-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MhJN3bAizZG7+EsWtx9d1xQ/mMSkJ4B5fbyTpqphojii/VFnD4XCKMiCfgI64k2Q byUDNwIWBAPcrWim6Lz/lQ== 0000038067-96-000006.txt : 19960501 0000038067-96-000006.hdr.sgml : 19960501 ACCESSION NUMBER: 0000038067-96-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960430 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST CITY ENTERPRISES INC CENTRAL INDEX KEY: 0000038067 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 340863886 STATE OF INCORPORATION: OH FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04372 FILM NUMBER: 96553941 BUSINESS ADDRESS: STREET 1: 10800 BROOKPARK RD CITY: CLEVELAND STATE: OH ZIP: 44130 BUSINESS PHONE: 2162671200 MAIL ADDRESS: STREET 1: 10800 BROOKPARK ROAD CITY: CLEVLAND STATE: OH ZIP: 44130 10-K 1 FOREST CITY ENTERPRISES 10K PERIOD ENDED 1/31/96 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 [FEE REQUIRED] For the fiscal year ended January 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the transition period from to Commission file number 1-4372 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.) 10800 Brookpark Road Cleveland, Ohio 44130 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 216-267-1200 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 ($.33 1/3 par value) American Stock Exchange Class B Common Stock ($.33 1/3 par value) American 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, 1996 the aggregate market value of the voting stock held by non- affiliates of the registrant amounted to $96,464,698 and $32,788,460 for Class A and Class B common stock, respectively. The number of shares of registrant's common stock outstanding on March 1, 1996 was 5,263,327 and 3,639,287 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, 1996 (1995 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 11, 1996 are incorporated by reference into Part III of this Form 10-K. PART I Item 1. Business Forest City Enterprises, Inc. and subsidiaries (the "Company" or "Forest City Enterprises") is a major, vertically integrated national real estate company principally engaged in the development, construction, ownership and management of commercial and residential real estate throughout the United States. The Company has four Strategic Business Units. The Commercial Group owns, acquires, develops and manages retail, office, hotel and mixed-use projects. The Residential Group owns, acquires, develops, leases and manages the Company's residential properties. The Land Group acquires and sells both raw land and developed lots to commercial, industrial and residential users. Forest City Trading Group is primarily a wholesale lumber trading company. The following material provides additional information about the Company's principal operating groups. I. Commercial Group The Commercial Group owns, acquires, develops and manages retail, office, hotel and mixed-use projects throughout the United States. Development activities focus on locating opportunities, structuring deals as advantageously as possible, obtaining favorable financing, supervising construction and handling the initial leasing of developed properties. Management operations concentrate on increasing cash flow and long-term value by leasing the properties, deciding when to refinance and setting the appropriate level of capital expenditures. We use our expertise and entrepreneurial skills to maximize the value of our existing assets and to identify development opportunities with an emphasis on major cities and changing demographics. II. Residential Group The Residential Group owns, acquires, develops, leases and manages our residential properties. In addition to acquiring or developing new residential assets for the Company, this division is responsible for increasing cash flow and long-term value of the existing portfolio by deciding when to refinance, optimizing our leasing strategy and determining the appropriate level of capital expenditures. III. Land Group The Land Group acquires and sells both raw land and developed lots to commercial, industrial and residential users. The Group's efforts are currently concentrated on major developments in Arizona, California, Florida, Illinois, Nevada, New York and Ohio. Competition in this segment is dominated by price, location and availability of product. IV. Forest City Trading Group Lumber Brokerage--Forest City Trading Group, Inc., with sixteen offices in the United States and one office in Canada, conducts the lumber brokerage portion of the Company's business. Lumber brokerage consists of the purchase of lumber and plywood from sawmills and other specialty products for immediate resale to retailers and other large purchasers of lumber throughout the United States. Approximately 88% of the Division's transactions are direct shipments from the sawmills to the customer. The remainder of its business is delivered from inventory stored at public warehouse facilities. Wholesale Lumber--Wholesale Lumber is comprised of two units in northeast Ohio. Forest City and North American Lumber joint venture supplies building materials and lumber to general contractors. Forest City/Babin is a wholesaler of major home appliances, cabinets and hardware to housing contractors. On January 1, 1996, Forest City/Babin became a wholly-owned subsidiary of Forest City Trading Group,Inc.; previously it was a joint venture. The principal factors of competition in this unit are price, service and product availability. Number of Employees The Company had 3,287 employees as of January 31, 1996, of which 2,395 were full-time and 892 were part-time. Segments of Business Financial information about industry segments required by this item is incorporated by reference to Note I "Segment Information" which appears on page 30 of the 1995 Annual Report to Shareholders. 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 sixteen administrative and sales offices and one manufacturing plant located in nine states and one sales office in Canada. The "Forest City Rental Properties Corporation Portfolio of Real Estate," presented on pages 18 and 19 of the 1995 Annual Report to Shareholders, lists the shopping centers, office buildings, hotels and apartments in which Rental Properties has an interest and is incorporated herein by reference. 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 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. 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 11, 1996. 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 11, 1996.
Date Name and Position(s) Held Appointed Age Family Relationship Samuel H. Miller Co-Chairman of the Board, 6-13-95 74 Treasurer, Director, Officer of various subsidiary corporations. Albert B. Ratner Co-Chairman of the Board, 6-13-95 68 Cousin of Charles A. Director, Officer of various Ratner, James A. Ratner subsidiary corporations. and Ronald A. Ratner Nathan Shafran Vice Chairman of the Board, 3-11-87 82 Director, Officer of various subsidiary corporations. Charles A. Ratner President, Chief Executive 6-13-95 54 Officer, Director, Officer of various subsidiary corporations. James A. Ratner Executive Vice President, 3-09-88 51 Director, Officer of various subsidiary corporations. Ronald A. Ratner Executive Vice President, 3-09-88 49 Director, Officer of various subsidiary corporations. Thomas G. Smith Senior Vice President, Chief 9-03-85 55 Financial Officer, Secretary, Officer of various subsidiary corporations. William M. Warren Senior Vice President and 5-16-72 67 General Counsel. Linda M. Kane Vice President-Corporate 4-01-95 38 Controller.
PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information required by this item is incorporated by reference to the "Quarterly Consolidated Financial Data (Unaudited)" which appears on page 33 of the 1995 Annual Report to Shareholders. Item 6. Selected Financial Data The information required by this item is incorporated by reference to the "Selected Financial Data" on page 20 of the 1995 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 34 and 35 of the 1995 Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data for Forest City Enterprises, Inc. and subsidiaries are incorporated by reference to pages 21 through 33 of the 1995 Annual Report to Shareholders. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. 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 1, 1996 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 1, 1996 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 1, 1996 and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. The following financial statements of Forest City Enterprises, Inc. and subsidiaries and the report of the independent accountants included in the 1995 Annual Report to Shareholders are incorporated by reference in Part II, Item 8. Report of Independent Accountants Consolidated Balance Sheets - January 31, 1996 and January 31, 1995 Consolidated Statements of Earnings for the three years ended January 31, 1996 Consolidated Statements of Shareholders' Equity for the three years ended January 31, 1996 Consolidated Statements of Cash Flows for the three years ended January 31, 1996 Notes to Consolidated Financial Statements 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. (a) 2. The following consolidated financial statement schedules are included in Part IV, Item 14(d): For the three years ended January 31, 1996: Page No. Schedule II - Valuation and Qualifying Accounts IV-4 At January 31, 1996 with reconciliations for the three years ended January 31, 1996: Schedule III - Real Estate and Accumulated IV-5 & 6 Depreciation The report of the registrant's independent accountants with respect to the above listed financial statement schedules as of and for the years ended January 31, 1996, 1995 and 1994 appears on page IV-3 of this Report. 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. (a) 3. Exhibits: No. 3.1 - Amended Articles of Incorporation adopted as of October 11, 1983, was filed with Form 10-Q for the quarter ended October 31, 1983 and is incorporated herein by reference. No. 3.2 - Code of Regulations as amended June 11, 1991 was filed with Form 10-K for the fiscal year ended January 31, 1992 and is incorporated herein by reference. No. 10.1 - Credit Agreement, dated as of July 25, 1994, among Forest City Rental Properties Corporation, the banks named therein and Society National Bank, as agent, was filed with Form 10-Q for the quarter ended July 31, 1994 and is incorporated herein by reference. No. 10.2 - Guaranty of Payment of Debt, dated as of July 25, 1994, between Forest City Enterprises, Inc. and the banks named therein was filed with Form 10-Q for the quarter ended July 31, 1994 and is incorporated herein by reference. No. 10.3 - First Amendment to Credit Agreement, dated as of September 12, 1995 among Forest City Rental Properties Corporation, the banks named therein and Society National Bank, as agent, was filed with Form 10-Q for the quarter ended October 31, 1995 and is incorporated herein by reference. No. 10.4 - First Amendment to Guaranty of Payment of Debt, dated as of September 12, 1995, among Forest City Enterprises, Inc., the banks named therein and Society National Bank, as agent, was filed with Form 10-Q for the quarter ended October 31, 1995, and is incorporated herein by reference. No. 13 - 1995 Annual Report to Shareholders No. 22 - Subsidiaries of the Registrant Page No. (Parents and Subsidiaries) IV-7 b) Reports on Form 8-K filed during the three months ended January 31, 1996: None. REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Forest City Enterprises, Inc. Our report on the consolidated financial statements of Forest City Enterprises Inc. and subsidiaries has been incorporated by reference in this Form 10-K from page 21 of the 1995 Annual Report to Shareholders of Forest City Enterprises, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page IV-1 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand, L.L.P. Cleveland, Ohio March 11, 1996 FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at Charged to Balance at Beginning Costs and End of Description of Period Expenses Deductions Period - ------------------------------------------------------------------------------------ (in thousands) Allowance for doubtful accounts Year Ended January 31, 1996 $4,208 $ 714 $1,235(A) $3,687 ====== ====== ========= ====== Year Ended January 31, 1995 $5,322 $1,320 $2,434(A) $4,208 ====== ====== ========= ====== Year Ended January 31, 1994 $3,683 $3,078 $1,439(A) $5,322 ====== ====== ========= ====== (A) Uncollectible accounts written off.
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Range of lives Gross amount at which (in years) Initial cost Cost capitalized carried at close of on which to Company subsequent January 31, 1996 Accum. depre. Amount of --------------- to acquisition ----------------- depre at in latest encumbrance Bldgs ----------------- Buildings Total Jan 31, income stmt Description at Jan 31, and Carrying and (A) 1996 Date of Date is computed of property 1996 Land imprvmnts. Imprvmnts. costs Land imprvmnts. (B) (C) construc. acquired Bldg Imprv - ---------- ---------- ------ ---------- --------- ------ ------- ---------- ------- --------- --------- -------- ----- ----- (in thousands) Apartments: Misc. invest. $463,062 $ 49,386 $487,614 $ 5,725 $ 27,902 $ 67,589 $503,038 $ 570,627 $ 94,448 Var. - Var. Var. Shopping Centers: Cleveland, Ohio 63,645 - 143,287 6,820 - - 150,107 150,107 18,094 1988-1990 - 50 50 Misc. invest. 499,798 38,818 345,837 91,309 40,875 50,036 466,803 516,839 100,992 Var. - Var. Var. Office Buildings: New York, New York 134,225 - 133,277 1,685 - - 134,962 134,962 10,104 1989-1991 - 50 - Misc. invest. 549,991 15,295 506,474 159,022 31,835 16,722 695,904 712,626 114,517 Var. - Var. Var. Leasehold improvements and other equipment: Misc. invest. - - 22,503 - - - 22,503 22,503 9,757 - Var. Var. Var. Under Construction: Misc. invest. 57,189 71,454 174,786 - - 71,454 174,786 246,240 - Undeveloped Land: Misc. invest. 64,149 71,179 - - - 71,179 - 71,179 - ---------- -------- ---------- -------- -------- -------- ---------- ---------- -------- Total $1,832,059 $246,132 $1,813,778 $264,561 $100,612 $276,980 $2,148,103 $2,425,083 $347,912 ========== ======== ========== ======== ======== ======== ========== ========== ======== (A) The aggregate cost at January 31, 1996 for federal income tax purposes was $2,278,992
For the Years Ended January 31, ----------------------------------- 1996 1995 1994 (in thousands) (B) Reconciliations of total real estate carrying value are as follows: Balance at beginning of period $2,322,136 $2,405,066 $2,310,970 Additions during period - Improvements 130,296 134,557 127,035 Other acquisitions 28,587 32,811 5,198 ---------- ---------- ---------- 158,883 167,368 132,233 ---------- ---------- ---------- Deductions during period - Cost of real estate sold (55,936) (250,298) (38,137) ---------- ---------- ---------- Balance at end of period $2,425,083 $2,322,136 $2,405,066 ========== ========== ========== (C) Reconciliations of accumulated depreciation are as follows: Balance at beginning of period $ 303,012 $ 282,313 $ 243,019 Additions during period - Charged to profit or loss 50,821 49,869 48,840 Deductions during period - Retirement and sales (5,921) (29,170) (9,546) ---------- ---------- ---------- Balance at end of period $ 347,912 $ 303,012 $ 282,313 ========== ========== ==========
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 30, 1996 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. /s/ Albert B. Ratner Co-Chairman of the Board and Director 4/30/96 (Albert B. Ratner) (Date) /s/ Samuel H. Miller Co-Chairman of the Board, Treasurer 4/30/96 (Samuel H. Miller) and Director (Date) /s/ Charles A. Ratner President, Chief Executive Officer 4/30/96 (Charles A. Ratner) and Director (Principal Executive (Date) Officer) /s/ Thomas G. Smith Senior Vice President, Chief 4/30/96 (Thomas G. Smith) Financial Officer and Secretary (Date) (Principal Financial Officer) /s/ Linda M. Kane Vice President and Corporate Controller 4/30/96 (Linda M. Kane) (Principal Accounting Officer) (Date) /s/ Nathan Shafran Vice Chairman of the Board and Director 4/30/96 (Nathan Shafran) (Date) /s/ James A. Ratner Executive Vice President and Director 4/30/96 (James A. Ratner) (Date) /s/ Ronald A. Ratner Executive Vice President and Director 4/30/96 (Ronald A. Ratner) (Date) /s/ J Maurice Struchen Director 4/30/96 (J Maurice Struchen) (Date) The registrant plans to furnish security holders a copy of the Annual Report and Proxy material by May 6, 1996. Exhibits filed Electronically The following exhibits are included in this electronic filing and are located after this index. Exhibit No. 21 - Parents and Subsidiaries Portions of the 1995 Annual Report to Shareholders that are incorporated by reference into this electronic filing: - Selected Financial Data - Report of Independent Accountants - Financial Statements of Forest City Enterprises, Inc. and subsidiaries - Quarterly Consolidated Financial Data (Unaudited) - Management's Discussion and Analysis of Financial Condition and Results of Operations 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.
Percentage of Voting Securities Owned by State of Name of Subsidiary Immediate Parent Incorporation - ------------------------------------------------------------------------------------- Forest City Rental Properties Corporation 100 (a) Ohio Center Courtland, Inc. 100 (a) Ohio F.C. Irvine, Inc. 100 (a) California F.C. Laurel, Inc. 100 (a) California Forest City 38 Sidney Street, Inc. 100 (a) Ohio Forest City Central Station, Inc. 100 (a) Ohio Forest City Commercial Construction Co., Inc. 100 (a) Ohio Forest City Finance Corporation 100 (a) Ohio Forest City Franklin Town Corp. 100 (a) Ohio Forest City Management, Inc. 100 (a) Ohio Forest City Palmdale, Inc. 100 (a) Ohio Forest City Peripheral Land, Inc. 100 (a) Delaware Forest City Rental Properties Corporation of Nevada, Inc. 100 (a) Nevada Forest City Robinson Mall, Inc. 100 (a) Delaware Forest City Southpark Two, Inc. 100 (a) California Forest City Vineyard Village, Inc. 100 (a) Ohio Terminal Investments, Inc. 100 (a) Ohio Tower City Land Corporation 100 (a) Ohio Tower City Retail, Inc. 100 (a) Ohio Forest City Residential Development, Inc. 100 (a) Ohio Forest City Capital Corporation 100 (a) Ohio Forest City Trading Group, Inc. 100 (a) Oregon Sunrise Development Co. 100 (a) Ohio Sunrise Land Co. 100 (a) Ohio FC-Granite, Inc. 100 (a) Ohio Sunrise Eaton, Inc. 100 (a) Ohio (a) Subsidiaries included in consolidated financial statements.
SELECTED FINANCIAL DATA For the Years Ended January 31, 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) OPERATING RESULTS Sales and operating revenues $ 506,885 $ 499,635 $ 502,903 $ 463,626 $ 419,815 ============================================================== Net earnings (loss) (1) Operating earnings (loss), net of tax (2) $ 13,490 $ 6,774 $ 718 $ (4,712) $ (5,083) Gain (loss) on disposition of properties and other provisions, net of tax (3) (6,551) (25,307) 1,494 17,399 (1,105) --------------------------------------------------------------- $ 6,939 $ (18,533) $ 2,212 $ 12,687 $ (6,188) =============================================================== Earnings before depreciation and deferred taxes (1) Operating earnings (loss), net of tax (2) $ 13,490 $ 6,774 $ 718 $ (4,712) $ (5,083) Adjustments related to real estate operations (4) Depreciation and amortization 63,557 63,956 63,901 57,896 50,543 Deferred income taxes 4,974 10,532 10,865 19,021 1,789 Accrued interest of a rental property not paid - - 5,495 4,870 3,973 -------------------------------------------------------------- Real estate adjustments 68,531 74,488 80,261 81,787 56,305 -------------------------------------------------------------- $ 82,021 $ 81,262 $ 80,979 $ 77,075 $ 51,222 ============================================================== Per common share Net earnings (loss) (1) $ .77 $ (2.06) $ .25 $ 1.41 $ (.69) ============================================================== Cash dividends declared and paid Class A $ .25 $ .20 $ - $ - $ - Class B $ .25 $ .20 $ - $ - $ - January 31, 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- (in thousands) FINANCIAL POSITION Consolidated assets $2,631,046 $2,584,734 $2,668,057 $2,625,404 $2,556,261 Real estate portfolio, at cost $2,425,083 $2,322,136 $2,405,066 $2,310,970 $2,281,731 Long-term debt, including mortgage debt $1,945,120 $1,881,917 $2,026,451 $1,972,160 $1,980,985 - ---------------------------------------------------------------------------------------------------------------------- FOREST CITY RENTAL PROPERTIES CORPORATION - REAL ESTATE ACTIVITY Total real estate - end of year Completed rental properties, before depreciation $2,085,284 $1,995,629 $2,101,528 $2,045,946 $1,878,394 Projects under development 246,240 230,802 214,111 188,187 316,771 -------------------------------------------------------------- 2,331,524 2,226,431 2,315,639 2,234,133 2,195,165 Accumulated depreciation (338,216) (293,465) (272,518) (232,905) (193,683) -------------------------------------------------------------- Rental properties, net of depreciation $1,993,308 $1,932,966 $2,043,121 $2,001,228 $2,001,482 ============================================================== Activity during the year Completed rental properties Additions $ 89,028 $ 77,265 $ 50,384 $ 200,440 $ 279,319 Acquisitions 28,587 32,811 5,198 - - Dispositions (27,960) (215,975) - (32,888) (1,201) -------------------------------------------------------------- 89,655 (105,899) 55,582 167,552 278,118 -------------------------------------------------------------- Projects under development New development 58,798 49,585 54,317 39,045 199,346 Transferred to completed rental properties (43,360) (32,894) (28,393) (167,629) (267,617) -------------------------------------------------------------- 15,438 16,691 25,924 (128,584) (68,271) -------------------------------------------------------------- Increase (decrease) in rental properties, at cost $ 105,093 $ (89,208) $ 81,506 $ 38,968 $ 209,847 ============================================================== (1) Excludes the extraordinary gain, net of tax, of $1,847,000 and $60,449,000 for the years ended January 31, 1996 and 1995, respectively. (2) Excludes the gain (loss) on disposition of properties and other provisions, net of tax. (3) Includes the provision for decline in real estate. (4) These adjustments represent amounts related to the Company's real estate operations in Rental Properties only.
REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Forest City Enterprises, Inc. We have audited the accompanying consolidated balance sheets of Forest City Enterprises, Inc. and subsidiaries as of January 31, 1996 and 1995, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1996. 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 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 subsidiaries as of January 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1996, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Cleveland, Ohio March 11, 1996 CONSOLIDATED BALANCE SHEETS
January 31, 1996 1995 - -------------------------------------------------------------------------------- (dollars in thousands) ASSETS Real Estate Completed rental properties $2,107,664 $2,011,168 Projects under development 246,240 230,802 Land held for development or sale 71,179 80,166 ------------------------- 2,425,083 2,322,136 Less accumulated depreciation (347,912) (303,012) ------------------------- Total Real Estate 2,077,171 2,019,124 Cash 39,145 46,478 Notes and accounts receivable, net 168,177 197,602 Inventories 41,186 38,949 Investments in and advances to affiliates 145,238 139,318 Other assets 160,129 143,263 ------------------------- $2,631,046 $2,584,734 ========================= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage debt, nonrecourse $1,832,059 $1,769,270 Accounts payable and accrued expenses 350,131 375,350 Notes payable 19,856 22,340 Long-term debt 113,061 112,647 Deferred income taxes 105,111 93,650 Deferred profit 21,239 25,917 ------------------------- Total Liabilities 2,441,457 2,399,174 ------------------------- SHAREHOLDERS' EQUITY Preferred stock - convertible, without par value; 1,000,000 shares authorized; no shares issued - - Common stock - $.33 1/3 par value Class A, 16,000,000 shares authorized; 5,271,327 and 5,146,226 shares issued, 5,269,327 and 5,146,226 outstanding, respectively. 1,757 1,715 Class B, convertible, 6,000,000 shares authorized; 3,720,287 and 3,845,388 shares issued, 3,645,287 and 3,845,388 outstanding, respectively. 1,240 1,282 ------------------------- 2,997 2,997 Additional paid-in capital 45,511 45,511 Retained earnings 143,590 137,052 ------------------------- 192,098 185,560 Less treasury stock, at cost; 2,000 Class A and 75,000 Class B shares (2,509) - ------------------------- Total Shareholders' Equity 189,589 185,560 ------------------------- $2,631,046 $2,584,734 ========================= The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------- (in thousands, except per share data) Sales and operating revenues $506,885 $499,635 $502,903 Interest and other income 22,548 22,973 16,476 --------------------------------------- 529,433 522,608 519,379 --------------------------------------- Operating expenses 305,819 323,736 338,308 Interest expense 130,001 116,821 111,494 Provision for decline in real estate 9,581 10,133 - Depreciation and amortization 65,716 65,580 65,309 --------------------------------------- 511,117 516,270 515,111 Gain (loss) on disposition of properties (754) (30,835) 2,268 --------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES 17,562 (24,497) 6,536 --------------------------------------- INCOME TAX EXPENSE (BENEFIT) Current 370 6,057 710 Deferred 10,253 (12,021) 3,614 --------------------------------------- 10,623 (5,964) 4,324 --------------------------------------- NET EARNINGS (LOSS)BEFORE EXTRAORDINARY GAIN 6,939 (18,533) 2,212 Extraordinary gain, net of tax 1,847 60,449 - --------------------------------------- NET EARNINGS $ 8,786 $ 41,916 $ 2,212 ======================================= NET EARNINGS PER COMMON SHARE Earnings (loss) before extraordinary gain, net of tax$ .77 $ (2.06) $ .25 Extraordinary gain, net of tax .21 6.72 - --------------------------------------- Net earnings per common share $ .98 $ 4.66 $ .25 ======================================= The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock ------------------------------- Class A Class B Additional Treasury Stock ------------------------------- Paid-in Retained ----------------- Shares Amount Shares Amount Capital Earnings Shares Amount Total ---------------------------------------------------------------------------------------- (in thousands) BALANCES AT JANUARY 31, 1993 5,141 $1,713 3,851 $1,284 $45,511 $ 94,722 - $ - $143,230 Net earnings 2,212 2,212 Conversion of Class B shares to Class A shares 5 2 (5) (2) ---------------------------------------------------------------------------------------- BALANCES AT JANUARY 31, 1994 5,146 1,715 3,846 1,282 45,511 96,934 - - 145,442 Net earnings 41,916 41,916 Dividends -- $.20 per share (1,798) (1,798) ----------------------------------------------------------------------------------------- BALANCES AT JANUARY 31, 1995 5,146 1,715 3,846 1,282 45,511 137,052 - - 185,560 Net earnings 8,786 8,786 Dividends -- $.25 per share (2,248) (2,248) Conversion of Class B shares to Class A shares 125 42 (125) (42) Purchase of treasury stock 77 (2,509) (2,509) ----------------------------------------------------------------------------------------- BALANCES AT JANUARY 31, 1996 5,271 $1,757 3,721 $1,240 $45,511 $143,590 77 $(2,509) $189,589 =========================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, ----------------------------------------- 1996 1995 1994 ========================================= (in thousands) OPERATING ACTIVITIES Net earnings $ 8,786 $ 41,916 $ 2,212 Depreciation and amortization 65,716 65,580 65,309 Deferred income taxes 11,461 24,201 3,614 Accrued interest of a rental property not payable until future years - - 5,495 (Gain) loss on disposition of properties 754 30,835 (2,268) Provision for decline in real estate 9,581 10,133 - Extraordinary gain (3,055) (90,823) - (Increase) decrease in land held for development or sale 8,987 (5,768) (11,147) Decrease in notes and accounts receivable 29,425 947 48,993 (Increase) decrease in inventories (2,237) 24,271 (20,397) Increase (decrease) in accounts payable and accrued expenses (21,612) 37,403 4,263 Increase (decrease) in deferred profit (4,678) (592) 3,929 (Increase) in other assets (31,761) (10,588) (45,655) --------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 71,367 127,515 54,348 --------------------------------------- INVESTING ACTIVITIES Capital expenditures (144,692) (121,602) (92,495) Proceeds from disposition of properties 15,950 15,264 1,859 Investments in and advances to affiliates (5,920) (25,967) (6,946) --------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (134,662) (132,305) (97,582) FINANCING ACTIVITIES Increase in mortgage and long-term debt 119,707 99,894 111,256 Payments on long-term debt (12,873) (17,555) (25,719) Principal payments on mortgage debt on real estate (43,631) (34,228) (36,741) Increase in notes payable 6,140 434 1,332 Payments on notes payable (8,624) (17,277) (26,579) Purchase of treasury stock (2,509) - - Dividends paid to shareholders (2,248) (1,798) - --------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 55,962 29,470 23,549 --------------------------------------- NET INCREASE (DECREASE) IN CASH (7,333) 24,680 (19,685) CASH AT BEGINNING OF YEAR 46,478 21,798 41,483 --------------------------------------- CASH AT END OF YEAR $ 39,145 $ 46,478 $ 21,798 ======================================= The accompanying notes are an integral part of these statements.
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 Strategic Business Units. The COMMERCIAL GROUP owns, acquires, develops and manages retail, office, hotel and mixed-use projects. The RESIDENTIAL GROUP owns, acquires, develops, leases and manages our residential properties. The LAND GROUP acquires and sells both raw land and developed lots to commercial, industrial and residential users. The TRADING GROUP is primarily a wholesale lumber trading company. Forest City owns approximately $2.4 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 1995, 1994 and 1993 refer to the fiscal years ended January 31, 1996, 1995 and 1994, 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 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 $380,000 at January 31, 1996. 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. RECOGNITION OF REVENUE AND PROFIT REAL ESTATE SALES - The Company follows the provisions of Statement of Financial Accounting Standards No. 66 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 20 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 1995 through 1993 were approximately $2,337,500,000, $2,697,500,000 and $2,447,800,000, 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 were 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 vary 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. LAND OPERATIONS Land held for development or sale is stated at the lower of cost or market. INVENTORIES The Lumber brokerage inventory is 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 income taxes 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 investment tax credits as a reduction of the deferred tax expense. 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, are convertible into Class A common stock. Class A common shareholders elect three members of the Board of Directors and Class B common shareholders elect the remaining nine directors annually. During 1995, the Company repurchased 2,000 shares of Class A and 75,000 shares of Class B common stock. These shares are currently being held in treasury. 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 8,986,776 in 1995 and 8,991,614 in 1994 and 1993. B. REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION AND INDEBTEDNESS The components of real estate cost and the related nonrecourse mortgage indebtedness are presented below.
January 31, 1996 -------------------------------------------------- Amount of Total Accumulated Net Nonrecourse Cost Depreciation Cost Indebtedness -------------------------------------------------- (in thousands) Completed rental properties Residential $ 570,627 $ 94,448 $ 476,179 $ 463,062 Commercial Shopping centers 666,946 119,086 547,860 563,443 Office and other buildings 844,951 123,655 721,296 684,216 Corporate and other equipment 25,140 10,723 14,417 - -------------------------------------------------- 2,107,664 347,912 1,759,752 1,710,721 -------------------------------------------------- Projects under development Residential 43,178 - 43,178 9,577 Commercial Shopping centers 102,205 - 102,205 31,793 Office and other buildings 100,857 - 100,857 15,819 -------------------------------------------------- 246,240 - 246,240 57,189 -------------------------------------------------- Land held for development or sale 71,179 - 71,179 64,149 -------------------------------------------------- $2,425,083 $ 347,912 $2,077,171 $1,832,059 ==================================================
C. NOTES AND ACCOUNTS RECEIVABLE, NET Notes and accounts receivable are summarized below.
January 31, ---------------------- 1996 1995 ---------------------- (in thousands) Lumber brokerage $116,295 $124,318 Real estate sales 13,862 17,840 Syndication activities 15,072 29,620 Receivables from tenants 12,527 13,164 Other receivables 14,108 16,868 ---------------------- 171,864 201,810 Allowance for doubtful accounts (3,687) (4,208) ---------------------- $168,177 $197,602 ======================
Notes receivable at January 31, 1996 of $26,205,000, reflected in real estate sales and syndication activities in the table above, are collectible primarily over five years, with $10,227,000 being due within one year. The weighted average interest rate at January 31, 1996 and 1995 was 11.8% and 10.1%, respectively. In July 1993, Forest City Trading Group, the Company's lumber brokerage subsidiary, 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, 1996 and 1995, the Company had received $27,000,000 and $25,000,000, respectively, as net proceeds from this transaction. An interest in additional accounts receivable may be sold as collections reduce previously sold interests. D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Included in accounts payable and accrued expenses at January 31, 1996 and 1995 are book overdrafts of approximately $48,316,000 and $54,970,000, 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.
January 31, --------------------- 1996 1995 --------------------- (in thousands) Payable To Banks $ 12,743 $ 11,914 Other 7,113 10,426 --------------------- $ 19,856 $ 22,340 =====================
Notes payable to banks reflects borrowings on the Company's $40,000,000 bank line of credit. The Company has the right to borrow an additional $10,000,000 for up to 90 days through May 31, 1996 under this bank line of credit. Borrowings under this bank line of credit are collateralized by all the assets of the Company's lumber brokerage subsidiary and bear interest at a rate up to 0.6% over prime and has a fee of 1/4% per annum on the unused portion of the available commitment. This bank line of credit is subject to review and extension annually on May 31. The weighted average interest rate was 8.9% and 9.1% at January 31, 1996 and 1995, respectively. Interest expense on notes payable was $5,078,000 in 1995, $5,321,000 in 1994 and $3,815,000 in 1993. Interest actually paid on notes payable was $5,129,000 in 1995, $5,527,000 in 1994 and $3,539,000 in 1993. F. MORTGAGE DEBT, NONRECOURSE Mortgage debt, which is collateralized by completed rental properties, projects under development and certain undeveloped land, is as follows.
January 31, ------------------------ 1996 1995 ------------------------ (in thousands) Fixed interest, rates ranging from 1.5% to 14.0% $ 793,093 $ 695,144 Variable interest, rates ranging from 2.9% to 11.3% 1,000,024 1,034,786 Commercial paper, 1996 - 5.7% and 1995 - 6.2% 38,942 39,340 ------------------------ $1,832,059 $1,769,270 ========================
Debt related to projects under development at January 31, 1996 totals $57,189,000, out of a total commitment from lenders of $121,790,000. Of this outstanding debt, $47,180,000 is variable-rate debt and $10,009,000 is fixed-rate debt. The Company generally borrows funds for development and construction projects on a medium-term basis, usually with maturities of three to seven years, which allows the property to achieve stabilized operations before refinancing is required. The Company maintains a practice of purchasing interest rate caps on a substantial portion of its variable-rate debt to provide protection against significant increases in interest rates. The coverage generally extends for a minimum of one year. In lieu of purchasing interest rate caps, the Company periodically has fixed the interest rates on a short-term basis when favorable market conditions exist. Payments totaling $1,739,000 were made during 1995 for the purchase of interest rate caps. The Company has the following significant interest rate caps in place on its variable-rate mortgage debt at January 31, 1996.
Original Principal Base Rate Cap Rate Period Outstanding ----------------------------------------------------------- (in thousands) LIBOR 8.00% 2/1/96 - 8/1/96 $343,400 LIBOR 7.50% 2/1/96 - 8/1/96 154,489 LIBOR 6.00% 2/1/96 - 2/1/97 147,303 LIBOR 6.85% 5/1/95 - 5/1/00 24,482 LIBOR 8.40% 5/1/00 - 5/1/05 20,800
The only known 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. Included in the fixed-rate debt above is $54,876,000 of Urban Development Action Grant loans. These 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 localities. A right to participate by the local government in the future cash flow of the project is generally a condition of these loans. The Company has also entered into a small number of mortgage obligations and leases with tenants that enable the debt holder of lessee to participate in appreciation and cash flow, as defined, generated from operations, sale or refinancing. Participation in annual cash flow generated from operations is recognized as an expense in the period earned. Participation in appreciation and cash flow resulting from a sale or refinancing is recorded as an expense at the time of sale or is capitlized as additional basis and amortized if amounts are paid prior to the disposition of the property. Mortgage debt annual maturities for the next five years ending January 31 are as follows: 1997, $378,895,000; 1998, $164,331,000; 1999, $173,368,000; 2000, $272,211,000; and 2001, $68,614,000. The Company is engaged in discussions with its current lenders and is actively pursuing new lenders to extend and refinance the nonrecourse 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 expense on nonrecourse mortgage debt was $126,521,000 in 1995, $110,899,000 in 1994 and $107,708,000 in 1993, of which $9,362,000, $7,049,000 and $6,332,000 was capitalized, respectively. Interest actually paid on nonrecourse mortgage debt, net of capitalized interest, was $116,977,000 in 1995, $105,256,000 in 1994 and $93,504,000 in 1993. The Company determined the estimated fair value of its debt and interest rate caps 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. G. LONG-TERM DEBT Long-term debt is as follows.
January 31, ------------------------ 1996 1995 ------------------------ (in thousands) Term loan $ 55,000 $ 65,000 Revolving credit agreement 53,000 44,000 Other debt 5,061 3,647 ------------------------ $ 113,061 $ 112,647 ========================
At January 31, 1995, the Company had a seven-year, $70,000,000 term loan and a three-year, $70,000,000 revolving credit agreement. Effective September 1995, the Company's revolving credit agreement was amended to increase its available credit by $10,000,000 to $80,000,000. Quarterly principal payments of $2,500,000 on the seven-year term loan commenced October 1, 1994. The revolving credit agreement allows for up to $20,000,000 in outstanding letters of credit, 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 seven-year 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 the London Interbank Offered Rate ("LIBOR"); 2) the maintanance of a specified level of net worth and cash flow (as defined); and 3) a restriction on dividend payments. At January 31, 1996, approximately $7,752,000 of retained earnings were available for payment of dividends. Interest rates on the other debt ranged primarily from 6.1% to 12.3% at January 31, 1996. Maturities of other debt for the next five years ending January 31 are as follows: 1997, $3,668,000; 1998, $608,000; 1999, $562,000; 2000, $127,000; and 2001, $56,000. Interest expense on long-term debt was $7,764,000 in 1995, $7,650,000 in 1994 and $6,303,000 in 1993. Interest actually paid on long-term debt was $9,903,000 in 1995 $7,790,000 in 1994, and $6,268,000 in 1993. The Company has purchased the following interest rate caps on long-term debt as of January 31, 1996.
Original Principal Base Rate Cap Rate Period Outstanding ------------------------------------------------------------- (in thousands) LIBOR 6.0% 2/1/96 - 8/1/96 $ 48,065 LIBOR 7.5% 2/1/96 - 2/1/97 $103,142
Payments totaling $193,000 were made during 1995 relating to long-term debt caps. See Note F for additional interest rate cap disclosures. H.INCOME TAXES The provision (benefit) for income taxes consists of the following components.
For the Years Ended January 31, --------------------------------- 1996 1995 1994 --------------------------------- (in thousands) Current Federal $ 302 $ 4,827 $ 376 State 68 1,230 334 -------------------------------- 370 6,057 710 -------------------------------- Deferred Federal 6,083 (9,945) 2,985 State 4,170 (2,076) 629 -------------------------------- 10,253 (12,021) 3,614 -------------------------------- Total provision (benefit) $10,623 $ (5,964) $ 4,324 ================================
In August 1993, the United States Congress passed the Omnibus Budget Reconciliation Act of 1993. Among other things, this law increased the federal corporate tax rate from 34% to 35% effective January 1, 1993. The impact on the Company is an increase in income taxes and a decrease in net earnings of $1,742,000 for the year ended January 31, 1994, of which $1,658,000 relates to timing items at January 31, 1993. The effective tax rate for income taxes varies from the federal statutory rate of 35% for 1995, 1994 and 1993 due to the following items.
For the Years Ended January 31, --------------------------------------- 1996 1995 1994 --------------------------------------- (in thousands) Financial earnings (loss) before income taxes $17,562 $(24,497) $ 6,536 =================================== Income taxes computed at the statutory rate $ 6,146 $ (8,574) $ 2,288 Increase (decrease) in tax resulting from: Minimum tax (refund) and audit adjustments - - (2,559) Valuation allowance 897 102 1,362 Rate difference for change in tax law - - 1,658 Losses without tax benefits - 2,067 - State taxes, net of federal benefit 2,220 (839) 556 Adjustment of prior estimated taxes 566 589 771 Contribution carryover 520 494 477 Other items 274 197 (229) ------------------------------------- Total provision (benefit) $10,623 $ (5,964) $ 4,324 =====================================
An analysis of the deferred tax provision (benefit) is as follows.
For the Years Ended January 31, ---------------------------------- 1996 1995 1994 ---------------------------------- (in thousands) Excess of tax over statement depreciation and amortization $ 5,743 $ 8,046 $ 9,976 Allowance for doubtful accounts deducted for statement purposes 461 (464) (476) Costs on land and rental properties under development expensed for tax (515) 366 309 Revenues and expenses recognized in different periods for tax and statement 5,490 (16,621) (8,793) Development fees deferred for statement (1,326) (400) (701) Provision for decline in real estate 3,547 (3,547) - Deferred state taxes, net of federal benefit 2,565 757 564 Interest on construction advances deferred for statement (953) 1,609 1,721 Benefits of tax loss carry- forward recognized against deferred taxes (5,656) (1,869) (1,021) Audit adjustments - - (985) Rate difference per change in tax law - - 1,658 Valuation allowance 897 102 1,362 ----------------------------------- Deferred provision (benefit) $10,253 $ (12,021) $ 3,614 ===================================
The types of differences that give rise to significant portions of the deferred income tax liability are as follows.
Temporary Deferred Tax Differences (Asset) Liability ---------------------------------- (in thousands) Depreciation $ 223,716 $ 88,480 Capitalized costs 148,210 58,617 Net operating losses (96,928) (38,335) Investment tax credits - (4,583) Other (21,039) 932 ---------------------------------- $ 253,959 $ 105,111 ==================================
Income taxes (refunded) paid totaled $(888,000), $3,244,000 and $324,000 in 1995, 1994 and 1993, respectively. At January 31, 1996, the Company had a net operating loss carry forward for tax purposes of $96,928,000 which will expire in the years ending January 31, 2005 through January 31, 2011 and an investment tax credit carryover of $4,583,000 which will expire in the years ending January 31, 2002 through January 31, 2005. The Company's deferred tax liability at January 31, 1996 is comprised of deferred liabilities of $220,036,000, deferred assets of $119,319,000 and a valuation allowance related to state taxes and investment credits of $4,394,000. I. SEGMENT INFORMATION Business segments are determined by the type of customer served or the product sold. The Commercial Group owns, acquires, develops and manages retail, office, hotel and mixed-use properties. The Residential Group is made up of two divisions: Apartments and Residential Development. Apartments owns, leases and manages residential properties. Residential Development develops new properties, acquires completed real estate and manages syndicated partnerships. The Land Group develops and markets land to home builders and commercial and industrial users principally in Arizona, California, Florida, Illinois, Nevada, New York and Ohio. The Trading Group sells lumber and building products to retailers, commercial contractors and homebuilders. Corporate includes interest on corporate borrowings and general administrative expenses. In 1995, the Company realigned its business segments for financial reporting purposes. The Rental Properties segment was broken out into Apartments and the Commercial Group. Segment information for the years ended January 31, 1995 and 1994 has been restated to conform to the current year presentation. The following tables summarize selected financial data by business segment for the fiscal years ended January 31, 1996, 1995 and 1994.
For the Years Ended January 31, ---------------------------------------------------------------------- Earnings (Loss) Before Sales and Operating Revenues Income Taxes ------------------------------- ------------------------------- 1996 1995 1994 1996 1995 1994 ====================================================================== (in thousands) Commercial Group $ 287,254 $ 254,956 $ 254,313 $ 12,283 $ 7,482 $ 1,100 Residential Group Apartments 96,588 118,124 112,847 2,102 1,084 (8,046) Residential Development 3,071 2,072 2,504 5,136 3,796 1,284 Land Group 40,444 46,427 46,238 3,823 3,290 5,405 Trading Group (1) 79,528 78,056 87,001 5,826 4,906 8,654 Gain (loss) on disposition of properties - - - (754) (30,835) 2,268 Provision for decline in real estate - - - (9,581) (10,133) - Corporate - - - (1,273) (4,087) (4,129) ---------------------------------------------------------------------- Consolidated $ 506,885 $ 499,635 $ 502,903 $ 17,562 $(24,497) $ 6,536 ====================================================================== For the Years Ended January 31, --------------------------------------------------------- Real Estate --------------------------------------------------------- Identifiable Assets at Depreciation January 31, Additions, net and Amortization ----------------------------------- -------------------------- --------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 ------------------------------------------------------------------------------------------------ (in thousands) Commercial Group $1,640,810 $1,566,320 $1,490,082 $ 83,623 $ 95,264 $ 70,410 $ 49,572 $ 46,870 $ 47,425 Residential Group Apartments 560,891 558,814 703,758 21,470 (184,472) 11,096 13,985 17,086 16,460 Residential Development 52,589 55,795 38,064 6,142 7 38 16 22 29 Land Group 121,031 126,680 120,035 (8,887) 5,791 11,155 59 90 102 Trading Group 172,305 175,107 198,617 (504) 542 1,126 1,962 1,377 1,124 Corporate 83,420 102,018 117,501 1,103 (62) 271 122 135 169 ------------------------------------------------------------------------------------------------ Consolidated $2,631,046 $2,584,734 $2,668,057 $102,947 $(82,930) $ 94,096 $ 65,716 $ 65,580 $ 65,309 ================================================================================================ (1) The Company recognizes the gross margin on lumber brokerage sales as revenue. Gross value of lumber sold for the years ended January 31, 1996, 1995 and 1994 was approximately $2,337,500,000, $2,697,500,000, and $2,447,800,000, 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.
For the Years Ending January 31, -------------------- (in thousands) 1997 $ 134,895 1998 129,465 1999 123,802 2000 114,152 2001 106,251 Later years 567,034 --------------- Total minimum future rentals $ 1,175,599 ===============
Most of the commercial leases include provisions for reimbursements of other charges including real estate taxes and operating costs. Other charges amounted to $84,533,000, $83,881,000 and $70,641,000 in 1995, 1994 and 1993, respectively. THE COMPANY AS LESSEE The Company is a lessee under various leasing arrangements for real property and equipment having terms expiring through 2019, excluding optional renewal periods. These leases are operating leases. Minimum fixed rental payments under long-term leases (over one year) in effect at January 31, 1996 are as follows.
For the Years Ending January 31, -------------------- (In thousands) 1997 $ 5,145 1998 4,262 1999 3,302 2000 2,705 2001 2,460 Later years 12,683 ------------------- Total minimum lease payments $ 30,557 ===================
Rent expense was $5,524,000, $5,110,000 and $11,351,000 for 1995, 1994 and 1993, respectively. K. CONTINGENT LIABILITIES As of January 31, 1996 the Company has guaranteed loans totaling $2,892,000 and has $16,532,000 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 materially adverse effect on the financial condition of the Company. L. STOCK OPTION PLAN During 1994, the Board of Directors of the Company and the stockholders 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 nonqualified stock options. The aggregate number of shares that may be awarded during the term of the Plan is 250,000 shares, subject to adjustments under the Plan. The maximum number of shares that may be awarded to any employee during any calendar year is 25,000 shares. The exercise price of all nonqualified 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 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 nonqualified stock option shall not be less than 110% of the fair market value of a share on the date the incentive stock option award is granted. The Plan is administered by the Compensation Committee of the Board of Directors. No options have been granted under the Plan at January 31, 1996. 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 and mixed-use facilities. Condensed consolidated balance sheets and statements of earnings for Rental Properties and its subsidiaries follows. FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 31, ---------------------------- 1996 1995 ---------------------------- (in thousands) ASSETS Real Estate Completed rental properties $ 2,085,284 $ 1,995,629 Projects under development 246,240 230,802 ---------------------------- 2,331,524 2,226,431 Less accumulated depreciation (338,216) (293,465) ---------------------------- Total Real Estate 1,993,308 1,932,966 Cash 24,430 8,333 Other assets 250,171 260,949 ---------------------------- $ 2,267,909 $ 2,202,248 ============================ LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES Mortgage debt, nonrecourse $ 1,767,910 $ 1,710,291 Accounts payable and accrued expenses 137,719 144,304 Long-term debt 108,049 109,084 Other liabilities and deferred credits 142,523 131,838 ---------------------------- Total Liabilities 2,156,201 2,095,517 SHAREHOLDER'S EQUITY Common stock and additional paid-in capital 5,378 5,378 Retained earnings 106,330 101,353 ---------------------------- Total Shareholder's Equity 111,708 106,731 ---------------------------- $ 2,267,909 $ 2,202,248 ============================
- ----------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended January 31, ------------------------------------------ 1996 1995 1994 ------------------------------------------ (in thousands) Sales and operating revenues $ 383,842 $ 373,080 $ 367,160 Interest and other income 14,734 13,778 8,247 ------------------------------------------ Total revenues 398,576 386,858 375,407 ------------------------------------------ Operating expenses 198,282 205,707 214,805 Interest expense 117,560 104,836 102,414 Provision for decline in real estate 9,581 10,133 - Depreciation and amortization 63,557 63,956 63,901 ------------------------------------------- 388,980 384,632 381,120 ------------------------------------------- Gain (loss) on disposition of properties 754) (30,835) 2,268 ------------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES 8,842 (28,609 (3,445) INCOME TAX EXPENSE (BENEFIT) 5,712 (7,948) (2,625) ------------------------------------------- NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN 3,130 (20,661) (820) EXTRAORDINARY GAIN, NET OF TAX 1,847 60,449 - ------------------------------------------- NET EARNINGS (LOSS) $ 4,977 $ 39,788 $ (820) ===========================================
N. LOSS ON DISPOSITION AND EXTRAORDINARY GAIN During 1995, the Company recorded an extraordinary gain of $3,055,000, before tax of $1,208,000, resulting from debt extinguishment of commercial property. In 1986, the Company had acquired Park Labrea Towers, a residential complex containing 2,825 units, in Los Angeles, California. At the time of acquisition, the Company also entered into a development agreement on the remaining units it had not purchased. In January 1995, the Company concluded an agreement under which $84,177,000 of the mortgage debt was forgiven. Subsequent to this transaction, the real estate was sold to a third party for approximately $140,000,000, an amount equal to the outstanding debt and other liabilities. The Company also sold its future development rights in the total Park Labrea real estate project for approximately $15,600,000. The effect of these transactions was to reduce net assets by approximately $180,000,000 and mortgage debt by approximately $220,000,000 while stockholders' equity increased by approximately $37,000,000. As a result of these transactions, the Company will have no future involvement in Park Labrea. A substantial portion of the debt forgiveness represents interest expense accrued in prior years through operations that was not paid. The Company also had nonrecourse mortgage debt forgiveness on two other properties during 1994 totaling $6,646,000. The forgiveness of debt totaling $90,823,000, before tax of $30,374,000, is included in the financial statements as an extraordinary gain. The subsequent loss on the sale of Park Labrea and the sale of future development rights are reported as a loss on disposition of properties of $30,835,000. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter ------------------- ------------------- ------------------- ------------------- Fiscal Year 1995 1994 1995 1994 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Sales and operating revenues $108,298 $111,896 $118,082 $130,533 $120,989 $127,951 $159,516 $129,255 Earnings (loss) before income taxes $ (4,277) $ (2,310) $ (998) $ (881) $ 1,706 $ (644) $ 21,131 $(20,662) Net earnings (loss) before extraordinary gain (1)(2) $ (3,209) $ (1,882) $ (903) $ (793) $ 601 $ (600) $ 10,450 $(15,258) Net earnings (loss) before extraordinary gain per common share (1)(2) $ (.36) $ (.21) $ (.10) $ (.09) $ .07 $ (.06) $ 1.16 $ (1.70) Dividends declared per common share (3) Class A $ - $ - $ - $ - $ .25 $ .20 $ - $ - Class B $ - $ - $ - $ - $ .25 $ .20 $ - $ - Market price range of common stock Class A High $ 35 1/4 $ 43 3/8 $ 39 1/2 $ 38 3/4 $ 39 1/2 $ 37 1/2 $ 36 3/4 $ 32 1/4 Low $ 30 3/8 $ 36 1/2 $ 33 $ 34 $ 36 3/4 $ 30 1/4 $ 32 $ 27 3/4 Class B High $ 35 3/8 $ 46 3/8 $ 39 3/8 $ 40 3/8 $ 39 $ 38 $ 36 1/2 $ 33 1/4 Low $ 31 1/8 $ 40 1/2 $ 33 1/2 $ 37 5/8 $ 36 3/4 $ 32 5/8 $ 32 $ 29 1/2 Both classes of common stock are traded on the American Stock Exchange under the symbols, FCEA and FCEB. High and low prices shown are based upon data provided by the Exchange. As of March 1, 1996, the number of registered holders of Class A and Class B common stock were 933 and 728, respectively. (1) Excludes the extraordinary gain, net of tax of $1,847,000 ($.21 per share) and $60,449,000 ($6.72 per share), in fiscal l995 and 1994, respectively. These items are explained in Note N in the Notes to Consolidated Financial Statements. (2) In 1994, the Company recorded adjustments during the fourth quarter which increased net earnings by approximately $5,600,000, or $.62 per share. These adjustments primarily related to interest expense accrued earlier in 1994 that was not paid due to the forgiveness of debt of Park Labrea Towers. (3) Future dividends will depend upon such factors as the earnings, capital requirements and financial condition of the Company. Approximately $ 7,752,000 of retained earnings were available for payment of dividends as of January 31, 1996, under the restrictions contained in the term loan and revolving credit agreement with a group of banks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings Before Depreciation and Deferred Taxes ("EBDT") was $82,021,000, slightly higher than $81,262,000 reported in 1994. EBDT for 1993 was $80,979,000. EBDT consists of net earnings before gain (loss) on disposition of properties and the provision for decline in real estate plus noncash charges from real estate operations of depreciation and amortization and deferred income taxes. Also included in EBDT for 1993 was accrued interest on mortgage notes of a rental property that was not payable until future years. Consolidated sales and operating revenues were $506,885,000, $499,635,000 and $502,903,000 in 1995, 1994, and 1993, respectively. Net earnings from operations, including gain (loss) on disposition of properties and the provision for decline in real estate, was $6,939,000 in 1995 compared to a loss of $18,533,000 in 1994 and net earnings of $2,212,000 in 1993. The gain (loss) on disposition of properties and the provision for decline in real estate, net of tax, which vary from year to year and are not considered by management to be a part of the on-going results of operations, was a loss of $6,551,000 and $25,307,000 in 1995 and 1994, respectively, versus net gain of $1,494,000 in 1993. The Company also recorded extraordinary gains, net of tax, of $1,847,000 in 1995 and $60,449,000 in 1994. The 1995 extraordinary gain relates to the forgiveness of mortgage debt on Liberty Center Venture. The 1994 extraordinary gain reflects the forgiveness of $84,177,000 of mortgage debt on Park Labrea Towers. The subsequent sale of this property is included in the gain (loss) on disposition of properties. See footnote N in the Notes to the Consolidated Financial Statements for additional information on these transactions. INVESTMENT REAL ESTATE - FOREST CITY RENTAL PROPERTIES CORPORATION OPERATIONS The Company conducts the development and management of its real estate portfolio through Forest City Rental Properties Corporation. Sales and operating revenues were $383,842,000 for 1995 versus $373,080,000 in 1994 and $367,160,000 in 1993. The increase in revenues is attributable to the improvement in occupancy in the portfolio, the effect of the Company's residential property acquisition programs under which the Company acquired an additional 1,116 units during 1995 and a major land sale. The net earnings before gain (loss) on disposition of properties and the provision for decline in real estate for 1995 and 1994 was $9,681,000 and $4,646,000, respectively, versus net loss of $2,314,000 in 1993. The improvement in earnings is due primarily to an improvement in occupancy in the operating portfolio and a major land sale. DISPOSITION OF PROPERTIES AND OTHER PROVISIONS During 1995, the Company sold a 152-unit apartment complex, Vineyard Village. During 1994, the Company sold Park Labrea Towers and its future development rights, resulting in a pre-tax loss of approximately $30,800,000. There were no major sales in 1993. The Company continually evaluates the realization of the investment in its real estate projects by reviewing their current operations and future projected results. As a result of such analysis, the Company provided a provision for decline in real estate of $9,581,000 in 1995 and $10,133,000 in 1994. LAND DIVISION The sales of residential, commercial and industrial land were $40,444,000 in 1995 versus $46,427,000 in 1994 and $46,238,000 in 1993. The pre-tax earnings were $3,823,000, $3,290,000 and $5,405,000 in 1995, 1994 and 1993, respectively. Sales of land and related earnings vary from period to period, depending on management's decisions regarding the disposition of significant land holdings. RESIDENTIAL DEVELOPMENT DIVISION Revenues in 1995 were $3,071,000 versus $2,072,000 in 1994 and $2,504,000 in 1993. Pre-tax income was $5,136,000, $3,796,000 and $1,284,000 in 1995, 1994 and 1993, respectively. The efforts of this division are directed toward acquiring completed real estate at favorable prices for the Company's portfolio, developing new residential projects and continuing to oversee the operations of the properties syndicated in prior years. WHOLESALE LUMBER DIVISION Forest City Trading Group's revenues were $79,528,000, compared to $78,056,000 in 1994 and $87,001,000 in 1993. Pre-tax earnings from this division were $5,826,000 in 1995, $4,906,000 in 1994 and $8,654,000 in 1993. The results of this division include the Company's building materials business which was accounted for on the equity method until January 1, 1996 when it became a wholly-owned subsidiary of Forest City Trading Group. FINANCIAL CONDITION AND LIQUIDITY Net cash provided by operating activities totaled $71,367,000 in 1995 versus $127,515,000 in 1994 and $54,348,000 in 1993. The decrease in cash provided by operating activities in 1995 as compared to 1994 is primarily due to the trading activity of Forest City Trading Group which resulted in a decrease in inventories during 1994 not recurring in 1995 and decrease in accrued expenses in 1995. Net cash used in investing activities totaled $134,662,000 in 1995 versus $132,305,000 in 1994 and $97,582,000 in 1993. Net cash provided by financing activities in 1995 was $55,962,000 compared to $29,470,000 in 1994 and $23,549,000 in 1993. On going development activity and the increase in the Company's ownership in Liberty Center is reflected in the increases in capital expenditures and increases in mortgage debt. Principal payments on mortgage debt on real estate increased in 1995 over 1994 due to the investment activity of Granite Development Partners, L.P., a self-liquidating limited partnership of the Land Division. Purchase of treasury stock in 1995 resulted in a use of cash. At January 31, 1996, the Company's wholly-owned subsidiary, Forest City Rental Properties Corporation, had a total of $108,000,000 outstanding under its term loan and revolving credit agreement. The Company is required to make quarterly principal payments of $2,500,000 under the term loan. During the third quarter of 1995, the Company's revolving credit agreement was amended to increase the amount available by $10,000,000. The Company's mortgage debt, all of which is nonrecourse, totaled $1,832,059,000 at January 31, 1996. The Company has followed a policy of obtaining debt which is nonrecourse to the Company. However, the Company does guarantee the completion of the initial construction of certain projects. In 1995, the Company completed $754,000,000 of financing, including $233,000,000 in new mortgages and $521,000,000 in refinancing of existing mortgages. Just as we have been able to refinance our debt that has matured in the past, we expect to either extend the maturing dates of our loans as they come due or refinance the projects. The Company's wholesale lumber division has a three-year agreement maturing July 15, 1996 under which it is selling an undivided ownership interest in a pool of accounts receivable up to a maximum of $90,000,000. The Company also has a bank line of credit of $40,000,000 with the right to borrow an additional $10,000,000 for up to 90 days through May 31, 1996. At January 31, 1996, $12,743,000 was outstanding under this line of credit. The sources of liquidity of the Company and its subsidiaries are unused bank lines, cash flow from operations, refinancing of properties with larger mortgages and sales of real estate. The sources of funds will continue to be used principally for the development of additional real estate projects, the acquisition of existing real estate and the repayment of recourse debt. Forest City Rental Properties Corporation generally mortgages its properties on an intermediate- to long-term nonrecourse basis with maturities of five years and higher. It has financed most of its development and construction projects with medium-term bank loans bearing floating rates of interest. When the financing terms are favorable, the Company securitizes its nonrecourse debt on longer-term bases as well as obtains fixed rate mortgage debt for certain properties. The Company has a substantial amount of variable-rate debt that has enabled it to benefit from historically low interest rates. With variable-rate debt in excess of $1 billion, the current level and interest rates and any future rate increases will have an impact on future cash flow. Interest rate protection has been purchased for the vast majority of the portfolio for 1996 and the Company plans to purchase additional interest rate protection and fix rates as is deemed appropriate. 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 will adopt the provisions of SFAS 121, which are effective for fiscal years beginning after December 15, 1995. The adoption of SFAS 121 will not have a material effect on the financial position or results of operations of the Company. In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation", which is effective for financial statements for fiscal years beginning after December 15, 1995. As of January 31, 1996, the Company has not granted options under the Stock Option Plan. Once stock options are granted, the Company will analyze whether to adopt the recognition provisions of SFAS 123 or apply the existing accounting rules contained in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees". GENERAL Forest City had both investment tax credits and substantial tax net operating loss carryforwards ("NOL") at the end of 1995. The Company projects that this NOL will decrease during 1996, primarily due to property transactions. The Company's policy is to utilize these NOL's before they expire and will consider a variety of strategies to implement that policy. These NOL's generally will not begin to expire before January 31, 2005. EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE FOR 10-K
5 1000 12-MOS JAN-31-1996 FEB-01-1995 JAN-31-1996 39145 0 171864 3687 41186 0 2425083 347912 2631046 0 1945120 0 0 2997 189101 2631046 0 506885 0 371535 0 0 130001 17562 10623 6939 0 1847 0 8786 .98 0
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