ITEM 1. BUSINESS
Founded 77 years ago and publicly traded since 1960, Forest City Enterprises, Inc. (with its Subsidiaries, the "Company" or "Forest City") is one of the leading real estate development companies in the United States. It develops, acquires, owns and manages commercial and residential real estate projects in 20 states and the District of Columbia. At January 31, 1997, the Company had $2.7 billion in consolidated assets, of which approximately $2.5 billion was invested in commercial and residential real estate.
The Company operates through its four principal business groups:
- The Commercial Group, which develops, acquires, owns 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 each of the Commercial Group and the Residential Group has its own 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 its investments in, and advances to, affiliates, and general corporate items.
The following table sets forth, by type of property, a summary of the Company's operating portfolio of commercial, residential and land projects as of January 31, 1997.
- --------------- (1) Includes 9,402 syndicated senior citizen units in 57 apartment communities developed under Federal subsidy programs in which the Company holds a residual interest, none of which are reflected under the caption "Representative Principal Metropolitan Regions."
During 1996, the Company opened six new shopping centers with an aggregate of 1.4 million square feet of gross leaseable area ("GLA"), acquired a new apartment complex with 419 apartment units, and opened 336 additional apartment units at four existing projects.
The following table sets forth certain information regarding these properties.
- --------------- (1) Represents the total square feet available for lease by the Company. Remaining square footage is owned by anchors. (2) Part of a phased construction process.
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, and 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, 1997, the Commercial Group owned interests in 55 completed projects, including 30 retail properties, 20 office properties and five 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, 1997, the Commercial Group's shopping center portfolio consisted of 14 regional malls with a total GLA of 4.3 million square feet and 16 Specialty Retail Centers with a total GLA of 3.4 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.
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.
The Company's existing portfolio of office/mixed-use and hotel projects consists of 20 office buildings containing 6.4 million square feet, including mixed-use projects with an aggregate of 164,000 gross leasable square feet of retail space and five hotels with 1,530 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 seven years and are concentrated in four new urban developments located in Brooklyn, Cleveland, Cambridge and Pittsburgh.
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.
The Residential Group's portfolio consists of 31,441 units in which Forest City has an ownership interest, including 9,402 units of syndicated senior citizen subsidized housing 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 5,920 acres of undeveloped land for this purpose. The Company currently has major land development projects in five 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 Florida and Nevada.
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 and assets of such Groups.
LUMBER 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 in all Canadian provinces. Through ten strategically located independent trading companies in the United States and Canada, employing 343 traders, Forest City sold the equivalent of seven billion board feet of lumber in 1996, 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 11 states, the District of Columbia, Vancouver, British Columbia and Toronto, Ontario. The Company opens offices in response to the changing demands of the lumber industry. In 1996, the Lumber Trading Group opened offices in Utah and Texas. The new Houston, Texas office is part of the Lumber Trading Group's strategic initiative to increase its participation in the southern pine market, which is growing in popularity as logging restrictions limit production in the Pacific Northwest.
The Lumber Trading Group's core business is supplying lumber for new home construction and to the repair and remodeling markets. Approximately 60% of the Lumber Trading Group's sales 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.
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 3,384 employees as of January 31, 1997, of which 2,525 were full-time and 859 were part-time.
SEGMENTS OF BUSINESS
Financial information about industry segments required by this item is included in Item 8. Financial Statements and Supplementary Data, page 37, Note I "Segment Information."
ITEM 2.
ITEM 2. PROPERTIES
The Corporate headquarters of Forest City Enterprises is located in Cleveland, Ohio and is owned by the Company. Forest City Trading Group maintains its headquarters in Portland, Oregon with twenty-three administrative and sales offices and one processing plant located in eleven states and the District of Columbia and two sales offices in Canada. The following table lists the shopping centers, office buildings, hotels, and apartments in which Forest City Rental Properties Corporation has an interest:
PROPERTIES
The following tables provide summary information concerning the Company's real estate portfolio as of January 31, 1997.
SHOPPING CENTERS -- EXISTING PORTFOLIO
OFFICE BUILDINGS -- EXISTING PORTFOLIO
HOTELS -- EXISTING PORTFOLIO
- ---------------
(1) Syndicated.
APARTMENTS -- EXISTING PORTFOLIO
- --------------- (1) Syndicated. (2) Syndicated, subsidized units in 57 communities in which the Company holds a residual interest only.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its business. The Company's General Counsel is of the opinion that none of these claims and lawsuits will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
ITEM 4.
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.
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 10, 1997.
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 10, 1997.
- ---------------
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.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is included in Item 8. Financial Statements and Supplementary Data, page 43, "Quarterly Consolidated Financial Data (Unaudited)."
There were no sales by the Company of its equity securities during the fiscal year ended January 31, 1997 that were not registered under the Securities Act of 1933.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA (CONT'D)
- ---------------
(1) Excludes the extraordinary gain, net of tax, of $2,900,000, $1,847,000 and $60,449,000 for the years ended January 31, 1997, 1996 and 1995, respectively.
(2) Excludes the provision for decline in real estate and gain (loss) on disposition of properties, net of tax.
(3) These adjustments represent amounts related to the Company's real estate operations in Rental Properties only.
(4) Adjusted for three-for-two stock split effective February 17, 1997.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, acquires, owns and manages commercial and residential real estate properties in 20 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 the Lumber Trading Group.
The Company uses an additional measure, along with net earnings (loss), 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 (loss), is necessary to understand its operating results. The Company believes that EBDT is also an indicator of the Company's ability to generate cash to meet its funding requirements. EBDT is defined and discussed in detail under "Results of Operations-- EBDT."
The Company's EBDT grew by 10.2% (or 13.0% per share) in 1996 to $90,404,000, or $6.87 per share of common stock, from $82,021,000, or $6.08 per share of common stock in 1995. This increase in EBDT was primarily the result of the addition of new retail properties, improved operating results from the Company's existing portfolio, acquisition of apartment projects, sales of land by the Commercial and Land Groups, strong lumber trading activity and favorable interest rates. EBDT grew by 0.9% (or 1.0% per share) in 1995 from $81,262,000, or $6.03 per share of common stock in 1994, with the positive impact of new project openings offset by the effect of the disposition of Park LaBrea Towers, a 2,825-unit apartment community in Los Angeles, California.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal business groups as it believes such reporting 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 Note I to the Consolidated Financial Statements and information in the table "Three Year Summary of Earnings Before Depreciation, Amortization and Deferred Taxes" at the end of this section.
NET OPERATING INCOME FROM REAL ESTATE OPERATIONS
NOI from the combined Commercial Group and Residential Group for 1996 was $196,456,000 compared to $199,651,000 in 1995, a 1.6% decrease. NOI in 1996 and 1995 was affected by the following items, which the Company believes are non-recurring: (1) an increase of $5,863,000 in development expenses in 1996 over 1995, which includes write-offs of abandoned projects in excess of normal levels, and (2) a decrease of $6,565,000 in the EBDT, resulting from an unusually low cost basis in the land sold in 1995 (on comparable sales revenues) compared to 1996. See "-- Commercial Group -- Operating and Interest Expenses." Adjusting for these items, NOI would have been $202,319,000 and $193,086,000 for 1996 and 1995, respectively, a 4.8% increase. Comparable NOI (for properties in operation throughout both periods) increased 2.5% from 1995 to 1996 and 6.1% from 1994 to 1995. Eliminating asset dispositions and the non-recurring development expenses discussed above, and including the expected NOI during the initial twelve months after stabilization for the 11 properties that were opened or acquired in 1996 and annualizing the ground rent received in 1996 from a project under construction, would result in total NOI of approximately $209,964,000.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group increased by $15,593,000 (or 5.3%) to $309,834,000 in 1996 from $294,241,000 in 1995. This increase was primarily the result of the opening of the Galleria at
Sunset in Henderson, Nevada ($5,578,000), improved performance from existing properties ($6,412,000) and the benefit of a full year of operating results from properties that opened in 1995 ($5,403,000). These increases were offset by a reduction in revenues due to the dispositions of Beachwood Place ($786,000) and Victor Village ($438,000) (see "-- Other Transactions -- Gain (Loss) on Disposition of Properties") and the loss of revenue from ten leases rejected by Handy Andy which went bankrupt in 1996 ($1,109,000).
Revenues of the Commercial Group in 1995 increased by $35,275,000 (or 13.6%) from $258,966,000 in 1994. This increase was primarily attributable to the sale of a five acre parcel of land at Tower City Center in Cleveland, Ohio to the Federal government ($18,300,000) and outlot sales in Henderson, Nevada ($1,708,000). In addition, 1995 revenues increased from the openings in 1995 of Eleven MetroTech ($3,200,000) and Flatbush Avenue ($1,200,000), and from a full year of operations at Station Square in Pittsburgh, Pennsylvania ($1,268,000). Lastly, the Company acquired an additional 31% interest in Liberty Center, a mixed-use property in Pittsburgh ($8,800,000). In 1994, commercial outlot sales of $7,176,000 were recorded in the Land Group. Commercial outlot sales have been recorded in the Commercial Group since 1995.
OPERATING AND INTEREST EXPENSES. In 1996, operating and interest expenses for the Commercial Group increased $22,126,000 and $2,103,000 (or 15.1% and 2.4%), respectively, over 1995 to $168,466,000 and $88,149,000, respectively. The increase in operating expenses was primarily attributable to the decrease in the EBDT ($6,565,000) resulting from an unusually low cost basis in the land sold in 1995 (on comparable sales revenues), increased development expenses ($5,726,000) and the opening of new properties ($5,089,000). At January 31, 1997, the Company's property level expenses for properties open since 1994 had increased at a compounded annual rate of only 0.1%, reflecting the Company's emphasis on controlling costs. The increase in interest expense was attributable to the financing of new properties.
Operating and interest expenses increased $8,757,000 and $19,015,000 in 1995 (or 6.4% and 28.4%), respectively, from $137,583,000 and $67,031,000, respectively, in 1994. The increase in operating expense was primarily the result of the acquisition of Station Square and an additional 31% interest in Liberty Center ($6,475,000) and the opening of new properties in New York ($1,491,000). The increase in interest expense was due to the financing of new properties ($1,804,000), the acquisition of Station Square, the additional 31% interest in Liberty Center and the additional 50% interest in Ballston Common ($6,733,000), higher outstanding principal balances on nonrecourse mortgages resulting from refinancings to fund development projects ($4,420,000) and an increase in interest rates ($6,094,000).
NET OPERATING INCOME. Commercial Group NOI for 1996 was $141,368,000, compared to $147,901,000 in 1995, a 4.4% decrease. NOI increased 0.9% from 1995 to 1996 for Commercial Group properties in operation throughout both years and 6.2% from 1994 to 1995 for Commercial Group properties in operation throughout both years. Adjusting for the items discussed above under "-- Net Operating Income from Real Estate Operations," Commercial Group NOI would be $147,094,000 and $141,336,000 for 1996 and 1995 respectively, a 4.1% increase. Eliminating asset dispositions and the items discussed above under "-- Net Operating Income from Real Estate Operations," and including the expected NOI during the initial twelve months after stabilization for the six Commercial Group properties that were opened or acquired in 1996 and annualizing the ground rent received in 1996 from a Commercial Group project under construction would result in total NOI of approximately $157,861,000.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $10,776,000 (or 10.2%) to $116,525,000 in 1996, from $105,749,000 in 1995. This increase reflected a full year of performance from the 1995 acquisitions of Laurels, a 520-unit apartment complex in Justice, Illinois ($2,701,000), and the Vineyards, a 336-unit apartment community in Cleveland, Ohio ($1,887,000). Revenues in 1996 were also favorably impacted by the addition of 336 units added to four developments in Cleveland ($874,000) and the acquisition of Emerald Palms, a 419-unit apartment community in Miami, Florida ($2,563,000). Average monthly rental rates increased in 1996, generating an additional $3,240,000 in annual revenues over 1995. Average occupancy in
1996 remained at 96%, consistent with the 1995 level. These revenue increases were offset, in part, by the disposition of Vineyard Village, a 152-unit apartment building in Ontario, California ($1,079,000).
Revenues for the Residential Group in 1995 decreased by $22,375,000 (or 17.5%) from $128,124,000 in 1994. Excluding the revenues of Park LaBrea Towers, which was sold in 1994 (see "-- Other Transactions -- Gain (Loss) on Disposition of Properties"), revenues increased by $5,796,000 (or 5.8%). This increase reflected a full year of operations at Regency Towers, a 372-unit apartment community in Jackson, New Jersey, and Oaks, a 248-unit apartment complex in Bryan, Texas ($3,200,000). Average monthly rental rates increased in 1995, generating an additional $2,868,000 in annual revenues over 1994. Average occupancy in 1995 remained at 96%, the same level as in 1994.
OPERATING AND INTEREST EXPENSES. Operating and interest expenses for the Residential Group increased by $7,438,000 and $2,420,000 (or 13.8% and 7.9%), respectively, to $61,437,000 and $32,947,000, respectively, in 1996 from $53,999,000 and $30,527,000, respectively, in 1995. The majority of the increase in operating and interest expense reflected the expenses and debt service associated with the addition of Laurels, the Vineyards and 336 new units at existing properties in Cleveland, Ohio discussed above. During the fiscal years ended January 31, 1995, 1996 and 1997, average comparable operating expenses increased at a compounded annual rate of 2.2%.
Operating and interest expenses in 1995 decreased by $15,466,000 and $6,166,000 (or 22.3% and 16.8%), respectively, from $69,465,000 and $36,693,000, respectively, in 1994. Excluding Park LaBrea Towers, which was sold in 1994, operating and interest expenses increased by $1,449,000 and $6,386,000 (or 2.8% and 26.5%), respectively, from $52,550,000 and $24,141,000, respectively, in 1994. The increase in operating and interest expenses was primarily due to the full year of operations for Regency Towers and Oaks, which were acquired in 1994 and the 1995 acquisition of Laurels. In addition, interest expense in 1995 was also affected by increased interest rates.
NET OPERATING INCOME. Residential Group NOI for 1996 was $55,088,000, compared to $51,750,000 in 1995, a 6.5% increase. NOI increased 6.7% from 1995 to 1996 for Residential Group properties in operation throughout both years and 6.0% from 1994 to 1995 for Residential Group properties in operation throughout both years. Eliminating asset dispositions and including the expected NOI during the initial twelve months after stabilization for the five Residential Group properties that were opened or acquired in 1996 would result in total NOI of approximately $52,103,000.
LAND GROUP
REVENUES. Revenues for the Land Group increased by $10,999,000 (or 25.6%) in 1996, from $42,889,000 in 1995 to $53,888,000 in 1996. This increase reflected income from the sale of a parcel of land in Miami, Florida ($9,029,000) and increased sales at the Company's Silver Lakes development in Fort Lauderdale, Florida ($2,343,000). Revenues decreased by $6,005,000 (or 12.3%) in 1995 from $48,894,000 in 1994. The decrease was primarily the result of two large commercial outlot sales in 1994 totaling $7,176,000. Commercial outlot sales have been recorded in the Commercial Group since 1995.
OPERATING AND INTEREST EXPENSES. Operating expenses increased by $9,966,000 and interest expense decreased by $1,151,000 (or 32.0% and 14.5%), respectively, to $41,068,000 and $6,813,000, respectively, in 1996 from $31,102,000 and $7,964,000, respectively, in 1995. Operating expenses decreased by $7,262,000 and interest expense increased $724,000 (or 18.9% and 10.0%), respectively, in 1995 from $38,364,000 and $7,240,000, respectively, in 1994. The fluctuation in operating expenses primarily reflected the sales volume in each year. The decrease in interest expense in 1996 compared to 1995 resulted from a reduction in interest-bearing debt. The increase in interest expense in 1995 compared to 1994 was primarily due to the financing of new land acquisitions.
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group increased by $43,398,000 (or 53.5%) from $81,093,000 in 1995 to $124,491,000 in 1996. Of this increase, $26,708,000 reflected the consolidation of the revenues of Forest City/Babin, a wholesaler of major appliances, cabinets and hardware to housing
contractors, for the first time. At the end of 1995, the Company acquired the remaining 50% interest in Forest City/Babin and now consolidates this wholly owned subsidiary. The Company previously accounted for its 50% interest in Forest City/Babin using the equity method. The remaining increase was primarily due to an increase in the Lumber Trading Group's margins as a result of increased housing starts. Revenues of the Lumber Trading Group in 1995 were relatively flat compared to 1994.
OPERATING AND INTEREST EXPENSES. Operating and interest expenses in the Lumber Trading Group increased in 1996 by $40,170,000 and $88,000 (or 57.2% and 1.7%), respectively, from $70,189,000 and $5,078,000, respectively, in 1995. A significant portion of this increase ($25,844,000 and $572,000 in operating and interest expenses, respectively), was the result of the Forest City/Babin acquisition described above. The remaining $14,326,000 increase in operating expenses reflected the increase in variable expenses due to increased sales volume. The remaining $484,000 decrease in interest expense was the result of reduced inventory and a reduced rate of interest on the Lumber Trading Group's lines of credit. Operating and interest expenses were flat in 1995 compared to 1994.
CORPORATE ACTIVITIES
REVENUES. Revenues of the Corporate Activities increased $250,000 (or 4.6%) in 1996 to $5,711,000 from $5,461,000 in 1995. Corporate Activities revenues decreased $573,000 (or 9.5%) in 1995 from $6,034,000 in 1994. Corporate Activities revenues consist primarily of interest income on advances made by the Company on behalf of its partners, and vary from year to year depending on interest rates and the amount of advances outstanding.
OPERATING AND INTEREST EXPENSES. Operating expenses increased $2,375,000 (or 37.4%) in 1996 to $8,723,000 from $6,348,000 in 1995, primarily due to a favorable adjustment of $1,247,000 for a self-insurance accrual in 1995 that did not recur in 1996 and increased general corporate expenses in 1996. Operating expenses decreased $3,288,000 (or 34.1%) in 1995 from $9,636,000 in 1994. This decrease was primarily the result of the favorable insurance adjustment noted above and certain asset management costs that were charged to Corporate Activities in 1994 and prior years. Beginning in 1995, these asset management costs were being reported by each principal business group as part of its operating expenses. Interest expense, which consists primarily of interest expense on the Term Loan and Revolving Credit Facility that had not been allocated to a principal business group, remained essentially flat for 1996, 1995, and 1994.
OTHER TRANSACTIONS
PROVISION FOR DECLINE IN REAL ESTATE. The Company's provision for decline in real estate totaled $12,263,000, $9,581,000 and $10,133,000, in 1996, 1995 and 1994, respectively. In 1996, the Company entered into a joint venture agreement with MGM to develop a casino/retail project which substantially changed the scope of the Company's original development of the project. The 1996 provision for decline in real estate includes $5,104,000 of development costs incurred by the Company which management determined to write-off as a result of the change in scope of the project. In addition, the Company recorded a provision for decline in real estate relating to the land acquired for Enclave, a 633-unit apartment complex in San Jose, California. This provision for decline in real estate resulted from an adjustment of $5,583,000 to write down the land to its fair market value. The 1995 provision primarily reflected the write-off of development costs of $7,242,000 associated with future phases of Toscana, a 563-unit apartment complex in Irvine, California discussed below under "-- Recent Developments," based on management's determination that the Company would not pursue future development. Also in 1995, the provision for decline in real estate included an adjustment of $1,404,000 relating to the write down of parcels of land to fair market value which were originally acquired for the Enclave project and deeded back to the original land owner. The 1994 provision reflected an adjustment to fair market value of Laurel Plaza, a Los Angeles, California shopping center which was sold in 1995.
GAIN (LOSS) ON DISPOSITION OF PROPERTIES. The gain (loss) on disposition of properties totaled a gain of $17,574,000, a loss of $754,000 and a loss of $30,835,000, respectively, in 1996, 1995 and 1994. The 1996 gain primarily reflects the disposition of the Company's 18.63% interest in Beachwood Place, a regional shopping center in Cleveland, Ohio ($17,788,000) and the disposition of Victor Village, a California strip shopping
center ($499,000). The 1995 loss was primarily the result of the disposition of Vineyard Village, as described above, ($650,000). The 1994 loss is primarily the result of the disposition of Park LaBrea Towers, as described above.
EXTRAORDINARY GAIN. Extraordinary gain, net of tax, totaled $2,900,000, $1,847,000 and $60,449,000, respectively, in 1996, 1995 and 1994 representing extinguishment of nonrecourse debt and related accrued interest relating to Enclave and Clark Building in Cambridge, Massachusetts in 1996, to Liberty Center in 1995, and to Park LaBrea Towers in 1994. See Note N to the Company's Consolidated Financial Statements.
INCOME TAXES. Income tax expense (benefit) totaled $12,951,000, $10,623,000 and ($5,964,000), respectively in 1996, 1995 and 1994. At January 31, 1997, the Company had a tax net operating loss carryforward ("NOL") of $88,868,000 (generated primarily over time in the ordinary course of business from the significant impact of depreciation expense from real estate properties on the Company's net earnings) which will expire in the years ending January 31, 2005 through January 31, 2011 and general business credit carryovers of $3,601,000 which will expire in the years ending January 31, 2003 through January 31, 2011. The Company's policy is to utilize its NOL before it expires and will consider a variety of strategies to implement that policy. Federal, state and local income taxes paid (refunded) totaled $830,000, ($888,000) and $3,244,000 in 1996, 1995 and 1994, respectively. In 1996, the Company paid no regular Federal corporate income tax and paid $570,000 in Federal alternative minimum tax.
NET EARNINGS. In 1996, the Company's net earnings grew to $12,071,000, or $.92 per share of common stock, from $8,786,000, or $.65 per share of common stock in 1995. Excluding the 1994 Park LaBrea Towers transaction discussed under "-- Other Transactions -- Gain (Loss) on Disposition of Properties," net earnings in 1995 increased from 1994 net earnings of $4,635,000, or $0.34 per share of common stock.
EBDT. The Company defines Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT") 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 gains. The Company excludes depreciation and amortization expense from EBDT because they are non-cash items and the Company believes the values of its properties have appreciated over time in excess of their original cost. Deferred income taxes are excluded because they are a non-cash item. Payment of current income taxes has not been historically significant and is not expected to be significant in the foreseeable future. The provision for the decline in real estate is excluded from EBDT because it is typically 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, as opposed to short-term trading gains. As a result, the Company views dispositions of properties other than commercial outlots or land held by the Land Group as nonrecurring items. Extraordinary gains are generally the result of the restructuring of nonrecourse debt obligations and are not considered to be a component of the Company's operating results.
RECENT DEVELOPMENTS
During February 1997, the Company settled litigation with the original land owner of Toscana, a 563-unit apartment complex in Irvine, California, and sold the project back to the original land owner. As a result, the Company had litigation settlement proceeds of $15,000,000 (the after-tax amount of which will be included in EBDT for the first quarter of fiscal 1997); a pre-tax loss on disposition of the property of $35,505,000; and a pre-tax extraordinary gain of $18,272,000 related to the extinguishment of a portion of the nonrecourse mortgage debt. The net result of these transactions to the Company was a pre-tax loss of $2,233,000. Revenues, operating expenses, interest expense and asset cost for 1996 related to Toscana were $7,218,000, $2,791,000, $4,097,000 and $78,271,000, respectively.
FINANCIAL CONDITION AND LIQUIDITY
The Company believes that its sources of liquidity and capital are adequate to meet its needs in the foreseeable future. The Company's principal sources of funds are cash provided by operations, the Revolving
Credit Facility and refinancings of existing properties. The Company's principal use of funds are the financing of new developments, capital expenditures and payments on nonrecourse mortgage debt on real estate.
The Lumber Trading Group is financed separately from the rest of the Company's principal business groups, and the financing obligations of the Lumber Trading Group are nonrecourse to the Company. Accordingly, the liquidity of the Lumber Trading Group is discussed separately below under "-- Lumber Trading Group Liquidity."
1996 AND 1995 MORTGAGE REFINANCINGS
In 1996, the Company refinanced $482,428,000 of mortgage indebtedness with $525,370,000 of new nonrecourse mortgage indebtedness. In 1995, the Company refinanced $361,421,000 of mortgage indebtedness with $366,842,000 of new nonrecourse mortgage indebtedness.
OUTLOOK FOR 1997. As of January 31, 1997, the Company had $288,915,000 million of nonrecourse mortgage indebtedness due and payable in 1997. Of this amount, as of March 31, 1997, the Company had already refinanced $40,000,000 and discharged $67,800,000 with proceeds from the sale of Toscana (see "-- Recent Developments"). The Company anticipates that the remaining $181,115,000 of mortgage indebtedness will either be refinanced with new nonrecourse mortgage indebtedness or extended.
LONG-TERM DEBT
At January 31, 1997, the Company had recourse debt of $93,000,000 outstanding, comprised of $45,000,000 under a $70,000,000 Term Loan maturing July 1, 2001 and $48,000,000 under an $80,000,000 Revolving Credit Facility maturing July 25, 1998. The Company is required to make quarterly principal payments of $2,500,000 under the Term Loan. The Company has entered into an interest rate swap agreement to fix $87,000,000 of the Term Loan and Revolving Credit Facility for the period February 1, 1997 through February 1, 1998. The Term Loan and Revolving Credit Facility and the Company's Guaranty require Forest City Rental Properties Corporation (a wholly owned subsidiary of the Company -- see Note M to the Consolidated Financial Statements) and the Company to maintain certain levels of cash flow and require the Company to maintain a specified level of net worth and restrict the payment of dividends by the Company to $10,000,000 per year. At March 31, 1997, the Company had $15,000,000 of borrowings available under the Revolving Credit Facility, which is the Company's principal source of temporary borrowings.
INTEREST RATE EXPOSURE
At January 31, 1997, the Company had $994,957,000 in fixed-rate and $903,471,000 in variable-rate nonrecourse mortgages outstanding, with a weighted average interest rate of 7.25%. At January 31, 1997, the Company's fixed-rate debt carried a weighted average interest rate of 7.96%. Its weighted average variable-rate taxable interest rate was 7.38%. Of the variable-rate debt, $134,302,000 are tax-exempt financings which carried a weighted average interest rate of 4.38% at January 31, 1997. Its weighted average interest rate on UDAG loans and other government subsidized financing was 2.60%. The Company generally does not hedge tax-exempt debt because of the low base rate on this type of financing. With respect to taxable variable-rate debt, the Company generally attempts to obtain interest rate protection for such debt with a maturity in excess of one year. Of the $769,169,000 in taxable variable-rate debt outstanding at February 1, 1997, $330,385,000 was protected by interest rate swaps with a weighted average rate of 7.79% and an average remaining term of 2.3 years, effectively reducing the Company's interest rate exposure from the taxable variable-rate debt to $438,784,000. In addition, $40,969,000 of variable-rate debt was protected by interest rate caps, of which $19,139,000 extends for more than one year.
At January 31, 1997, a 100 basis point increase in taxable interest rates would have increased the pre-tax interest cost of the Company's taxable variable-rate debt by approximately $4.4 million. Although tax-exempt interest 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 have increased the pre-tax interest cost of the Company's tax-exempt variable-rate debt by approximately $1.3 million.
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two lines of credit and an accounts receivable sale program, which are not recourse to the Company.
The Lumber Trading Group has in place two lines of credit totaling $46,000,000. These credit lines are secured by the assets of the Lumber Trading Group, and are used by the Lumber Trading Group to finance its working capital needs. At January 31, 1997, the Lumber Trading Group had $26,554,000 of available credit under these facilities.
The Lumber Trading Group also has sold an undivided ownership interest in a pool of accounts receivable of up to a maximum of $90,000,000. The Lumber Trading Group uses this program to finance its working capital needs. At January 31, 1997, $34,000,000 had been sold under this accounts receivable program.
The Company believes that the amounts available under these credit facilities, together with the accounts receivable sale program, will be sufficient to meet the Lumber Trading Group's liquidity needs in 1997.
CASH FLOWS
Net cash provided by operating activities was $62,227,000, $72,509,000 and $132,305,000 in 1996, 1995 and 1994, respectively. The decrease in cash provided by operating activities in 1996 from 1995 is primarily the result of an increase in inventories for the Lumber Trading Group ($5,346,000), a decrease in deferred profit on contract sales ($6,484,000) and an increase in interest paid ($2,545,000), offset in part by an increase in rents and other revenues received. The decrease in cash provided by operating activities in 1995 from 1994 was primarily due to an increase in interest paid ($13,436,000), the increase in other assets for lease procurement costs and restricted cash ($18,721,000) and 1994 activity which did not recur in 1995: (1) the decrease in inventories for the Lumber Trading Group ($26,456,000), and (2) the increase in accounts payable and accrued expenses for the Land Group ($6,703,000). The additional increases in operating expenses in 1996 and 1995 were offset by rents and other revenues received during those years.
Net cash used in investing activities totaled $134,903,000, $112,848,000 and $132,305,000 in 1996, 1995 and 1994, respectively. Capital expenditures, other than development and acquisition activities, totaled $32,007,000 (including both recurring and investment capital expenditures) in 1996 and were financed primarily with cash provided by operating activities. In 1996, net cash used in investing activities reflected the Company's use of $120,667,000 of funds for acquisition and development activities, which were financed with $117,202,000 in new mortgage indebtedness (see below for discussion of Cash Flows from Financing Activities) and the remainder from cash provided by operating activities. Net cash used in investing activities in 1996 also includes the gross proceeds from the dispositions of Beachwood Place ($15,427,000) and Victor Village ($10,613,000).
Capital expenditures, other than development and acquisition activities, totaled $29,954,000 (including both recurring and investment capital expenditures) in 1995 and were financed primarily with cash provided by operating activities. In 1995, the Company used $87,385,000 of funds for acquisition and development activities, which were financed with $68,146,000 in new mortgage indebtedness (see below for discussion of Cash Flows from Financing Activities), and the remainder from cash provided by operating activities. Net cash used in investing activities in 1995 also includes proceeds from the dispositions of Vineyard Village($7,450,000) and Laurel Plaza ($8,500,000) for $15,950,000.
In 1994, capital expenditures, other than development and acquisition activities, totaled $39,206,000 (including both recurring and investment capital expenditures) and were financed primarily with cash provided by operating activities. The Company used $82,396,000 of funds in 1994 for acquisition and development activities, which were financed with $66,205,000 in new mortgage indebtedness and the remainder from cash provided by operating activities. Net cash used in investing activities in 1994 also includes proceeds from the sale of Park LaBrea Towers ($15,264,000).
Capital expenditures for 1997, other than development and acquisition activities, are estimated to total $34,816,000. In 1997, the Company anticipates expending $91,839,000 in acquisition and development
activities. The Company anticipates that approximately one-half of these capital expenditures will be financed with nonrecourse mortgage indebtedness, and that the remaining portion with cash from operations and borrowings under the Revolving Credit Facility.
Net cash provided by financing activities totaled $74,833,000, $33,006,000 and $24,680,000 in 1996, 1995 and 1994, respectively. The Company's refinancing of mortgage indebtedness is discussed above in "-- 1996 and 1995 Mortgage Refinancings" and borrowings under new mortgage indebtedness for acquisition and development activities is included in the preceding paragraphs discussing net cash used in investing activities. In addition, net cash provided by financing activities in 1996 reflected $15,200,000 of restricted cash pledged for the financing of Enclave, a 633 unit apartment community in San Jose, California currently under construction, $6,080,000 of common stock repurchases and the payment of $2,797,000 of dividends. Net cash provided by financing activities in 1995 reflected, in addition to the refinancing of mortgage indebtedness and borrowing under new mortgage indebtedness, $2,509,000 in common stock repurchases and the payment of $2,248,000 of dividends. Net cash provided by financing activities in 1994 reflected, in addition to new indebtedness for acquisition and development activities, refinancing of existing mortgages indebtedness and the payment of $1,798,000 of dividends.
SHELF REGISTRATION
On March 4, 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 million in debt or equity securities.
STOCK SPLIT, DIVIDENDS AND AUTHORIZED SHARES
The Board of Directors approved a three-for-two stock split of both the Company's Class A and Class B Common Stock, which became effective February 17, 1997 to shareholders of record at the close of business on February 3, 1997. The stock split was effected as a stock dividend.
The Board of Directors of the Company recently announced that they intend to pay cash dividends on a quarterly basis in the future, whereas cash dividends in 1995 and 1996 were paid on an annual basis. A quarterly cash dividend of $.06 per share (post-split) on shares of both Class A and Class B Common Stock was paid on March 17, 1997. The $.06 quarterly dividend per share equates to an annual pre-split dividend of $.36 per share and represents a 12.5% increase over the annual dividend declared in 1996. The second 1997 quarterly dividend of $.06 per share on shares of both Class A and Class B Common Stock will be paid on June 16, 1997 to shareholders of record at the close of business on June 2, 1997. Purchasers of Class A Common Stock in this Offering who hold shares of Class A Common Stock on the record date will be entitled to this dividend.
The Company's current authorized shares are comprised of 16,000,000 shares of Class A Common Stock, 6,000,000 shares of Class B Common Stock and 1,000,000 shares of Preferred Stock. The Board of Directors has approved for submission to shareholders at the Company's 1997 Annual Meeting amendments to the Company's Articles of Incorporation to increase the Company's authorized shares to 48,000,000 shares of Class A Common Stock, 18,000,000 shares of Class B Common Stock and 5,000,000 shares of Preferred Stock.
INFLATION
The Commercial Group's exposure to increases in costs and operating expenses resulting from inflation is minimized due to the provisions of its leases with its tenants that require tenants to reimburse the Company for the majority of its operating expenses. Also, many of the Company's leases provide for payments based on a percentage of the rental income of the tenants, which generally increases in periods of inflation. The Residential Group's risk in a period of inflation is minimized by the annual turnover of tenant leases, which allow for immediate market rate increases. The Land and the Lumber Trading Groups may be affected by inflation by the availability of buyers of new housing to obtain mortgage financing when interest rates are high.
NEW ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 121 " Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes accounting standards for the review of impairment of a long-lived asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company has adopted the provisions of SFAS 121, which has no material effect on the financial position or results of operations of the Company.
During 1996, the Company granted options under its Stock Option Plan. The Company recognizes compensation cost in accordance with the provisions of Accounting Principles Board Opinion No. 25 and related Interpretations. The Company has not adopted the recognition provisions of SFAS 123 "Accounting for Stock-Based Compensation," but the disclosures required by SFAS 123 have been included in the Notes to the Consolidated Financial Statements.
In February 1997, FASB issued SFAS 128 "Earnings per Share," which is effective for fiscal years ending after December 15, 1997. This Statement simplifies the standards for computing earnings per share ("EPS") and makes them comparable to international EPS standards. The Company will adopt the provisions of SFAS 128 for its fiscal year ending January 31, 1998, but does not expect such adoption to have a material impact on EPS.
FOREST CITY ENTERPRISES, INC.
THREE YEAR SUMMARY OF EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
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 nation-wide basis as well as regionally in areas where the Company has a geographic concentration of properties; failure to consummate financing arrangements; development risks, including lack of satisfactory financing, construction and lease-up delays and cost overruns; the level and volatility of interest rates; financial stability of tenants within the retail industry, which may be impacted by competition and consumer spending; the rate of revenue increases versus expenses increases; the cyclical nature of the lumber wholesaling business; as well as other risks listed from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company has no obligation to revise or update any forward-looking statements as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable until fiscal year ending January 31, 1999.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not applicable or the required information is presented in the consolidated financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors Forest City Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Forest City Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1997 and financial statement schedules listed in the Index of Item 8 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Forest City Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Cleveland, Ohio March 13, 1997
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
The accompanying notes are an integral part of these consolidated financial statements.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental Non-Cash Disclosure:
The following items represent the non-cash effect of reductions in the Company's interest in Granite Development Partners, L.P. and the Clark Building, and the disposition of the Company's interest in Beachwood Place, during the fiscal year ended January 31, 1997 and an increase in the Company's interest in Liberty Center during the fiscal year ended January 31, 1996.
The accompanying notes are an integral part of these consolidated financial statements.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Forest City Enterprises, Inc. is a major, vertically integrated national real estate company with four principal business groups. The COMMERCIAL GROUP develops, acquires, owns and operates shopping centers, office buildings and mixed-use projects including hotels. The RESIDENTIAL GROUP develops or acquires, and owns and operates the Company's multi-family properties. 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 $2.5 billion of properties at cost in 20 states and Washington, D.C. The Company's executive offices are in Cleveland, Ohio. Regional offices are located in New York, Los Angeles, Boston, Chicago, Portland, Tucson, Detroit and Washington, D.C.
FISCAL YEAR
The years 1996, 1995 and 1994 refer to the fiscal years ended January 31, 1997, 1996 and 1995, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Forest City Enterprises, Inc. and all wholly-owned subsidiaries ("Enterprises" and the "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 included in retained earnings are $418,000 at January 31, 1997.
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.
Certain prior years' amounts in the accompanying financial statements have been reclassified to conform to the current year's presentation. The Consolidated Statements of Cash Flows have been presented using the direct method, whereas the indirect method was used in prior years.
RECOGNITION OF REVENUE AND PROFIT
REAL ESTATE SALES -- The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 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. Minimum rent revenues are recognized when due from tenants. Leases with most shopping center tenants provide for percentage rents when the tenants' sales volumes exceed stated amounts. 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 1996 through 1994 were approximately $2,884,000,000, $2,337,500,000 and $2,697,500,000, 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.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED 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.
LAND OPERATIONS
Land held for development or sale is stated at the lower of carrying amount or fair value less cost to sell.
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 on the straight-line method over the lives of the related leases.
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.
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.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees", and related Interpretations to account for stock-based compensation. As such,
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED 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
On December 11, 1996, the Board of Directors declared a three-for-two stock split of the Company's common stock payable February 17, 1997 to shareholders of record on February 3, 1997. The stock split was effected as a stock dividend. The stock split is 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 split.
EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during the year of 13,155,236 in 1996, 13,480,164 in 1995 and 13,487,421 in 1994. Stock options outstanding during 1996 did not have a material dilutive effect on earnings per share.
CAPITAL STOCK
Class B common stock is convertible into Class A common stock on a share-for-share basis. The 1,000,000 authorized shares of preferred stock without par value, none of which have been issued, may be 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.
During 1996, the Company repurchased 232,950 shares of Class A and 26,550 shares of Class B common stock, and during 1995, the Company repurchased 3,000 shares of Class A and 112,500 shares of Class B common stock. All these shares were held in treasury at January 31, 1997.
NEW ACCOUNTING STANDARD
Effective February 1, 1996, the Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires that long-lived assets to be held and used or disposed of should be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company adopted SFAS No. 121 and determined that no impairment loss is required to be recognized for real estate held and used or to be disposed of in the current year.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
C. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable are summarized below.
Notes receivable at January 31, 1997 of $24,536,000, reflected in real estate sales and syndication activities in the table above, are collectible primarily over five years, with $15,488,000 being due within one year. The weighted average interest rate at January 31, 1997 and 1996 was 9.2% and 11.8%, 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 $90,000,000. At January 31, 1997 and 1996, the Company had received $34,000,000 and $27,000,000, respectively, as net proceeds from this transaction. The program is non-recourse to the Company and the Company bears no risk as to the collectability of the accounts receivable. An interest in additional accounts receivable may be sold as collections reduce previously sold interests.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses at January 31, 1997 and 1996 are book overdrafts of approximately $66,971,000 and $48,316,000, 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.
E. NOTES PAYABLE
The components of notes payable, which represent indebtedness whose original maturity dates are within one year of issuance, are as follows.
Notes payable to banks reflect borrowings on the Lumber Trading Group's $46,000,000 bank lines of credit. The Company has the right to borrow an additional $10,000,000 for up to 90 days through May 31, 1997 under these bank lines of credit. Borrowings under these bank lines of credit, which are non-recourse to the Company, are collateralized by all the assets of the Lumber Trading Group and bear interest at prime and has 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. The weighted average interest rate was 8.3% and 8.9% at January 31, 1997 and 1996, respectively.
Interest expense on notes payable was $5,166,000 in 1996, $5,078,000 in 1995 and $5,321,000 in 1994. Interest actually paid on notes payable was $5,097,000 in 1996, $5,129,000 in 1995 and $5,527,000 in 1994.
F. MORTGAGE DEBT, NONRECOURSE
Mortgage debt, which is collateralized by completed rental properties, projects under development and certain undeveloped land, is as follows.
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(1) The weighted average interest rates shown above include both the base index and the lender margin.
(2) At February 1, 1997, $330,385,000 of this debt is subject to interest rate swaps as described below.
Debt related to projects under development at January 31, 1997 totals $30,400,000, out of a total commitment from lenders of $93,461,000. Of this outstanding debt, $25,288,000 is variable-rate debt and $5,112,000 is fixed-rate debt. The Company generally borrows funds for development and construction projects with maturities of three to seven years utilizing variable-rate financing. Upon opening and achieving stabilized operations, the Company generally obtains long-term fixed-rate financing.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. MORTGAGE DEBT, NONRECOURSE -- CONTINUED As of January 31, 1997, the Company had entered into $378,385,000 of London Interbank Offered Rate ("LIBOR") interest rate swap agreements for durations ranging from one to five years, as follows.
The effect of these interest rate swap agreements reduces the Company's outstanding taxable variable-rate debt at February 1, 1997, to $438,784,000, which is 23.1% of the total mortgage debt.
In addition, the Company has purchased LIBOR interest rate caps ranging from 6.50% to 9.85% on $40,969,000 of its variable-rate debt with varying expiration dates through February 1, 2001.
The Urban Development Action Grants 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 underdeveloped 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: 1998, $288,915,000; 1999, $167,563,000; 2000, $416,612,000; 2001, $318,753,000 and 2002, $98,186,000.
The Company is engaged in discussions with its current lenders and is actively pursuing new lenders to extend and refinance the mortgage debt that matures. The Company intends to convert a significant portion of its existing variable-rate debt to fixed-rate mortgages in order to reduce the volatility in the Company's project mortgage interest expense.
Interest incurred on mortgage debt was $129,241,000 in 1996, $126,520,000 in 1995 and $110,899,000 in 1994, of which $1,383,000, $2,861,000 and $2,156,000 was capitalized, respectively. Interest actually paid on mortgage debt, net of capitalized interest, was $122,341,000 in 1996, $118,889,000 in 1995 and $105,256,000 in 1994.
G. LONG-TERM DEBT
Long-term debt is as follows.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
G. LONG-TERM DEBT -- CONTINUED At January 31, 1997, the Company had a term loan maturing July 1, 2001 and an $80,000,000 revolving credit agreement maturing July 25, 1998. The term loan requires quarterly principal payments of $2,500,000. The revolving credit agreement allows for up to $20,000,000 in outstanding letters of credit (none of which were outstanding at January 31, 1997), which shall reduce the revolving credit portion available to the Company. At its maturity, the revolving credit agreement may be renewed annually or converted to a seven-year term loan by the Company. The term loan and revolving credit agreement provide, among other things, for 1) interest rates which range from 1/4% to 3/4% over the prime rate or 2% to 2 1/2% over LIBOR; 2) the maintenance of a specified level of net worth and cash flows (as defined); and 3) a restriction on dividend payments. At January 31, 1997, approximately $7,203,000 of retained earnings were available for payment of dividends.
The Company has entered into an interest rate swap agreement to fix $87,000,000 of the term loan and revolving credit agreement at the base LIBOR rate of 6.21% plus lender margin for the period February 1, 1997 to February 1, 1998.
Interest rates on the other debt ranged primarily from 6.1% to 12.3% at January 31, 1997.
Maturities of other debt for the next five years ending January 31 are as follows: 1998, $850,000; 1999, $794,000; 2000, $151,000; 2001, $80,000; and 2002, $22,000.
Interest incurred on long-term debt was $6,982,000 in 1996, $7,764,000 in 1995 and $7,650,000 in 1994 of which $6,642,000, $6,500,000 and $4,893,000 was capitalized, respectively. Interest actually paid on long-term debt was $7,116,000 in 1996, $7,991,000 in 1995 and $7,790,000 in 1994.
CONSOLIDATED INTEREST
Total interest incurred on all forms of indebtedness (included in Notes E, F and G) was $141,389,000 in 1996, $139,362,000 in 1995 and $123,870,000 in 1994 of which $8,025,000, $9,361,000 and $7,049,000 was capitalized, respectively. Interest paid on all forms of indebtedness was $134,554,000 in 1996, $132,009,000 in 1995 and $118,573,000 in 1994.
H. INCOME TAXES
The provision (benefit) for income taxes consists of the following components.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. INCOME TAXES -- CONTINUED The effective tax rate for income taxes varies from the federal statutory rate of 35% for 1996, 1995 and 1994 due to the following items.
An analysis of the deferred tax provision (benefit) is as follows.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. INCOME TAXES -- CONTINUED The types of differences that give rise to significant portions of the deferred income tax liability are as follows.
Income taxes paid (refunded) totaled $830,000, $(888,000) and $3,244,000 in 1996, 1995 and 1994, respectively. At January 31, 1997, the Company had a net operating loss carryforward for tax purposes of $88,868,000 which will expire in the years ending January 31, 2005 through January 31, 2011 and general business credits carryovers of $3,601,000 which will expire in the years ending January 31, 2003 through January 31, 2011. The Company's deferred tax liability at January 31, 1997 is comprised of deferred liabilities of $194,574,000, deferred assets of $83,832,000 and a valuation allowance related to state taxes and general business credits of $4,746,000.
I. SEGMENT INFORMATION
Principal business groups are determined by the type of customer served or the product sold. The COMMERCIAL GROUP develops, acquires, owns and operates shopping centers, office buildings and mixed-use projects including hotels. The RESIDENTIAL GROUP develops or acquires, and owns and operates the Company's multi-family properties. The LAND GROUP owns and develops raw land into master planned communities and other residential developments for resale to users principally in Arizona, Florida, Nevada, New York and Ohio. The LUMBER TRADING GROUP operates the Company's lumber wholesaling business. CORPORATE includes interest on corporate borrowings and general administrative expenses. The following tables summarize selected financial data by business segment for the fiscal years ended January 31, 1997, 1996 and 1995.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
I. SEGMENT INFORMATION -- CONTINUED
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(1) The Residential Group includes the Company's apartment and residential development divisions. In prior years, these divisions were reported separately. Segment information for the years ended January 31, 1996 and 1995 in this Note I combines these divisions to conform to the current year presentation.
(2) The Company recognizes the gross margin on lumber brokerage sales as revenue. Sales invoiced for the years ended January 31,1997, 1996 and 1995 were approximately $2,884,000,000, $2,337,500,000 and $2,697,500,000, respectively.
J. 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.
Most of the commercial leases include provisions for reimbursements of other charges including real estate taxes and operating costs. Other charges amounted to $94,033,000, $84,533,000 and $83,881,000 in 1996, 1995 and 1994, respectively.
THE COMPANY AS LESSEE
The Company is a lessee under various operating leasing arrangements for real property and equipment having terms expiring through 2076, excluding optional renewal periods.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
J. LEASES -- CONTINUED Minimum fixed rental payments under long-term leases (over one year) in effect at January 31, 1997 are as follows.
Rent expense was $8,813,000, $6,986,000 and $6,468,000 for 1996, 1995 and 1994, respectively.
K. CONTINGENT LIABILITIES
As of January 31, 1997, the Company has guaranteed loans totaling $1,661,000 and has $12,555,000 in outstanding letters of credit.
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.
L. STOCK OPTION PLAN
During 1994, the Board of Directors of the Company and the shareholders approved the 1994 Stock Option Plan ("Plan"). Shares may be awarded under the 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 is 375,000 shares, subject to adjustments under the Plan. The maximum number of shares that may be awarded to any employee during any calendar year is 37,500 shares. 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 not less than 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. During 1996, 180,900 Class A fixed stock options were granted. The options have a term of 10 years and vest over two to four years. No options were granted in 1994 and 1995.
The Company applies APBO No. 25 and related Interpretations in accounting for its Plan. Accordingly, no compensation cost has been recognized for its Plan. During 1996, the Company adopted the disclosure provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." Had compensation cost been determined in accordance with SFAS No. 123, net earnings and earnings per share for 1996 would have been reduced to the pro forma amounts indicated below.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. STOCK OPTION PLAN -- CONTINUED 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 grant in 1996: dividend yield of .5%; expected volatility of 30.7%; risk-free interest rate of 6.5%; and expected life of 8.7 years.
A summary of stock option activity during 1996 is presented below.
M. 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.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. SUMMARIZED FINANCIAL INFORMATION -- CONTINUED FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. SUMMARIZED FINANCIAL INFORMATION -- CONTINUED FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
N. GAIN (LOSS) ON DISPOSITION AND EXTRAORDINARY GAIN
During 1996, the Company recorded a gain on disposition of properties of $17,574,000, before tax of $7,976,000, primarily resulting from the sale of its 18.63% interest in Beachwood Place, a regional shopping center in suburban Cleveland, Ohio. In 1995, a loss on disposition of properties of $754,000, before tax of $276,000, was recognized on the sale of a California apartment complex.
Extraordinary gains, net of tax, of $2,900,000 and $1,847,000 were recorded for 1996 and 1995, respectively. These gains were the result of the extinguishment of nonrecourse mortgage debt and related accrued interest on three rental properties. In 1994, loss on disposition of properties of $19,181,000, net of tax of $11,654,000, was recognized on the sale of Park LaBrea Towers, a 2,825-unit apartment complex located in Los Angeles, California. Prior to the sale transaction, an extraordinary gain of $56,462,000, net of tax of $27,715,000, was recorded as a result of extinguishment of nonrecourse purchase money mortgage debt and related accrued interest.
Also in 1994, two other rental properties recognized extraordinary gains on nonrecourse debt extinguishment, amounting to $3,987,000, net of tax.
O. SUBSEQUENT EVENT
During February 1997, the Company settled litigation with the original land owner of Toscana, a 563-unit apartment complex in Irvine, California, and in connection therewith sold the property to the original land owner. As a result of these transactions, the Company recorded litigation settlement proceeds of $15,000,000, a pre-tax loss on disposition of the property of $35,505,000, and a pre-tax extraordinary gain of $18,272,000 related to the extinguishment of a portion of the nonrecourse mortgage debt. The net result of these transactions to the Company was a pre-tax loss of $2,233,000.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
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Both classes of common stock are traded on the American Stock Exchange ("Exchange") under the symbols, FCEA and FCEB. High and low prices shown are based upon data provided by the Exchange.
As of March 4, 1997, the number of registered holders of Class A and Class B common stock were 883 and 687, respectively. (1) Third quarter 1996 data has been restated to reflect the reclassification of $3,297,000, before taxes, from provision for decline in real estate to extraordinary gain. This reclassification represents a $.15 reduction in net earnings (loss) before extraordinary gain per common share, but has no effect on net earnings of the Company.
(2) Excludes the extraordinary gain, net of tax of $2,900,000 ($.22 per share) and $1,847,000 ($.14 per share), in fiscal 1996 and 1995, respectively. These items are explained in Note N in the Notes to Consolidated Financial Statements.
(3) Future dividends will depend upon such factors as earnings, capital requirements and financial condition of the Company. Approximately $7,203,000 of retained earnings were available for payment of dividends as of January 31, 1997, under the restrictions contained in the term loan and revolving credit agreement with a group of banks.
(4) Adjusted for three-for-two split of Class A and Class B common stock effective February 17, 1997.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
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(A) Uncollectible accounts written off.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------- (A) Certain amounts were reclassified to conform to the current year's classifications. (B) The aggregate cost at January 31, 1996 for federal income tax purposes was $2,387,391.
(Continued)
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 5, 1997 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 Report.
(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 5, 1997 and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION; ITEM 12.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
1. Financial Statements and Supplementary Data included in Part II, Item 8.
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Earnings for the years ended January 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended January 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended January 31, 1997, 1996 and 1995
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 IV, Item 14 are included in Part II, Item 8.
Schedule II -- Valuation and Qualifying Accounts for the years ended January 31, 1997, 1996 and 1995
Schedule III -- Real Estate and Accumulated Depreciation at January 31, 1997 with reconciliations for the years ended January 31, 1997, 1996 and
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.
(b) Reports on Form 8-K.
On December 11, 1996, the Company filed a Current Report on Form 8-K pursuant to Item 5 thereof, reporting the announcement of a stock split, cash dividend and new quarterly dividend policy.
(c) Exhibits
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Note (1) Filed herewith. Note (2) Reflects management contracts or other compensatory arrangements required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
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)
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.
The Registrant plans to furnish security holders a copy of the Annual Report and Proxy material by May 9, 1997.
* 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.