0% and 30.7%; risk-free interest rate of 5.7% and
6.5%; expected life of 8.7years in both years; and turnover of 3.0% and none.
A summary of stock option activity is presented below.
<TABLE>
<CAPTION>
For the Years Ended January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 354,600 $ 14.38 361,800 $ 14.38 - -
Granted 390,800 $ 28.50 - - 361,800 $ 14.38
Exercised (4,350) $ 14.38 - - - -
Forfeited (17,100) $ 20.32 (7,200) $ 14.38 - -
--------- ------- -------
Outstanding at end of year 723,950 $ 21.86 354,600 $ 14.38 361,800 $ 14.38
======== ======= =======
Options exercisable at end of year 82,500 $ 14.38 - $ - - $ -
Number of shares available for
granting of options at end of year 1,521,700 395,400 388,200
Weighted average fair value of
options granted during the year $ 15.12 $ - $ 7.19
</TABLE>
The following table summarizes information about fixed stock options outstanding
at January 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding at Remaining Average Exercisable at Average
Prices January 31, 1999 Contractual Life Exercise Prices January 31, 1999 Exercise Prices
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 14.38 340,350 7.6 years $ 14.38 82,500 $ 14.38
$ 28.50 383,600 9.1 years $ 28.50 - $ -
------- ------
723,950 82,500
======= ======
</TABLE>
O. Capital Stock
On July 16, 1998, the Company paid a two-for-one common stock split to
Class A and Class B shareholders of record on July 1, 1998. Previously, the
Company paid a three-for-two common stock split to Class A and Class B
shareholders of record on February 3, 1997. Both stock splits were effected as
stock dividends. The stock splits were given retroactive effect to the beginning
of the earliest period presented in the accompanying Consolidated Balance Sheets
and Consolidated Statements of Shareholders' Equity by transferring the par
value of the additional shares issued from the additional paid-in capital
account to the common stock accounts. All share and per share data included in
this annual report, including stock option plan information, have been restated
to reflect the stock splits.
On May 20, 1997, the Company sold to the public 3,910,000 (1,955,000
pre-split) shares of Class A common stock at an initial price of $21.00 ($42.00
pre-split) per share.
In June 1997 and June 1998 the shareholders approved amendments to the
Company's Articles of Incorporation to increase the Company's authorized shares
of stock. Class A common shares were increased from 16,000,000 to 48,000,000
shares in 1997 and to 96,000,000 shares in 1998. Class B common shares were
increased from 6,000,000 to 18,000,000 shares in 1997 and to 36,000,000 shares
in 1998. Preferred shares were increased from 1,000,000 to 5,000,000 shares in
1997.
During 1998, 4,350 shares of Class A treasury stock were sold to employees
upon the exercise of their stock options (see Note N).
P. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for "net earnings before
extraordinary gain."
<TABLE>
<CAPTION>
Weighted
Net Earnings Average
Before Common
Extraordinary Shares Per
Gain Outstanding Common
(Numerator) (Denominator) Share
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Year ended January 31, 1999
Basic earnings
per share $ 38,407 29,980,200 $ 1.28
Effect of dilutive
securities -stock options - 193,730 (.01)
---------- ---------- -------
Diluted earnings
per share $ 38,407 30,173,930 $ 1.27
========== ========== =======
Year ended January 31, 1998
Basic earnings
per share $ 1,183 28,905,920 $ .04
Effect of dilutive
securities -stock options - 57,760 -
---------- ---------- -------
Diluted earnings
per share $ 1,183 28,963,680 $ .04
========== ========== =======
Year ended January 31, 1997
Basic earnings
per share $ 9,171 26,310,472 $ .35
Effect of dilutive
securities -stock options - 33,327 -
---------- ---------- -------
Diluted earnings
per share $ 9,171 26,343,799 $ .35
========== ========== =======
</TABLE>
Q. Summarized Financial Information
Forest City Rental Properties Corporation ("Rental Properties") is a
wholly-owned subsidiary engaged in the development, acquisition and management
of real estate projects, including apartment complexes, regional malls and
shopping centers, hotels, office buildings and mixed-use facilities. Condensed
consolidated balance sheets and statements of earnings for Rental Properties and
its subsidiaries follows.
<TABLE>
Forest City Rental Properties Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<CAPTION>
January 31,
- -----------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Assets
Real Estate
Completed rental properties $ 2,605,048 $ 2,390,969
Projects under development 412,072 251,416
-------------------------------------
3,017,120 2,642,385
Less accumulated depreciation (477,253) (436,377)
-------------------------------------
Total Real Estate 2,539,867 2,206,008
Cash 33,158 36,763
Other assets 480,513 406,522
-------------------------------------
$ 3,053,538 $ 2,649,293
=====================================
Liabilities and Shareholder's Equity
Liabilities
Mortgage debt, nonrecourse $ 2,148,996 $ 1,994,843
Accounts payable and accrued expenses 151,380 144,831
Long-term debt 105,000 114,000
Other liabilities and deferred credits 261,908 243,989
-------------------------------------
Total Liabilities 2,667,284 2,497,663
-------------------------------------
Shareholder's Equity
Common stock and additional paid-in capital 200,878 5,378
Retained earnings 185,376 146,252
-------------------------------------
Total Shareholder's Equity 386,254 151,630
-------------------------------------
$ 3,053,538 $ 2,649,293
=====================================
</TABLE>
<TABLE>
<CAPTION>
Forest City Rental Properties Corporation and Subsidiaries
Consolidated Statements of Earnings
For the Years Ended January 31,
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Revenues $ 519,282 $ 465,370 $ 426,226
------------------------------------------------------
Operating expenses 264,496 229,856 228,110
Interest expense 137,556 123,713 121,186
Provision for decline in real estate - - 11,684
Depreciation and amortization 83,655 71,678 70,221
------------------------------------------------------
485,707 425,247 431,201
------------------------------------------------------
Gain (loss) on disposition of properties 30,890 (35,505) 17,574
------------------------------------------------------
Earnings before income taxes 64,465 4,618 12,599
------------------------------------------------------
Income tax expense (benefit)
Current (705) (2,437) (989)
Deferred 26,389 6,455 9,515
------------------------------------------------------
25,684 4,018 8,526
------------------------------------------------------
Net earnings before extraordinary gain 38,781 600 4,073
Extraordinary gain, net of tax 16,343 19,356 2,900
------------------------------------------------------
Net earnings $ 55,124 $ 19,956 $ 6,973
======================================================
</TABLE>
R. Gain (Loss) on Disposition and Extraordinary Gain
Gain (Loss) on Disposition of Properties - Gain (loss) on disposition of
properties totaled a gain of $30,557,000, a loss of $38,638,000 and a gain of
$17,574,000 in 1998, 1997 and 1996, respectively. During 1998, the Company
recognized a gain on the disposition of its interests in Summit Park Mall
($13,897,000 or $8,401,000 after tax), a regional shopping center in suburban
Buffalo, New York; San Vicente ($10,403,000 or $6,289,000 after tax), an office
building in Brentwood, California; and Trolley Plaza ($4,941,000 or $2,987,000
after tax), an apartment community in downtown Detroit, Michigan. The
dispositions of Summit Park, San Vicente and Trolley Plaza were all structured
as tax-free exchanges. Also in 1998, the Company reported gains on the sale of
Courtyard ($622,000 or $376,000 after tax), a strip shopping center in Flint,
Michigan and the Company's 20% interests in three apartment buildings in
Houston, Texas ($1,027,000 or $593,000 after tax).
During 1997, the Company sold its interest in Woodridge, a land development
project in suburban Chicago, Illinois ($3,133,000 loss or $1,892,000 after tax
loss) and recorded a loss on disposition of Toscana ($35,505,000 or $21,464,000
after tax). The 1996 gain primarily reflects the disposition of the Company's
18.63% interest in Beachwood Place, a regional shopping center in Cleveland,
Ohio.
Extraordinary Gain - Extraordinary gain, net of tax, totaled $16,343,000,
$19,356,000 and $2,900,000 in 1998, 1997 and 1996, respectively, representing
extinguishment of nonrecourse debt and related accrued interest.
The 1998 extraordinary gain recorded represents extinguishment of
nonrecourse debt related to Terminal Tower ($13,947,000 or $8,431,000 after tax)
and Skylight Office Tower ($3,619,000 or $2,188,000 after tax) both located in
Cleveland, Ohio; Courtland ($7,381,000 or $4,462,000 after tax), a regional mall
in Flint, Michigan; One Franklintown ($1,350,000 or $816,000 after tax), an
apartment complex in Philadelphia, Pennsylvania; Boot Ranch ($187,000 or
$113,000 after tax), an apartment property in Tampa, Florida; and Trolley Plaza
($552,000 or $333,000 after tax).
In 1997, the properties which recorded extraordinary gain on extinguishment
of nonrecourse debt were Toscana ($18,081,000 or $16,884,000 after tax); Halle
Office Building in Cleveland, Ohio ($3,569,000 or $2,156,000 after tax); and San
Vicente ($524,000 or $316,000 after tax). In 1996, the properties which recorded
extraordinary gain on extinguishment of nonrecourse debt are Enclave, an
apartment complex in San Jose, California and the Clark Building, an office
building in Cambridge, Massachusetts.
Sale of Toscana - During February 1997, the Company sold Toscana, a
563-unit apartment complex in Irvine, California, back to the original land
owner and settled litigation related to the property. As a result, the Company
recorded operating income of $9,146,000, after tax, a loss on disposition of
property of $21,464,000, after tax, and an extraordinary gain of $16,884,000,
after tax, related to the extinguishment of a portion of the property's
nonrecourse mortgage debt. The net result of these transactions to the Company
is after-tax income of $4,566,000.
<TABLE>
Quarterly Consolidated Financial Data (Unaudited)
<CAPTION>
Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
Jan. 31, Oct. 31, July 31, Apr. 30,
1999 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 205,417 $ 176,902 $ 165,707 $ 148,623
Earnings before income taxes $ 15,083 $ 9,487 $ 26,852 $ 14,659
Net earnings before extraordinary gain(1) $ 8,895 $ 5,168 $ 15,836 $ 8,508
Net earnings $ 14,286 $ 15,786 $ 16,170 $ 8,508
Basic earnings per share
Net earnings before extraordinary gain(1)(2) $ .30 $ .17 $ .53 $ .28
Net earnings(2) $ .48 $ .53 $ .54 $ .28
Diluted earnings per share
Net earnings before extraordinary gain(1)(2) $ .29 $ .17 $ .53 $ .28
Net earnings(2) $ .47 $ .52 $ .54 $ .28
Dividends declared per common share(3)
Quarterly dividend
Class A $ .04 $ .04 $ .04 $ .035
Class B $ .04 $ .04 $ .04 $ .035
Market price range of common stock
Class A
High $ 26.63 $ 28.88 $ 30.63 $ 29.88
Low $ 21.63 $ 17.75 $ 28.13 $ 26.66
Class B
High $ 26.38 $ 29.63 $ 30.13 $ 29.66
Low $ 22.44 $ 18.00 $ 28.13 $ 27.00
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
Jan. 31, Oct. 31, July 31, Apr. 30,
1998 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 184,591 $ 154,975 $ 142,035 $ 151,068
Earnings (loss) before income taxes $ 4,451 $ 12,062 $ 5,480 $ (18,608)
Net earnings (loss) before extraordinary gain(1) $ (1,149)$ 10,649 $ 2,947 $ (11,264)
Net earnings (loss) $ 4,020 $ 10,649 $ 6,089 $ (219)
Basic earnings per share
Net earnings (loss) before extraordinary gain(1)(2) $ (.04)$ .35 $ .10 $ (.43)
Net earnings (loss)(2) $ .13 $ .35 $ .21 $ (.01)
Diluted earnings per share
Net earnings (loss) before extraordinary gain(1)(2) $ (.04)$ .35 $ .10 $ (.43)
Net earnings (loss)(2) $ .13 $ .35 $ .21 $ (.01)
Dividends declared per common share(3)
Quarterly dividend
Class A $ .035 $ .03 $ .03 $ .03
Class B $ .035 $ .03 $ .03 $ .03
Market price range of common stock
Class A
High $ 29.44 $ 31.25 $ 27.47 $ 25.19
Low $ 26.63 $ 26.25 $ 20.88 $ 19.75
Class B
High $ 29.38 $ 30.38 $ 27.44 $ 25.00
Low $ 26.88 $ 26.75 $ 21.38 $ 21.00
</TABLE>
Both classes of common stock are traded on the New York Stock Exchange under the
symbols FCEA and FCEB.
As of March 1, 1999, the number of registered holders of Class A and Class B
common stock were 811 and 631, respectively.
(1) Excludes the extraordinary gain, net of tax of $16,343 ($.55 basic and $.54
diluted per share) and $19,356 ($.67 basic and diluted per share) in fiscal
1998 and 1997, respectively. These items are explained in Note R in the
Notes to Consolidated Financial Statements.
(2) The sum of quarterly earnings per share may not equal annual earnings per
share due to the weighting of stock and option activity during the year.
(3) Future dividends will depend upon such factors as earnings, capital
requirements and financial condition of the Company. Retained earnings of
$8,801 was available for payment of dividends as of January 31, 1999, under
the restrictions contained in the revolving credit agreement with a group
of banks.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
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 for 1998 grew by 10.2% (or 6.0% per share) to
$117,854,000, or $3.91 per share of common stock, from $106,910,000, or $3.69
per share of common stock for 1997, diluted and adjusted for the two-for-one
stock split distributed in July 1998. EBDT for 1998 grew by 18.0%, or 13.3% per
share, excluding $6,991,000 in EBDT in 1997 related to the litigation settlement
for Toscana, a 563-unit apartment complex in Irvine, California (see "Results of
Operations - Other Transactions - Sale of Toscana").
The increase in EBDT is primarily attributable to the acquisitions or
openings of 16 properties during 1998 and a full year of operations for the 11
properties that opened during 1997.
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
"Three Year Summary of 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 from the combined
Commercial Group and Residential Group ("Real Estate Groups") for 1998 was
$257,053,000 compared to $234,730,000 in 1997, a 9.5% increase. NOI in 1997
included $15,000,000 of non-recurring Toscana litigation settlement income (see
"- Other Transactions - Sale of Toscana" below). Adjusting for this item, NOI
increased by 17.0% over 1997. Comparable NOI (NOI for properties in operation
throughout both years) for Real Estate Groups increased 6.5% from 1997 to 1998
and 4.6% from 1996 to 1997. Including the expected NOI for the twelve months
following stabilization for the 16 properties that were opened, expanded or
acquired in 1998, NOI for Real Estate Groups would be approximately $274,000,000
for 1998.
Commercial Group
Revenues - Revenues for the Commercial Group increased $50,147,000, or
15.2%, to $380,264,000 in 1998 from $330,117,000 in 1997. This increase is
primarily the result of property openings and acquisitions. During 1998, Forest
City acquired the 292-room Sheraton Hotel at Station Square in Pittsburgh,
Pennsylvania and the 324,000-square-foot Fairmont Plaza office building and
adjacent 249,000-square-foot Pavilion retail center in San Jose, California,
which increased revenues over last year by $13,616,000, $5,919,000 and
$1,574,000, respectively. Phase Two of University Park at MIT in Cambridge,
Massachusetts opened during the second quarter of 1998. This mixed-use facility,
owned in partnership with MIT, consists of 76,000 square feet of office space,
96,000 square feet of retail space, a 210-room hotel and a 960-space parking
facility and generated revenues of $4,246,000 in 1998. Richmond Avenue, a retail
center in Staten Island, New York, also opened in 1998 and generated revenues of
$1,535,000. Revenues increased from the openings of properties in the New York
City area during 1997 including Nine MetroTech office building in Brooklyn, New
York ($4,400,000) and two retail properties in Queens, New York, Northern
Boulevard ($3,701,000) and Grand Avenue ($1,735,000). In addition, the Company's
increased ownership in two properties during 1997 resulted in increases to
revenues: Antelope Valley Mall in Palmdale, California increased from 40% to 78%
($3,131,000) and Station Square in Pittsburgh, Pennsylvania increased from 25%
to 100% ($5,278,000). These increases were partially offset by decreases in
revenues due to the disposition of the Company's interest in three commercial
properties in 1998: the 469,000-square-foot San Vicente office building in
Brentwood, California ($3,390,000), the 695,000-square-foot Summit Park Mall in
Wheatfield, New York ($3,554,000) and the Courtyard strip shopping center in
Flint, Michigan ($581,000). The Commercial Group also recorded an increase in
land sales of $5,388,000 over 1997. The balance of the increase in revenues
within the Commercial Group (approximately $7,000,000) was generally due to
improved operations.
Revenues for the Commercial Group increased $15,355,000, or 4.9%, to
$330,117,000 in 1997 from $314,762,000 in 1996. This increase is primarily the
result of 1997 property openings including Nine MetroTech ($1,495,000), Atlantic
Center in Brooklyn, New York ($6,856,000), Bruckner Boulevard in the Bronx, New
York ($1,422,000), Gun Hill Road in the Bronx, New York ($749,000), Northern
Boulevard ($282,000) and Grand Avenue ($156,000). Properties which opened in
1996 had a full year of operations in 1997 and generated additional revenues
include: Showcase in Las Vegas, Nevada ($1,623,000), Galleria at Sunset in
Henderson, Nevada ($901,000) and Marketplace at Riverpark in Fresno, California
($690,000). In addition, the Ritz-Carlton hotel in Cleveland, Ohio realized
increased revenues in 1997 over the prior year of $1,897,000 and comparable
office building revenues increased by approximately $6,300,000. These increases
were partially offset by 1996 land sales which did not recur ($2,989,000), a
reduction in revenues from Beachwood Place in Cleveland, Ohio which was sold in
1996 ($1,389,000) and the closing of the Handy Andy stores that were the
Company's tenants ($3,034,000).
Operating and Interest Expenses - During 1998, operating expenses for the
Commercial Group increased $28,859,000, or 17.3%, to $195,966,000 from
$167,107,000 in 1997. The increase in operating expenses was attributable
primarily to costs associated with the 1998 acquisitions of the Sheraton Hotel
at Station Square ($9,403,000), Fairmont Plaza ($2,137,000) and Pavilion
($901,000) as well as 1998 openings of Phase Two of University Park at MIT
($3,056,000) and Richmond Avenue ($222,000) and 1997 openings of Nine MetroTech
($1,605,000), Northern Boulevard ($1,374,000) and Grand Avenue ($274,000). In
addition, operating expenses increased due to increased ownership in 1997 in
Antelope Valley Mall ($1,303,000) and Station Square ($4,060,000) and additional
costs associated with increased land sales ($7,181,000). These increases were
partially offset by decreases in operating expenses of $3,972,000 resulting from
1998 dispositions. Interest expense for 1998 increased by $4,256,000, or 4.9%,
to $91,291,000 from $87,035,000 for 1997. The increase in interest expense is
primarily attributable to the 1998 openings and acquisitions discussed above, a
full year of interest for 1997 openings and increased ownership in two
properties in 1997, also discussed above.
During 1997, operating expenses for the Commercial Group decreased
$1,359,000, or 0.8%, to $167,107,000 from $168,466,000 in 1996. The decrease in
operating expenses was attributable primarily to costs associated with the sale
of land in 1996 ($5,066,000) which did not recur in 1997, partially offset by
the opening of new retail properties ($3,638,000) and costs associated with
increased hotel occupancy ($1,379,000). Interest expense increased $5,528,000 in
1997, or 6.8%, to $87,035,000 from $81,507,000 in 1996. The increase in interest
expense was attributable to the financing of new properties.
Net Operating Income - Commercial Group NOI for 1998 was $184,298,000
compared to $163,010,000 in 1997, a 13.1% increase. NOI increased 6.2% from 1997
to 1998 and 4.1% from 1996 to 1997 for Commercial Group properties in operation
throughout both years. Including the expected NOI for the twelve months after
stabilization for the Commercial Group properties that were opened or acquired
in 1998 and the additional NOI from the purchase of additional ownership
interests in two properties during 1997, NOI would be approximately $200,000,000
for 1998.
Residential Group
Revenues - Revenues for the Residential Group increased by $3,750,000, or
2.8%, in 1998 to $139,003,000 from $135,253,000 in 1997. Excluding the
$15,000,000 in proceeds from the Toscana litigation settlement received in 1997
(see "- Other Transactions - Sale of Toscana" below), revenues for 1998
increased $18,750,000, or 15.6% over 1997. This increase was primarily
attributable to the sale of the mortgage servicing division of Forest City
Capital Corporation ($1,329,000) and the recognition of development and
syndication fees on several projects ($3,843,000). Revenues also increased as a
result of 1998 acquisitions of the 534-unit Woodlake Apartments in Silver
Spring, Maryland ($2,229,000), a 50% interest in the 342-unit Park Plaza in
Mayfield Heights, Ohio ($786,000) and an additional 20% interest in the 450-unit
Studio Colony apartment community in Los Angeles, California ($1,599,000) as
well as a full year of operations for the 1997 acquisitions of Whitehall
Terrace, a 188-unit apartment building in Kent, Ohio ($1,059,000), Colony Woods,
a 396-unit garden apartment complex in Bellevue, Washington ($1,357,000) and
Museum Towers, a 286-unit high rise apartment building in Philadelphia,
Pennsylvania ($774,000). In addition, revenues increased $1,100,000 over 1997
from the addition of 386 units during 1998 to three apartment communities in
Cleveland, Ohio and income relating to syndicated partnerships ($2,970,000) and
interest on advances made on behalf of the Company's partner in Trowbridge and
Museum Towers ($978,000). These increases are partially offset by the decrease
in revenues as the result of the 1998 disposition of Trolley Plaza in Detroit,
Michigan ($1,297,000). The balance of the increase in revenues within the
Residential Group was generally due to improved operations.
Revenues for the Residential Group increased by $18,375,000, or 15.7%, in
1997 to $135,253,000 from $116,878,000 in 1996. This increase reflects proceeds
from the Toscana litigation settlement ($15,000,000 - see "- Other Transactions
- - Sale of Toscana"), development fees from The Knolls, a 260-unit apartment
community in Orange, California ($1,145,000), the acquisitions in 1997 of Museum
Towers ($2,477,000), Colony Woods ($1,186,000) and Whitehall Terrace ($309,000),
and a full year of operations for Emerald Palms, a 419-unit apartment complex in
Miami, Florida which was acquired in 1996 ($1,041,000). Revenues increased
$1,039,000 from the opening of 294 additional units at three existing apartment
developments in Cleveland, Ohio. In addition, revenues for comparable properties
improved over last year ($3,906,000), offset by the loss of revenue due to the
sale of Toscana ($7,206,000).
Operating and Interest Expenses - Operating expenses for the Residential
Group increased by $2,715,000, or 4.3%, in 1998, to $66,248,000 from $63,533,000
in 1997. The increase in operating expenses was primarily due to the 1998
acquisition of Woodlake ($1,048,000) and 1997 acquisitions of Colony Woods
($790,000), Whitehall Terrace ($436,000) and Museum Towers ($772,000). In
addition, operating expenses increased $471,000 over last year due to the
addition of 386 units at three apartment communities in Cleveland, Ohio and
$986,000 in additional costs associated with the generation of increased
development fees. This increase was partially offset by a decrease in expenses
relating to the sale of Trolley Plaza ($647,000) and 1997 development expenses
which did not recur in 1998 ($1,147,000). Interest expense decreased by
$1,542,000 in 1998, or 5.3%, to $27,342,000 from $28,884,000 in 1997. This
decrease is primarily the result of the disposition of Trolley Plaza.
Operating expenses for the Residential Group increased by $2,096,000, or
3.4%, to $63,533,000 in 1997 from $61,437,000 in 1996. Interest expense
decreased by $4,063,000, or 12.3%, to $28,884,000 in 1997 from $32,947,000 in
1996. The increase in operating expenses is primarily attributable to the 1997
acquisitions of Museum Towers ($1,049,000), Colony Woods ($652,000) and
Whitehall Terrace ($127,000), a full year of operations for Emerald Palms
($556,000) which was acquired in 1996, the addition of 294 units at three
existing apartment projects in Cleveland, Ohio ($389,000) and normal
inflationary growth on the portfolio (approximately $1,300,000). This increase
was partially offset by a decrease in operating expenses due to the sale of
Toscana ($2,899,000). The decrease in interest expense is primarily the result
of the sale of Toscana ($4,097,000).
Net Operating Income - Residential Group NOI for 1998 was $72,755,000,
compared to $71,720,000 in 1997, a 1.4% increase. NOI increased 7.2% from 1997
to 1998 for Residential Group properties in operation throughout both years, and
5.9% from 1996 to 1997. Including the expected NOI for the twelve months after
stabilization for Residential Group properties that were opened, expanded or
acquired in 1998, NOI would be approximately $74,000,000 for 1998.
Land Group
Revenues - Revenues for the Land Group increased by $7,997,000 to
$52,611,000 in 1998 from $44,614,000 in 1997. This increase is a result of
increased land sales at Seven Hills in Henderson, Nevada and The Greens at
Birkdale Village in Charlotte, North Carolina. Revenues for the Land Group
decreased by $9,274,000 to $44,614,000 in 1997 from $53,888,000 in 1996. This
decrease is attributable primarily to 1996 land sale activity at Silver Lakes in
Fort Lauderdale, Florida and a significant sale of land located in Miami,
Florida in 1996, both of which did not recur in 1997. 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 increased by
$6,677,000 in 1998 to $40,532,000 from $33,855,000 in 1997. Operating expenses
decreased by $7,213,000 in 1997 to $33,855,000 from $41,068,000 in 1996. The
fluctuation in operating expenses primarily reflects costs associated with land
sales volume in each period. Interest expense increased by $1,239,000 in 1998 to
$6,814,000 from $5,575,000 in 1997. Interest expense decreased by $1,238,000 in
1997 to $5,575,000 from $6,813,000 in 1996. Interest expense varies from year to
year depending on the level of interest-bearing debt within the Land Group.
Lumber Trading Group
Revenues - Revenues for the Lumber Trading Group increased by $1,156,000 in
1998 to $123,325,000 from $122,169,000 in 1997. The increase was due primarily
to increased lumber trading margins in 1998 compared to 1997 ($8,065,000) which
was partially offset by a decrease due to the sale of a facsimile line of
business in 1997 ($5,615,000) and a decrease in volume at Forest City/Babin, a
wholesaler of major appliances, cabinets and hardware to housing contractors
($936,000).
Revenues for the Lumber Trading Group decreased by $2,322,000 in 1997 to
$122,169,000 from $124,491,000 in 1996. The decrease was due primarily to a
reduced level of trading activity in 1997 compared to 1996 ($5,219,000),
partially offset by an increase in volume at Forest City/Babin ($2,420,000).
Operating and Interest Expenses - Operating expenses for the Lumber Trading
Group increased by $4,325,000 in 1998 to $111,998,000 from $107,673,000 in 1997.
This increase reflected higher variable expenses due to increased trading
margins compared to 1997 ($7,572,000) that was partially offset by a decrease
due to the sale of a facsimile line of business in 1997 ($3,356,000) and a
decrease in operating expenses at Forest City/Babin ($857,000). Interest expense
increased by $8,000 in 1998 to $5,262,000 from $5,254,000 in 1997.
Operating expenses for the Lumber Trading Group decreased by $2,686,000 in
1997 to $107,673,000 from $110,359,000 in 1996. This decrease reflected the
fluctuation in variable expenses due to decreased trading sales volume. Interest
expense for 1997 increased by $88,000 in 1997 to $5,254,000 from $5,166,000 in
1996.
Corporate Activities
Revenues- Corporate Activities' revenues increased $930,000 in 1998 to
$1,446,000 from $516,000 in 1997 and increased $86,000 in 1997 to $516,000 from
$430,000 in 1996. 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 outstanding.
Operating and Interest Expenses- Operating expenses for Corporate
Activities increased $2,288,000 in 1998 to $12,766,000 from $10,478,000 in 1997
and increased $1,755,000 in 1997 to $10,478,000 from $8,723,000 in 1996. These
increases represent general corporate expenses including amortization of costs
associated with the 1998 public offering of Senior Notes (see "Financial
Condition and Liquidity"). Interest expense increased $9,677,000 in 1998 to
$19,251,000 from $9,574,000 in 1997. Interest expense increased $2,643,000 in
1997 to $9,574,000 from $6,931,000 in 1996. Corporate Activities' interest
expense consists primarily of interest expense on the 8.50% Senior Notes (issued
on March 16, 1998) and the Revolving Credit Agreement that has not been
allocated to a principal business group (see "Financial Condition and
Liquidity").
Other Transactions
Gain (Loss) on Disposition of Properties - Gain (loss) on disposition of
properties totaled a gain of $30,557,000, a loss of $38,638,000 and a gain of
$17,574,000 in 1998, 1997 and 1996, respectively. During 1998, the Company
recognized a gain on the disposition of its interests in Summit Park Mall
($13,897,000 or $8,401,000 after tax), a regional shopping center in suburban
Buffalo, New York; San Vicente ($10,403,000 or $6,289,000 after tax), an office
building in Brentwood, California; and Trolley Plaza ($4,941,000 or $2,987,000
after tax), an apartment community in downtown Detroit, Michigan. The
dispositions of Summit Park, San Vicente and Trolley Plaza were all structured
as tax-free exchanges. Also in 1998, the Company reported gains on the sale of
Courtyard ($622,000 or $376,000 after tax), a strip shopping center in Flint,
Michigan and the Company's 20% interests in three apartment buildings in
Houston, Texas ($1,027,000 or $593,000 after tax).
During 1997, the Company sold its interest in Woodridge, a land development
project in suburban Chicago, Illinois ($3,133,000 pre-tax loss or $1,892,000
after tax loss) and recorded a loss on disposition of Toscana ($35,505,000
pre-tax or $21,464,000 after tax). The 1996 gain primarily reflects the
disposition of the Company's 18.63% interest in Beachwood Place, a regional
shopping center in Cleveland, Ohio.
Extraordinary Gain - Extraordinary gain, net of tax, totaled $16,343,000,
$19,356,000 and $2,900,000 in 1998, 1997 and 1996, respectively, representing
extinguishment of nonrecourse debt and related accrued interest. The 1998
extraordinary gain recorded represents extinguishment of nonrecourse debt
related to Terminal Tower ($13,947,000 or $8,431,000 after tax) and Skylight
Office Tower ($3,619,000 or $2,188,000 after tax) both located in Cleveland,
Ohio; Courtland ($7,381,000 or $4,462,000 after tax), a regional mall in Flint,
Michigan; One Franklintown ($1,350,000 or $816,000 after tax), an apartment
complex in Philadelphia, Pennsylvania; Boot Ranch ($187,000 or $113,000 after
tax), an apartment property in Tampa, Florida; and Trolley Plaza ($552,000 or
$333,000 after tax).
In 1997, the properties that recorded extraordinary gain on extinguishment
of nonrecourse debt were Toscana ($18,081,000, or $16,884,000 after tax); Halle
Office Building in Cleveland, Ohio ($3,569,000 or $2,156,000 after tax); and San
Vicente ($524,000 or $316,000 after tax). In 1996, the properties which recorded
extraordinary gain on extinguishment of nonrecourse debt are Enclave, an
apartment complex in San Jose, California and the Clark Building, an office
building in Cambridge, Massachusetts.
Sale of Toscana - During February 1997, the Company sold Toscana, a
563-unit apartment complex in Irvine, California, back to the original land
owner and settled litigation related to the property. As a result, the Company
recorded operating income of $9,146,000, after tax, a loss on disposition of
property of $21,464,000, after tax, and an extraordinary gain of $16,884,000,
after tax, related to the extinguishment of a portion of the property's
nonrecourse mortgage debt. The net result of these transactions to the Company
is after-tax income of $4,566,000.
Income Taxes - Income tax expense for 1998 and 1997 totaled $27,674,000,
$2,202,000 and $12,951,000, in 1998, 1997 and 1996, 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 1998, the Company's net earnings grew to $54,750,000, or
$1.81 per share of common stock, from $20,539,000, or $.71 per share of common
stock in 1997. All per share amounts are diluted and adjusted for the
two-for-one stock split that was effective July 16, 1998.
EBDT - Earnings Before Depreciation, Amortization and Deferred Taxes
("EBDT") is defined as net earnings from operations before depreciation,
amortization and deferred taxes on income, and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary items.
The Company excludes depreciation and amortization expense related to real
estate operations from EBDT because they are non-cash items and the Company
believes the values of its properties, in general, have appreciated, over time,
in excess of their original cost. Deferred income taxes from real estate
operations are excluded because they are a non-cash item. The provision for
decline in real estate is excluded from EBDT because it is a non-cash item that
varies from year to year based on factors unrelated to the Company's overall
financial performance. The Company excludes gain (loss) on the disposition of
properties from EBDT because it develops and acquires properties for long-term
investment, not short-term trading gains. As a result, the Company views
dispositions of properties other than commercial outlots or land held by the
Land Group as nonrecurring items. Extraordinary 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 January 31, 1999, the Company had
$105,000,000 outstanding under its new $225,000,000 revolving credit facility.
The new revolving credit line replaced the $80,000,000 revolving credit facility
and $60,000,000 term loan in place at January 31, 1998. The new revolving credit
facility matures December 10, 2000, unless extended, and allows for up to
$30,000,000 in outstanding letters of credit ($22,413,000 of which were
outstanding at January 31, 1999) that reduce the credit available to the
Company. 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 January 31, 1999, the revolving credit
line was $215,000,000.
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. At January 31, 1999, retained
earnings of $8,801,000 were available for payment of dividends.
The Company has entered into a one-year 5.125% LIBOR option 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 $42,387,000 and $37,423,000,
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 of
$195,500,000 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.
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 year ended January 31, 1999, the Company completed
$1,026,000,000 in financings, including $556,000,000 in refinancings,
$358,000,000 for new development projects and $112,000,000 in acquisition
mortgages. The Company is pursuing the refinancing of its nonrecourse mortgage
debt which matures within the next 12 months. In addition, the Company is
attempting to extend the maturities and/or refinance the nonrecourse debt that
is coming due in 1999 and 2000, generally pursuing a strategy of utilizing
long-term fixed rate debt and taking advantage of favorable financial market
conditions.
Interest Rate Exposure
At January 31, 1999, the composition of nonrecourse mortgage debt is as
follows:
Amount Rate(1)
- --------------------------------------------------------------------------------
(in thousands)
Fixed $ 1,575,731 7.59%
Variable -
Hedged(2) 219,003 7.23%
Unhedged 154,960 6.90%
Tax-Exempt 154,420 3.66%
UDAG and other
subsidized loans (fixed) 69,758 2.57%
--------------
$ 2,173,872 7.07%
--------------
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) The hedged debt of $219,003 represents $133,479 of 1-year LIBOR contracts
and $85,524 of LIBOR-based swaps that have a combined average term of .65
years as of January 31, 1999.
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 $394,503,000
and $457,613,000 for the years ending January 31, 2000 and 2001, respectively.
In addition, LIBOR interest rate caps averaging 6.75% in the amount of
$362,577,000 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
to reduce the risk associated with increases in interest rates, the Company has
purchased 10-year Treasury Options at a strike rate of 6.00% in the amounts of
$170,850,000, $41,252,000 and $38,677,000 with the exercise dates of February
2000, April 2001 and August 2001, respectively. The Company generally does not
hedge tax-exempt debt because, since 1990, the base rate of this type of
financing has averaged only 3.60% and has never exceeded 7.90%.
At January 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 $1,600,000. 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.
At January 31, 1999, Lumber Trading Group's two lines of credit totaled a
$67,000,000 commitment expiring June 30, 1999. These credit lines are secured by
the assets of the Lumber Trading Group and are used by the Trading Group to
finance its working capital needs. At January 31, 1999, $17,275,000 was
outstanding under these facilities.
The Lumber Trading Group also has sold an undivided ownership interest in a
pool of accounts receivable of up to a maximum of $91,800,000 and uses this
program to finance its working capital needs. At January 31, 1999, $44,000,000
had been sold under this accounts receivable program.
The Company believes that the amounts available under these credit
facilities, together with the accounts receivable sale program, will be
sufficient to meet the Lumber Trading Group's liquidity needs.
Cash Flows
Net cash provided by operating activities was $93,492,000, $73,265,000 and
$48,278,000 for 1998, 1997 and 1996, respectively. The increase in net cash
provided by operating activities in 1998 from 1997 is the result of an increase
of $16,512,000 in rents and other revenues received principally comprised of an
increase in consolidated revenues of $63,980,000, net of an increase in notes
and accounts receivable of $48,579,000 (resulting from an increase of
$38,560,000 in 1998 versus a decrease of $10,019,000 in 1997) primarily from
Lumber Trading Group, an increase of $3,416,000 in proceeds from land sales and
a $25,000,000 decrease in expenditures for operating expenses primarily due to
an increase in accounts payable in Lumber Trading Group. These increases were
partially offset by an increase of $13,114,000 in land development expenditures
and an increase of $11,587,000 in interest paid. The increase in net cash
provided by operating activities in 1997 from 1996 is primarily the result of a
$55,674,000 increase in collection of revenues received primarily due to the
decrease in Lumber Trading Group accounts receivable and a $2,322,000 increase
in proceeds from land sales. This increase was partially offset by a $6,929,000
increase in land development expenditures and a $26,635,000 increase in
operating expenditures, primarily due to the decrease in Lumber Trading Group
accounts payable and accrued expenses.
Net cash used in investing activities totaled $506,697,000, $276,568,000
and $139,609,000 for 1998, 1997 and 1996, respectively. Capital expenditures,
other than development and acquisition activities, totaled $44,615,000,
$39,421,000 and $32,007,000 (including both recurring and investment capital
expenditures) in 1998, 1997 and 1996, respectively and were financed with cash
provided from operating activities. The Company invested $396,101,000,
$203,410,000 and $120,667,000 in acquisition and development of real estate
projects in 1998, 1997 and 1996, respectively. These expenditures were financed
with approximately $203,000,000, $181,000,000 and $117,000,000 in new mortgage
indebtedness incurred in 1998, 1997 and 1996, respectively, cash provided from
operations and borrowings under the revolving credit facility (after the
outstanding balance was repaid from proceeds from the Company's public offerings
in 1998 and 1997).
In 1998, 1997 and 1996, $33,345,000, $-0- and $26,040,000 was collected in
proceeds from the disposition of real estate properties. The Company invested
$99,326,000, $33,737,000 and $8,048,000 in investments in and advances to
affiliates in 1998, 1997 and 1996, respectively. The 1998 investments were
primarily in the following syndicated Residential Group projects: 101 San
Fernando ($31,100,000), under construction in San Jose, California; The Enclave
($16,300,000), another development in San Jose that opened in phases during 1997
and 1998; The Grand ($7,800,000) in North Bethesda, Maryland that opened in
February 1999; Tobacco Row ($4,900,000), a redevelopment project in Richmond,
Virginia; and The Drake ($5,200,000), a redevelopment project in Philadelphia,
Pennsylvania. In addition, investments were made on behalf of the Company's
partners during 1998 for the following projects: $11,772,000 for New York City
area urban development; $5,181,000 for the Promenade regional mall under
construction in Temecula, California; $5,400,000 for The Mall at Robinson Town
Centre project under development; and $6,000,000 in Land Group joint ventures.
In 1997, the Company invested primarily in The Grand, The Mall at Robinson Town
Centre and the New York City urban retail program.
Net cash provided by financing activities totaled $436,980,000,
$216,855,000 and $93,488,000 in 1998, 1997 and 1996, respectively. Net proceeds
from the issuance of senior notes in March 1998 were $193,703,000, which were
initially used to repay $114,000,000 of long-term debt. The Company's
refinancing of mortgage indebtedness is discussed above in "Mortgages
Refinancings" and borrowings under new mortgage indebtedness for acquisition and
development activities is included in the preceding paragraph discussing net
cash used in investing activities. Net cash provided by financing activities for
1998 reflected a reduction of $26,579,000 in restricted cash primarily related
to the financing of The Enclave apartment project in San Jose, California and
the sale of the mortgage servicing division of Forest City Capital Corp., and an
increase in book overdrafts of $8,838,000 (representing checks issued but not
yet paid). In addition, the Company reported a net increase of $9,110,000 in
notes payable primarily from the 101 San Fernando residential development
project, payment of deferred financing costs of $16,565,000 and payment of
$4,497,000 of dividends. During 1997, cash provided by financing activities
included proceeds from the sale of common stock of $76,076,000, the release of
$3,600,000 in restricted cash related to the Atlantic Center retail project in
Brooklyn, New York, a reduction in book overdrafts of $9,749,000, repayment of a
$6,365,000 note payable relating to the purchase of the Company's additional
33-1/3% interest in the The Mall at Robinson Town Centre, payment of deferred
financing costs of $12,142,000, purchase of treasury stock for $2,896,000 and
payment of $3,490,000 of dividends. During 1996, cash provided by financing
activities included the release of $15,200,000 in restricted cash related to The
Enclave, an increase in book overdrafts of $18,655,000, payment of deferred
financing costs of $10,037,000, purchase of treasury stock for $6,080,000 and
payment of $2,797,000 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.
Stock Split, Capitalization and Dividends
The Board of Directors approved a two-for-one stock split of both the
Company's Class A and Class B Common Stock, effective July 16, 1998 to
shareholders of record at the close of business on July 1, 1998. The stock split
was effected as a stock dividend.
On June 9, 1998, the Board of Directors voted to increase the 1998
quarterly dividend to $.04 per share (adjusted for the two-for-one stock split)
on both Class A and Class B shares, representing a 14.3% annual increase in the
previous quarterly dividend.
The first, second, third and fourth 1998 quarterly dividends of $.035,
$.04, $.04 and $.04, respectively, per share (on a post-split basis) on shares
of both Class A and Class B Common Stock were paid June 15, 1998, September 15,
1998, December 15, 1998 and March 15, 1999, respectively.
The first 1999 quarterly dividend of $.04 per share on shares of both Class
A and Class B was declared on March 11, 1999 and will be paid on June 15, 1999
to shareholders of record at the close of business on June 1, 1999.
On June 9, 1998, the shareholders approved an amendment to the Company's
Articles of Incorporation to increase the Company's capitalization to: a)
96,000,000 shares of Class A Common Stock from 48,000,000 shares and b)
36,000,000 shares of Class B Common Stock from 18,000,000 shares. The 5,000,000
Preferred shares remained unchanged.
New Accounting Standards
In the first quarter of 1999, the Company will adopt 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. In the first quarter of
2000, the Company will adopt SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires recognition of all derivatives
as either assets or liabilities and measurements of those instruments at fair
value. The Company anticipates that the adoption of both SOP 98-5 and SFAS 133
will not have a material effect on its earnings or financial position.
Year 2000
The Company is completing its plan to prepare its financial and operational
computer systems and embedded applications for the Year 2000. The Company
believes that 90% of the required modifications have been completed, the total
cost of which is not expected to be material to the Company's operating results.
The Company anticipates that the remaining modifications will be made by the end
of the second quarter of 1999.
For business reasons unrelated to the Year 2000, the Company's computer
systems have moved from a mainframe environment to a distributed environment.
Major processing systems were replaced with Year 2000-compliant software or
software with definitive plans for upgrades to Year 2000 compliant code. Costs
for this project were approximately $4 million. In addition, the Lumber Trading
Group successfully converted their internal systems to Year 2000-compliant code.
With a majority of the Company's core businesses using Year 2000-compliant
software code, the Company's plan has been focused on testing the compliant
systems and identifying other systems, such as embedded systems, to ensure that
they have an active Year 2000 compliance program.
Since 1996, senior management and the audit committee have been alerted to
the Year 2000 issue and have been provided a quarterly report regarding the
Company's Year 2000 compliance plan. The Company's independent auditors have
been reviewing the plan and its progress. Each principal business group has
formed a Year 2000 compliance committee under senior management's direction.
As part of the due diligence in the acquisitions of new properties, the
Company continues to review Year 2000 compatibility and has updated the terms
and conditions of its purchasing function to require goods and services
purchased to be Year 2000-compliant.
The process of inventory collection has been completed at the Corporate and
principal business group level for hardware, software and embedded systems.
Inventory collection is in process at certain regional offices. The Company has
made excellent progress in notifying vendors and business partners of its
progress relating to the Year 2000 compliance plan.
Our testing procedures have uncovered some Year 2000 software issues which
have been corrected. The upgrading of the general ledger software and its
various interfaces is proceeding as planned.
The Company has tested most of the embedded systems, particularly those
related to the safety of our employees, tenants and customers. The testing has
determined that an energy management system interface at one of the Company's
commercial facilities and certain gate access systems at residential facilities
are not compliant and will need to be upgraded in 1999.
The Company has identified issues related to hardware, software and
embedded systems and developed a contingency plan to respond to each concern.
For hardware, the primary concern is that a specific computer or server would
not be compliant. In that case, the Company would use other available hardware,
provided by our business continuity/disaster recovery program, that is compliant
to regenerate data from our backup systems.
For software, the primary concern is that the automated software scheduling
routines would not properly schedule in the Year 2000. Each of these automated
scheduling systems has a manual function that has been tested.
For embedded systems, the primary concern is that these systems, despite
testing, would not function properly in the Year 2000. All of these systems have
manual reset functions and Year 2000 date issues can 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 our tenants or customers will be affected.
The Company 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 that
would be activated if necessary. The Year 2000 plan is aimed at identifying and
correcting all issues upon which the Company has direct control or indirect
control through its vendors and business partners. The Company feels that the
successful completion of its Year 2000 plan will avoid or minimize any adverse
effect of the Year 2000 issue on operations.
Information Relating to Forward-Looking Statements
This annual report, together with other statements and information publicly
disseminated by the Company, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements reflect
management's current views with respect to financial results related to future
events and are based on assumptions and expectations which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial or otherwise, may differ from the results
discussed in the forward-looking statements. Risks and other factors that might
cause differences, some of which could be material, include, but are not limited
to, the effect of economic and market conditions on a 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.
<TABLE>
<CAPTION>
Three Year Summary of Earnings Before Depreciation, Amortization and Deferred Taxes
(in thousands)
Commercial Group Residential Group
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $380,264 $330,117 $314,762 $139,003 $135,253 $116,878
Operating expenses, including
depreciation and amortization
for non-Real Estate Groups 195,966 167,107 168,466 66,248 63,533 61,437
Interest expense 91,291 87,035 81,507 27,342 28,884 32,947
Income tax provision (benefit) (1,020) 2,202 (1,243) 6,799 10,851 (2,324)
-------------------------------------------------------------------
286,237 256,344 248,730 100,389 103,268 92,060
-------------------------------------------------------------------
Earnings before depreciation,
amortization and deferred
taxes (EBDT) $94,027 $73,773 $66,032 $38,614 $31,985 $24,818
===================================================================
Land Group Lumber Trading Group
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Revenues $52,611 $44,614 $53,888 $123,325 $122,169 $124,491
Operating expenses, including
depreciation and amortization
for non-Real Estate Groups 40,532 33,855 41,068 111,998 107,673 110,359
Interest expense 6,814 5,575 6,813 5,262 5,254 5,166
Income tax provision (benefit) 2,079 1,858 2,078 2,838 4,043 3,913
-------------------------------------------------------------------
49,425 41,288 49,959 120,098 116,970 119,438
-------------------------------------------------------------------
Earnings before depreciation,
amortization and deferred
taxes (EBDT) $3,186 $3,326 $3,929 $3,227 $5,199 $5,053
===================================================================
Corporate Activities Total
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Revenues $ 1,446 $ 516 $ 430 $696,649 $632,669 $610,449
Operating expenses, including
depreciation and amortization
for non-Real Estate Groups 12,766 10,478 8,723 427,510 382,646 390,053
Interest expense 19,251 9,574 6,931 149,960 136,322 133,364
Income tax provision (benefit) (9,371) (12,163) (5,796) 1,325 6,791 (3,372)
-------------------------------------------------------------------
22,646 7,889 9,858 578,795 525,759 520,045
-------------------------------------------------------------------
Earnings before depreciation,
amortization and deferred
taxes (EBDT) $(21,200) $(7,373) $(9,428) $117,854 $106,910 $90,404
===================================================================
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred
taxes (EBDT) $117,854 $106,910 $90,404
Depreciation and amortization
- Real Estate Groups (83,655) (71,678) (70,221)
Deferred taxes - Real Estate Groups (14,236) (10,693) (13,197)
Provision for decline in real estate, net of tax - - (7,413)
Gain (loss) on disposition of properties, net of tax 18,444 (23,356) 9,598
Extraordinary gain, net of tax 16,343 19,356 2,900
----------------------------------
Net earnings $54,750 $20,539 $12,071
==================================
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-65058, 33-65054 and 333-61925) and in the Prospectus
constituting part of the Registration Statements on Form S-3 (File Nos.
333-22695 and 333-41437) of Forest City Enterprises, Inc. and subsidiaries of
our report dated March 10, 1999, on our audits of the consolidated financial
statements and financial statement schedules of Forest City Enterprises, Inc.
and subsidiaries as of January 31, 1999 and 1998, and for the years ended
January 31, 1999, 1998 and 1997, which report is included in this Annual Report
on Form 10-K. We also consent to the reference to our firm under the caption
"Experts" in the Prospectus constituting part of the Registration Statements
filed on Form S-3.
/s/ PricewaterhouseCooper LLP
Cleveland, Ohio
April 27, 1999
Exhibit 24 (A)
DIRECTOR AND OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director and Officer of Forest City Enterprises, Inc., an
Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney and any such substitute.
EXECUTED as of April 8, 1999.
Signature: /s/ Albert B. Ratner
Printed Name: Albert B. Ratner
Title: Director and Co-Chairman of the Board
<PAGE>
Exhibit 24 (B)
DIRECTOR AND OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director and Officer of Forest City Enterprises, Inc., an
Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney and any such substitute.
EXECUTED as of April 8, 1999.
Signature: /s/ Samuel H. Miller
Printed Name: Samuel H. Miller
Title: Director, Treasurer and Co-Chairman
of the Board
<PAGE>
Exhibit 24 (C)
DIRECTOR AND OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director and Officer of Forest City Enterprises, Inc., an
Ohio corporation (the "Corporation"), hereby constitutes and appoints Thomas G.
Smith, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney and any such substitute.
EXECUTED as of April 9, 1999.
Signature: /s/ Charles A. Ratner
Printed Name: Charles A. Ratner
Title: Director, Chief Executive Officer and
President
<PAGE>
Exhibit 24 (D)
OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Officer of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto to be
filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 8, 1999.
Signature: /s/ Thomas, G. Smith
Printed Name: Thomas, G. Smith
Title: Chief Financial Officer, Senior Vice
President and Secretary
<PAGE>
Exhibit 24 (E)
OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Officer of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto to be
filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 9, 1999.
Signature: /s/ Linda M. Kane
Printed Name: Linda M. Kane
Title: Vice President - Corporate Controller
<PAGE>
Exhibit 24 (F)
DIRECTOR AND OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director and Officer of Forest City Enterprises, Inc., an
Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney and any such substitute.
EXECUTED as of April 9, 1999.
Signature: /s/ James A. Ratner
Printed Name: James A. Ratner
Title: Director and Executive Vice President
<PAGE>
Exhibit 24 (G)
DIRECTOR AND OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director and Officer of Forest City Enterprises, Inc., an
Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney and any such substitute.
EXECUTED as of April 12, 1999.
Signature: /s/ Ronald A. Ratner
Printed Name: Ronald A. Ratner
Title: Director and Executive Vice President
<PAGE>
Exhibit 24 (H)
DIRECTOR AND OFFICER OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director and Officer of Forest City Enterprises, Inc., an
Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney and any such substitute.
EXECUTED as of April 6, 1999.
Signature: /s/ Brian J. Ratner
Printed Name: Brian J. Ratner
Title: Director and Senior Vice President -
Development
<PAGE>
Exhibit 24 (I)
DIRECTOR OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 6, 1999.
Signature: /s/ Deborah Ratner Salzberg
Printed Name: Deborah Ratner Salzberg
Title: Director
<PAGE>
Exhibit 24 (J)
DIRECTOR OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 9, 1999.
Signature: / Michael P. Esposito, Jr.
Printed Name: Michael P. Esposito, Jr.
Title: Director
<PAGE>
Exhibit 24 (K)
DIRECTOR OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 9, 1999.
Signature: /s/ Scott S. Cowen
Printed Name: Scott S. Cowen
Title: Director
<PAGE>
Exhibit 24 (L)
DIRECTOR OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 8, 1999.
Signature: /s/ Jerry V. Jarrett
Printed Name: Jerry V. Jarrett
Title: Director
<PAGE>
Exhibit 24 (M)
DIRECTOR OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 8, 1999.
Signature: /s/ Joan K. Shafran
Printed Name: Joan K. Shafran
Title: Director
<PAGE>
Exhibit 24 (N)
DIRECTOR OF
FOREST CITY ENTERPRISES, INC.
FORM 10-K
POWER OF ATTORNEY
The undersigned Director of Forest City Enterprises, Inc., an Ohio
corporation (the "Corporation"), hereby constitutes and appoints Charles A.
Ratner, with full power of substitution and resubstitution, as attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for
the fiscal year ended January 31, 1999, and any and all amendments thereto, to
be filed with the Securities and Exchange Commission pertaining to such filing,
with full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorney.
EXECUTED as of April 8, 1999.
Signature: /s/ Louis Stokes
Printed Name: Louis Stokes
Title: Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 78,629
<SECURITIES> 0
<RECEIVABLES> 237,202
<ALLOWANCES> 7,488
<INVENTORY> 47,299
<CURRENT-ASSETS> 0
<PP&E> 3,087,498
<DEPRECIATION> 491,293
<TOTAL-ASSETS> 3,437,110
<CURRENT-LIABILITIES> 0
<BONDS> 2,478,872
0
0
<COMMON> 10,297
<OTHER-SE> 333,237
<TOTAL-LIABILITY-AND-EQUITY> 3,437,110
<SALES> 0
<TOTAL-REVENUES> 696,649
<CGS> 0
<TOTAL-COSTS> 511,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,960
<INCOME-PRETAX> 66,081
<INCOME-TAX> 27,674
<INCOME-CONTINUING> 38,407
<DISCONTINUED> 0
<EXTRAORDINARY> 16,343
<CHANGES> 0
<NET-INCOME> 54,750
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 73,887
<SECURITIES> 0
<RECEIVABLES> 195,357
<ALLOWANCES> 7,743
<INVENTORY> 58,110
<CURRENT-ASSETS> 0
<PP&E> 2,789,662
<DEPRECIATION> 463,378
<TOTAL-ASSETS> 3,081,612
<CURRENT-LIABILITIES> 0
<BONDS> 2,256,245
<COMMON> 10,297<F1>
0
0
<OTHER-SE> 290,592<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,081,612
<SALES> 0
<TOTAL-REVENUES> 148,623
<CGS> 0
<TOTAL-COSTS> 108,664
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,747
<INCOME-PRETAX> 14,659
<INCOME-TAX> 6,151
<INCOME-CONTINUING> 8,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,508
<EPS-PRIMARY> 0.28<F1>
<EPS-DILUTED> 0.28<F1>
<FN>
<F1>Restated for a two-for-one common stock split paid July 16, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 54,854
<SECURITIES> 0
<RECEIVABLES> 199,888
<ALLOWANCES> 8,169
<INVENTORY> 58,696
<CURRENT-ASSETS> 0
<PP&E> 2,704,560
<DEPRECIATION> 448,634
<TOTAL-ASSETS> 2,963,353
<CURRENT-LIABILITIES> 0
<BONDS> 2,132,931
<COMMON> 10,297<F1>
0
0
<OTHER-SE> 283,134<F1>
<TOTAL-LIABILITY-AND-EQUITY> 2,963,353
<SALES> 0
<TOTAL-REVENUES> 632,669
<CGS> 0
<TOTAL-COSTS> 454,324
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,322
<INCOME-PRETAX> 3,385
<INCOME-TAX> 2,202
<INCOME-CONTINUING> 1,183
<DISCONTINUED> 0
<EXTRAORDINARY> 19,356
<CHANGES> 0
<NET-INCOME> 20,539
<EPS-PRIMARY> 0.71<F1>
<EPS-DILUTED> 0.71<F1>
<FN>
<F1>Restated for a two-for-one common stock split paid July 16, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-01-1997 FEB-01-1997 FEB-01-1997
<PERIOD-END> OCT-31-1997 JUL-31-1997 APR-30-1997
<CASH> 27,096 31,697 20,698
<SECURITIES> 0 0 0
<RECEIVABLES> 202,752 171,851 208,340
<ALLOWANCES> 6,134 5,710 5,523
<INVENTORY> 46,645 43,812 46,864
<CURRENT-ASSETS> 0 0 0
<PP&E> 2,638,586 2,557,883 2,481,849
<DEPRECIATION> 435,623 421,037 408,082
<TOTAL-ASSETS> 2,822,802 2,724,466 2,668,182
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 2,033,752 1,991,766 1,962,429
<COMMON> 10,297<F2> 10,297<F2> 8,995<F2>
0 0 0
0 0 0
<OTHER-SE> 280,170<F2> 270,683<F2> 190,449<F2>
<TOTAL-LIABILITY-AND-EQUITY> 2,822,802 2,724,466 2,668,182
<SALES> 0 0 0
<TOTAL-REVENUES> 448,078 293,103 151,068
<CGS> 0 0 0
<TOTAL-COSTS> 314,246 203,988 101,062
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 96,261 63,606 33,109
<INCOME-PRETAX> (1,066) (13,128) (18,608)
<INCOME-TAX> (3,398) (4,811) (7,344)
<INCOME-CONTINUING> 2,332 (8,317) (11,264)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 14,187 14,187 11,045
<CHANGES> 0 0 0
<NET-INCOME> 16,519 5,870 (219)
<EPS-PRIMARY> 0.58<F2> 0.21<F2> (0.01)<F2>
<EPS-DILUTED> 0.58<F1><F2> 0.21<F1><F2> (0.01)<F1><F2>
<FN>
<F1>This tag is restated to report Diluted Earnings Per Share in Accordance with Statement of Financial Standards No. 128.
<F2>Restated for a two-for-one common stock split paid July 16, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 41,302
<SECURITIES> 0
<RECEIVABLES> 209,953
<ALLOWANCES> 4,994
<INVENTORY> 48,769
<CURRENT-ASSETS> 0
<PP&E> 2,520,179
<DEPRECIATION> 399,830
<TOTAL-ASSETS> 2,741,405
<CURRENT-LIABILITIES> 0
<BONDS> 1,993,351
<COMMON> 8,995<F1><F4>
0
0
<OTHER-SE> 191,573<F1><F4>
<TOTAL-LIABILITY-AND-EQUITY> 2,741,405
<SALES> 0
<TOTAL-REVENUES> 610,449<F2>
<CGS> 0
<TOTAL-COSTS> 460,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,364
<INCOME-PRETAX> 22,122
<INCOME-TAX> 12,951
<INCOME-CONTINUING> 9,171
<DISCONTINUED> 0
<EXTRAORDINARY> 2,900
<CHANGES> 0
<NET-INCOME> 12,071
<EPS-PRIMARY> 0.46<F4>
<EPS-DILUTED> 0.46<F3><F4>
<FN>
<F1>The Company declared a three-for-two stock split of its Class A and Class B
stock payable February 17, 1997. The stock split was given retroactive effect to
the January 31, 1997 consolidated balance sheet. Prior financial data schedules
were not restated for the stock split.
<F2>In the consolidated financial statement for the year ended January 31, 1997,
INTEREST AND OTHER INCOME was combined with SALES AND OPERATING REVENUES and
reported on a single line captional REVENUES. This tag is restated to report
REVENUES, previously it reported SALES AND OPERATING REVENUES.
<F3>This tag is restated to report Diluted Earnings Per Share in Accordance with
Statement of Financial Standards No. 128.
<F4>Restated for a two-for-one common stock split paid July 16, 1998.
</FN>
</TABLE>
