1
SELECTED FINANCIAL DATA
Forest City Enterprises, Inc. and Subsidiaries
Effective January 31, 2001, the Company implemented a change in the
presentation of its financial results from the pro-rata method of consolidation
to the full consolidation method. A discussion regarding this change is included
in Note A - Summary of Significant Accounting Policies. Certain prior year
amounts have been re-presented under the full consolidation method.
Years Ended January 31,
-----------------------------------------------------------------
Full Consolidation(1) Pro-Rata Consolidation(1)
- ------------------------------------------------------------------------------------------ ---------------------------
2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------ ---------------------------
(in thousands, except per share data)
OPERATING RESULTS:
Revenues ............................................ $ 794,785 $ 698,788 $ 609,700 $ 632,669 $ 610,449
=============================================================
Operating earnings, net of tax(2) ................... $ 43,959 $ 38,008 $ 29,761 $ 24,539 $ 6,986
Minority interest ................................... (3,399) (5,557) 1,227 - -
Provision for decline in real estate, net of tax .... (744) (3,060) - - (7,413)
Gain (loss) on disposition of properties and other
investments, net of tax .......................... 51,821 11,139 7,419 (23,356) 9,598
-------------------------------------------------------------
Earnings before extraordinary gain .................. 91,637 40,530 38,407 1,183 9,171
Extraordinary gain, net of tax ...................... - 272 16,343 19,356 2,900
-------------------------------------------------------------
Net earnings ........................................ $ 91,637 $ 40,802 $ 54,750 $ 20,539 $ 12,071
=============================================================
Earnings before depreciation, amortization and
deferred taxes (EBDT)(2)(3)(4) ................... $ 147,809 $ 132,639 $ 117,854 $ 106,910 $ 90,404
=============================================================
DILUTED EARNINGS PER COMMON SHARE:
Earnings before extraordinary gain ............... $ 3.02 $ 1.34 $ 1.27 $ 0.04 $ 0.35
Extraordinary gain, net of tax ................... - 0.01 0.54 0.67 0.11
-------------------------------------------------------------
Net earnings ................................... $ 3.02 $ 1.35 $ 1.81 $ 0.71 $ 0.46
=============================================================
CASH DIVIDENDS DECLARED - CLASS A AND CLASS B ....... $ 0.230 $ 0.190 $ 0.155 $ 0.125 $ 0.137
=============================================================
CASH FLOWS:
Net cash provided by operating activities ........ $ 206,313 $ 166,056 $ 112,385 $ 84,629 $ 48,278
Net cash used in investing activities ............ $(519,021) $(528,667) $(537,994) $(287,932) $(139,609)
Net cash provided by financing activities ........ $ 292,891 $ 379,664 $ 450,781 $ 216,855 $ 93,488
- ---------------------------------------------------------------------------------------------------------------------
January 31,
----------------------------------------------------------------
Full Consolidation(1) Pro-Rata Consolidation(1)
- ---------------------------------------------------------------------------------------- --------------------------------------
2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------- --------------------------------------
(in thousands)
FINANCIAL POSITION:
Consolidated assets ........................................... $4,030,470 $3,666,355 $3,417,320 $2,963,353 $2,760,673
Real estate portfolio, at cost ................................ $3,526,146 $3,206,642 $3,087,498 $2,704,560 $2,520,179
Long-term debt, primarily nonrecourse mortgages ............... $2,849,812 $2,555,594 $2,478,872 $2,132,931 $1,991,428
================================================================================================================================
(1) Effective January 31, 2001, the Company implemented a change in the
presentation of its financial results. Prior to January 31, 2001, the
Company used the pro-rata method of consolidation to report its partnership
investments proportionate to its share of ownership for each line item of
its consolidated financial statements. In accordance with the FASB's
Emerging Issues Task Force Issue No. 00-1, "Investor Balance Sheet and
Income Statement Display under the Equity Method for Investments in Certain
Partnerships and Other Ventures," the Company can no longer use the
pro-rata consolidation method for partnerships. Accordingly, partnership
investments that were previously reported on the pro-rata method are now
reported as consolidated at 100%, if deemed under the Company's control, or
otherwise on the equity method of accounting. While a number of the line
items on the Company's consolidated financial statements have changed under
the new full consolidation method, there is no impact on EBDT, net earnings
or shareholders' equity for all years presented. Certain data for the years
ended January 31, 2000 and 1999 have been re-presented.
(2) Excludes the provision for decline in real estate and gain (loss) on
disposition of properties and other investments, net of tax.
(3) The Company uses an additional measure, along with net earnings, to report
its operating results. This measure, referred to as Earnings Before
Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of
operating results or cash flows from operations as defined by generally
accepted accounting principles and may not be directly comparable to
similarly-titled measures reported by other companies. The Company believes
that EBDT provides additional information about its operations and, along
with net earnings, is necessary to understand its operating results. The
Company's view is that EBDT is also an indicator of the Company's ability
to generate cash to meet its funding requirements. EBDT is defined as net
earnings before extraordinary gain, excluding the following items: i)
provision for decline in real estate; ii) gain (loss) on disposition of
properties and other investments; iii) beginning in the year ended January
31, 2001, the adjustment to recognize rental revenues and rental expenses
using the straight-line method; and iv) noncash charges from Forest City
Rental Properties Corporation for depreciation, amortization and deferred
income taxes.
(4) Includes $6,991,000 for the year ended January 31, 1998 related to the
litigation settlement and sale of Toscana.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
26
2
REAL ESTATE ACTIVITY
Forest City Enterprises, Inc. and Subsidiaries
January 31,
---------------------------------------------------------------------------------
Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
FOREST CITY RENTAL PROPERTIES CORPORATION - REAL ESTATE ACTIVITY(1)
Real estate - end of year
Completed rental properties .................... $ 3,215,411 $ 2,866,913 $ 2,601,648 $ 2,387,569 $ 2,224,459
Projects under development ..................... 500,358 478,766 412,072 251,416 215,960
-----------------------------------------------------------------------------
Real estate, at cost ........................ 3,715,769 3,345,679 3,013,720 2,638,985 2,440,419
Less accumulated depreciation .................. (569,604) (532,607) (477,253) (436,377) (387,733)
-----------------------------------------------------------------------------
Total real estate ........................... $ 3,146,165 $ 2,813,072 $ 2,536,467 $ 2,202,608 $ 2,052,686
=============================================================================
REAL ESTATE ACTIVITY DURING THE YEAR
Completed rental properties
Capital additions ............................ $ 326,169 $ 295,681 $ 127,065 $ 166,740 $ 160,690
Acquisitions ................................. 181,394 - 156,879 90,438 22,264
-----------------------------------------------------------------------------
Total additions ........................... 507,563 295,681 283,944 257,178 182,954
Dispositions ................................. (159,065)(2) (30,416)(3) (69,865)(4) (94,068)(5) (40,379)
-----------------------------------------------------------------------------
Completed rental properties, net additions ... 348,498 265,265 214,079 163,110 142,575
=============================================================================
Projects under development
New development ............................. 303,209 324,553 243,106 154,746 98,403
Transferred to completed rental properties .. (281,617) (257,859) (82,450) (119,290) (128,683)
-----------------------------------------------------------------------------
Projects under development, net additions ... 21,592 66,694 160,656 35,456 (30,280)
-----------------------------------------------------------------------------
Increase in real estate, at cost ............... $ 370,090 $ 331,959 $ 374,735 $ 198,566 $ 112,295
=============================================================================
(1) The table includes only the real estate activity for Forest City Rental
Properties Corporation.
(2) Primarily reflects the dispositions of Tucson Place, Canton Centre Mall,
Gallery at Metrotech, Studio Colony and Highlands. Tucson Place has 276,000
square feet in Tucson, Arizona. Canton Centre Mall has 680,000 square feet
in Canton, Ohio and Gallery at Metrotech has 163,000 square feet in
Brooklyn, New York. Studio Colony and Highlands are apartment communities
in California with 369 and 556 units, respectively.
(3) Primarily reflects the disposition of Rolling Acres Mall, a
1,014,000-square-foot mall in Akron, Ohio.
(4) Primarily reflects the dispositions of Summit Park Mall, Trolley Plaza and
San Vicente office building. Summit Park has 695,000 square feet in
Wheatfield, New York. Trolley Plaza is a 351-unit apartment complex in
Detroit, Michigan. San Vicente has 469,000 square feet in Brentwood,
California.
(5) Reflects the sale of Toscana, a residential complex with 563 units in
Irvine, California.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
27
3
MANAGEMENT'S REPORT
The management of Forest City Enterprises, Inc. is responsible for the
accompanying consolidated financial statements. These statements have been
prepared by the Company in accordance with generally accepted accounting
principles and include amounts based on judgments of management. The financial
information contained elsewhere in this annual report conforms with that in the
consolidated financial statements.
The Company maintains a system of internal accounting control which
provides reasonable assurance in all material respects that the assets are
safeguarded and transactions are executed in accordance with management's
authorization and accurately recorded in the Company's books and records. The
concept of reasonable assurance recognizes that limitations exist in any system
of internal accounting control based upon the premise that the cost of such
controls should not exceed the benefits derived.
The Audit Committee, composed of three members of the Board of Directors
who are not employees of the Company, meets regularly with representatives of
management, the independent accountants and the Company's internal auditors to
monitor the functioning of the accounting and control systems and to review the
results of the auditing activities. The Audit Committee recommends the
independent accountants to be appointed by the Board of Directors for approval
by the shareholders. The Committee reviews the scope of the audit and the fee
arrangements. The independent accountants conduct an objective, independent
examination of the consolidated financial statements.
The Audit Committee reviews results of the audit effort with the
independent accountants. The Audit Committee also meets with the independent
accountants and the internal auditors without management present to ensure that
they have open access to the Audit Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Forest City Enterprises, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Forest City
Enterprises, Inc. and its Subsidiaries (the "Company") at January 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended January 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 10, 2001
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
28
4
CONSOLIDATED BALANCE SHEETS
Forest City Enterprises, Inc. and Subsidiaries
January 31,
- ------------------------------------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties ................................................. $ 3,111,581 $ 2,685,448
Projects under development .................................................. 391,821 499,399
Land held for development or sale ........................................... 22,744 21,795
--------------------------
Real Estate, at cost ..................................................... 3,526,146 3,206,642
Less accumulated depreciation ............................................... (489,540) (458,235)
--------------------------
Total Real Estate ........................................................ 3,036,606 2,748,407
Cash and equivalents .......................................................... 64,265 84,082
Restricted cash ............................................................... 68,243 68,127
Notes and accounts receivable, net ............................................ 219,118 214,860
Inventories ................................................................... 39,234 57,444
Investments in and advances to real estate affiliates ......................... 436,248 338,465
Other assets .................................................................. 166,756 154,970
--------------------------
TOTAL ASSETS ............................................................. $ 4,030,470 $ 3,666,355
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse .................................................... $ 2,439,912 $ 2,188,594
Accounts payable and accrued expenses ......................................... 413,869 404,207
Notes payable ................................................................. 55,392 72,780
Long-term credit facility ..................................................... 189,500 167,000
Senior and subordinated debt .................................................. 220,400 200,000
Deferred income taxes ......................................................... 176,671 174,661
--------------------------
Total Liabilities ........................................................... 3,495,744 3,207,242
Minority Interest ............................................................. 78,090 72,607
--------------------------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value
5,000,000 shares authorized; no shares issued ............................... - -
Common stock - $.33 1/3 par value
Class A, 96,000,000 shares authorized; 20,361,932 and 19,946,756
shares issued, 19,820,507 and 19,372,406 outstanding, respectively ....... 6,787 6,649
Class B, convertible, 36,000,000 shares authorized; 10,522,020 and 10,937,196
shares issued, 10,243,920 and 10,659,096 outstanding, respectively ....... 3,508 3,646
--------------------------
10,295 10,295
Additional paid-in capital .................................................... 114,010 113,764
Retained earnings ............................................................. 338,792 254,063
--------------------------
463,097 378,122
Less treasury stock, at cost; 2001: 541,425 Class A and 278,100 Class B shares
2000: 574,350 Class A and 278,100 Class B shares ............................ (10,330) (10,773)
Accumulated other comprehensive income ........................................ 3,869 19,157
--------------------------
Total Shareholders' Equity .................................................. 456,636 386,506
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $ 4,030,470 $ 3,666,355
==========================
The accompanying notes are an integral part of these consolidated financial
statements.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
29
5
CONSOLIDATED STATEMENTS OF EARNINGS
Forest City Enterprises, Inc. and Subsidiaries
Years Ended January 31,
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
REVENUES
Rental properties ........................................ $ 658,369 $ 538,876 $ 453,946
Lumber trading ........................................... 105,427 149,357 123,325
Equity in earnings of unconsolidated entities ............ 30,989 10,555 32,429
-----------------------------------------
794,785 698,788 609,700
-----------------------------------------
EXPENSES
Operating expenses ....................................... 443,707 415,811 355,937
Interest expense ......................................... 182,544 139,866 124,602
Provision for decline in real estate ..................... 1,231 5,062 --
Depreciation and amortization ............................ 98,364 81,504 83,839
-----------------------------------------
725,846 642,243 564,378
-----------------------------------------
Gain on disposition of properties and other investments .... 48,409 13,861 19,532
-----------------------------------------
EARNINGS BEFORE INCOME TAXES ............................... 117,348 70,406 64,854
-----------------------------------------
INCOME TAX EXPENSE
Current .................................................. 10,326 12,257 (86)
Deferred ................................................. 11,986 12,062 27,760
-----------------------------------------
22,312 24,319 27,674
-----------------------------------------
EARNINGS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN ... 95,036 46,087 37,180
Minority interest .......................................... 3,399 5,557 (1,227)
-----------------------------------------
EARNINGS BEFORE EXTRAORDINARY GAIN ......................... 91,637 40,530 38,407
Extraordinary gain, net of tax ............................. -- 272 16,343
-----------------------------------------
NET EARNINGS ............................................... $ 91,637 $ 40,802 $ 54,750
=========================================
BASIC EARNINGS PER COMMON SHARE
Earnings before extraordinary gain ....................... $ 3.05 $ 1.35 $ 1.28
Extraordinary gain, net of tax ........................... -- .01 .55
-----------------------------------------
Net earnings ............................................. $ 3.05 $ 1.36 $ 1.83
=========================================
DILUTED EARNINGS PER COMMON SHARE
Earnings before extraordinary gain ....................... $ 3.02 $ 1.34 $ 1.27
Extraordinary gain, net of tax ........................... -- .01 .54
-----------------------------------------
Net earnings ............................................. $ 3.02 $ 1.35 $ 1.81
=========================================
The accompanying notes are an integral part of these consolidated financial
statements.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
30
6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Forest City Enterprises, Inc. and Subsidiaries
Common Stock
-----------------------------------
Class A Class B Additional
Comprehensive ----------------------------------- Paid-In Retained
Income Shares Amount Shares Amount Capital Earnings
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
BALANCES AT JANUARY 31, 1998 .............. 19,813 $ 6,606 11,071 $ 3,691 $114,270 $168,864
Net earnings ............................. $ 54,750 54,750
========
Dividends:
$.035 per share (one quarter) .......... (1,049)
$.04 per share (three quarters) ........ (3,598)
Conversion of Class B to Class A shares .. 92 30 (92) (30)
Exercise of stock options ................
---------------------------------------------------------
BALANCES AT JANUARY 31, 1999 .............. 19,905 6,636 10,979 3,661 114,270 218,967
Comprehensive income:
Net earnings ........................... $ 40,802 40,802
Other comprehensive income, net of tax
Unrealized gain on securities ........ 19,157
--------
Total comprehensive income ............... $ 59,959
========
Dividends:
$.04 per share (one quarter) ........... (1,199)
$.05 per share (three quarters) ........ (4,507)
Conversion of Class B to Class A shares .. 42 14 (42) (14)
Exercise of stock options ................ 4
Restricted stock issued .................. (605)
Amortization of unearned compensation .... 93
Rounding adjustments ..................... (1) (1) 2
---------------------------------------------------------
BALANCES AT JANUARY 31, 2000 .............. 19,947 6,649 10,937 3,646 113,764 254,063
Comprehensive income:
Net earnings ........................... $ 91,637 91,637
Other comprehensive income, net of tax
Unrealized loss on securities ........ (531)
Less reclassification adjustment
for gain included in net earnings .. (14,757)
--------
Total comprehensive income ............... $ 76,349
========
Dividends:
$.05 per share (one quarter) ........... (1,502)
$.06 per share (three quarters) ........ (5,406)
Conversion of Class B to Class A shares .. 415 138 (415) (138)
Exercise of stock options ................ 107
Amortization of unearned compensation .... 139
---------------------------------------------------------
BALANCES AT JANUARY 31, 2001 .............. 20,362 $ 6,787 10,522 $ 3,508 $114,010 $338,792
=========================================================
Treasury Stock Accumulated Other
---------------- Comprehensive
Shares Amount Income Total
- ---------------------------------------------------------------------------------------
(in thousands)
BALANCES AT JANUARY 31, 1998 .............. 905 $(11,486) $ -- $281,945
Net earnings ............................. 54,750
Dividends:
$.035 per share (one quarter) .......... (1,049)
$.04 per share (three quarters) ........ (3,598)
Conversion of Class B to Class A shares .. --
Exercise of stock options ................ (4) 60 60
------------------------------------------
BALANCES AT JANUARY 31, 1999 .............. 901 (11,426) -- 332,108
Comprehensive income:
Net earnings ........................... 40,802
Other comprehensive income, net of tax
Unrealized gain on securities ........ 19,157 19,157
Total comprehensive income ...............
Dividends:
$.04 per share (one quarter) ........... (1,199)
$.05 per share (three quarters) ........ (4,507)
Conversion of Class B to Class A shares .. --
Exercise of stock options ................ (4) 48 52
Restricted stock issued .................. (45) 605 --
Amortization of unearned compensation .... 93
Rounding adjustments ..................... --
------------------------------------------
BALANCES AT JANUARY 31, 2000 .............. 852 (10,773) 19,157 386,506
Comprehensive income:
Net earnings ........................... 91,637
Other comprehensive income, net of tax
Unrealized loss on securities ........ (531) (531)
Less reclassification adjustment
for gain included in net earnings .. (14,757) (14,757)
Total comprehensive income ...............
Dividends:
$.05 per share (one quarter) ........... (1,502)
$.06 per share (three quarters) ........ (5,406)
Conversion of Class B to Class A shares .. --
Exercise of stock options ................ (32) 443 550
Amortization of unearned compensation .... 139
------------------------------------------
BALANCES AT JANUARY 31, 2001 .............. 820 $(10,330) $ 3,869 $456,636
==========================================
The accompanying notes are an integral part of these consolidated financial
statements.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
31
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Forest City Enterprises, Inc. and Subsidiaries
Years Ended January 31,
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received .................................... $ 732,458 $ 669,304 $ 520,704
Cash distributions from operations of unconsolidated entities ........ 60,018 48,891 27,430
Proceeds from land sales ............................................. 24,979 17,529 11,194
Land development expenditures ........................................ (21,062) (12,226) (14,865)
Operating expenditures ............................................... (402,962) (418,380) (310,083)
Interest paid ........................................................ (187,118) (139,062) (121,995)
-------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 206,313 166,056 112,385
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................. (518,709) (465,137) (461,146)
Proceeds from disposition of properties and other investments ........ 130,751 -- 1,145
Changes in investments in and advances to real estate affiliates ..... (131,063) (63,530) (77,993)
-------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES .............................. (519,021) (528,667) (537,994)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior and subordinated debt ............... 20,400 -- 200,000
Payment of senior notes issuance costs ............................... -- -- (6,297)
Increase in nonrecourse mortgage debt and long-term credit facility .. 826,387 570,434 648,586
Principal payments on nonrecourse mortgage debt on real estate ....... (471,062) (228,576) (316,833)
Payments on long-term credit facility ................................ -- -- (114,000)
Increase in notes payable ............................................ 20,630 96,585 38,524
Payments on notes payable ............................................ (37,909) (52,150) (39,306)
Change in restricted cash and book overdrafts ........................ (30,899) (11,083) 34,500
Payment of deferred financing costs .................................. (30,682) (6,575) (16,072)
Exercise of stock options ............................................ 550 52 60
Dividends paid to shareholders ....................................... (6,608) (5,399) (4,497)
Increase in minority interest ........................................ 2,084 16,376 26,116
-------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 292,891 379,664 450,781
-------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS ........................ (19,817) 17,053 25,172
CASH AND EQUIVALENTS AT BEGINNING OF YEAR .............................. 84,082 67,029 41,857
-------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR .................................... $ 64,265 $ 84,082 $ 67,029
===========================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
32
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Forest City Enterprises, Inc. and Subsidiaries
Years Ended January 31,
- -------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
(in thousands)
RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS .......................................................... $ 91,637 $ 40,802 $ 54,750
Minority interest ................................................... 3,399 5,557 (1,227)
Depreciation ........................................................ 75,546 63,560 55,614
Amortization ........................................................ 22,818 17,944 28,225
Equity in earnings of unconsolidated entities ....................... (30,989) (10,555) (32,429)
Cash distributions from operations of unconsolidated entities ....... 60,018 48,891 27,430
Deferred income taxes ............................................... 12,012 11,978 32,427
Gain on disposition of properties and other investments ............. (48,409) (13,861) (19,532)
Provision for decline in real estate ................................ 1,231 5,062 --
Extraordinary gain .................................................. -- (450) (27,036)
Decrease in commercial land included in projects under development .. 655 13,906 19,627
Increase in land held for development or sale ....................... (948) (4,281) (7,262)
Decrease (increase) in notes and accounts receivable ................ (4,813) 146 (41,841)
Decrease (increase) in inventories .................................. 18,210 (10,145) 11,397
Increase in other assets ............................................ (37,049) (2,129) (17,503)
Increase (decrease) in accounts payable and accrued expenses ........ 42,995 (369) 29,745
-------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... $ 206,313 $ 166,056 $ 112,385
===========================================
SUPPLEMENTAL NON-CASH DISCLOSURE:
The schedule below represents the effect of the following non-cash transactions
for the years ended January 31:
2001 - Disposition of interest in Canton Centre Mall and Gallery at Metrotech
Increase in interest in Granite Development Partners, L.P., Providence
at Palm Harbor and Museum Towers
2000 - Disposition of interest in Rolling Acres Mall
1999 - Disposition of interest in Summit Park Mall and Trolley Plaza
OPERATING ACTIVITIES
Notes and accounts receivable ....................................... $ 553 $ 123 $ 565
Other assets ........................................................ 5,074 1,390 1,138
Accounts payable and accrued expenses ............................... (2,652) (194) 2,760
-------------------------------------------
Total effect on operating activities .............................. $ 2,975 $ 1,319 $ 4,463
===========================================
INVESTING ACTIVITIES
Disposition of completed rental properties .......................... $ 78,640 $ 32,116 $ 42,312
-------------------------------------------
Total effect on investing activities .............................. $ 78,640 $ 32,116 $ 42,312
===========================================
FINANCING ACTIVITIES
Disposition of nonrecourse mortgage debt ............................ $ (81,505) $ (33,435) $ (46,775)
Notes payable ....................................................... (110) -- --
-------------------------------------------
Total effect on financing activities .............................. $ (81,615) $ (33,435) $ (46,775)
===========================================
The accompanying notes are an integral part of these consolidated financial
statements.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
33
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
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, develops, acquires and operates shopping centers, office buildings and
mixed-use projects including hotels. The RESIDENTIAL GROUP owns, develops,
acquires and operates the Company's multi-family properties. REAL ESTATE GROUPS
are the combined Commercial and Residential Groups. The LAND GROUP owns and
develops raw land into master planned communities and other residential
developments for resale. The LUMBER TRADING GROUP operates the Company's lumber
wholesaling business.
Forest City Enterprises, Inc. owns approximately $3.5 billion of real
estate, at cost, in 22 states and Washington, D.C. The Company's executive
offices are in Cleveland, Ohio. Regional offices are located in New York, Los
Angeles, Boston, Tucson, Denver, Washington, D.C. and San Francisco.
FINANCIAL STATEMENT PRESENTATION
Effective January 31, 2001, the Company implemented a change in the
presentation of its financial results. While a number of the line items on the
Company's consolidated financial statements have changed under the new full
consolidation method, there is no impact on net earnings or shareholders' equity
for all years presented. This required financial reporting presentation change
will have no effect on the way the Company operates or manages its business.
Prior to January 31, 2001, the Company used the pro-rata method of
consolidation to report its partnerships. Under this method, the Company
presented its partnership investments proportionate to its share of ownership
for each line item of its consolidated financial statements.
In accordance with the FASB's Emerging Issues Task Force Issue No. 00-1,
"Investor Balance Sheet and Income Statement Display under the Equity Method for
Investments in Certain Partnerships and Other Ventures" (effective for years
ending after June 15, 2000), the Company can no longer use the pro-rata
consolidation method for partnerships. Accordingly, partnership investments that
were previously reported on the pro-rata method are now reported as consolidated
at 100 percent, if deemed under the Company's control, or otherwise on the
equity method of accounting. As an aid in adjusting to the new reporting
presentation, the Company has provided a reconciliation from the new full
consolidation presentation to the historical pro-rata presentation in Note B.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Forest City
Enterprises, Inc., its wholly-owned subsidiaries and entities in which it has a
majority voting interest or otherwise controls. Entities which the Company does
not control are accounted for on the equity method. Significant intercompany
balances and transactions are eliminated in consolidation.
Earnings before minority interest is allocated to the minority interest
holders based on their respective ownership percentages of the Company's
controlled less-than-wholly-owned real estate investments, as adjusted for any
preferential returns or allocations contained in the related operating
agreements. Minority interest in the accompanying Consolidated Balance Sheets
represents the minority interest holders' proportionate share of the equity of
the Company's controlled less-than-wholly-owned real estate investments.
The Company does not necessarily own or hold any direct ownership interest
in the various real estate assets consolidated in its financial statements but
generally holds this ownership through its direct or indirect subsidiaries,
except for certain parcels of land held for development or sale.
USE OF ESTIMATES
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.
RECLASSIFICATION
Certain prior years' amounts in the accompanying financial statements have
been reclassified to conform to the current year's presentation.
FISCAL YEAR
The years 2000, 1999 and 1998 refer to the fiscal years ended January 31,
2001, 2000 and 1999, respectively.
LAND OPERATIONS
Land held for sale is stated at the lower of carrying amount or fair
market value less cost to sell.
RECOGNITION OF REVENUE AND PROFIT
REAL ESTATE SALES - The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) 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 rents are recognized on a straight-line basis over the
term of the related leases. Overage rents are recognized as revenues when
tenants' sales exceed the applicable break points. Recoveries from tenants for
taxes, insurance, and other commercial property operating expenses are
recognized as revenues in the period the applicable costs are incurred.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
34
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN UNCONSOLIDATED ENTITIES - The Company accounts for its
investments in unconsolidated entities (included in Investments in and Advances
to Real Estate Affiliates on the Consolidated Balance Sheets) using the equity
method of accounting whereby the cost of an investment is adjusted for the
Company's share of equity in net income or loss from the date of acquisition and
reduced by distributions received. The income or loss for each unconsolidated
entity is allocated in accordance with the provisions of the applicable
operating agreements. The allocation provisions in these agreements may differ
from the ownership interest held by each investor. Differences between the
Company's carrying value of its investment in the unconsolidated entities and
the Company's share of the underlying equity of such unconsolidated entities are
amortized over the respective lives of the underlying assets or liabilities, as
applicable.
LUMBER BROKERAGE - The Lumber Trading Group sells to a large number of
customers across many regions of the country. The Company fills customer orders
either through the simultaneous purchase of products from various third parties
with delivery directly to the customer, or from relieving its existing
short-term inventory position of previously purchased lumber products. Revenue
is recorded when title to the goods transfers to the customers. The Company
recognizes the gross margin on these sales as revenue.
CONSTRUCTION - Revenue and profit on long-term fixed-price contracts are
recorded using 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.
OTHER COMPREHENSIVE INCOME - Net unrealized gain or loss on securities,
net of tax, is included in Other Comprehensive Income and represents the
difference between the market value of investments in unaffiliated companies
that are available for sale at the balance sheet date and the Company's cost.
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes. Interest and real
estate taxes during development and construction are capitalized as a part of
the project cost.
The Company provides an allowance for doubtful accounts against the
portion of accounts or notes receivable that is estimated to be uncollectible.
Such allowances are reviewed and updated periodically for changes in expected
collectibility.
Depreciation is generally computed on a straight-line method over the
estimated useful asset lives. The estimated useful lives of buildings are
primarily 50 years.
Major improvements and tenant improvements are capitalized and expensed
through depreciation charges. Repairs, maintenance and minor improvements are
expensed as incurred. Costs and accumulated depreciation applicable to assets
retired or sold are eliminated from the respective accounts and any resulting
gains or losses are reported in the Consolidated Statements of Earnings.
The Company periodically reviews its properties to determine if its
carrying costs will be recovered from future operating cash flows. In cases
where the Company does not expect to recover its carrying costs, an impairment
loss is recorded as a provision for decline in real estate.
CASH AND EQUIVALENTS
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
The Company maintains operating cash and reserve for replacement balances
in financial institutions which, from time to time, may exceed Federally-insured
limits. The Company periodically assesses the financial condition of the
institutions and believes that the risk of loss is minimal.
RESTRICTED CASH
Restricted cash represents deposits with mortgage lenders for taxes and
insurance, security deposits, capital replacement, improvement and operating
reserves, bond funds and development and construction escrows.
INVENTORIES
The lumber brokerage inventories are stated at the lower of cost or
market. Inventory cost is determined by specific identification and average cost
methods.
OTHER ASSETS
Included in other assets are costs incurred in connection with obtaining
financing which are deferred and amortized over the life of the related debt.
Costs incurred in connection with leasing space to tenants are also included in
other assets and are deferred and amortized using the straight-line method over
the lives of the related leases.
Investments in securities classified as available for sale are reflected
in other assets at market value with the changes in market value reflected as
other comprehensive income in shareholders' equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its debt instruments by
discounting future cash payments at interest rates that the Company believes
approximates the current market. The carrying amount of the Company's total
fixed-rate debt at January 31, 2001 was $2,000,000,000 compared to an estimated
fair value of $1,940,000,000.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
35
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company estimates the fair value of its hedging instruments based on
interest rate market pricing models. At January 31, 2001, the unamortized book
value of the Company's hedging instruments was approximately $17,000,000
compared to an estimated fair value of approximately $2,000,000.
INTEREST RATE PROTECTION AGREEMENTS
The Company follows a practice of hedging its variable interest rate risk
by purchasing LIBOR-based interest rate caps and Treasury options. The LIBOR
caps have typical durations ranging from one to three years while the Treasury
options are for periods of five to 10 years. The Company also enters into
interest rate swap agreements for hedging purposes for periods of one to five
years. The principal risk to the Company through its interest rate hedging
strategy is the potential inability of the financial institution from which the
interest rate protection was purchased to cover all of its obligations. To
mitigate this exposure, the Company purchases its interest rate protection from
either the institution that holds the debt or from institutions with a minimum
A- credit rating.
The cost of interest rate protection is capitalized in Other Assets in the
Consolidated Balance Sheets and amortized over the benefit period as interest
expense in the Consolidated Statements of Earnings.
INCOME TAXES
Deferred tax assets and liabilities reflect the tax consequences on future
years of differences between the tax and financial statement basis of assets and
liabilities at year-end. The Company has recognized the benefits of its tax loss
carryforward and general business tax credits which it expects to use as a
reduction of the deferred tax expense.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion (APBO) No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations to
account for stock-based compensation. As such, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount the employee is required to
pay for the stock.
CAPITAL STOCK
The 5,000,000 authorized shares of preferred stock without par value, none
of which have been issued, are convertible into Class A common stock.
Class A common shareholders elect 25% of the members of the Board of
Directors and Class B common shareholders elect the remaining directors
annually. The Company currently has 13 directors. Class B common stock is
convertible into Class A common stock on a share-for-share basis.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilutive effect of the Company's stock
option plan by adjusting the denominator using the treasury stock method. The
sum of the four quarters' earnings per share may not equal the annual earnings
per share due to the weighting of stock and option activity occurring during the
year. All earnings per share disclosures appearing in these financial statements
were computed assuming dilution unless otherwise indicated.
NEW ACCOUNTING STANDARDS
In May 2000, the Financial Accounting Standards Board's (FASB) Emerging
Issues Task Force (EITF) released Issue No. 00-1, "Investor Balance Sheet and
Income Statement Display under the Equity Method for Investments in Certain
Partnerships and Other Ventures." The Company has adopted this EITF, as
discussed further on page 34 under "Financial Statement Presentation."
In June 1999, the FASB issued SFAS No. 137, which defers the effective
date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to all fiscal quarters of fiscal years beginning after June 15,
2000. The Company implemented SFAS No. 133 on February 1, 2001. The effect of
the adoption of SFAS No. 133 on the Company's financial statements in the first
quarter of 2001 will be a reduction of net income and other comprehensive income
of approximately $1,000,000 and $8,000,000, respectively, net of tax.
In December 1999, the SEC released Staff Accounting Bulletin No. 101 (SAB
No. 101), "Revenue Recognition in Financial Statements," which summarizes the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company adopted SAB No. 101 in the
fourth quarter of 2000, and such adoption did not have a material effect on the
consolidated financial statements.
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," was issued to amend the
provisions of SFAS No. 125. The new standard is generally effective for all
periods after March 31, 2001. The Company believes the provisions of SFAS No.
140 will have no material impact on the accounting treatment and disclosures
currently being applied under SFAS No. 125.
In April 2000, FASB Interpretation No. 44 (FIN No. 44), "Accounting for
Certain Transactions involving Stock Compensation," was issued which addresses
the application of APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Based on the Company's current stock compensation plan and recent
plan activity, the Company believes that FIN No. 44 has no material impact on
the consolidated financial statements.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
36
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION
A reconciliation of the Company's new financial statement presentation
(full consolidation method) to its historical presentation (pro-rata
consolidation method) is as follows.
CONSOLIDATED BALANCE SHEET - JANUARY 31, 2001
- --------------------------------------------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties................ $ 3,111,581 $ 574,575 $ 703,114 $ 3,240,120
Projects under development ................ 391,821 54,947 163,484 500,358
Land held for development or sale ......... 22,744 -- 30,459 53,203
-----------------------------------------------------------
Real Estate, at cost ................... 3,526,146 629,522 897,057 3,793,681
Less accumulated depreciation ............. (489,540) (76,301) (172,082) (585,321)
-----------------------------------------------------------
Total Real Estate ...................... 3,036,606 553,221 724,975 3,208,360
Cash and equivalents ......................... 64,265 8,653 26,351 81,963
Restricted cash .............................. 68,243 10,706 19,617 77,154
Notes and accounts receivable, net ........... 219,118 18,751 10,814 211,181
Inventories .................................. 39,234 -- -- 39,234
Investments in and advances to real estate
affiliates ............................. 436,248 -- (88,451) 347,797
Other assets ................................. 166,756 28,647 24,185 162,294
-----------------------------------------------------------
TOTAL ASSETS............................ $ 4,030,470 $ 619,978 $ 717,491 $ 4,127,983
===========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse.................... $ 2,439,912 $ 488,014 $ 674,019 $ 2,625,917
Accounts payable and accrued expenses ........ 413,869 39,180 42,055 416,744
Notes payable ................................ 55,392 14,694 1,417 42,115
Long-term credit facility .................... 189,500 -- -- 189,500
Senior and subordinated debt ................. 220,400 -- -- 220,400
Deferred income taxes ........................ 176,671 -- -- 176,671
-----------------------------------------------------------
Total Liabilities .......................... 3,495,744 541,888 717,491 3,671,347
Minority Interest ............................ 78,090 78,090 -- --
-----------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock- convertible, without par
value 5,000,000 shares authorized;
no shares issued ........................... -- -- -- --
Common stock - $.33 1/3 par value
Class A, 96,000,000 shares authorized,
20,361,932 shares issued,
19,820,507 outstanding ................. 6,787 -- -- 6,787
Class B, convertible, 36,000,000 shares
authorized, 10,522,020 shares issued,
10,243,920 outstanding .................. 3,508 -- -- 3,508
-----------------------------------------------------------
10,295 -- -- 10,295
Additional paid-in capital ................... 114,010 -- -- 114,010
Retained earnings ............................ 338,792 -- -- 338,792
-----------------------------------------------------------
463,097 -- -- 463,097
Less treasury stock, at cost; 541,425 Class A
and 278,100 Class B shares ................. (10,330) -- -- (10,330)
Accumulated other comprehensive income ....... 3,869 -- -- 3,869
-----------------------------------------------------------
Total Shareholders' Equity ................. 456,636 -- -- 456,636
-----------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $ 4,030,470 $ 619,978 $ 717,491 $ 4,127,983
===========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
37
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED BALANCE SHEET - JANUARY 31, 2000
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties ...................... $ 2,685,448 $ 430,376 $ 636,418 $ 2,891,490
Projects under development ....................... 499,399 126,273 105,640 478,766
Land held for development or sale ................ 21,795 -- 31,057 52,852
-----------------------------------------------------------------
Real Estate, at cost ........................... 3,206,642 556,649 773,115 3,423,108
Less accumulated depreciation .................... (458,235) (66,690) (155,934) (547,479)
-----------------------------------------------------------------
Total Real Estate .............................. 2,748,407 489,959 617,181 2,875,629
Cash and equivalents ............................... 84,082 6,685 19,798 97,195
Restricted cash .................................... 68,127 8,243 16,778 76,662
Notes and accounts receivable, net ................. 214,860 4,906 10,843 220,797
Inventories ........................................ 57,444 -- -- 57,444
Investments in and advances to real estate
affiliates ....................................... 338,465 -- (30,595) 307,870
Other assets ....................................... 154,970 19,981 24,098 159,087
-----------------------------------------------------------------
TOTAL ASSETS ................................... $ 3,666,355 $ 529,774 $ 658,103 $ 3,794,684
=================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse ......................... $ 2,188,594 $ 419,587 $ 613,373 $ 2,382,380
Accounts payable and accrued expenses .............. 404,207 23,295 40,327 421,239
Notes payable ...................................... 72,780 14,285 4,403 62,898
Long-term credit facility .......................... 167,000 -- -- 167,000
Senior and subordinated debt ....................... 200,000 -- -- 200,000
Deferred income taxes .............................. 174,661 -- -- 174,661
-----------------------------------------------------------------
Total Liabilities ................................ 3,207,242 457,167 658,103 3,408,178
Minority Interest .................................. 72,607 72,607 -- --
-----------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value
5,000,000 shares authorized; no shares issued .... -- -- -- --
Common stock - $.33 1/3 par value
Class A, 96,000,000 shares authorized,
19,946,756 shares issued,
19,372,406 outstanding ......................... 6,649 -- -- 6,649
Class B, convertible, 36,000,000 shares
authorized, 10,937,196 shares issued,
10,659,096 outstanding ......................... 3,646 -- -- 3,646
-----------------------------------------------------------------
10,295 -- -- 10,295
Additional paid-in capital ......................... 113,764 -- -- 113,764
Retained earnings .................................. 254,063 -- -- 254,063
-----------------------------------------------------------------
378,122 -- -- 378,122
Less treasury stock, at cost;
574,350 Class A and 278,100 Class B shares ....... (10,773) -- -- (10,773)
Accumulated other comprehensive income ............. 19,157 -- -- 19,157
-----------------------------------------------------------------
Total Shareholders' Equity ....................... 386,506 -- -- 386,506
-----------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 3,666,355 $ 529,774 $ 658,103 $ 3,794,684
=================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
38
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 2001
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-rata Consolidation
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES
Rental properties ............................... $ 658,369 $ 114,247 $ 199,797 $ 743,919
Lumber trading .................................. 105,427 -- -- 105,427
Equity in earnings of unconsolidated entities ... 30,989 -- (19,819) 11,170
--------------------------------------------------------
794,785 114,247 179,978 860,516
--------------------------------------------------------
EXPENSES
Operating expenses .............................. 443,707 56,093 118,747 506,361
Interest expense ................................ 182,544 35,488 43,368 190,424
Provision for decline in real estate ............ 1,231 -- -- 1,231
Depreciation and amortization ................... 98,364 19,017 20,222 99,569
--------------------------------------------------------
725,846 110,598 182,337 797,585
--------------------------------------------------------
Gain (loss) on disposition of properties and
other investments ............................... 48,409 (250) 2,359 51,018
--------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ...................... 117,348 3,399 -- 113,949
--------------------------------------------------------
INCOME TAX EXPENSE
Current ......................................... 10,326 -- -- 10,326
Deferred ........................................ 11,986 -- -- 11,986
--------------------------------------------------------
22,312 -- -- 22,312
--------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST ................. 95,036 3,399 -- 91,637
Minority interest ................................. 3,399 3,399 -- --
--------------------------------------------------------
NET EARNINGS ...................................... $ 91,637 $ -- $ -- $ 91,637
========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
39
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 2000
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES
Rental properties ............................. $ 538,876 $ 68,244 $ 170,907 $ 641,539
Lumber trading ................................ 149,357 -- -- 149,357
Equity in earnings of unconsolidated entities.. 10,555 -- (8,380) 2,175
-------------------------------------------------------------
698,788 68,244 162,527 793,071
-------------------------------------------------------------
EXPENSES
Operating expenses ............................ 415,811 31,354 101,552 486,009
Interest expense .............................. 139,866 22,029 41,882 159,719
Provision for decline in real estate .......... 5,062 -- -- 5,062
Depreciation and amortization ................. 81,504 12,042 18,682 88,144
-------------------------------------------------------------
642,243 65,425 162,116 738,934
-------------------------------------------------------------
Gain (loss) on disposition of properties and
other investments ............................. 13,861 2,738 (411) 10,712
-------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES .................... 70,406 5,557 -- 64,849
-------------------------------------------------------------
INCOME TAX EXPENSE
Current ....................................... 12,257 -- -- 12,257
Deferred ...................................... 12,062 -- -- 12,062
-------------------------------------------------------------
24,319 -- -- 24,319
-------------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST
AND EXTRAORDINARY GAIN ........................ 46,087 5,557 -- 40,530
Minority interest ............................... 5,557 5,557 -- --
-------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY GAIN .............. 40,530 -- -- 40,530
Extraordinary gain, net of tax .................. 272 -- -- 272
-------------------------------------------------------------
NET EARNINGS .................................... $ 40,802 $ -- $ -- $ 40,802
=============================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
40
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 1999
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES
Rental properties ............................... $ 453,946 $ 62,640 $ 174,604 $ 565,910
Lumber trading .................................. 123,325 -- -- 123,325
Equity in earnings of unconsolidated entities ... 32,429 -- (25,015) 7,414
---------------------------------------------------------------------
609,700 62,640 149,589 696,649
---------------------------------------------------------------------
EXPENSES
Operating expenses .............................. 355,937 28,787 96,947 424,097
Interest expense ................................ 124,602 21,296 46,654 149,960
Depreciation and amortization ................... 83,839 13,784 17,013 87,068
---------------------------------------------------------------------
564,378 63,867 160,614 661,125
---------------------------------------------------------------------
Gain on disposition of properties and other
investments ..................................... 19,532 -- 11,025 30,557
---------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ...................... 64,854 (1,227) -- 66,081
---------------------------------------------------------------------
INCOME TAX EXPENSE
Current ......................................... (86) -- -- (86)
Deferred ........................................ 27,760 -- -- 27,760
---------------------------------------------------------------------
27,674 -- -- 27,674
---------------------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST
AND EXTRAORDINARY GAIN .......................... 37,180 (1,227) -- 38,407
Minority interest ................................. (1,227) (1,227) -- --
---------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY GAIN ................ 38,407 -- -- 38,407
Extraordinary gain, net of tax .................... 16,343 -- -- 16,343
---------------------------------------------------------------------
NET EARNINGS ...................................... $ 54,750 $ -- $ -- $ 54,750
=====================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
41
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED JANUARY 31, 2001
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
RECONCILIATION OF NET EARNINGS TO
CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS ............................................. $ 91,637 $ -- $ -- $ 91,637
Minority interest ...................................... 3,399 3,399 -- --
Depreciation ........................................... 75,546 12,473 17,410 80,483
Amortization ........................................... 22,818 6,544 2,812 19,086
Equity in earnings of unconsolidated entities .......... (30,989) -- 19,819 (11,170)
Cash distributions from operations of
unconsolidated entities ............................... 60,018 -- (60,018) --
Deferred income taxes .................................. 12,012 -- -- 12,012
(Gain) loss on disposition of properties
and other investments ................................. (48,409) 250 (2,359) (51,018)
Provision for decline in real estate ................... 1,231 -- -- 1,231
Decrease in commercial land included in
projects under development ............................ 655 -- -- 655
Increase in land held for development or sale .......... (948) -- (171) (1,119)
Decrease (increase) in notes and accounts receivable ... (4,813) (13,949) (301) 8,835
Decrease in inventories ................................ 18,210 -- -- 18,210
Increase in other assets ............................... (37,049) (4,997) (2,859) (34,911)
Increase in accounts payable and accrued expenses ...... 42,995 16,053 1,886 28,828
------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ......................................... $ 206,313 $ 19,773 $ (23,781) $ 162,759
==================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received ...................... $ 732,458 $ 98,087 $ 165,099 $ 799,470
Cash distributions from operations of
unconsolidated entities ............................... 60,018 -- (60,018) --
Proceeds from land sales ............................... 24,979 -- 34,214 59,193
Land development expenditures .......................... (21,062) -- (35,824) (56,886)
Operating expenditures ................................. (402,962) (42,826) (91,907) (452,043)
Interest paid .......................................... (187,118) (35,488) (35,345) (186,975)
------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ......................................... 206,313 19,773 (23,781) 162,759
------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................... (518,709) (81,819) (125,803) (562,693)
Proceeds from disposition of properties and other
investments ........................................... 130,751 -- 2,703 133,454
Investments in and advances to real estate affiliates .. (131,063) -- 88,656 (42,407)
------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ................ (519,021) (81,819) (34,444) (471,646)
------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of subordinated debt ............ 20,400 -- -- 20,400
Increase in nonrecourse mortgage debt and
long-term credit facility ............................. 826,387 205,733 79,812 700,466
Principal payments on nonrecourse mortgage debt
on real estate ........................................ (471,062) (131,362) (10,729) (350,429)
Increase (decrease) in notes payable ................... 20,630 598 (656) 19,376
Payments on notes payable .............................. (37,909) (190) (157) (37,876)
Change in restricted cash and book overdrafts .......... (30,899) (1,712) (1,202) (30,389)
Payment of deferred financing costs .................... (30,682) (11,137) (2,290) (21,835)
Exercise of stock options .............................. 550 -- -- 550
Dividends paid to shareholders ......................... (6,608) -- -- (6,608)
Increase in minority interest .......................... 2,084 2,084 -- --
------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 292,891 64,014 64,778 293,655
------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS .......... (19,817) 1,968 6,553 (15,232)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 84,082 6,685 19,798 97,195
------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 64,265 $ 8,653 $ 26,351 $ 81,963
==================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
42
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED JANUARY 31, 2000
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
RECONCILIATION OF NET EARNINGS TO
CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS ............................................. $ 40,802 $ -- $ -- $ 40,802
Minority interest ...................................... 5,557 5,557 -- --
Depreciation ........................................... 63,560 9,020 16,075 70,615
Amortization ........................................... 17,944 3,022 2,607 17,529
Equity in earnings of unconsolidated entities .......... (10,555) -- 8,380 (2,175)
Cash distributions from operations of
unconsolidated entities .............................. 48,891 -- (48,891) --
Deferred income taxes .................................. 11,978 -- -- 11,978
(Gain) loss on disposition of properties
and other investments ................................ (13,861) (2,738) 411 (10,712)
Provision for decline in real estate ................... 5,062 -- -- 5,062
Extraordinary gain ..................................... (450) -- -- (450)
Decrease in commercial land included in
projects under development ........................... 13,906 -- 1,320 15,226
(Increase) decrease in land held for development
or sale .............................................. (4,281) -- 1,266 (3,015)
Decrease (increase) in notes and accounts receivable ... 146 (1,426) 1,295 2,867
Increase in inventories ................................ (10,145) -- -- (10,145)
Increase in other assets ............................... (2,129) (2,157) (5,425) (5,397)
(Decrease) increase in accounts payable and
accrued expenses ..................................... (369) 10,029 2,828 (7,570)
------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ......................................... $ 166,056 $ 21,307 $ (20,134) $ 124,615
==================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received ...................... $ 669,304 $ 66,947 $ 151,794 $ 754,151
Cash distributions from operations of
unconsolidated entities .............................. 48,891 -- (48,891) --
Proceeds from land sales ............................... 17,529 -- 20,171 37,700
Land development expenditures .......................... (12,226) -- (25,406) (37,632)
Operating expenditures ................................. (418,380) (24,033) (75,348) (469,695)
Interest paid .......................................... (139,062) (21,607) (42,454) (159,909)
------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ......................................... 166,056 21,307 (20,134) 124,615
------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................... (465,137) (126,516) (45,516) (384,137)
Investments in and advances to real estate affiliates .. (63,530) -- 41,987 (21,543)
------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ................ (528,667) (126,516) (3,529) (405,680)
------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in nonrecourse mortgage debt and
long-term credit facility ............................ 570,434 144,230 65,651 491,855
Principal payments on nonrecourse mortgage debt
on real estate ....................................... (228,576) (60,516) (25,539) (193,599)
Increase in notes payable .............................. 96,585 13,901 10,074 92,758
Payments on notes payable .............................. (52,150) (176) (21,815) (73,789)
Change in restricted cash and book overdrafts .......... (11,083) (4,536) 321 (6,226)
Payment of deferred financing costs .................... (6,575) (1,401) (847) (6,021)
Exercise of stock options .............................. 52 -- -- 52
Dividends paid to shareholders ......................... (5,399) -- -- (5,399)
Increase in minority interest .......................... 16,376 16,376 -- --
------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 379,664 107,878 27,845 299,631
------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS ..................... 17,053 2,669 4,182 18,566
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 67,029 4,016 15,616 78,629
------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 84,082 $ 6,685 $ 19,798 $ 97,195
==================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
43
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED JANUARY 31, 1999
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
RECONCILIATION OF NET EARNINGS TO
CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS ............................................. $ 54,750 $ -- $ -- $ 54,750
Minority interest ...................................... (1,227) (1,227) -- --
Depreciation ........................................... 55,614 8,038 14,332 61,908
Amortization ........................................... 28,225 5,746 2,681 25,160
Equity in earnings of unconsolidated entities .......... (32,429) -- 25,015 (7,414)
Cash distributions from operations of
unconsolidated entities .............................. 27,430 -- (27,430) --
Deferred income taxes .................................. 32,427 -- -- 32,427
Gain on disposition of properties
and other investments ................................ (19,532) -- (11,025) (30,557)
Extraordinary gain ..................................... (27,036) -- -- (27,036)
Decrease in commercial land included in
projects under development ........................... 19,627 -- -- 19,627
(Increase) decrease in land held for development
or sale .............................................. (7,262) -- 691 (6,571)
Decrease (increase) in notes and accounts receivable ... (41,841) (382) 2,899 (38,560)
Decrease in inventories ................................ 11,397 -- -- 11,397
(Increase) decrease in other assets .................... (17,503) (2,850) 859 (13,794)
Increase (decrease) in accounts payable and
accrued expenses ..................................... 29,745 1,695 (3,682) 24,368
------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............ $ 112,385 $ 11,020 $ 4,340 $ 105,705
==================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received ...................... $ 520,704 $ 62,258 $ 141,239 $ 599,685
Cash distributions from operations of
unconsolidated entities .............................. 27,430 -- (27,430) --
Proceeds from land sales ............................... 11,194 -- 36,105 47,299
Land development expenditures .......................... (14,865) -- (30,919) (45,784)
Operating expenditures ................................. (310,083) (27,260) (67,086) (349,909)
Interest paid .......................................... (121,995) (23,978) (47,569) (145,586)
------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 112,385 11,020 4,340 105,705
------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................... (461,146) (56,131) (55,328) (460,343)
Proceeds from disposition of properties ................ 1,145 -- 32,200 33,345
Investments in and advances to real estate affiliates .. (77,993) -- (13,919) (91,912)
------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ................ (537,994) (56,131) (37,047) (518,910)
------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes ................. 200,000 -- -- 200,000
Payment of senior notes issuance costs ................. (6,297) -- -- (6,297)
Increase in nonrecourse mortgage and
long-term credit facility ............................ 648,586 103,093 159,229 704,722
Principal payments on nonrecourse mortgage debt
on real estate ....................................... (316,833) (80,465) (134,602) (370,970)
Payments on long-term credit facility .................. (114,000) -- -- (114,000)
Increase in notes payable .............................. 38,524 16 11,983 50,491
Payments on notes payable .............................. (39,306) (1,096) (3,171) (41,381)
Change in restricted cash and book overdrafts .......... 34,500 (736) 181 35,417
Payment of deferred financing costs .................... (16,072) (1,309) (1,802) (16,565)
Exercise of stock options .............................. 60 -- -- 60
Dividends paid to shareholders ......................... (4,497) -- -- (4,497)
Increase in minority interest .......................... 26,116 26,116 -- --
------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .............. 450,781 45,619 31,818 436,980
------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .......... 25,172 508 (889) 23,775
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 41,857 3,508 16,505 54,854
------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 67,029 $ 4,016 $ 15,616 $ 78,629
==================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
44
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
C. REAL ESTATE AND RELATED NONRECOURSE MORTGAGE DEBT
The components of real estate cost and related nonrecourse mortgage debt
are presented below on the pro-rata consolidation method.
January 31, 2001
- ---------------------------------------------------------------------------------------------
Less Nonrecourse
Accumulated Mortgage
Total Cost Depreciation Net Cost Debt
- ---------------------------------------------------------------------------------------------
(in thousands)
COMPLETED RENTAL PROPERTIES
Residential ................ $ 809,398 $ 140,364 $ 669,034 $ 663,739
Commercial
Shopping centers ......... 1,125,190 174,320 950,870 876,290
Office and other
buildings .............. 1,279,832 254,717 1,025,115 951,886
Land ....................... 991 203 788 --
Corporate and other
equipment ................ 24,709 15,717 8,992 --
----------------------------------------------------------
3,240,120 585,321 2,654,799 2,491,915
----------------------------------------------------------
PROJECTS UNDER
DEVELOPMENT
Residential ................ 124,739 -- 124,739 23,655
Commercial
Shopping centers ......... 225,920 -- 225,920 35,151
Office and other
buildings .............. 103,997 -- 103,997 30,933
Land ....................... 45,702 -- 45,702 6,543
----------------------------------------------------------
500,358 -- 500,358 96,282
----------------------------------------------------------
LAND HELD FOR
DEVELOPMENT OR SALE ...... 53,203 -- 53,203 37,720
----------------------------------------------------------
TOTAL REAL ESTATE AND
MORTGAGE DEBT ............ $3,793,681 $ 585,321 $3,208,360 $2,625,917
==========================================================
D. NOTES AND ACCOUNTS RECEIVABLE, NET
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------
(in thousands)
JANUARY 31, 2001
Lumber brokerage ....... $ 87,422 $ -- $ -- $ 87,422
Real estate sales ...... 16,041 -- 5,578 21,619
Syndication activities.. 17,668 -- -- 17,668
Receivable from
tenants .............. 27,265 5,479 6,823 28,609
Other receivables ...... 79,486 13,839 (1,195) 64,452
---------------------------------------------------------
227,882 19,318 11,206 219,770
Allowance for doubtful
accounts ............. (8,764) (567) (392) (8,589)
---------------------------------------------------------
NOTES AND ACCOUNTS
RECEIVABLE, NET ...... $ 219,118 $ 18,751 $ 10,814 $ 211,181
=========================================================
Weighted average
interest rate......... 6.65% 7.00%
Total Notes Receivable
included above........ $ 59,939 $ 61,155
Due within
one year.............. $ 12,558 $ 15,362
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------
(in thousands)
JANUARY 31, 2000
Lumber brokerage ...... $ 144,364 $ -- $ -- $ 144,364
Real estate sales ..... 18,695 -- 5,356 24,051
Syndication activities 10,210 -- 1,200 11,410
Receivable from
tenants ............. 14,361 2,906 4,845 16,300
Other receivables ..... 35,351 2,109 (37) 33,205
-----------------------------------------------------------
222,981 5,015 11,364 229,330
Allowance for doubtful
accounts ............ (8,121) (109) (521) (8,533)
-----------------------------------------------------------
NOTES AND ACCOUNTS
RECEIVABLE, NET ... $ 214,860 $ 4,906 $ 10,843 $ 220,797
===========================================================
Weighted average
interest rate ....... 8.80% 8.55%
In July 1999, the Lumber Trading Group entered into a three-year agreement
(The "Agreement") under which it is selling an undivided interest in a pool of
receivables up to a maximum of $102,000,000 to a large financial institution
(the "Financial Institution"). The agreement expires in July 2002. The Company
has recorded such transactions under the terms of SFAS No. 125, "Accounting for
Transfers of Servicing of Financial Assets and Extinguishments of Liabilities."
Sales under the Agreement are nonrecourse against the Company. The Company bears
no risk regarding the collectibility of the accounts receivable once sold, and
cannot modify the pool of receivables.
At January 31, 2001 and 2000, the Financial Institution held an interest
of $43,000,000 and $55,000,000, respectively, in the pool of receivables. Sales
of accounts receivable have averaged $57,900,000 and $63,400,000 per month
during the fiscal year ended January 31, 2001 and 2000, respectively.
During the year ended January 31, 2001, the Company reversed a $10,775,000
reserve, representing a portion of the reserve recorded in 1995 against a Note
Receivable (the Note) from Millender Center (the Project), a mixed-use
apartment, retail and hotel project located in downtown Detroit, Michigan. The
Company had previously reversed $3,500,000 in the year ended January 31, 1999
and $500,000 in the year ended January 31, 2000 for a total reserve reversal of
$14,775,000.
The Company owns a 1% general partner interest in the Project and loaned
$14,775,000 to the 99% limited partners in 1985, as evidenced by the Note. A
full reserve against the Note was recorded in 1995 when the Company determined
that collection was doubtful, due to the operating performance of the Project at
that time.
In October 1998, the Project entered into a lease agreement with General
Motors (GM) whereby the Project, except for the apartments, are being leased by
GM through 2010, when it is expected that GM will exercise a purchase option.
This lease arrangement, coupled with the recent resurgence of downtown Detroit's
economy as a result of GM's relocation of its corporate headquarters to a
location adjacent to the Project and the entry of gaming during the second
quarter of 2000, has significantly improved the operating performance of the
Project. The Company believes that the current and prospective improved
performance of the Project supports its assessment that the Note is now fully
collectible.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
45
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
E. INVESTMENTS IN AND ADVANCES TO REAL ESTATE AFFILIATES
Included in Investments in and Advances to Real Estate Affiliates are
unconsolidated investments accounted for on the equity method. Summarized
combined financial information for these investments, along with the Company's
pro-rata share, is as follows.
Combined Pro-Rata Share
------------------------------------------------------------------
JANUARY 31, 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
BALANCE SHEET:
Completed rental properties ............... $ 2,014,182 $ 1,785,948 $ 703,114 $ 636,418
Projects under development ................ 335,093 267,279 163,484 105,640
Land held for development or sale ......... 66,063 79,201 30,459 31,057
Investment in and advances to
real estate affiliates .................. -- -- 101,935 87,264
Accumulated depreciation .................. (411,605) (365,319) (172,082) (155,934)
Other assets .............................. 223,934 210,688 80,967 71,517
-----------------------------------------------------------------
Total Assets ............................ $ 2,227,667 $ 1,977,797 $ 907,877 $ 775,962
=================================================================
Mortgage debt, nonrecourse ................ $ 1,870,170 $ 1,686,497 $ 674,019 $ 613,373
Advances from general partner ............. 43,550 36,131 -- --
Other liabilities ......................... 161,624 176,375 43,472 44,730
Partners' equity .......................... 152,323 78,794 190,386 117,859
-----------------------------------------------------------------
Total Liabilities and Partners'
Equity .............................. $ 2,227,667 $ 1,977,797 $ 907,877 $ 775,962
=================================================================
YEAR ENDED JANUARY 31,
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Revenues ................................ $ 500,566 $ 434,944 $ 199,797 $ 170,907
Equity in earnings of unconsolidated
entities on a pro-rata basis .......... -- -- 11,170 2,175
Operating expenses ...................... (296,617) (273,233) (118,747) (101,552)
Interest expense ........................ (119,326) (111,618) (43,368) (41,882)
Depreciation and amortization ........... (57,906) (50,529) (20,222) (18,682)
Gain (loss) on disposition of properties
and other investments ................. 4,718 (1,645) 2,359 (411)
-----------------------------------------------------------------
Net Income (Loss) ................. $ 31,435 $ (2,081) $ 30,989 $ 10,555
=================================================================
Following is a reconciliation of partners' equity to the Company's carrying value.
Partners' equity, as above ................ $ 152,323 $ 78,794
Equity (deficit) of other partners ........ 5,487 (2,934)
-----------------------------
Company's investment in partnerships ...... 146,836 81,728
Advances to partnerships, as above ........ 43,550 36,131
Advances to other real estate affiliates .. 245,862 220,606
-----------------------------
Investments in and Advances
to Real Estate Affiliates ............... $ 436,248 $ 338,465
=============================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
46
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
F. OTHER ASSETS
Included in other assets are costs incurred in connection with obtaining
financing which are deferred and amortized over the life of the related debt.
Costs incurred in connection with leasing space to tenants are also included in
other assets and are deferred and amortized using the straight-line method over
the lives of the related leases.
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
- ----------------------------------------------------------------------------------
(in thousands)
JANUARY 31, 2001
Unamortized costs,
net .............. $ 96,338 $ 20,803 $ 19,645 $ 95,180
Prepaid expenses
and other ........ 70,418 7,844 4,540 67,114
--------------------------------------------------
$166,756 $ 28,647 $ 24,185 $162,294
==================================================
JANUARY 31, 2000
Unamortized costs,
net .............. $ 86,478 $ 17,634 $ 17,009 $ 85,853
Prepaid expenses
and other ........ 68,492 2,347 7,089 73,234
--------------------------------------------------
$154,970 $ 19,981 $ 24,098 $159,087
==================================================
G. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses at January 31, 2001 and
2000 are book overdrafts of approximately $54,426,000 and $85,419,000 for full
consolidation presentation and $54,516,000 and $85,506,000 for pro-rata
consolidation presentation, respectively. The overdrafts are a result of the
Company's cash management program and represent checks issued but not yet
presented to a bank for collection.
H. NOTES PAYABLE
The components of notes payable, which represent indebtedness whose
original maturity dates are within one year of issuance, are as follows.
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
- -------------------------------------------------------------------------------------
(dollars in thousands)
JANUARY 31, 2001
Payable to
Banks ................ $ -- $ -- $ -- $ --
Other ................ 55,392 14,694 1,417 42,115
------------------------------------------------
$55,392 $14,694 $ 1,417 $42,115
================================================
Weighted average
interest rate ........ 7.85% 7.75%
JANUARY 31, 2000
Payable to
Banks ................ $21,486 $ -- $ -- $21,486
Other ................ 51,294 14,285 4,403 41,412
------------------------------------------------
$72,780 $14,285 $ 4,403 $62,898
================================================
Weighted average
interest rate......... 8.11% 8.15%
Notes payable to banks reflect borrowings on the Lumber Trading Group's
$87,000,000 bank lines of credit. The bank lines of credit allow for up to
$5,000,000 in outstanding letters of credit (none was outstanding at January 31,
2001) which reduce the credit available to the Lumber Trading Group. Borrowings
under these bank lines of credit, which are nonrecourse to the Company, are
collateralized by all the assets of the Lumber Trading Group, bear interest at
the lender's prime rate or 1.5% over LIBOR, and have a fee of 0.2% per annum on
the unused portion of the available commitment. These bank lines of credit are
subject to review and extension annually and expire June 30, 2001.
Other notes payable relate to improvements and construction funded by
tenants, property and liability insurance premium financing and advances from
affiliates and partnerships.
The following table summarizes interest incurred and paid on notes
payable.
Full Consolidation Pro-Rata Consolidation
-------------------------------------------
Year Ended January 31, Incurred Paid Incurred Paid
- ----------------------------------------------------------------------
(in thousands)
2001 ............. $8,113 $7,846 $7,372 $7,166
2000 ............. 5,965 5,743 6,199 5,901
1999 ............. 6,004 5,659 7,331 5,664
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
47
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
I. MORTGAGE DEBT, NONRECOURSE
Mortgage debt, which is collateralized by completed rental properties,
projects under development and certain undeveloped land, is as follows:
Less Plus Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Rate (1) Interest at Pro-Rata Consolidation Rate (1)
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
JANUARY 31, 2001
Fixed ............................ $ 1,711,574 7.53% $ 343,626 $ 472,811 $ 1,840,759 7.57%
Variable
Taxable (2)..................... 605,796 8.73% 128,287 143,223 620,732 8.59%
Tax-Exempt...................... 54,150 6.20% 5,638 46,093 94,605 5.36%
UDAG.............................. 68,392 1.61% 10,463 11,892 69,821 2.65%
----------- ----------------------------------------------
$ 2,439,912 7.65% $ 488,014 $ 674,019 $ 2,625,917 7.61%
=========== ==============================================
JANUARY 31, 2000
Fixed ............................ $ 1,366,132 7.48% $ 259,560 $ 458,048 $ 1,564,620 7.52%
Variable
Swapped......................... 205,615 7.34% 65,100 58,277 198,792 7.44%
Taxable......................... 437,473 7.81% 79,612 38,791 396,652 7.86%
Tax-Exempt...................... 110,899 4.44% 4,807 46,365 152,457 4.10%
UDAG ............................. 68,475 1.53% 10,508 11,892 69,859 2.57%
----------- ----------------------------------------------
$ 2,188,594 7.19% $ 419,587 $ 613,373 $ 2,382,380 7.21%
=========== ==============================================
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) As of January 31, 2001, $605,796 at full consolidation and $620,732 at
pro-rata consolidation of taxable variable-rate debt is protected with LIBOR
caps as described below. These caps protect the current debt outstanding as
well as the anticipated increase in debt outstanding for projects currently
under development or anticipated to be under development during the year
ending January 31, 2002.
Debt related to projects under development at January 31, 2001 are as
follows:
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
- --------------------------------------------------------------------------------
(in thousands)
Variable ........... $ 58,583 $ 14,656 $ 26,551 $ 70,478
Fixed .............. 26,498 1,924 1,230 25,804
--------------------------------------------------
Total ............ $ 85,081 $ 16,580 $ 27,781 $ 96,282
==================================================
Commitment
from lenders ..... $213,371 $ 24,926 $ 72,793 $261,238
==================================================
The Company generally borrows funds for development and construction
projects with maturities of two to five years utilizing variable-rate financing.
Upon opening and achieving stabilized operations, the Company generally pursues
long-term fixed-rate financing.
The Company has purchased London Interbank Offered Rate ("LIBOR") interest
rate caps for the mortgage debt portfolio as follows:
Full Consolidation Pro-Rata Consolidation
----------------------------------------------
Average Average
Coverage Amount Rate Amount Rate
- -----------------------------------------------------------------------
(dollars in thousands)
02/01/01 - 01/31/02 ... $605,780 7.11% $ 590,568 7.03%
02/01/02 - 01/31/03 ... 568,574 7.68% 586,210 7.76%
02/01/03 - 01/31/04 ... 391,800 7.75% 389,699 7.87%
02/01/04 - 01/31/05 ... 211,800 8.00% 285,337 8.00%
02/01/05 - 01/31/06 ... 177,300 8.00% 177,300 8.00%
The interest rate caps listed above were purchased to mitigate short-term
variable interest rate risk. The Company currently intends to convert a
significant portion of its committed variable-rate debt to fixed-rate debt. In
order to protect against significant increases in long-term interest rates, the
Company has purchased Treasury Options as follows:
Full Consolidation Pro-Rata Consolidation
-------------------------------- ----------------------------------
Weighted Remaining Weighted Remaining
Average Years at Average Years at
Term Amount Rate 1/31/01 Amount Rate 1/31/01
- ---------------------------------------------------------------------------------------
(dollars in thousands)
10 years $123,100 7.00% 0.21 $ 86,890 7.00% 0.21
10 years 321,800 6.92% 1.35 210,262 6.93% 1.38
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 by government agencies as an inducement to develop real
estate in targeted 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 are as follows:
Full Pro-Rata
Years Ending January 31, Consolidation Consolidation
- --------------------------------------------------------------------
(in thousands)
2002 ............................. $572,511 $521,244
2003 ............................. 163,165 225,192
2004 ............................. 525,449 491,053
2005 ............................. 60,392 80,856
2006 ............................. 119,059 181,417
The Company is engaged in discussions with its current lenders and is
actively pursuing new lenders to extend and refinance maturing mortgage debt. As
of January 31, 2001, the Company had refinancing commitments and extension
options on upcoming maturities as follows:
Full Pro-Rata
Consolidation Consolidation
- ----------------------------------------------------------------------
(in thousands)
Refinancing commitments ......... $ 2,521 $ 14,767
Extension options available ..... 196,518 252,710
The following table summarizes interest incurred and paid on mortgage
debt, nonrecourse.
Full Consolidation Pro-Rata Consolidation
----------------------------------------------------
Year Ended January 31, Incurred Paid Incurred Paid
- --------------------------------------------------------------------------------
(in thousands)
2001 ................. $162,466 $168,542 $175,790 $173,782
2000 ................. 133,443 133,774 152,784 154,185
1999 ................. 119,816 124,330 144,890 148,959
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
48
24
Notes to Consolidated Financial Statements
Forest City Enterprises, Inc. and Subsidiaries
J. LONG-TERM CREDIT FACILITY
At January 31, 2001 and 2000, the Company had $189,500,000 and
$167,000,000, respectively, outstanding under its $265,000,000 revolving credit
facility. The revolving credit facility matures March 31, 2003, unless extended,
and allows for up to a combined amount of $30,000,000 in outstanding letters of
credit and surety bonds ($7,222,000 and $14,675,000, respectively, were
outstanding at January 31, 2001). The outstanding letters of credit reduce the
credit available to the Company. Annually, within 60 days after January 31, the
revolving credit facility may be extended by one year by unanimous consent of
the participating banks. At its maturity date, the outstanding revolving credit
loans, if any, may be converted by the Company into a four-year term loan. The
revolving credit available is reduced quarterly by $2,500,000, which began
October 1, 2000. At January 31, 2001, the revolving credit line was
$260,000,000.
The revolving credit agreement provides, among other things, for 1)
interest rates of 2.125% over LIBOR or 0.5% over the prime rate; 2) maintenance
of debt service coverage ratios and specified levels of net worth and cash flow
(as defined); and 3) restriction on dividend payments. At January 31, 2001,
retained earnings of $8,198,000 were available for payment of dividends.
The Company has purchased LIBOR interest rate caps at an average rate of
6.82% for 2001 and 7.75% for 2002 at notional amounts of $187,484,000 and
$54,161,000, respectively.
Interest incurred on the long-term credit facility was $16,163,000 in
2000, $10,897,000 in 1999 and $6,317,000 in 1998. Interest paid on the long-term
credit facility was $15,162,000 in 2000, $9,984,000 in 1999 and $6,010,000 in
1998.
K. SENIOR AND SUBORDINATED DEBT
On March 16, 1998, the Company issued $200,000,000 of 8.50% senior notes,
due March 15, 2008, in a public offering. Net proceeds in the amount of
$195,500,000 were contributed to the capital of Forest City Rental Properties
Corporation, a wholly-owned subsidiary, and were then used to repay loans under
its credit agreement with banks and to finance acquisitions and development of
real estate projects. Accrued interest is payable semi-annually on March 15 and
September 15. The senior notes are unsecured senior obligations of the Company;
however, they are subordinated to all existing and future indebtedness and other
liabilities of the Company's subsidiaries, including the revolving credit
facility. The indenture contains covenants providing, among other things,
limitations on incurring additional debt and payment of dividends. The dividend
limitation is not as restrictive as that imposed by the Company's revolving
credit facility (Note J).
The senior notes may be redeemed by the Company, in whole or in part, at
any time on or after March 15, 2003 at redemption prices beginning at 104.25%
for the year beginning March 15, 2003 and systematically reduced to 100% in the
years thereafter.
In November 2000, the Company issued $20,400,000 of redevelopment bonds in
a private placement. The proceeds were used to repay nonrecourse debt that was
issued to finance an apartment facility in Philadelphia, Pennsylvania. The bonds
bear interest at 8.25% and are due September 15, 2010. Interest is payable
semi-annually on each March 15 and September 15 beginning March 15, 2001. This
debt is unsecured and subordinated to the senior notes and the revolving credit
facility. Financial covenants associated with this debt are similar to that of
the senior notes.
Interest incurred on the above debt was $17,234,000 in 2000, $17,000,000
in 1999 and $14,922,000 in 1998. Interest paid was $17,000,000 in 2000 and 1999
and $8,453,000 in 1998.
CONSOLIDATED INTEREST
The following table summarizes interest incurred, capitalized and paid on
all forms of indebtedness (included in Notes H, I, J and K).
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Years Ended January 31, Consolidation Interest at Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------
(in thousands)
2001
Interest incurred ...... $ 203,976 $ 36,605 $ 49,188 $ 216,559
Interest capitalized ... (21,432) (1,117) (5,820) (26,135)
---------------------------------------------------------
Net interest expense .. $ 182,544 $ 35,488 $ 43,368 $ 190,424
=========================================================
Interest paid .......... $ 208,550 $ 213,110
========= =========
2000
Interest incurred ...... $ 167,305 $ 24,485 $ 44,060 $ 186,880
Interest capitalized ... (27,439) (2,456) (2,178) (27,161)
---------------------------------------------------------
Net interest expense .. $ 139,866 $ 22,029 $ 41,882 $ 159,719
=========================================================
Interest paid .......... $ 166,501 $ 187,070
========= =========
1999
Interest incurred ...... $ 147,059 $ 22,576 $ 48,977 $ 173,460
Interest capitalized ... (22,457) (1,280) (2,323) (23,500)
---------------------------------------------------------
Net interest expense .. $ 124,602 $ 21,296 $ 46,654 $ 149,960
=========================================================
Interest paid .......... $ 144,452 $ 169,086
========= =========
L. Income Taxes
The income tax provision consists of the following components.
Years Ended January 31,
- ------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------
(in thousands)
Current
Federal ................. $ 7,991 $ 8,620 $ (570)
Foreign ................. 422 446 409
State ................... 1,913 3,191 75
-------------------------------------
10,326 12,257 (86)
=====================================
Deferred
Federal ................. 9,495 10,796 21,996
Foreign ................. 40 28 16
State ................... 2,451 1,238 5,748
-------------------------------------
11,986 12,062 27,760
-------------------------------------
Total provision ............ $ 22,312 $ 24,319 $ 27,674
=====================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
49
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
L. INCOME TAXES (CONTINUED)
The effective tax rate for income taxes varies from the federal statutory
rate of 35% due to the following items.
Years Ended January 31,
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
(in thousands)
Statement earnings
before income taxes,
after minority interest ...... $ 113,949 $ 64,849 $ 66,081
=========================================
Income taxes computed at
the statutory rate ........... $ 39,882 $ 22,697 $ 23,129
Increase (decrease) in tax
resulting from:
State taxes, net of
federal benefit ............. 7,834 3,016 3,452
Contribution
carryover ................... (361) (201) 1,113
Adjustment of prior
estimated taxes ............. 190 64 (116)
Valuation allowance .......... (2,262) (423) 165
Cancellation of debt ......... (23,589) -- --
Other items .................. 618 (834) (69)
-----------------------------------------
Total provision ................ $ 22,312 $ 24,319 $ 27,674
=========================================
Effective tax rate ............. 19.58% 37.50% 41.88%
An analysis of the deferred tax provision is as follows.
Years Ended January 31,
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
(in thousands)
Excess of tax over
statement depreciation
and amortization ..................... $ 5,389 $ 2,035 $ 3,040
Cancellation of debt .................... (23,589) -- --
Gains deferred for tax .................. 14,636 4,219 --
Costs on land and rental
properties under
development expensed
for tax purposes ..................... 3,852 2,509 3,657
Revenues and expenses
recognized in different
periods for tax and
statement purposes ................... (412) (1,121) 9,294
Difference between tax and
statement related to
unconsolidated entities .............. 4,792 (421) 6,519
Provision for decline in
real estate .......................... (431) (1,772) --
Deferred state taxes, net
of federal benefit ................... 4,817 1,188 3,019
Utilization of tax loss
carryforward ......................... 13,221 15,577 5,423
Valuation allowance ..................... (2,262) (423) 165
Alternative minimum tax
credits .............................. (8,027) (9,729) (3,357)
----------------------------------
Deferred provision ...................... $ 11,986 $ 12,062 $ 27,760
==================================
The types of differences that gave rise to significant portions of the
deferred income tax liability are presented in the following table.
January 31,
-------------------------------------------------
Temporary Differences Deferred Tax
-------------------------------------------------
2001 2000 2001 2000
- --------------------------------------------------------------------------------
(in thousands)
Depreciation ............... $ 154,487 $ 169,817 $ 61,099 $ 67,163
Capitalized costs (1) ...... 322,482 221,539 127,542 87,619
Net operating losses ....... (10,026) (41,513) (3,509) (14,530)
Federal tax credits ........ -- -- (32,871) (23,263)
Comprehensive income ....... 6,400 31,690 2,531 12,533
Basis in unconsolidated
entities .................. 110,977 89,133 43,892 35,252
Other ...................... (70,830) 12,154 (22,013) 9,887
-------------------------------------------------
$ 513,490 $ 482,820 $ 176,671 $ 174,661
=================================================
(1) Included in capitalized costs at January 31, 2001 is $56,910 related to
replacement property of tax-deferred exchanges.
Income taxes paid totaled $15,511,000, $7,176,000 and $3,740,000 in the
years ended January 31, 2001, 2000 and 1999, respectively. At January 31, 2001,
the Company had a net operating loss carryforward for tax purposes of
$10,026,000 which will expire in the year ending January 31, 2011, general
business credit carryovers of $1,582,000 which will expire in the years ending
January 31, 2004 through January 31, 2015 and alternative minimum tax
carryforward of $31,289,000.
The Company's net deferred tax liability at January 31, 2001 is comprised
of deferred liabilities of $309,072,000 deferred assets of $134,340,000 and a
valuation allowance related to state taxes and general business credits of
$1,939,000.
M. SEGMENT INFORMATION
Strategic business units are determined by the type of customer served or
the product sold. The Commercial Group owns, develops, acquires and operates
shopping centers, office buildings and mixed-use projects, including hotels. The
Residential Group owns, develops, acquires and operates the Company's
multi-family properties. Real Estate Groups are the combined Commercial and
Residential Groups. The Land Group owns and develops raw land into master
planned communities and other residential developments for resale to users
principally in Arizona, Colorado, Florida, Illinois, Nevada, New York, North
Carolina and Ohio. The Lumber Trading Group operates the Company's lumber
wholesaling business. Corporate includes interest on corporate borrowings and
general corporate expenses.
The Company uses an additional measure, along with net earnings, to report
its operating results. This measure, referred to as Earnings Before
Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of
operating results or cash flows from operations as defined by generally accepted
accounting principles and may not be directly comparable to similarly-titled
measures reported by other companies. The Company believes that EBDT provides
additional information about its operations and, along with net earnings, is
necessary to understand its operating results. The Company's view is that EBDT
is an indicator of the Company's ability to generate cash to meet its funding
requirements. EBDT is defined as earnings before extraordinary gain (loss),
excluding the following items: i) provision for decline in real estate; ii) gain
(loss) on disposition of properties and other investments; iii) beginning in the
year ended January 31, 2001, the adjustment to recognize rental revenues and
rental expenses using the straight-line method; and iv) noncash charges from
Forest City Rental Properties Corporation for depreciation, amortization and
deferred income taxes.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
50
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
M. SEGMENT INFORMATION (CONTINUED)
The following tables summarize financial data for the Commercial,
Residential, Land and Lumber Trading Groups and Corporate. The table is
presented by using the pro-rata consolidation method, which is the method used
by management for internal reporting. A reconciliation to the full consolidation
method is included for certain information for the years ended January 31, 2001,
2000 and 1999. All amounts, including footnotes, are presented in thousands.
January 31, Years Ended January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Expenditures for Additions
Identifiable Assets (3) to Real Estate (3)
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Group .................................... $2,758,969 $2,558,206 $2,290,100 $ 256,679 $ 272,814 $ 367,985
Residential Group ................................... 1,010,889 800,175 712,808 267,208 76,039 75,258
Land Group .......................................... 153,582 136,477 130,587 54,207 48,429 43,063
Lumber Trading Group ................................ 136,175 208,836 218,551 2,483 3,899 2,301
Corporate ........................................... 68,368 90,990 65,274 912 2,476 426
---------------------------------------------------------------------------
Consolidated at pro-rata ........................... 4,127,983 3,794,684 $3,417,320 $ 581,489 $ 403,657 $ 489,033
=================================================
Minority interest and unconsolidated entities....... (97,513) (128,329)
-----------------------
Consolidated ....................................... $4,030,470 $3,666,355
=======================
Years Ended January 31,
------------------------------------------------------------------------------------------------------
Revenues Interest Expense Depreciation & Amortization Expense
------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------------------------------------------------------------------------------------------------------
Commercial Group .......... $ 522,841 $ 442,992 $ 374,106 $ 115,091 $ 94,356 $ 91,291 $ 75,564 $ 66,848 $ 65,527
Residential Group ......... 167,052 158,768 139,003 32,534 26,447 27,342 19,837 17,808 18,128
Land Group ................ 64,656 41,356 58,769 4,726 7,370 6,814 382 240 562
Lumber Trading Group(1) ... 105,427 149,357 123,325 5,584 5,288 5,262 2,340 2,125 2,045
Corporate ................. 540 598 1,446 32,489 26,258 19,251 1,446 1,123 806
------------------------------------------------------------------------------------------------------
Consolidated at pro-rata.. 860,516 793,071 696,649 190,424 159,719 149,960 99,569 88,144 87,068
Minority interest and
unconsolidated entities.. (65,731) (94,283) (86,949) (7,880) (19,853) (25,358) (1,205) (6,640) (3,229)
------------------------------------------------------------------------------------------------------
Consolidated ............. $ 794,785 $ 698,788 $ 609,700 $ 182,544 $ 139,866 $ 124,602 $ 98,364 $ 81,504 $ 83,839
======================================================================================================
Earnings Before Earnings Before Depreciation,
Income Taxes (EBIT)(2) Amortization & Deferred Taxes (EBDT)
-----------------------------------------------------------------------
Commercial Group ........................................... $ 65,033 $ 50,589 $ 27,480 $ 121,446 $ 105,877 $ 86,410
Residential Group .......................................... 40,359 40,472 27,285 55,787 46,411 38,614
Land Group ................................................. 2,868 (5,746) 5,265 2,191 (3,489) 10,803
Lumber Trading Group ....................................... 1,310 12,258 6,066 283 7,070 3,227
Corporate .................................................. (45,408) (38,374) (30,572) (31,898) (23,230) (21,200)
Provision for decline in real estate ....................... (1,231) (5,062) - - - -
Gain on disposition of properties and other investments .... 51,018 10,712 30,557 - - -
-----------------------------------------------------------------------
Consolidated at pro-rata .................................. 113,949 64,849 66,081 147,809 132,639 117,854
Minority interest and unconsolidated entities ............. 3,399 5,557 (1,227)
--------------------------------
Consolidated .............................................. $117,348 $ 70,406 $ 64,854
================================
RECONCILIATION OF EBDT TO NET EARNINGS:
Depreciation and amortization - Real Estate Groups .......................................... (95,763) (84,586) (83,655)
Deferred taxes - Real Estate Groups ......................................................... (23,518) (12,453) (14,236)
Straight-line rent adjustment ............................................................... 9,423 - -
Provision for decline in real estate, net of tax ............................................ (744) (3,060) -
Gain on disposition of properties and other investments, net of tax ......................... 51,821 11,139 7,419
Minority interest in gain on disposition .................................................... 250 (2,738) -
Gain (loss) on disposition reported on equity method ........................................ 2,359 (411) 11,025
Extraordinary gain, net of tax .............................................................. - 272 16,343
-------------------------------
NET EARNINGS ................................................................................ $ 91,637 $ 40,802 $ 54,750
===============================
(1) The Company recognizes the gross margin on lumber brokerage sales as
Revenues. Sales invoiced for the years ended January 31, 2001, 2000 and
1999 were $2,674,000, $3,712,000 and $2,979,000, respectively.
(2) See Consolidated Statements of Earnings on page 30 for reconciliation of
EBIT to net earnings.
(3) Beginning in the year ended January 31, 2001, the Central Station project
in Chicago, Illinois, which was previously reported in the Commercial
Group, and the Stapleton project in Denver, Colorado, which was previously
reported in the Residential Group, are now being reported in the Land
Group. Prior years' segment information has been restated to reflect these
changes.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
51
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
N. LEASES
THE COMPANY AS LESSOR
The following table 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.
Plus
Less Unconsolidated
YEARS ENDING Full Minority Investments Pro-Rata
JANUARY 31, Consolidation Interest at Pro-Rata Consolidation
- -------------------------------------------------------------------------------
(in thousands)
2002 ......... $ 224,117 $ 48,066 $ 44,470 $ 220,521
2003 ......... 217,780 47,033 42,201 212,948
2004 ......... 211,096 46,797 39,078 203,377
2005 ......... 192,853 44,267 35,446 184,032
2006 ......... 181,233 42,260 31,612 170,585
Later years... 1,507,021 388,603 123,203 1,241,621
---------------------------------------------------------
$2,534,100 $ 617,026 $ 316,010 $ 2,233,084
=========================================================
Most of the commercial leases include provisions for reimbursements of
other charges including real estate taxes and operating costs. The following
table summarizes total reimbursements.
YEARS ENDED Full Pro-Rata
JANUARY 31, Consolidation Consolidation
- ---------------------------------------------------------------------
(in thousands)
2001 ................................ $ 86,827 $ 87,025
2000 ................................ 72,949 75,954
1999 ................................ 64,909 67,659
THE COMPANY AS LESSEE
The Company is a lessee under various operating leasing arrangements for
real property and equipment having terms expiring through 2095, excluding
optional renewal periods.
Minimum fixed rental payments under long-term leases (over one year) in
effect at January 31, 2001 are as follows.
Plus
Less Unconsolidated
YEARS ENDING Full Minority Investments Pro-Rata
JANUARY 31, Consolidation Interest at Pro-Rata Consolidation
- -------------------------------------------------------------------------------------------
(in thousands)
2002 ........................... $ 15,532 $ 3,366 $ 1,160 $ 13,326
2003 ........................... 14,910 3,443 1,126 12,593
2004 ........................... 14,375 3,387 1,115 12,103
2005 ........................... 13,192 3,235 1,084 11,041
2006 ........................... 12,566 3,252 1,050 10,364
Later years .................... 552,349 164,593 46,625 434,381
----------------------------------------------------
$622,924 $181,276 $ 52,160 $493,808
====================================================
The following table summarizes rent expense paid.
YEARS ENDED Full Pro-Rata
JANUARY 31, Consolidation Consolidation
- ----------------------------------------------------------------------
(in thousands)
2001 ................................. $ 16,621 $ 15,036
2000 ................................. 13,541 13,361
1999 ................................. 11,540 10,267
O. CONTINGENT LIABILITIES
As of January 31, 2001, the Company has guaranteed loans of $1,825,000,
letters of credit outstanding of $7,222,000 and surety bonds outstanding of
$14,675,000.
The Company customarily guarantees lien-free completion of its
construction. Upon completion, the guarantees are released. For certain limited
partnerships in which the Company is a general partner, it guarantees the
funding of operating deficits of newly-opened apartment projects for periods
averaging five years. 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.
P. STOCK-BASED COMPENSATION
Class A fixed options in the form of either incentive stock options or
non-qualified stock options may be awarded under the 1994 Stock Option Plan
("Plan") to key employees and non-employee members of the Company's Board of
Directors. The maximum number of options that may be awarded under the Plan was
increased to 2,250,000 by shareholder approval in June 1998. The maximum award
to a person during any calendar year is 75,000 and the maximum term of an option
is 10 years. The exercise price of all options must equal the fair market value
of the stock on the date of grant, except, if incentive stock options are
granted to someone who owns more than 10% of the total combined voting power of
all classes of stock of the Company, then the exercise price will be 110% of the
fair market value of the stock on the date of grant and the term of the option
will be five years. The Plan is administered by the Compensation Committee of
the Board of Directors. The Company granted 15,000 options in 2000, 377,800
options in 1999 and 390,800 in 1998. All options granted under the Plan to date
have been for a term of 10 years and vest over two to four years.
The Company applies APBO 25 and related interpretations in accounting for
its Plan. The "intrinsic value" on the grant dates have been zero, thus no
compensation costs have been recognized for the Plan.
Had compensation costs been determined in accordance with SFAS 123
"Accounting for Stock-Based Compensation", net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below.
Years Ended January 31,
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Net earnings (in thousands)
As reported ........................ $ 91,637 $ 40,802 $ 54,750
Pro forma .......................... $ 89,316 $ 38,502 $ 53,150
Basic earnings per share
As reported ........................ $ 3.05 $ 1.36 $ 1.83
Pro forma .......................... $ 2.97 $ 1.28 $ 1.77
Diluted earnings per share
As reported ........................ $ 3.02 $ 1.35 $ 1.81
Pro forma .......................... $ 2.95 $ 1.29 $ 1.77
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
52
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
P. STOCK-BASED COMPENSATION (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 grants in 2000, 1999 and 1998, respectively: dividend yield of .7%, .6% and
.5%; expected volatility of 34.9%, 36.8% and 38.0%; risk-free interest rate of
6.0%, 5.2% and 5.7%; expected life of 8.7 years in all years; and turnover of
3.7%, 2.0% and 3.0%.
A summary of stock option activity is presented below.
Years Ended January 31,
- -------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year ...... 1,080,325 $ 22.06 723,950 $ 21.86 354,600 $ 14.38
Granted ............................... 15,000 $ 35.07 377,800 $ 22.42 390,800 $ 28.50
Exercised ............................. (32,925) $ 16.69 (3,600) $ 14.38 (4,350) $ 14.38
Forfeited ............................. -- $ -- (17,825) $ 22.81 (17,100) $ 20.32
--------- ---------- ---------
Outstanding at end of year ............ 1,062,400 $ 22.41 1,080,325 22.06 723,950 $ 21.86
========= =========
Options exercisable at end of year .... 391,950 $ 17.56 163,275 $ 14.38 82,500 $ 14.38
Number of shares available for
granting of options at end of year .. 1,146,725 1,161,725 1,521,700
Weighted average fair value of
options granted during the year ..... $17.61 $11.29 $15.12
The following table summarizes information about fixed stock options
outstanding at January 31, 2001.
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------------
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding at Remaining Average Exercisable at Average
Prices January 31, 2001 Contractual Life Exercise Prices January 31, 2001 Exercise Prices
- -------------------------------------------------------------------------------------------------------------
$ 14.38 303,600 5.6 years $ 14.38 303,600 $14.38
$ 22.38 - 25.69 374,200 8.2 years $ 22.42 -- $ --
$ 28.50 - 35.07 384,600 7.2 years $ 28.76 88,350 $28.50
--------- -------
1,062,400 391,950
========= =======
During 1999 the Compensation Committee granted 45,000 shares of restricted
Class A common stock to key employees. The restricted shares were awarded out of
treasury stock, having a cost basis of $605,000, with rights to vote the shares
and receive dividends while being subject to restrictions on disposition and
transferability and risk of forfeiture. The shares become nonforfeitable over a
period of four years. In accordance with APBO 25, the market value on the date
of grant of $1,114,000 was initially recorded as unearned compensation to be
charged to expense over the respective vesting periods. The unearned
compensation is reported as a reduction of Additional Paid-In Capital in the
accompanying consolidated financial statements. Unamortized unearned
compensation amounted to $882,000 and $1,021,000 at January 31, 2001 and 2000,
respectively.
SUBSEQUENT EVENT - In March 2001 the Compensation Committee approved grants
to key employees of 417,200 Class A common stock options and 60,000 shares of
restricted Class A common stock.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
53
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
Q. CAPITAL STOCK
The Company paid a two-for-one common stock split on July 16, 1998 effected
as a stock dividend. The stock split was given retroactive effect to the
beginning of the earliest period presented in the accompanying Consolidated
Statements of Shareholders' Equity. All share and per share data included in
this annual report, including stock option plan information, have been restated
to reflect the stock split.
In June 1998 the shareholders approved an amendment to the Company's Articles
of Incorporation to increase the Company's authorized shares of stock. Class A
common shares were increased from 48,000,000 to 96,000,000 shares. Class B
common shares were increased from 18,000,000 to 36,000,000 shares.
Class A common stock totaling 32,925, 3,600 and 4,350 shares in 2000, 1999
and 1998, respectively, were issued out of treasury stock upon the exercise of
stock options (See Note P).
R. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for "earnings before
extraordinary gain".
Earnings Weighted
Before Average
Extraordinary Common
Gain Shares Per
(Numerator) Outstanding Common
Years Ended January 31, (in thousands) (Denominator) Share
- ---------------------------------------------------------------------------
2001
Basic earnings per share ....... $ 91,637 30,035,127 $ 3.05
Effect of dilutive securities-
stock options ................. -- 298,315 (.03)
---------------------------------------
Diluted earnings per share ..... $ 91,637 30,333,442 $ 3.02
=======================================
2000
Basic earnings per share ....... $ 40,530 30,016,323 $ 1.35
Effect of dilutive securities-
stock options ................. -- 136,734 (.01)
---------------------------------------
Diluted earnings per share ..... $ 40,530 30,153,057 $ 1.34
=======================================
1999
Basic earnings per share ....... $ 38,407 29,980,200 $ 1.28
Effect of dilutive securities-
stock options ................. -- 193,730 (.01)
---------------------------------------
Diluted earnings per share ..... $ 38,407 30,173,930 $ 1.27
=======================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
54
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
S. 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.
Consolidated balance sheets and statements of earnings for Rental Properties and
its subsidiaries follow.
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - JANUARY 31, 2001
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties .......................... $ 3,086,966 $ 574,575 $ 703,020 $ 3,215,411
Projects under development ........................... 391,821 54,947 163,484 500,358
--------------------------------------------------------------------
Real estate, at cost .............................. 3,478,787 629,522 866,504 3,715,769
Less accumulated depreciation ........................ (473,843) (76,301) (172,062) (569,604)
--------------------------------------------------------------------
Total Real Estate ................................. 3,004,944 553,221 694,442 3,146,165
Cash and equivalents ................................... 24,770 8,653 20,422 36,539
Restricted cash ........................................ 67,951 10,706 18,125 75,370
Notes and accounts receivable, net ..................... 115,482 18,751 5,736 102,467
Investments in and advances to real estate affiliates .. 384,132 -- (60,147) 323,985
Other assets ........................................... 144,917 28,647 23,125 139,395
--------------------------------------------------------------------
TOTAL ASSETS ...................................... $ 3,742,196 $ 619,978 $ 701,703 $ 3,823,921
====================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse ............................. $ 2,433,649 $ 488,014 $ 642,562 $ 2,588,197
Accounts payable and accrued expenses .................. 320,376 39,180 57,919 339,115
Notes payable .......................................... 50,860 14,694 1,222 37,388
Long-term credit facility .............................. 189,500 -- -- 189,500
Subordinated debt ...................................... 20,400 -- -- 20,400
Deferred income taxes .................................. 201,015 -- -- 201,015
--------------------------------------------------------------------
Total Liabilities .................................... 3,215,800 541,888 701,703 3,375,615
Minority Interest ...................................... 78,090 78,090 -- --
--------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital ............ 200,878 -- -- 200,878
Retained earnings ...................................... 243,559 -- -- 243,559
--------------------------------------------------------------------
444,437 -- -- 444,437
Accumulated other comprehensive income ................. 3,869 -- -- 3,869
--------------------------------------------------------------------
Total Shareholder's Equity ........................... 448,306 -- -- 448,306
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ........ $ 3,742,196 $ 619,978 $ 701,703 $ 3,823,921
====================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
55
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
S. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - JANUARY 31, 2000
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Real Estate
Completed rental properties .......................... $ 2,660,957 $ 430,376 $ 636,332 $ 2,866,913
Projects under development ........................... 499,399 126,273 105,640 478,766
--------------------------------------------------------------------
Real estate, at cost .............................. 3,160,356 556,649 741,972 3,345,679
Less accumulated depreciation ........................ (443,381) (66,690) (155,916) (532,607)
--------------------------------------------------------------------
Total Real Estate ................................. 2,716,975 489,959 586,056 2,813,072
Cash and equivalents ................................... 17,707 6,685 14,298 25,320
Restricted cash ........................................ 67,765 8,243 16,167 75,689
Notes and accounts receivable, net ..................... 57,438 4,906 5,487 58,019
Investments in and advances to real estate affiliates .. 289,340 -- (2,033) 287,307
Other assets ........................................... 138,355 19,981 23,168 141,542
--------------------------------------------------------------------
TOTAL ASSETS ...................................... $ 3,287,580 $ 529,774 $ 643,143 $ 3,400,949
====================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse ............................. $ 2,185,628 $ 419,587 $ 590,014 $ 2,356,055
Accounts payable and accrued expenses .................. 217,730 23,295 50,893 245,328
Notes payable .......................................... 46,504 14,285 2,236 34,455
Long-term credit facility .............................. 167,000 -- -- 167,000
Deferred income taxes .................................. 199,791 -- -- 199,791
--------------------------------------------------------------------
Total Liabilities .................................... 2,816,653 457,167 643,143 3,002,629
Minority Interest ...................................... 72,607 72,607 -- --
--------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital ............ 200,878 -- -- 200,878
Retained earnings ...................................... 178,285 -- -- 178,285
--------------------------------------------------------------------
379,163 -- -- 379,163
Accumulated other comprehensive income ................. 19,157 -- -- 19,157
--------------------------------------------------------------------
Total Shareholder's Equity ........................... 398,320 -- -- 398,320
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ........ $ 3,287,580 $ 529,774 $ 643,143 $ 3,400,949
====================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
56
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
S. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - YEARS ENDED JANUARY 31,
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
2001
REVENUES
Real estate operations ................... $ 633,695 $ 114,247 $ 165,531 $ 684,979
Unconsolidated entities .................. 30,311 -- (20,670) 9,641
------------------------------------------------------------
664,006 114,247 144,861 694,620
------------------------------------------------------------
Operating expenses ......................... 318,761 56,093 86,715 349,383
Interest expense ........................... 173,964 35,488 40,544 179,020
Provision for decline in real estate ....... 1,231 -- -- 1,231
Depreciation and amortization .............. 94,496 19,017 19,961 95,440
------------------------------------------------------------
588,452 110,598 147,220 625,074
------------------------------------------------------------
Gain (loss) on disposition of properties
and other investments ................... 49,609 (250) 2,359 52,218
------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ............... 125,163 3,399 -- 121,764
------------------------------------------------------------
INCOME TAX EXPENSE
Current .................................. 11,990 -- -- 11,990
Deferred ................................. 11,200 -- -- 11,200
------------------------------------------------------------
23,190 -- -- 23,190
------------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST .......... 101,973 3,399 -- 98,574
Minority interest .......................... 3,399 3,399 -- --
------------------------------------------------------------
NET EARNINGS ............................... $ 98,574 $ -- $ -- $ 98,574
============================================================
2000
REVENUES
Real estate operations ................... $ 515,783 $ 68,244 $ 151,391 $ 598,930
Unconsolidated entities .................. 19,809 -- (16,980) 2,829
------------------------------------------------------------
535,592 68,244 134,411 601,759
------------------------------------------------------------
Operating expenses ......................... 264,208 31,354 73,761 306,615
Interest expense ........................... 127,433 22,029 41,657 147,061
Depreciation and amortization .............. 78,044 12,042 18,583 84,585
------------------------------------------------------------
469,685 65,425 134,001 538,261
------------------------------------------------------------
Gain (loss) on disposition of properties
and other investments ................... 13,861 2,738 (410) 10,713
------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ............... 79,768 5,557 -- 74,211
------------------------------------------------------------
INCOME TAX EXPENSE
Current .................................. 12,446 -- -- 12,446
Deferred ................................. 15,139 -- -- 15,139
------------------------------------------------------------
27,585 -- -- 27,585
------------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST AND
EXTRAORDINARY GAIN ....................... 52,183 5,557 -- 46,626
Minority interest .......................... 5,557 5,557 -- --
Extraordinary gain, net of tax ............. 272 -- -- 272
------------------------------------------------------------
NET EARNINGS ............................... $ 46,898 $ -- $ -- $ 46,898
============================================================
1999
REVENUES
Real estate operations ................... $ 438,855 $ 62,640 $ 138,421 $ 514,636
Unconsolidated entities .................. 27,859 -- (23,213) 4,646
------------------------------------------------------------
466,714 62,640 115,208 519,282
------------------------------------------------------------
Operating expenses ......................... 224,498 28,787 68,785 264,496
Interest expense ........................... 117,909 21,296 40,943 137,556
Depreciation and amortization .............. 80,934 13,784 16,505 83,655
------------------------------------------------------------
423,341 63,867 126,233 485,707
------------------------------------------------------------
Gain on disposition of properties
and other investments ................... 19,865 -- 11,025 30,890
------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ............... 63,238 (1,227) -- 64,465
------------------------------------------------------------
INCOME TAX EXPENSE
Current .................................. (705) -- -- (705)
Deferred ................................. 26,389 -- -- 26,389
------------------------------------------------------------
25,684 -- -- 25,684
------------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST AND
EXTRAORDINARY GAIN ....................... 37,554 (1,227) -- 38,781
Minority interest .......................... (1,227) (1,227) -- --
Extraordinary gain, net of tax ............. 16,343 -- -- 16,343
------------------------------------------------------------
NET EARNINGS ............................... $ 55,124 $ -- $ -- $ 55,124
============================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
57
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forest City Enterprises, Inc. and Subsidiaries
T. GAIN ON DISPOSITION OF PROPERTIES AND OTHER INVESTMENTS, EXTRAORDINARY GAIN
AND PROVISION FOR DECLINE IN REAL ESTATE
The following table summarizes the gain (loss) on disposition of properties
and other investments by year.
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
YEARS ENDED JANUARY 31, Full Consolidation Interest Pro-Rata Consolidation
- ---------------------------------------------------------------------------------------------------------
(in thousands)
2001
Studio Colony(*) ...................... $ 25,726 $ -- $ -- $ 25,726
Highlands ............................. 599 -- -- 599
Tucson Place(*) ....................... 8,734 -- -- 8,734
Canton Centre Mall(*) ................. (436) -- -- (436)
Gallery at Metrotech .................. (6,868) (250) -- (6,618)
Available-for-sale equity securities .. 20,654 -- 2,359 23,013
--------------------------------------------------------
Total .............................. $ 48,409 $ (250) $ 2,359 $ 51,018
========================================================
2000
Rolling Acres Mall(*) ................. $ 13,861 $ 2,738 $ -- $ 11,123
Other ................................. -- -- (411) (411)
--------------------------------------------------------
Total .............................. $ 13,861 $ 2,738 $ (411) $ 10,712
========================================================
1999
Summit Park Mall(*) ................... $ 13,897 $ -- $ -- $ 13,897
San Vicente(*) ........................ -- -- 10,403 10,403
Courtyard ............................. -- -- 622 622
Trolley Plaza(*) ...................... 4,941 -- -- 4,941
Other ................................. 694 -- -- 694
--------------------------------------------------------
Total .............................. $ 19,532 $ -- $ 11,025 $ 30,557
========================================================
(*) Tax-deferred exchange
Studio Colony and Highlands are apartment communities in California. Tucson
Place, Canton Centre Mall and Gallery at Metrotech are shopping centers in
Arizona, Ohio and New York, respectively. Rolling Acres Mall is located in Ohio.
Summit Park Mall and Courtyard are shopping centers in New York and Michigan,
respectively. San Vicente is an office building in California and Trolley Plaza
is an apartment community in Michigan.
PROVISION FOR DECLINE IN REAL ESTATE - During the year ended January 31,
2001, the Company recorded a Provision for Decline in Real Estate of $1,231,000
related to the write-down to estimated fair value, less cost to sell, of Canton
Centre Mall.
During the year ended January 31, 2000, the Company recorded a Provision for
Decline in Real Estate of $5,062,000 related to the write-down to estimated net
realizable value of the Land Group's investment in Granite Development Partners
L.P. (Granite). The Company, at that time, owned a 43.75% interest in Granite as
the result of a capital contribution of land, which was classified as
Investments in and Advances to Affiliates on the Company's Consolidated Balance
Sheets. Granite owns an interest in several raw land developments held for
resale, the most significant of which is a one-third interest in Seven Hills in
Henderson, Nevada. The revised projection of costs to complete the project
indicated that the Company may not recover its capital investment in Granite.
EXTRAORDINARY GAIN - There were no extraordinary gains during the year ended
January 31, 2001. Extraordinary gain, net of tax, totaled $272,000 and
$16,343,000 in the years ended January 31, 2000 and 1999, respectively,
representing extinguishment of nonrecourse debt and related accrued interest.
Extraordinary gain for the year ended January 31, 2000 represents
extinguishment of $450,000 ($272,000 after tax) of nonrecourse debt related to
Plaza at Robinson Town Centre in Pittsburgh, Pennsylvania.
The extraordinary gain for the year ended January 31, 1999 represents
extinguishment of nonrecourse debt related to Terminal Tower ($13,947,000 or
$8,431,000 after tax) and Skylight Office Tower ($3,619,000 or $2,188,000 after
tax), both located in Cleveland, Ohio; Courtland ($7,381,000 or $4,462,000 after
tax), a regional mall in Flint, Michigan; One Franklintown ($1,350,000 or
$816,000 after tax), an apartment complex in Philadelphia, Pennsylvania; Boot
Ranch ($187,000 or $113,000 after tax), an apartment property in Tampa, Florida;
and Trolley Plaza ($552,000 or $333,000 after tax).
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
58
34
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
Forest City Enterprises, Inc. and Subsidiaries
Quarter Ended
- ---------------------------------------------------------------------------------------------------------------------
JAN. 31, OCT. 31, JULY 31, APR. 30,
2001 2000 2000 2000
- ---------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Revenues ......................................... $ 226,129 $ 211,526 $ 190,263 $ 166,867
Earnings before income taxes ..................... $ 9,446 $ 21,927 $ 41,703 $ 44,272
Net earnings before extraordinary gain ........... $ 4,176 $ 13,079 $ 46,833 $ 27,549
Net earnings ..................................... $ 4,176 $ 13,079 $ 46,833 $ 27,549
Basic earnings per share
Net earnings before extraordinary gain(2) ...... $ .14 $ .44 $ 1.56 $ .92
Net earnings(2) ................................ $ .14 $ .44 $ 1.56 $ .92
Diluted earnings per share
Net earnings before extraordinary gain(2) ...... $ .14 $ .43 $ 1.55 $ .91
Net earnings(2) ................................ $ .14 $ .43 $ 1.55 $ .91
Dividends declared per common share(3)
Quarterly dividend
Class A ..................................... $ .06 $ .06 $ .06 $ .05
Class B ..................................... $ .06 $ .06 $ .06 $ .05
Market price range of common stock
Class A
High ....................................... $ 41.82 $ 37.05 $ 36.81 $ 30.38
Low ........................................ $ 36.70 $ 33.50 $ 28.00 $ 24.69
Class B
High ....................................... $ 42.30 $ 38.31 $ 37.25 $ 35.81
Low ........................................ $ 37.05 $ 35.40 $ 29.75 $ 30.38
Quarter Ended
- ---------------------------------------------------------------------------------------------------------------------
Jan. 31, Oct. 31, July 31, Apr. 30,
2000 1999 1999 1999
- ---------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Revenues ......................................... $ 197,925 $ 164,878 $ 174,062 $ 161,923
Earnings before income taxes ..................... $ 39,566 $ 12,697 $ 8,918 $ 9,225
Net earnings before extraordinary gain(1) ........ $ 23,463 $ 7,033 $ 4,740 $ 5,294
Net earnings ..................................... $ 23,521 $ 7,033 $ 4,740 $ 5,508
Basic earnings per share
Net earnings before extraordinary gain(1)(2) ... $ .78 $ .23 $ .16 $ .17
Net earnings(2) ................................ $ .78 $ .23 $ .16 $ .18
Diluted earnings per share
Net earnings before extraordinary gain(1)(2) ... $ .78 $ .23 $ .16 $ .17
Net earnings(2) ................................ $ .78 $ .23 $ .16 $ .18
Dividends declared per common share(3)
Quarterly dividend
Class A ..................................... $ .05 $ .05 $ .05 $ .04
Class B ..................................... $ .05 $ .05 $ .05 $ .04
Market price range of common stock
Class A
High ....................................... $ 28.25 $ 26.50 $ 28.75 $ 25.88
Low ........................................ $ 23.82 $ 21.88 $ 24.75 $ 19.88
Class B
High ....................................... $ 31.44 $ 27.50 $ 28.63 $ 26.00
Low ........................................ $ 27.07 $ 25.00 $ 25.00 $ 20.69
Both classes of common stock are traded on the New York Stock Exchange under
the symbols FCEA and FCEB. As of March 1, 2001, the number of registered holders
of Class A and Class B common stock were 820 and 600, respectively.
(1) Excludes the extraordinary gain, net of tax of $272 ($.01 basic and diluted
per share) in the year ended January 31, 2000. This item is explained in
Note T in the Notes to Consolidated Financial Statements.
(2) The sum of quarterly earnings per share may not equal annual earnings per
share due to the weighting of stock and option activity during the year.
(3) Future dividends will depend upon such factors as earnings, capital
requirements and financial condition of the Company. Retained earnings of
$8,198 was available for payment of dividends as of January 31, 2001, under
the restrictions contained in the revolving credit agreement with a group of
banks.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
59
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
GENERAL
The Company owns, develops, acquires and operates commercial and
residential real estate properties in 22 states and the District of Columbia.
The Company owns a portfolio that is diversified both geographically and by
property types and operates through four strategic business units: Commercial
Group, Residential Group, Land Group and Lumber Trading Group.
The Company uses an additional measure, along with net earnings, to
report its operating results. This measure, referred to as Earnings Before
Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of
operating results or cash flows from operations as defined by generally accepted
accounting principles and may not be directly comparable to similarly-titled
measures reported by other companies. The Company believes that EBDT provides
additional information about its operations and, along with net earnings, is
necessary to understand its operating results. The Company's view is that EBDT
is an indicator of the Company's ability to generate cash to meet its funding
requirements. EBDT is defined and discussed in detail under "Results of
Operations - EBDT."
The Company's EBDT for 2000 grew by 11.4% to $147,809,000 from
$132,639,000. The increase in EBDT is primarily attributable to improved results
from the opening or acquisition of 24 new properties in 1999 and 2000 and
increasing rental rates at existing properties.
Effective January 31, 2001, the Company implemented a change in the
presentation of its financial results. While a number of the line items on the
Company's consolidated financial statements have changed under the new full
consolidation method, there is no impact on EBDT, net earnings or shareholders'
equity for all years presented. This required financial reporting presentation
change will have no impact on the way the Company operates or manages its
business. Prior to January 31, 2001, the Company used the pro-rata method of
consolidation to report its partnerships. Under this method, the Company
presented its partnership investments proportionate to its share of ownership
for each line item of its consolidated financial statements. In accordance with
the FASB's Emerging Issues Task Force Issue No. 00-1, "Investor Balance Sheet
and Income Statement Display under the Equity Method for Investments in Certain
Partnerships and Other Ventures," the Company can no longer use the pro-rata
consolidation method for partnerships. Accordingly, partnership investments that
were previously reported on the pro-rata method are now reported as consolidated
at 100 percent, if deemed under the Company's control, or otherwise on the
equity method of accounting.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four
strategic business units as it believes it provides the most meaningful
understanding of the Company's financial performance.
The major components of EBDT are Revenues, Operating Expenses and
Interest Expense, each of which is discussed below. Net Operating Income ("NOI")
is defined as Revenues less Operating Expenses. See the information in the table
"Three Year Summary of Earnings before Depreciation, Amortization and Deferred
Taxes" at the end of this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
NET OPERATING INCOME FROM REAL ESTATE GROUPS - Management analyzes
property NOI using the pro-rata consolidation method. NOI from the combined
Commercial Group and Residential Group ("Real Estate Groups") for 2000 was
$339,321,000 compared to $296,521,000 in 1999, a 14.4% increase. Comparable NOI
for Real Estate Groups (NOI for properties in operation throughout both years)
increased 3.2% from 1999 to 2000 and 4.9% from 1998 to 1999. Including the
expected NOI for the twelve months following stabilization for the properties
that were opened, expanded or acquired in 2000, net of property disposals, NOI
for Real Estate Groups would be approximately $374,000,000 for 2000.
Commercial Group - Pro-Rata Consolidation
REVENUES - Revenues for the Commercial Group increased $66,538,000, or
15.0%, to $509,530,000 in 2000 from $442,992,000 in 1999. This increase was
primarily the result of the openings of 13 new properties during 1999 and 2000
and increased rents in existing properties. Revenues increased from the openings
of Promenade in Temecula, a 795,000-square-foot regional mall in Temecula,
California ($5,983,000), 45/75 Sidney Street, an office building at University
Park at MIT in Cambridge, Massachusetts ($3,306,000), several openings in the
Company's urban retail portfolio in the boroughs of New York City including
Columbia Park Center, 42nd Street, Battery Park City, Court Street, Forest
Avenue, Eastchester, and Kaufman Studios ($20,732,000), improved operations at
Pavilion, an office tower in San Jose, California ($4,884,000) and One
Pierrepont Plaza in Brooklyn, New York ($3,127,000), and the expansion and sale
of airrights at Ballston Common Mall, a shopping center in Arlington, Virginia
($5,366,000). Revenues also increased in the hotel portfolio ($31,621,000) which
includes the newly-opened Embassy Suites Hotel and Hilton Times Square, both in
New York City, and existing portfolio assets of Westin Convention Center and
Sheraton Station Square both located in Pittsburgh, Pennsylvania, Ritz-Carlton
Hotel in Cleveland, Ohio, Charleston Marriott in Charleston, West Virginia and
the University Park Hotel at MIT in Cambridge, Massachusetts. These increases
were partially offset by the dispositions of Tucson Place ($1,918,000) in 2000
and Rolling Acres Mall ($3,902,000) in 1999 and decreased land sales of
$2,040,000 in 2000 as compared to 1999.
Revenues for the Commercial Group increased $62,728,000, or 16.5%, to
$442,992,000 in 1999 from $380,264,000 in 1998. This increase is primarily the
result of the openings of 45/75 Sidney Street ($11,496,000), 350 Massachusetts
Avenue at University Park at MIT ($1,029,000) a mixed-use facility that opened
in 1998, University Park Hotel at MIT ($4,358,000) and Promenade in Temecula
($2,175,000). The 1998 acquisitions increased revenues as follows: Sheraton
Station Square ($4,866,000), the 324,000-square-foot Fairmont Plaza ($6,221,000)
and the adjacent 247,000-square-foot Pavilion retail center in San Jose,
California ($1,555,000). Revenues also increased as a result of improved
operations at Liberty Center ($1,832,000), Avenue at Tower City Center in
Cleveland, Ohio ($5,545,000), Ritz-Carlton Hotel ($1,233,000), Tucson Mall
($1,948,000) in Tucson, Arizona, and openings in the Company's urban retail
portfolio in the boroughs of New York City ($4,669,000) including Columbia Park,
Kaufman Studios and Bay Street. These increases were partially offset by a
decrease in revenues due to the 1998 disposition of Summit Park Mall
($2,229,000). The Commercial Group also recorded
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
60
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
additional land sales of $11,276,000 in 1999 compared to 1998. The remainder of
the increase (approximately $6,500,000) was due to improved operations as a
result of rental rate and occupancy increases.
OPERATING AND INTEREST EXPENSES - During 2000, operating expenses for
the Commercial Group increased $32,066,000, or 13.9%, to $263,264,000 from
$231,198,000 in 1999. This increase was primarily attributable to costs
associated with the openings of Promenade in Temecula ($3,291,000) and 45/75
Sidney Street ($1,615,000), One Pierrepont Plaza ($2,420,000), the New York City
urban retail portfolio ($5,716,000) and openings in the hotel portfolio
($23,649,000). These increases in expenses were partially offset by the
dispositions of Tucson Place and Rolling Acres Mall ($3,032,000) and a net
decrease in land sales for 2000 as compared to 1999 ($1,900,000). Interest
expense for 2000 increased by $20,735,000, or 22.0%, to $115,091,000 from
$94,356,000 for 1999. The increase in interest expense is primarily attributable
to the 1999 and 2000 additions to the Commercial Group portfolio.
During 1999, operating expenses for the Commercial Group increased
$35,232,000, or 18.0%, to $231,198,000 from $195,966,000 in 1998. This increase
was primarily attributable to costs associated with the 1999 openings of 45/75
Sidney Street ($3,136,000), Promenade in Temecula ($586,000), the 1998 openings
of 350 Massachusetts Avenue ($534,000) and University Park Hotel at MIT
($2,877,000), and the 1998 acquisitions of Sheraton Station Square ($2,674,000),
Fairmont Plaza ($1,860,000) and Pavilion ($88,000). Operating expenses also
increased at Liberty Center ($1,266,000), Ritz-Carlton Hotel ($1,160,000), and
Avenue at Tower City ($4,129,000) in connection with improved operations, and
also as a result of 1998 and 1999 openings in the New York City urban retail
portfolio ($1,242,000). In addition, development expenses increased $1,941,000
over 1998, cost of sales associated with increased land sales activity were
$5,916,000 over 1998 and operating expenses for mature properties increased
approximately $5,000,000. Interest expense for 1999 increased by $3,065,000, or
3.4%, to $94,356,000 from $91,291,000 for 1998. The increase in interest expense
is primarily attributable to the 1999 additions to the Commercial Group
portfolio discussed above, and a full year of interest for 1998 openings.
NET OPERATING INCOME - Commercial Group NOI for 2000 was $246,266,000
compared to $211,794,000 in 1999, a 16.3% increase. NOI increased 3.1% from 1999
to 2000 and 4.9% from 1998 to 1999 for Commercial Group properties in operation
throughout both years. Including the expected NOI for the twelve months after
stabilization for the Commercial Group properties that were opened or acquired
in 2000, NOI would be approximately $253,000,000 for 2000.
Commercial Group - Full Consolidation
REVENUES - Revenues for the Commercial Group increased $105,598,000, or
24.5%, to $537,351,000 in 2000 from $431,753,000 in 1999. This increase was
primarily the result of the openings of new properties during 1999 and 2000 and
increased rents at existing properties. Revenues increased from the openings of
Promenade in Temecula, a 795,000-square-foot regional mall in Temecula,
California ($8,237,000), 45/75 Sidney Street, an office building at University
Park at MIT in Cambridge, Massachusetts ($3,306,000), several openings in the
Company's urban retail portfolio in the boroughs of New York City including
Columbia Park Center, 42nd Street, Battery Park City, Court Street, Forest
Avenue, Eastchester, and Kaufman Studios ($31,744,000), improved operations at
Pavilion, an office tower in San Jose, California ($4,910,000) and One
Pierrepont Plaza in Brooklyn, New York ($3,679,000), the expansion of and sale
of airrights at Ballston Common Mall, a shopping center in Arlington, Virginia
($5,366,000), increased land sales of $3,445,000 in 2000 as compared to 1999,
and increased equity in earnings of unconsolidated entities of $3,567,000.
Revenues also increased from the hotel portfolio ($50,426,000) including the
newly-opened Embassy Suites Hotel and Hilton Times Square both in New York City,
which were added to the existing portfolio which includes Sheraton Station
Square located in Pittsburgh, Pennsylvania and Ritz-Carlton Hotel in Cleveland,
Ohio. These increases were partially offset by the dispositions of Tucson Place
($1,918,000) in 2000 and Rolling Acres Mall ($4,877,000) in 1999.
Revenues for the Commercial Group increased $56,944,000, or 15.2%, to
$431,753,000 in 1999 from $374,809,000 in 1998. This increase is primarily the
result of the openings of 45/75 Sidney Street ($11,496,000) and Promenade in
Temecula ($2,901,000). The 1998 acquisitions of the Sheraton Station Square
increased revenues by $4,866,000, the 324,000-square-foot Fairmont Plaza by
$6,221,000 and the adjacent 247,000-square-foot Pavilion retail center in San
Jose, California by $1,570,000. Revenues also increased as a result of improved
operations at Avenue at Tower City Center in Cleveland, Ohio ($5,545,000),
Ritz-Carlton Hotel ($1,298,000), Tucson Mall ($2,885,000) in Tucson, Arizona,
and openings in the Company's urban retail portfolio in the boroughs of New York
City ($6,790,000) including Columbia Park Center, Kaufman Studios and Bay
Street. These increases were partially offset by a decrease in revenues due to
the 1998 disposition of Summit Park Mall ($2,229,000) and a decrease in the
equity of unconsolidated entities ($9,215,000) primarily from the disposition of
San Vicente, an office building in Brentwood, California. The Commercial Group
also recorded additional land sales of $10,177,000 in 1999 compared to 1998. The
remainder of the increase (approximately $14,000,000) was due to improved
operations as a result of rental rate and occupancy increases.
OPERATING AND INTEREST EXPENSES - During 2000, operating expenses for
the Commercial Group increased $51,255,000, or 24.1%, to $264,049,000 from
$212,794,000 in 1999. This increase was primarily attributable to costs
associated with the openings of Promenade in Temecula ($4,388,000) and 45/75
Sidney Street ($1,615,000), One Pierrepont Plaza ($2,847,000), the New York City
urban retail portfolio ($8,538,000), a net increase in the cost of land sales
for 2000 as compared to 1999 ($533,000) and openings in the hotel portfolio
($36,676,000). These increases in expenses were partially offset by the
dispositions of Tucson Place and Rolling Acres Mall ($3,424,000). Interest
expense for 2000 increased by $31,251,000, or 35.6%, to $119,015,000 from
$87,764,000 for 1999. The increase in interest expense is primarily attributable
to the 1999 and 2000 additions to the Commercial Group portfolio.
During 1999, operating expenses for the Commercial Group increased
$33,649,000, or 18.8%, to $212,794,000 from $179,145,000 in 1998. This increase
was attributable primarily to costs associated with the 1999 openings of 45/75
Sidney Street ($3,136,000), Promenade in Temecula ($781,000), and the 1998
acquisitions of Sheraton Station Square ($2,674,000), Fairmont Plaza
($1,860,000) and Pavilion ($89,000). Operating
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
61
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
expenses also increased at Ritz-Carlton Hotel ($1,221,000) and Avenue at Tower
City ($4,129,000) as a result of increased revenues, and also as a result of
1998 and 1999 openings in the New York City urban retail portfolio ($1,741,000).
In addition, development expenses increased $1,941,000 over 1998, cost of sales
associated with increased land sales activity were $9,569,000 over 1998, and
operating expenses for mature properties increased approximately $6,000,000.
Interest expense for 1999 increased by $2,341,000, or 2.7%, to $87,764,000 from
$85,423,000 for 1998. The increase in interest expense is primarily attributable
to the 1999 additions to the Commercial Group portfolio discussed above, and a
full year of interest for 1998 openings.
Residential Group - Pro-Rata Consolidation
REVENUES - Revenues for the Residential Group increased by $8,609,000,
or 5.4%, in 2000 to $167,377,000 from $158,768,000 in 1999. This increase was
primarily attributable to the acquisitions of Mount Vernon Square, a 1,387-unit
community in Alexandria, Virginia ($8,510,000), Forest Trace, a 324-unit
supported-living community in Lauderhill, Florida ($6,006,000), Burton Place, a
200-unit apartment community in Southfield, Michigan ($895,000), Mayfair at
Great Neck, a 144-unit supported-living community on Long Island, New York
($866,000), Mayfair at Glen Cove, a 79-unit supported-living community on Long
Island, New York ($579,000), the openings of Chestnut Grove, a 79-unit
supported-living community in Plainview, New York ($938,000) and Classic
Residence by Hyatt, a 310-unit supported-living community in Yonkers, New York
($475,000), the acquisition of an additional 49% interest in Providence at Palm
Harbor (formerly Boot Ranch), a 236-unit apartment community in Tampa, Florida
($1,169,000), the lease-up of Colony Woods, an adaptive re-use 396-unit project
in Bellevue, Washington ($678,000) and the collection of a fully-reserved note
receivable from a syndicated affordable housing apartment property ($2,057,000).
These increases were partially offset by the dispositions of Studio Colony, a
450-unit building in Los Angeles, California ($5,025,000), Highlands, a 556-unit
apartment building in Grand Terrace, California ($3,961,000) and the Toscana
litigation settlement proceeds ($4,500,000) received in 1999 which did not
recur.
Revenues for the Residential Group increased by $19,765,000, or 14.2%,
in 1999 to $158,768,000 from $139,003,000 in 1998. This increase was primarily
attributable to proceeds from the Toscana litigation settlement ($4,500,000),
the recognition of development and other fees of $5,722,000 relating to several
projects including: The Grand, a 546-unit luxury high-rise apartment building in
North Bethesda, Maryland; The Drake, a 280-unit high-rise building in
Philadelphia, Pennsylvania; Enclave, a 637-unit apartment complex in San Jose,
California; and 101 San Fernando, a 323-unit apartment complex also in San Jose,
California, a full year of operations for the 1998 acquisitions of the 534-unit
Woodlake Apartments in Silver Spring, Maryland ($2,663,000), an additional 20%
ownership in Studio Colony, ($934,000) and a 50% interest in the 342-unit
complex Coppertree in Mayfield Heights, Ohio ($520,000). In addition, revenues
increased at Bayside Village, an 862-unit complex in San Francisco, California
($770,000), the Company's supported-living properties in Michigan, New Jersey,
and Maryland ($1,182,000), an increase in units in three Cleveland properties
($796,000) and as a result of the lease-up of Colony Woods ($1,872,000). These
increases were partially offset by a decrease due to the sale of Trolley Plaza,
a 351-unit apartment community in Detroit, Michigan ($1,504,000). The balance of
the increase in revenues ($2,300,000) within the Residential Group was generally
due to improved operations.
OPERATING AND INTEREST EXPENSES - Operating expenses for the
Residential Group increased by $281,000, or .4%, in 2000, to $74,322,000 from
$74,041,000 in 1999. The increase in operating expenses was primarily due to the
acquisitions of Mount Vernon Square ($3,211,000), Forest Trace ($3,272,000),
Burton Place ($1,731,000), Mayfair at Great Neck ($739,000), Mayfair at Glen
Cove ($359,000), write off of development project costs ($2,658,000), and the
openings of Chestnut Grove ($789,000) and Classic Residence by Hyatt
($1,244,000). These increases are partially offset by the dispositions of Studio
Colony ($1,937,000) and Highlands ($1,745,000) and the full restoration in 2000
of the reserved Millender Center note receivable ($10,275,000). Interest expense
increased by $6,087,000 in 2000, or 23.0%, to $32,534,000 from $26,447,000 in
1999. This increase is primarily due to property acquisitions partially offset
by property dispositions.
Operating expenses for the Residential Group increased by $7,793,000,
or 11.8%, in 1999, to $74,041,000 from $66,248,000 in 1998. The increase in
operating expenses was primarily due to the reduction in a reserve for
collection of a note receivable in 1998 from Millender Center ($3,000,000),
additional costs associated with the generation of increased development fees
($999,000), increased operating expenses for mature properties (approximately
$2,000,000), increased expenses due to lease-up at Colony Woods ($353,000) and
the three Cleveland properties ($316,000), and the 1998 acquisitions of Woodlake
Apartments ($1,356,000) and Coppertree ($355,000). These increases were
partially offset by a decrease due to the sale in 1998 of Trolley Plaza
($1,135,000). Interest expense decreased by $895,000 in 1999, or 3.3%, to
$26,447,000 from $27,342,000 in 1998. This decrease is primarily the result of
an increase in capitalized interest on funded development projects.
NET OPERATING INCOME - Residential Group NOI for 2000 was $93,055,000,
compared to $84,727,000 in 1999, a 9.8% increase. NOI increased 3.6% from 1999
to 2000 and 5.0% from 1998 to 1999 for Residential Group properties in operation
throughout both years. Including the expected NOI for the twelve months after
stabilization for Residential Group properties that were opened, expanded or
acquired in 2000, NOI would be approximately $122,000,000 for 2000.
Residential Group - Full Consolidation
REVENUES - Revenues for the Residential Group increased by $11,695,000,
or 9.6%, in 2000 to $134,116,000 from $122,421,000 in 1999. This increase was
primarily attributable to the acquisitions of Mount Vernon Square, a 1,387-unit
community in Alexandria, Virginia ($15,222,000), Forest Trace, a 324-unit
supported-living community in Lauderhill, Florida ($6,006,000), Burton Place, a
200-unit apartment community in Southfield, Michigan ($995,000), Providence at
Palm Harbor (formerly Boot Ranch), a 236-unit apartment community in Tampa,
Florida ($281,000), the lease-up of Colony Woods, an adaptive re-use 396-unit
project in Bellevue, Washington ($678,000), the opening of Chestnut Grove, a
79-unit supported- living community in Plainview, New York ($1,173,000) and the
collection of a fully-reserved note receivable from a syndicated affordable
housing apartment property ($2,057,000). These increases were partially offset
by the dispositions of Studio
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
62
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
Colony, a 450-unit building in Los Angeles, California ($5,025,000) and
Highlands, a 556-unit apartment building in Grand Terrace, California
($3,961,000), and the Toscana litigation settlement proceeds ($4,500,000)
received in 1999 which did not recur.
Revenues for the Residential Group increased by $20,183,000, or 19.7%,
in 1999 to $122,421,000 from $102,238,000 in 1998. This increase was primarily
attributable to proceeds from the Toscana litigation settlement ($4,500,000),
the recognition of development and other fees ($5,722,000) on several projects
including: The Grand, a 546-unit luxury high-rise apartment building in North
Bethesda, Maryland; The Drake, a 280-unit high-rise building in Philadelphia,
Pennsylvania; Enclave, a 637-unit apartment complex in San Jose, California; and
101 San Fernando, a 323-unit apartment complex also in San Jose, California, a
full year of operations for the 1998 acquisitions of the 534-unit Woodlake
Apartments in Silver Spring, Maryland ($2,663,000). In addition, revenues
increased at Trowbridge, the Company's supported-living property in Southfield,
Michigan ($1,181,000), Studio Colony ($686,000), as a result of lease-up of
Colony Woods ($1,872,000) and the increased equity in unconsolidated entities
($3,091,000). These increases were partially offset by a decrease due to the
sale in the second quarter of 1998 of Trolley Plaza, a 351-unit apartment
community in Detroit, Michigan ($1,504,000). The balance of the increase in
revenues ($2,000,000) within the Residential Group was generally due to improved
operations.
OPERATING AND INTEREST EXPENSES - Operating expenses for the
Residential Group decreased by $1,950,000, or 3.9%, in 2000, to $48,087,000 from
$50,037,000 in 1999. The decrease in operating expenses was primarily due to the
dispositions of Studio Colony ($1,937,000) and Highlands ($1,745,000), and the
full restoration in 2000 of the reserved Millender Center note receivable
($10,275,000). These decreases are partially offset by the acquisitions of Mount
Vernon Square ($5,186,000), Forest Trace ($3,272,000) and Burton Place
($1,924,000), and the opening of Chestnut Grove ($986,000). Interest expense
increased by $10,144,000 in 2000, or 75.6%, to $23,555,000 from $13,411,000 in
1999. This increase is primarily due to property acquisitions partially offset
by property dispositions.
Operating expenses for the Residential Group increased by $6,968,000, or
16.2%, in 1999, to $50,037,000 from $43,069,000 in 1998. The increase in
operating expenses was primarily due to the reduction in a reserve for
collection of a note receivable in 1998 from Millender Center ($3,000,000),
additional costs associated with the generation of increased development fees
($999,000), increased operating expenses for mature properties (approximately
$2,400,000), increased expenses due to lease-up at Colony Woods ($353,000) and
the 1998 acquisition of Woodlake Apartments ($1,356,000). These increases were
partially offset by a decrease due to the sale in 1998 of Trolley Plaza
($1,135,000). Interest expense decreased by $153,000 in 1999, or 1.1%, to
$13,411,000 from $13,564,000 in 1998. This decrease is primarily the result of
an increase in capitalized interest on funded development projects.
Land Group - Pro-Rata Consolidation
Beginning in 2000, the Central Station project in Chicago, Illinois,
which was previously reported in the Commercial Group, and the Stapleton project
in Denver, Colorado, which was previously reported in the Residential Group, are
now both being reported in the Land Group.
REVENUES - Revenues for the Land Group increased by $23,300,000 to
$64,656,000 in 2000 from $41,356,000 in 1999. This increase is a result of
increases in land sales at Canterberry Crossing, a 470-acre residential golf
course community in Parker, Colorado ($2,147,000), Central Station, a mixed-use
community in Chicago, Illinois ($4,726,000), Caldwell Road, a 418-acre mixed-use
community in Charlotte, North Carolina ($4,946,000), Thornbury, a 250-acre
residential community in Solon, Ohio ($2,044,000), Seven Hills, a 1,300-acre
planned-unit development project in Henderson, Nevada ($6,306,000) and a land
sale at Quincy Avenue in Cleveland, Ohio ($2,750,000). These increases were
partially offset by decreases in land sale activity at Silver Lakes, 2,400 acres
and 5,108 units in Fort Lauderdale, Florida ($2,009,000), The Cascades in
Brooklyn, Ohio ($1,254,000), The Ledges, a 133-acre residential community in
Twinsburg, Ohio ($1,415,000) and Eaton Estate, a 22-acre apartment and cluster
site in Sagamore Hills, Ohio ($525,000). Included in 1999 is a forgiveness of
interest income relating to Granite Development Partners L.P. ("Granite")
($4,001,000) that did not recur in 2000.
During 1999, the Company was informed by the project manager/partner of
costs that would be incurred in excess of budget to complete Seven Hills. At
that point in time, the Company owned a 14.57% interest in Seven Hills through
its investment in Granite (see "Other Transactions - Provision for Decline in
Real Estate"). As a result of this deterioration in Seven Hills' margins, the
Company entered into an agreement ("Agreement") during 1999 with the project
manager/partner to restructure the partnership agreement and reposition the
project. In accordance with the Agreement, the Company has agreed to forgo its
fee and interest income to which it was entitled in order to preserve cash flow
available to meet the project's obligations.
Revenues for the Land Group decreased by $11,255,000 to $41,356,000 in
1999 from $52,611,000 in 1998. This decrease is a result of forgiveness of
interest income relating to Granite ($4,001,000) discussed above and decreased
revenues at: various other projects owned by Granite (approximately $4,000,000);
Greens at Birkdale Village, a 220-acre mixed-use community in Huntersville,
North Carolina ($2,791,000); Chestnut Lakes, an 85-acre planned-unit development
in North Ridgeville, Ohio ($3,151,000); and Eaton Estate ($848,000). Revenues
also decreased approximately $10,000,000 in 1999 compared to 1998 as a result of
a cumulative adjustment to properly reflect the Company's share of the revenues
of Seven Hills pursuant to the Agreement discussed above. These decreases were
partially offset by increases in revenues at Westwood Lakes, 475-acres, 657 lots
located in Tampa, Florida ($5,960,000); Silver Lakes ($2,724,000);
and Canterberry Crossing ($4,649,000).
Sales of land and related gross margins vary from period to period,
depending on management's decisions regarding the disposition of significant
land holdings.
OPERATING AND INTEREST EXPENSES - The fluctuation in Land Group operating
expenses primarily reflects costs associated with land sales volume in each
period. Operating expenses increased by $17,293,000 in 2000 to $57,025,000 from
$39,732,000 in 1999. This increase is primarily the result of an increase in
costs relating to increased land sales at: Canterberry Crossing ($1,228,000),
Central Station ($6,342,000), Caldwell Road ($3,090,000), and Quincy Avenue
($1,165,000). These increases were partially offset by a decrease at The
Cascades ($731,000). Operating expenses were also lower in 1999 by
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
63
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
$4,729,000 due to certain valuation allowances relating to Land Group
investments that did not recur in 2000. These accruals are reviewed periodically
and adjusted to reflect management's estimated value of the Land Group's
portfolio.
Operating expenses decreased by $800,000 in 1999 to $39,732,000 from
$40,532,000 in 1998. This decrease is primarily the result of a decrease in
costs related to lower sales volume at various projects owned by Granite
($1,666,000), Greens at Birkdale Village ($2,372,000), Chestnut Lakes
($2,575,000) and Eaton Estate ($696,000). Operating expenses also decreased
approximately $3,500,000 in 1999 compared to 1998 as a result of a cumulative
adjustment to properly reflect the Company's share of the revenues of Seven
Hills pursuant to the Agreement discussed above. These decreases were partially
offset by increases in operating expenses related to increased sales volume at
Westwood Lakes ($4,157,000), Seven Hills ($3,500,000), Silver Lakes ($2,903,000)
and Canterberry Crossing ($4,155,000). Operating expenses also decreased for
1999 by $4,729,000 due to certain valuation allowances relating to Land Group
investments. These accruals are reviewed periodically and adjusted to reflect
management's estimated value of the Land Group's portfolio.
Interest expense decreased by $2,644,000 in 2000 to $4,726,000 from
$7,370,000 in 1999. Interest expense increased by $556,000 in 1999 to $7,370,000
from $6,814,000 in 1998. Interest expense varies from year to year depending on
the level of interest-bearing debt within the Land Group.
Land Group - Full Consolidation
REVENUES - Revenues for the Land Group increased by $11,084,000 to
$24,326,000 in 2000 from $13,242,000 in 1999. This increase is a result of
increases at Caldwell Road, a 418-acre mixed-use community in Charlotte, North
Carolina ($3,573,000), a land sale at Quincy Avenue in Cleveland, Ohio
($2,750,000) and the increase in equity in unconsolidated entities ($9,819,000)
primarily as a result of the 1999 loss at Granite Development Partners L.P.
("Granite") which did not recur in 2000. These increases were partially offset
by decreases in land sale activity at The Cascades in Brooklyn, Ohio
($1,254,000) and Silver Lakes ($2,839,000), 2,400 acres and 5,108 units located
in Fort Lauderdale, Florida.
During 1999, the Company was informed by the project manager/partner of
costs that would be incurred in excess of budget to complete Seven Hills. At
that point in time, the Company owned a 14.57% interest in Seven Hills through
its investment in Granite (see "Other Transactions - Provision for Decline in
Real Estate). As a result of this deterioration in Seven Hills' margins, the
Company entered into an agreement ("Agreement") during 1999 with the project
manager/partner to restructure the partnership agreement and reposition the
project. In accordance with the Agreement, the Company has agreed to forgo its
fee and interest income to which it was entitled in order to preserve cash flow
available to meet the project's obligations.
Revenues for the Land Group decreased by $11,145,000 to $13,242,000 in
1999 from $24,387,000 in 1998. This decrease is a result of decreases in land
sale activity at Chestnut Lakes, an 85-acre planned-unit development in North
Ridgeville, Ohio ($3,151,000) and a decrease in equity in unconsolidated
entities ($18,504,000) primarily from Granite ($11,166,000) and Central Station
($6,157,000). These decreases were partially offset by increases in revenues at
Westwood Lakes, 475-acres and 657 lots located in Tampa, Florida ($5,960,000)
and Silver Lakes ($2,839,000).
Sales of land and related gross margins vary from period to period,
depending on management's decisions regarding the disposition of significant
land holdings.
OPERATING AND INTEREST EXPENSES - The fluctuation in Land Group
operating expenses primarily reflects costs associated with land sales volume in
each period. Operating expenses increased by $7,717,000 in 2000 to $19,560,000
from $11,843,000 in 1999. This increase is primarily the result of an increase
in cost of sales relating to increased land sales activity at Caldwell Road
($2,273,000) and Quincy Avenue ($1,165,000). These increases were partially
offset by a decrease at The Cascades ($731,000).
Operating expenses decreased by $21,000 in 1999 to $11,843,000 from
$11,864,000 in 1998. Interest expense decreased by $5,244,000 in 2000 to
$1,901,000 from $7,145,000 in 1999. Interest expense increased by $6,043,000 in
1999 to $7,145,000 from $1,102,000 in 1998. Interest expense varies from year to
year depending on the level of interest-bearing debt within the Land Group.
Lumber Trading Group
REVENUES - Revenues for the Lumber Trading Group decreased by
$43,930,000 in 2000 to $105,427,000 from $149,357,000 in 1999. The decrease was
due primarily to lower volume and trading margins caused by a significant
decline in lumber prices due to over production and moderate reductions of
demand in the market.
Revenues for the Lumber Trading Group increased by $26,032,000 in 1999
to $149,357,000 from $123,325,000 in 1998. The increase was due primarily to
increased lumber trading margins of $26,159,000 for 1999 compared to 1998.
OPERATING AND INTEREST EXPENSES - Operating expenses for the Lumber
Trading Group decreased by $33,277,000 in 2000 to $98,534,000 from $131,811,000
in 1999. The decrease reflected lower variable expenses due to decreased volume
and trading margins. Interest expense increased $296,000 in 2000 to $5,584,000
from $5,288,000 in 1999.
Operating expenses for the Lumber Trading Group increased by
$19,813,000 in 1999 to $131,811,000 from $111,998,000 in 1998. The increase
reflected higher variable expenses due to increased lumber trading margins
compared to 1998. Interest expense increased $26,000 in 1999 to $5,288,000 from
$5,262,000 in 1998.
Corporate Activities
REVENUES - Corporate Activities' revenues decreased $58,000 in 2000 to
$540,000 from $598,000 in 1999 and decreased $848,000 in 1999 to $598,000 from
$1,446,000 in 1998. Corporate Activities' revenues consist primarily of interest
income from investments and loans made by the Company and vary from year to year
depending on interest rates and the amount of loans outstanding.
OPERATING AND INTEREST EXPENSES - Operating expenses for Corporate
Activities increased $673,000 in 2000 to $13,459,000 from $12,786,000 in 1999
and increased $20,000 in 1999 to $12,786,000 from $12,766,000 in 1998. The
increases represent general corporate expenses. Interest expense increased
$6,231,000 in 2000 to $32,489,000 from $26,258,000 in 1999 and increased
$7,007,000 in 1999 to $26,258,000 from $19,251,000 in 1998. Corporate
Activities' interest expense consists primarily of interest expense on the 8.50%
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
64
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
Senior Notes and the Revolving Credit Agreement that has not been allocated to a
strategic business unit (see "Financial Condition and Liquidity").
Other Transactions
PROVISION FOR DECLINE IN REAL ESTATE - During 2000, the Company
recorded a Provision for Decline in Real Estate of $1,231,000 related to the
write-down to estimated fair value less cost to sell of Commercial Group's
investment in Canton Centre Mall in Canton, Ohio. During 1999, the Company
recorded a Provision for Decline in Real Estate of $5,062,000 related to the
write-down to estimated net realizable value of the Land Group's investment in
Granite. The Company, at that time, owned a 43.75% interest in Granite as a
result of a capital contribution of land that was classified as Investments in
and Advances to Real Estate Affiliates on the Company's consolidated balance
sheet. Granite owns an interest in several raw land developments held for
resale, the most significant of which is a one-third interest in Seven Hills in
Henderson, Nevada. The projection of costs to complete the project indicated
that the Company may not recover its capital investment in Granite.
GAIN ON DISPOSITION OF PROPERTIES AND OTHER INVESTMENTS - The following
table summarizes the gain (loss) on disposition of properties and other
investments by year.
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
YEARS ENDED JANUARY 31, Consolidation Interest at Pro-Rata Consolidation
- ----------------------------------------------------------------------------------------
(in thousands)
2001
Studio Colony* ........... $ 25,726 $ -- $ -- $ 25,726
Highlands ................ 599 -- -- 599
Tucson Place* ............ 8,734 -- -- 8,734
Canton Centre Mall* ...... (436) -- -- (436)
Gallery at Metrotech ..... (6,868) (250) -- (6,618)
Available-for-sale
equity securities ... 20,654 -- 2,359 23,013
-----------------------------------------------------------
Total .................. $ 48,409 $ (250) $ 2,359 $ 51,018
===========================================================
2000
Rolling Acres Mall* ...... $ 13,861 $ 2,738 $ -- $ 11,123
Other .................... -- -- (411) (411)
-----------------------------------------------------------
Total .................. $ 13,861 $ 2,738 $ (411) $ 10,712
===========================================================
1999
Summit Park Mall* ........ $ 13,897 $ -- $ -- $ 13,897
San Vicente* ............. -- -- 10,403 10,403
Courtyard ................ -- -- 622 622
Trolley Plaza* ........... 4,941 -- -- 4,941
Other .................... 694 -- -- 694
-----------------------------------------------------------
Total .................. $ 19,532 $ -- $ 11,025 $ 30,557
===========================================================
*Tax-deferred exchange
Studio Colony and Highlands are apartment communities in California.
Tucson Place, Canton Centre Mall and Gallery at Metrotech are shopping centers
in Arizona, Ohio and New York, respectively. Rolling Acres Mall is located in
Ohio. Summit Park Mall and Courtyard are shopping centers in New York and
Michigan, respectively. San Vicente is an office building in California and
Trolley Plaza is an apartment community in Michigan.
EXTRAORDINARY GAIN - There was no extraordinary gain in 2000.
Extraordinary gain, net of tax, totaled $272,000 and $16,343,000 in 1999 and
1998, respectively, representing extinguishment of nonrecourse debt and related
accrued interest. The 1999 extraordinary gain was the result of the
extinguishment of $450,000 of nonrecourse debt related to Plaza at Robinson Town
Centre in Pittsburgh, Pennsylvania. The 1998 extraordinary gain represents
extinguishment of nonrecourse debt related to Terminal Tower ($13,947,000) and
Skylight Office Tower ($3,619,000) both located in Cleveland, Ohio; Courtland
($7,381,000), a regional mall in Flint, Michigan; One Franklintown ($1,350,000),
an apartment complex in Philadelphia, Pennsylvania; Providence at Palm Harbor
($187,000); an apartment community in Tampa, Florida; and Trolley Plaza
($552,000).
INCOME TAXES - Income tax expense totaled $22,312,000, $24,319,000, and
$27,674,000 in 2000, 1999, and 1998, respectively.
The Company recorded a net deferred income tax expense of $11,986,000 for
the year ended January 31, 2001 comprised of net deferred income tax expense of
$35,575,000 incurred in the normal course of business offset by a deferred
income tax benefit of $23,589,000. This benefit represented a reversal of a
portion of a deferred tax liability recorded in 1994 relating to the
cancellation of debt income of Park Labrea Towers, a residential property which
was sold that same year.
In certain situations that applied to Park Labrea Towers in 1994, the
Internal Revenue Code allowed for the deferral of cancellation of debt income.
As a result of certain steps taken by the Company in the respective periods
above, the deferred income will never be recognized for tax purposes and,
accordingly, the related deferred tax liability was reversed.
At January 31, 2001, the Company had a net operating loss carryforward for
tax purposes of $10,026,000 (generated primarily from the impact of depreciation
expense from real estate properties on the Company's net earnings) that will
expire in the year ending January 31, 2011, general business credit carryovers
of $1,582,000 which will expire in the years ending January 31, 2004 through
January 31, 2015 and alternative minimum tax ("AMT") carryforward of $31,289,000
that is available until used to reduce Federal tax to the AMT amount. The
Company's policy is to consider a variety of tax-saving strategies when
evaluating its future tax position.
EBDT - Earnings Before Depreciation, Amortization and Deferred Taxes
("EBDT") consists of earnings before extraordinary gain, excluding the following
items: i) provision for decline in real estate; ii) gain (loss) on disposition
of properties and other investments; iii) beginning with the year ended January
31, 2001, the adjustment to recognize rental revenues using the straight-line
method; and iv) noncash charges from Forest City Rental Properties Corporation
for depreciation, amortization and deferred income taxes. The provision for
decline in real estate is excluded from EBDT because it is a non-cash item that
varies from year to year based on factors unrelated to the Company's overall
financial performance. The Company excludes gain (loss) on the disposition of
properties from EBDT because it develops and acquires properties for long-term
investment, not short-term trading gains. As a result, the Company views
dispositions of properties and other investments other than commercial land and
airrights or land held by the Land Group as nonrecurring items. Extraordinary
items are generally the result of the restructuring of nonrecourse debt
obligations and are not considered to be a component of the Company's operating
results. The adjustment to recognized rental revenues and rental expenses on the
straight-line method is excluded because it is management's opinion that rental
revenues and expenses should be recognized when due from
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
65
41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
the tenants or due to the landlord. The Company excludes depreciation and
amortization expense related to real estate operations from EBDT because they
are non-cash items and the Company believes the values of its properties, in
general, have appreciated, over time, in excess of their original cost. Deferred
income taxes from real estate operations are excluded because they are non-cash
items. The Company's EBDT may not be directly comparable to similarly-titled
measures reported by other companies.
FINANCIAL CONDITION AND LIQUIDITY
The Company believes that its sources of liquidity and capital are
adequate. The Company's principal sources of funds are cash provided by
operations, the revolving credit facility and refinancings of existing
properties. The Company's principal use of funds are the financing of
development and acquisitions of real estate projects, capital expenditures for
its existing portfolio and payments on nonrecourse mortgage debt on real estate.
REVOLVING CREDIT FACILITY - At January 31, 2001 and 2000, the Company had
$189,500,000 and $167,000,000, respectively, outstanding under its revolving
credit facility. On August 9, 2000, the Company increased its revolving credit
facility to $265,000,000 from $200,000,000 with nine participating banks. The
Company's revolving credit facility matures March 31, 2003, unless extended, and
allows for up to a combined amount of $30,000,000 in outstanding letters of
credit or surety bonds ($7,222,000 and $14,675,000, respectively, at January 31,
2001). The outstanding letters of credit reduce the credit available to the
Company. Annually, within 60 days after January 31, the revolving credit
facility may be extended for one year with unanimous consent of the
participating banks. At its maturity date, the outstanding revolving credit
loans, if any, may be converted by the Company to a four-year term loan. The
revolving credit available is reduced quarterly by $2,500,000, beginning October
1, 2000.
The revolving credit facility provides, among other things, for: 1)
interest rates of 2.125% over LIBOR or 1/2% over the prime rate; 2) maintenance
of debt service coverage ratios and specified levels of net worth and cash flow
(as defined); and 3) restriction on dividend payments. Prior to August 9, 2000,
the revolving credit facility had similar terms and a December 10, 2001 maturity
date.
The Company has purchased LIBOR interest rate caps at an average rate of
6.82% for 2001 and 7.75% for 2002 at notional amounts of $187,484,000 and
$54,161,000, respectively.
SENIOR NOTES - On March 16,1998, the Company issued $200,000,000 in 8.50%
senior notes due March 15, 2008 in a public offering. Accrued interest on the
senior notes is payable semiannually on March 15 and September 15. The senior
notes are unsecured senior obligations of the Company; however, they are
subordinated to all existing and future indebtedness and other liabilities of
the Company's subsidiaries including borrowings under the revolving credit
facility. The indenture contains covenants providing, among other things,
limitations on incurring additional debt and payment of dividends.
SUBORDINATED DEBT - In November 2000, the Company issued $20,400,000 of
redevelopment bonds in a private placement. The proceeds were used to repay
nonrecourse debt that was issued to finance an apartment facility in
Philadelphia, Pennsylvania. The 8.25% bonds are due September 15, 2010. Interest
is payable semiannually on each March 15 and September 15 beginning March 15,
2001. This debt is unsecured and subordinated to the senior notes and the
revolving credit facility. Financial covenants associated with this debt are
similar to that of the senior notes.
LUMBER TRADING GROUP - The Lumber Trading Group is financed separately
from the rest of the Company's strategic business units. The financing
obligations of Lumber Trading Group are without recourse to the Company.
Accordingly, the liquidity of Lumber Trading Group is discussed separately below
under "Lumber Trading Group Liquidity."
Mortgage Refinancings
The Company is actively working to extend the maturities and/or refinance
the nonrecourse debt that is coming due in 2001 and 2002, generally pursuing
long-term fixed-rate debt. During the year ended January 31, 2001, the Company
completed the following financings:
Full Pro-Rata
PURPOSE OF FINANCING Consolidation Consolidation
- -------------------------------------------------------------------------------------------
(in thousands)
Acquisitions ............................................... $ 138,919 $ 153,750
Refinancing ................................................ 376,765 312,549
Loan extension ............................................. 273,476 210,114
New development projects ................................... 214,152 238,708
-----------------------------
$1,003,312 $ 915,121
=============================
Reduction of mortgage debt due to property dispositions .... $ 188,545 $ 173,120
=============================
Interest Rate Exposure
At January 31, 2001, the composition of nonrecourse mortgage debt was as
follows:
Less Plus Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Rate (1) Interest at Pro-Rata Consolidation Rate (1)
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Fixed ............. $1,711,574 7.53% $ 343,626 $ 472,811 $1,840,759 7.57%
Variable
Taxable (2) ..... 605,796 8.73% 128,287 143,223 620,732 8.59%
Tax-Exempt ...... 54,150 6.20% 5,638 46,093 94,605 5.36%
UDAG .............. 68,392 1.61% 10,463 11,892 69,821 2.65%
---------- --------------------------------------------
$2,439,912 7.65% $ 488,014 $ 674,019 $2,625,917 7.61%
========== ============================================
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) The $605,796 at full consolidation and $620,732 at pro-rata consolidation of
taxable variable rate debt is protected with LIBOR caps as described below.
These caps protect the current debt outstanding as well as the anticipated
increase in debt outstanding for projects currently under development or
anticipated to be under development during the year ending January 31, 2002.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
66
42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
The Company has purchased London Interbank Offered Rate ("LIBOR")
interest rate caps for the mortgage debt portfolio as follows:
Full Consolidation Pro-Rata Consolidation
--------------------------------------------------
Average Average
Coverage Amount Rate Amount Rate
- ----------------------------------------------------------------------------
(dollars in thousands)
02/01/01 - 01/31/02 .... $605,780 7.11% $590,568 7.03%
02/01/02 - 01/31/03 .... 568,574 7.68% 586,210 7.76%
02/01/03 - 01/31/04 .... 391,800 7.75% 389,699 7.87%
02/01/04 - 01/31/05 .... 211,800 8.00% 285,337 8.00%
02/01/05 - 01/31/06 .... 177,300 8.00% 177,300 8.00%
The interest rate caps highlighted in the previous table were purchased
to mitigate short-term variable interest rate risk. The Company currently
intends to convert a significant portion of its committed variable-rate debt to
fixed-rate debt. In order to protect against significant increases in long-term
interest rates, the Company has purchased Treasury Options as follows:
Full Consolidation Pro-Rata Consolidation
-------------------------- -----------------------------
Weighted Remaining Weighted Remaining
Average Years at Average Years at
Term Amount Rate 1/31/01 Amount Rate 1/31/01
- ---------------------------------------------------------------------
(dollars in thousands)
10 years $123,100 7.00% 0.21 $ 86,890 7.00% 0.21
10 years 321,800 6.92% 1.35 210,262 6.93% 1.38
At January 31, 2001, a 100 basis point increase in taxable interest rates
would increase the annual pre-tax interest cost of the Company's taxable
variable-rate debt by approximately $3,300,000. The effect of such an increase
is reduced due to the average 7.11% LIBOR caps that are currently in place.
Although tax-exempt rates generally increase in an amount that is smaller than
corresponding changes in taxable interest rates, a 100 basis point increase in
tax-exempt interest rates would increase the annual pre-tax interest cost of the
Company's tax-exempt variable-rate debt by approximately $500,000.
The Company estimates the fair value of its hedging instruments based on
interest rate market pricing models. At January 31, 2001, the carrying amount of
the Company's hedging instruments was $17,000,000 compared to an estimated fair
value of $2,000,000.
Lumber Trading Group Liquidity
Lumber Trading Group is separately financed with two revolving lines of
credit and an asset securitization facility.
At January 31, 2001, Lumber Trading Group's two revolving lines of credit
totaled $87,000,000, expiring June 30, 2001. These credit lines are secured by
the assets of the Lumber Trading Group and are used to finance its working
capital needs. At January 31, 2001, no borrowings were outstanding under these
revolving lines of credit.
In July 1999, the Lumber Trading Group entered into a three-year
agreement (The "Agreement") under which it is selling an undivided interest in a
pool of receivables up to a maximum of $102,000,000 to a large financial
institution (the "Financial Institution"). The agreement expires in July 2002.
The Company has recorded such transactions under the terms of SFAS No. 125,
"Accounting for Transfers of Servicing of Financial Assets and Extinguishments
of Liabilities." Sales under the agreement are nonrecourse to the Company. The
Company bears no risk regarding the collectibility of the accounts receivable
once sold, and cannot modify the pool of receivables. In September 2000, SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", was issued to amend the provisions of SFAS No.
125. The new standard is generally effective for all periods after March 31,
2001. The Company believes the provisions of SFAS No.140 will have no material
impact on the accounting treatment and disclosures currently being applied under
SFAS No.125. At January 31, 2001 and 2000, the financial institution held an
interest of $43,000,000 and $55,000,000, respectively, in the pool of
receivables. Sales of accounts receivable have averaged $57,900,000 and
$63,400,000 per month during the fiscal year ended January 31, 2001 and 2000,
respectively.
These credit facilities are without recourse to the Company. The Company
believes that the amounts available under these credit facilities will be
sufficient to meet the Lumber Trading Group's liquidity needs.
Cash Flows-Pro-Rata Consolidation
Net cash provided by operating activities was $162,759,000, $124,615,000
and $105,705,000 for 2000, 1999 and 1998, respectively. The increase in net cash
provided by operating activities in 2000 from 1999 is the result of an increase
of $45,319,000 in rents and revenues received primarily attributable to an
increase in operating revenues of $58,450,000 and a decrease in notes and
accounts receivable of $11,702,000, a decrease of $17,652,000 in operating
expenditures (primarily from the Lumber Trading Group) and an increase in land
sales of $21,493,000, partially offset by an increase in interest paid of
$27,066,000 and an increase of $19,254,000 in land development expenditures.
The increase in net cash provided by operating activities in 1999 from
1998 is the result of an increase of $154,466,000 in rents and other revenues
received principally comprised of an increase in consolidated revenues of
$96,422,000 and a decrease in notes and accounts receivable of $41,427,000
(resulting from a decrease of $2,867,000 in 1999 versus an increase of
$38,560,000 in 1998) primarily from Lumber Trading Group, and a decrease of
$8,152,000 in land development expenditures. These increases were partially
offset by a $119,786,000 increase in expenditures for operating expenses due to
an increase in accounts payable of $31,011,000, an increase in Lumber Trading
Group's inventory of $21,542,000 and a $62,217,000 increase in operating
expenditures, an increase of $14,323,000 in interest paid, and a decrease of
$9,599,000 in proceeds from land sales.
Net cash used in investing activities totaled $471,646,000, $405,680,000,
and $518,910,000 for 2000, 1999 and 1998, respectively. Capital expenditures,
other than development and acquisition activities, totaled $29,156,000,
$37,822,000, and $44,615,000 (including both recurring and investment capital
expenditures) in 2000, 1999, and 1998, respectively, and were financed with cash
provided from operating activities. The Company invested $533,537,000,
$346,315,000 and $415,728,000 in acquisition and development of real estate
projects in 2000, 1999 and 1998, respectively. These expenditures were financed
with approximately $337,000,000, $194,000,000, and $203,000,000 in new
nonrecourse mortgage indebtedness incurred in 2000, 1999 and 1998, respectively,
cash provided from operations, borrowings under the long-term credit facility
and, in 2000, proceeds from the disposition of properties and other investments.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
67
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
In 2000, 1999, and 1998, $133,454,000, $-0- and $33,345,000 was collected
in proceeds from the disposition of real estate properties and other
investments. In 2000, proceeds from the sale of Studio Colony, Highlands, Tucson
Place, and the sale of available-for-sale equity securities were used to reduce
total mortgage debt by $173,120,000 (see "Mortgage Refinancings"). In 1998,
proceeds were received from the disposition of San Vicente, an office building
in Brentwood, California, Courtyard, a strip shopping center in Flint, Michigan,
and the Company's interest in three apartment buildings in Houston, Texas.
The Company invested $42,407,000, $21,543,000, and $91,912,000 in
investments in and advances to affiliates in 2000, 1999 and 1998, respectively.
The 2000 investments were primarily related to New York City area urban retail
development ($18,754,000), and two commercial shopping centers: Mall at
Stonecrest in Atlanta, Georgia ($8,648,000) and Mall at Robinson in Pittsburgh,
Pennsylvania ($6,896,000). The 1999 investments were primarily in the following
syndicated Residential Group projects: The Grand ($15,200,000), a 546-unit
luxury high-rise apartment building in North Bethesda, Maryland that opened in
February 1999; Grand Lowry Lofts ($9,600,000), 261 units under construction in
Denver, Colorado; and American Cigar Co. (formerly Philip Morris-$10,300,000), a
171-unit apartment renovation project in Richmond, Virginia. In addition,
investments of $10,000,000 were made on behalf of the Company's partners during
1999 for New York City area urban development projects. During 1999, a return on
investment of $23,270,000 was received on 101 San Fernando in San Jose,
California. The 1998 investments were primarily in the following syndicated
Residential Group projects:101 San Fernando ($31,100,000); Enclave ($16,300,000)
in San Jose, California; The Grand ($7,800,000); American Cigar Co. (formerly
Philip Morris-$4,900,000) and The Drake ($5,200,000). In addition, investments
were made during 1998 on behalf of the Company's partner for the following
projects: $11,772,000 for New York City area urban development; $5,181,000 for
Promenade in Temecula, a regional mall in Temecula, California; $5,400,000 for
Mall at Robinson and $6,000,000 in Land Group joint ventures.
Net cash provided by financing activities totaled $293,655,000,
$299,631,000 and $436,980,000 in 2000, 1999, and 1998, respectively. The
Company's refinancing of mortgage indebtedness is discussed above in "Mortgage
Refinancings" and borrowings under new nonrecourse mortgage indebtedness for
acquisition and development activities is included in the preceding paragraph
discussing net cash used in investing activities.
Net cash provided by financing activities for 2000 reflected a decrease
in book overdrafts of $30,990,000 (representing checks issued but not yet paid),
an increase in borrowings of subordinated debt of $20,400,000, a net decrease of
$18,500,000 in notes payable (primarily comprised of a reduction in borrowings
outstanding against the line of credit in the Lumber Trading Group), payment of
deferred financing costs of $21,835,000 and payments of $6,608,000 of dividends
to shareholders.
Net cash provided by financing activities for 1999 reflected an increase
of $25,672,000 in restricted cash primarily related to the financing of 45/75
Sidney Street ($8,676,000), an office building at University Park at MIT in
Cambridge, Massachusetts, and a good faith deposit on Residential property to be
acquired in the year 2000 ($11,514,000), net of an increase in book overdrafts
of $19,446,000 (representing checks issued but not yet paid). In addition, the
Company reported a net increase of $18,969,000 in notes payable primarily from
two New York City hotels under construction payable to the hotel management
company, payment of deferred financing costs of $6,021,000 and payment of
$5,399,000 of dividends.
Net cash provided by financing activities for 1998 reflected a reduction
of $26,579,000 in restricted cash primarily related to the financing of Enclave
and the sale of the mortgage servicing division of Forest City Capital Corp.,
net proceeds from the issuance of senior notes in March 1998 of $193,703,000,
which were initially used to repay $114,000,000 of the long-term credit
facility, and an increase in book overdrafts of $8,838,000 (representing checks
issued but not yet paid). In addition, the Company reported a net increase of
$9,110,000 in notes payable primarily from the 101 San Fernando, payment of
deferred financing costs of $16,565,000 and payment of $4,497,000 of dividends.
Cash Flows - Full Consolidation
Net cash provided by operating activities was $206,313,000, $166,056,000
and $112,385,000 for 2000, 1999, and 1998, respectively. The increase in net
cash provided by operating activities in 2000 from 1999 is the result of an
increase of $63,154,000 in rents and revenues received primarily attributable to
an increase in operating revenues of $75,563,000, a decrease of $15,418,000 in
operating expenditures (primarily from the Lumber Trading Group), an increase in
land sales of $7,450,000 and an increase in cash distributions from operations
of unconsolidated entities of $11,127,000, partially offset by an increase in
interest paid of $48,056,000 and an increase of $8,836,000 in land development
expenditures.
The increase in net cash provided by operating activities in 1999 from
1998 is the result of an increase of $148,600,000 in rents and other revenues
received principally comprised of an increase in revenues of $89,088,000 and a
decrease in notes and accounts receivable of $41,987,000 (resulting from a
decrease of $146,000 in 1999 versus an increase of $41,841,000 in 1998)
primarily from Lumber Trading Group, an increase in land sales of $6,335,000, an
increase in cash distributions from operations of unconsolidated entities of
$21,461,000 and a decrease of $2,639,000 in land development expenditures. These
increases were partially offset by a $108,297,000 increase in expenditures for
operating expenses (primarily due to an increase in accounts payable of
$30,114,000, an increase in Lumber Trading Group's inventory of $21,542,000 and
a $59,874,000 increase in operating expenses) and an increase of $17,067,000 in
interest paid.
Net cash used in investing activities totaled $519,021,000, $528,667,000,
and $537,994,000 for 2000, 1999, and 1998, respectively. Capital expenditures
totaled $518,709,000, $465,137,000 and $461,146,000 in 2000, 1999 and 1998,
respectively, and were financed with cash provided from operating activities,
new nonrecourse mortgage indebtedness, borrowings on the long-term credit
facility and, in 2000, proceeds from the disposition of properties and other
investments.
In 2000, 1999, and 1998, $130,751,000, $-0- and $1,145,000 was collected
in proceeds from the disposition of real estate properties and other
investments. In 2000, proceeds from the sale of Studio Colony, Highlands, Tucson
Place, and the sale of available-for-sale equity securities were used to reduce
total mortgage debt by $188,545,000 (see "Mortgage
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
68
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
Refinancings"). In 1998, proceeds were received from the disposition of the
Company's interest in three apartment buildings in Houston, Texas.
The Company invested $131,063,000, $63,530,000 and $77,993,000 in
investments in and advances to affiliates in 2000, 1999 and 1998, respectively.
The 2000 investments were primarily related to New York City area urban retail
development ($18,754,000), and two commercial shopping centers: Mall at
Stonecrest in Atlanta, Georgia ($8,648,000) and Mall at Robinson in Pittsburgh,
Pennsylvania ($6,896,000) and unconsolidated entities of $88,656,000. The 1999
investments were primarily in the following Residential Group projects: The
Grand ($15,200,000), a 546-unit luxury high-rise apartment building in North
Bethesda, Maryland; Grand Lowry Lofts ($9,600,000), 261 units under construction
in Denver, Colorado; and American Cigar Co. (formerly Philip Morris
- -$10,300,000), a 171-unit apartment renovation project in Richmond, Virginia. In
addition, investments of $10,000,000 were made on behalf of the Company's
partners during 1999 for New York City area urban development projects, and
contributions were made to unconsolidated entities of $41,987,000. During 1999,
a return on investment of $23,270,000 was received on 101 San Fernando in San
Jose, California. The 1998 investments were primarily in the following
syndicated Residential Group projects: 101 San Fernando ($31,100,000); Enclave
($16,300,000) in San Jose, California; The Grand ($7,800,000); American Cigar
Co. (formerly Philip Morris -$4,900,000) and The Drake ($5,200,000). In
addition, investments were made during 1998 on behalf of the Company's partner
for the following projects: $11,772,000 for New York City area urban
development; $5,181,000 for Promenade in Temecula, a regional mall in Temecula,
California; $5,400,000 for Mall at Robinson and $6,000,000 in Land Group joint
ventures.
Net cash provided by financing activities totaled $292,891,000,
$379,664,000 and $450,781,000 in 2000, 1999 and 1998, respectively. The
Company's refinancing of mortgage indebtedness is discussed above in "Mortgage
Refinancings" and borrowings under new nonrecourse mortgage indebtedness for
acquisition and development activities is included in the preceding paragraph
discussing net cash used in investing activities.
Net cash provided by financing activities for 2000 reflected a decrease
in book overdrafts of $30,993,000 (representing checks issued but not yet paid),
an increase in minority interest of $2,084,000, an increase in borrowings of
subordinated debt of $20,400,000, a net decrease of $17,279,000 in notes payable
(primarily comprised of a reduction in borrowings outstanding against the line
of credit in the Lumber Trading Group), payment of deferred financing costs of
$30,682,000 and payments of $6,608,000 of dividends to shareholders.
Net cash provided by financing activities for 1999 reflected an increase
of $30,442,000 in net restricted cash primarily related to the financing of
45/75 Sidney Street ($8,676,000), Columbia Park Center ($8,599,000) and a good
faith deposit on Residential property to be acquired in the year 2000
($11,514,000), net of an increase in book overdrafts of $19,359,000
(representing checks issued but not yet paid). In addition, the Company reported
a net increase of $44,435,000 in notes payable primarily from two New York City
hotels under construction payable to the hotel management company, minority
interest of $16,376,000, payment of deferred financing costs of $6,575,000 and
payment of $5,399,000 of dividends.
Net cash provided by financing activities for 1998 reflected a reduction
of $29,118,000 in restricted cash primarily related to the financing of Enclave
apartment project in San Jose, California and the sale of the mortgage servicing
division of Forest City Capital Corp., net proceeds from the issuance of senior
notes in March 1998 of $193,703,000, which were initially used to repay
$114,000,000 of the long-term credit facility, and an increase in book
overdrafts of $5,382,000 (representing checks issued but not yet paid). In
addition, the Company reported a net decrease of $782,000 in notes payable,
payment of deferred financing costs of $16,072,000, minority interest of
$26,116,000 and payment of $4,497,000 of dividends.
SHELF REGISTRATION
On December 3, 1997, the Company filed a shelf registration statement
with the Securities and Exchange Commission for the potential offering on a
delayed basis of up to $250,000,000 in debt or equity securities. This
registration was in addition to the shelf registration filed March 4, 1997 of up
to $250,000,000 in debt or equity securities. The Company has sold approximately
$82,000,000 through a common equity offering completed on May 20, 1997 and
$200,000,000 through a debt offering completed on March 16, 1998. The Company
currently has available approximately $218,000,000 on the second shelf
registration statement of debt, equity or any combination thereof.
DIVIDENDS
On June 7, 2000, the Board of Directors voted to increase the 2000
quarterly dividend to $.06 per share on both Class A and Class B Common Stock,
representing a 20% annual increase over the previous quarterly dividend.
The first, second, third and fourth 2000 quarterly dividends of $.05,
$.06, $.06 and $.06, respectively, per share on shares of both Class A and Class
B Common Stock were paid June 15, 2000, September 15, 2000, December 15, 2000
and March 15, 2001, respectively.
The first 2001 quarterly dividend of $.06 per share on both Class A and
Class B Common Stock was declared on March 9, 2001 and will be paid on June 15,
2001 to shareholders of record at the close of business on June 1, 2001.
LEGAL PROCEEDINGS
In September 1999, a complaint was filed in state court in Los Angeles
County against Forest City Enterprises, Inc., Forest City California Residential
Development, Inc., Forest City Residential West, Inc. and others. Plaintiffs
were 63 construction workers who claim to have been exposed to asbestos and mold
and mildew while engaged in renovation work at a construction site in
Washington. Three of the plaintiffs also claimed to have been exposed to
asbestos and lead paint at a construction site in California. Plaintiffs sought
damages for unspecified personal injuries, lost income and diminished earning
capacity and also sought punitive and treble damages.
The matter has been settled as of January 31, 2001 and the cases have
been dismissed. The settlement is reflected in the accompanying consolidated
financial statements and did not have a material effect.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
69
45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
NEW ACCOUNTING STANDARDS
In May 2000, the Financial Accounting Standards Board's Emerging Issues
Task force (the EITF) released Issue No. 00-1, "Investor Balance Sheet and
Income Statement Display under the Equity Method for Investments in Certain
Partnerships and Other Ventures" (effective for years ending after June 15,
2000). Effective January 31, 2001, the Company adopted this EITF which precludes
the further use of the pro-rata consolidation method for partnerships.
Accordingly, partnership investments that were previously reported on the
pro-rata method will now be reported as consolidated at 100 percent, if deemed
under the Company's control, or otherwise on the equity method of accounting.
Prior to January 31, 2001, the Company used the pro-rata method of consolidation
to report its partnerships. Under this method, the Company presented its
partnership investments proportionate to its share of ownership for each line
item of its consolidated financial statements. While a number of the line items
on the Company's consolidated financial statements have changed under the new
full consolidation method, there is no impact on net earnings or shareholders'
equity for all years presented. This required financial reporting presentation
change will have no effect on the way the Company operates or manages its
business.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, requires companies to record derivatives on the balance
sheet as assets or liabilities measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. The
Company uses derivative instruments to protect against the risk of adverse price
or interest rate movements on the value of certain firm commitments and
liabilities or on future cash flows. On February 1, 2001, the Company adopted
SFAS No. 133 and, at that time, designated the derivative instruments in
accordance with the requirements of the new standard. On February 1, 2001, the
after-tax impact of the transition amounts of the derivative instruments
resulted in a reduction of net earnings and other comprehensive income of
approximately $1,000,000 and $8,000,000, respectively. The transition
adjustments will be presented as cumulative effect adjustments, as described in
Accounting Principles Board (APB) Opinion No. 20, "Accounting Changes", in the
2001 consolidated financial statements. The transition amounts were determined
based on the interpretive guidance issued by the FASB to date. The FASB
continues to issue interpretive guidance that could require changes in the
Company's application of the standard and adjustments to the transition amounts.
SFAS No. 133 may increase or decrease reported net earnings and shareholders'
equity prospectively, depending on future levels of interest rates and other
variables affecting the fair values of derivative instruments and hedged items,
but will have no effect on cash flows.
In December 1999, the SEC released Staff Accounting Bulletin No. 101 (SAB
No. 101), "Revenue Recognition in Financial Statements", which summarizes the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company adopted SAB 101 in the fourth
quarter of 2000, and such adoption did not have a material effect on the
consolidated financial statements.
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities", was issued to amend the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". The new standard is generally
effective for all periods after March 31, 2001. The Company believes the
provisions of SFAS No. 140 will have no material impact on the accounting
treatment and disclosures currently being applied under SFAS No. 125.
In April 2000, FASB Interpretation 44 (FIN No. 44), "Accounting for
Certain Transactions involving Stock Compensation", was issued which addresses
the application of APB Opinion No. 25, "Accounting for Stock Issued to
Employees". Based on the Company's current stock compensation plan and recent
plan activity, FIN No. 44 has had no material impact on the consolidated
financial statements.
INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This Annual Report, together with other statements and information
publicly disseminated by the Company, contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
reflect management's current views with respect to financial results related to
future events and are based on assumptions and expectations which may not be
realized and are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial or otherwise, may
differ from the results discussed in the forward-looking statements. Risks and
other factors that might cause differences, some of which could be material,
include, but are not limited to, the effect of economic and market conditions on
a nationwide basis as well as regionally in areas where the Company has a
geographic concentration of properties; failure to consummate financing
arrangements; development risks, including lack of satisfactory financing,
construction and lease-up delays and cost overruns; the level and volatility of
interest rates; financial stability of tenants within the retail industry, which
may be impacted by competition and consumer spending; the rate of revenue
increases versus expense 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.
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
70
46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
Summary of Earnings Before Depreciation, Amortization and Deferred Taxes - Year
Ended January 31, 2001
COMMERCIAL GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ........................................ $ 538,034 $ 103,839 $ 88,646 $ 522,841
Exclude straight-line rent adjustment ........... (13,311) -- -- (13,311)
Add back equity method depreciation expense ..... 12,628 -- (12,628) --
---------------------------------------------------------
Adjusted revenues ............................... 537,351 103,839 76,018 509,530
Operating expenses, including depreciation
and amortization for non-Real Estate Groups .... 267,937 51,325 50,540 267,152
Exclude straight-line rent adjustment ........... (3,888) -- -- (3,888)
---------------------------------------------------------
Operating expenses excluding
straight-line rent adjustment ................. 264,049 51,325 50,540 263,264
Gain on disposition recorded on equity method ... 2,359 -- (2,359) --
Minority interest in earnings before
depreciation and amortization .................. 20,753 20,753 -- --
Interest expense ................................ 119,015 31,761 27,837 115,091
Income tax provision ............................ 9,729 -- -- 9,729
---------------------------------------------------------
415,905 103,839 76,018 388,084
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ...................... $ 121,446 $ -- $ -- $ 121,446
========================================================
RESIDENTIAL GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ........................................ $ 126,458 $ 10,408 $ 51,002 $ 167,052
Exclude straight-line rent adjustment ........... -- -- -- --
Add back equity method depreciation expense ..... 7,658 -- (7,333) 325
---------------------------------------------------------
Adjusted revenues ............................... 134,116 10,408 43,669 167,377
Operating expenses, including depreciation
and amortization for non-Real Estate Groups .... 48,087 4,728 30,963 74,322
Exclude straight-line rent adjustment ........... -- -- -- --
---------------------------------------------------------
Operating expenses excluding
straight-line rent adjustment ................. 48,087 4,728 30,963 74,322
Gain on disposition recorded on equity method ... -- -- -- --
Minority interest in earnings before
depreciation and amortization .................. 1,953 1,953 -- --
Interest expense ................................ 23,555 3,727 12,706 32,534
Income tax provision ............................ 4,734 -- -- 4,734
---------------------------------------------------------
78,329 10,408 43,669 111,590
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ...................... $ 55,787 $ -- $ -- $ 55,787
=========================================================
LAND GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ........................................ $ 24,326 $ -- $ 40,330 $ 64,656
Operating expenses, including depreciation
and amortization for non-Real Estate Groups .... 19,560 40 37,505 57,025
Minority interest in earnings before
depreciation and amortization .................. (40) (40) -- --
Interest expense ................................ 1,901 -- 2,825 4,726
Income tax provision ............................ 714 -- -- 714
---------------------------------------------------------
22,135 -- 40,330 62,465
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ...................... $ 2,191 $ -- $ -- $ 2,191
=========================================================
LUMBER TRADING GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ........................................ $ 105,427 $ -- $ -- $ 105,427
Operating expenses, including depreciation
and amortization for non-Real Estate Groups .... 98,534 -- -- 98,534
Minority interest in earnings before
depreciation and amortization .................. -- -- -- --
Interest expense ................................ 5,584 -- -- 5,584
Income tax provision ............................ 1,026 -- -- 1,026
---------------------------------------------------------
105,144 -- -- 105,144
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ...................... $ 283 $ -- $ -- $ 283
=========================================================
CORPORATE ACTIVITIES
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ........................................ $ 540 $ -- $ -- $ 540
Exclude straight-line rent adjustment ........... -- -- -- --
Add back equity method depreciation expense ..... -- -- -- --
---------------------------------------------------------
Adjusted revenues ............................... 540 -- -- 540
Operating expenses, including depreciation
and amortization for non-Real Estate Groups .... 13,459 -- -- 13,459
Exclude straight-line rent adjustment ........... -- -- -- --
---------------------------------------------------------
Operating expenses excluding
straight-line rent adjustment ................. 13,459 -- -- 13,459
Gain on disposition recorded on equity method ... -- -- -- --
Minority interest in earnings before
depreciation and amortization .................. -- -- -- --
Interest expense ................................ 32,489 -- -- 32,489
Income tax provision (benefit) .................. (13,510) -- -- (13,510)
---------------------------------------------------------
32,438 -- -- 32,438
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ...................... $ (31,898) $ -- $ -- $ (31,898)
=========================================================
TOTAL
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ........................................ $ 794,785 $ 114,247 $ 179,978 $ 860,516
Exclude straight-line rent adjustment ........... (13,311) -- -- (13,311)
Add back equity method depreciation expense ..... 20,286 -- (19,961) 325
---------------------------------------------------------
Adjusted revenues ............................... 801,760 114,247 160,017 847,530
Operating expenses, including depreciation
and amortization for non-Real Estate Groups .... 447,577 56,093 119,008 510,492
Exclude straight-line rent adjustment ........... (3,888) -- -- (3,888)
---------------------------------------------------------
Operating expenses excluding
straight-line rent adjustment ................. 443,689 56,093 119,008 506,604
Gain on disposition recorded on equity method ... 2,359 -- (2,359) --
Minority interest in earnings before
depreciation and amortization .................. 22,666 22,666 -- --
Interest expense ................................ 182,544 35,488 43,368 190,424
Income tax provision (benefit) .................. 2,693 -- -- 2,693
---------------------------------------------------------
653,951 114,247 160,017 699,721
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ...................... $ 147,809 $ -- $ -- $ 147,809
========================================================
RECONCILIATION TO NET EARNINGS:
Earnings before depreciation, amortization
and deferred taxes (EBDT) ...................... $ 147,809 $ -- $ -- $ 147,809
Depreciation and amortization - Real
Estate Groups ................................. (95,763) -- -- (95,763)
Deferred taxes - Real Estate Groups ............. (23,518) -- -- (23,518)
Straight-line rent adjustment ................... 9,423 -- -- 9,423
Provision for decline in real estate,
net of tax .................................... (744) -- -- (744)
Gain on disposition of properties and other
investments, net of tax ....................... 51,821 (250) 2,359 54,430
Minority interest in gain on disposition ........ 250 250 -- --
Gain on disposition reported on equity method ... 2,359 -- (2,359) --
---------------------------------------------------------
NET EARNINGS .................................... $ 91,637 $ -- $ -- $ 91,637
=========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
71
47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
Summary of Earnings Before Depreciation, Amortization and Deferred Taxes - Year
Ended January 31, 2000
COMMERCIAL GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 419,910 $ 63,675 $ 86,757 $ 442,992
Add back equity method depreciation expense .... 11,843 -- (11,843) --
---------------------------------------------------------
Adjusted revenues .............................. 431,753 63,675 74,914 442,992
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 212,794 28,606 47,010 231,198
Loss on disposition recorded on equity method .. (411) -- 411 --
Minority interest in earnings before
depreciation and amortization ................. 14,168 14,168 -- --
Interest expense ............................... 87,764 20,901 27,493 94,356
Income tax provision ........................... 11,561 -- -- 11,561
---------------------------------------------------------
325,876 63,675 74,914 337,115
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 105,877 $ -- $ -- $ 105,877
=========================================================
RESIDENTIAL GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 115,681 $ 4,569 $ 47,656 $ 158,768
Add back equity method depreciation expense .... 6,740 -- (6,740) --
---------------------------------------------------------
Adjusted revenues .............................. 122,421 4,569 40,916 158,768
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 50,037 2,748 26,752 74,041
Loss on disposition recorded on equity method .. -- -- -- --
Minority interest in earnings before
depreciation and amortization ................. 693 693 -- --
Interest expense ............................... 13,411 1,128 14,164 26,447
Income tax provision ........................... 11,869 -- -- 11,869
---------------------------------------------------------
76,010 4,569 40,916 112,357
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 46,411 $ -- $ -- $ 46,411
=========================================================
LAND GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 13,242 $ -- $ 28,114 $ 41,356
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 11,843 -- 27,889 39,732
Interest expense ............................... 7,145 -- 225 7,370
Income tax provision (benefit) ................. (2,257) -- -- (2,257)
---------------------------------------------------------
16,731 -- 28,114 44,845
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ (3,489) $ -- $ -- $ (3,489)
=========================================================
LUMBER TRADING GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 149,357 $ -- $ -- $ 149,357
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 131,811 -- -- 131,811
Interest expense ............................... 5,288 -- -- 5,288
Income tax provision (benefit) ................. 5,188 -- -- 5,188
---------------------------------------------------------
142,287 -- -- 142,287
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 7,070 $ -- $ -- $ 7,070
=========================================================
CORPORATE ACTIVITIES
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 598 $ -- $ -- $ 598
Add back equity method depreciation expense .... -- -- -- --
---------------------------------------------------------
Adjusted revenues .............................. 598 -- -- 598
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 12,786 -- -- 12,786
Loss on disposition recorded on equity method .. -- -- -- --
Minority interest in earnings before
depreciation and amortization ................. -- -- -- --
Interest expense ............................... 26,258 -- -- 26,258
Income tax provision (benefit) ................. (15,216) -- -- (15,216)
---------------------------------------------------------
23,828 -- -- 23,828
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ (23,230) $ -- $ -- $ (23,230)
=========================================================
TOTAL
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 698,788 $ 68,244 $ 162,527 $ 793,071
Add back equity method depreciation expense .... 18,583 -- (18,583) --
---------------------------------------------------------
Adjusted revenues .............................. 717,371 68,244 143,944 793,071
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 419,271 31,354 101,651 489,568
Loss on disposition recorded on equity method .. (411) -- 411 --
Minority interest in earnings before
depreciation and amortization ................. 14,861 14,861 -- --
Interest expense ............................... 139,866 22,029 41,882 159,719
Income tax provision (benefit) ................. 11,145 -- -- 11,145
---------------------------------------------------------
584,732 68,244 143,944 660,432
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 132,639 $ -- $ -- $ 132,639
=========================================================
RECONCILIATION TO NET EARNINGS:
Earnings before depreciation, amortization
and deferred taxes (EBDT) .................... $ 132,639 $ -- $ -- $ 132,639
Depreciation and amortization - Real
Estate Groups ................................ (84,586) -- -- (84,586)
Deferred taxes - Real Estate Groups ............ (12,453) -- -- (12,453)
Provision for decline in real estate,
net of tax ................................... (3,060) -- -- (3,060)
Gain on disposition of properties and other
investments, net of tax ...................... 11,139 2,738 (411) 7,990
Minority interest in gain on disposition ....... (2,738) (2,738) -- --
Loss on disposition reported on equity method .. (411) -- 411 --
Extraordinary gain, net of tax ................. 272 -- -- 272
---------------------------------------------------------
NET EARNINGS ................................... $ 40,802 $ -- $ -- $ 40,802
=========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
72
48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forest City Enterprises, Inc. and Subsidiaries
Summary of Earnings Before Depreciation, Amortization and Deferred Taxes - Year
Ended January 31, 1999
COMMERCIAL GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 364,576 $ 58,395 $ 67,925 $ 374,106
Add back equity method depreciation expense .... 10,233 -- (10,233) --
---------------------------------------------------------
Adjusted revenues .............................. 374,809 58,395 57,692 374,106
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 179,145 26,014 42,833 195,964
Gain on disposition recorded on equity method .. 11,025 -- (11,025) --
Minority interest in earnings before
depreciation and amortization ................. 12,365 12,365 -- --
Interest expense ............................... 85,423 20,016 25,884 91,291
Income tax provision ........................... 441 -- -- 441
---------------------------------------------------------
288,399 58,395 57,692 287,696
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 86,410 $ -- $ -- $ 86,410
=========================================================
RESIDENTIAL GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 95,966 $ 4,245 $ 47,282 $ 139,003
Add back equity method depreciation expense .... 6,272 -- (6,272) --
---------------------------------------------------------
Adjusted revenues .............................. 102,238 4,245 41,010 139,003
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 43,069 2,773 25,952 66,248
Gain on disposition recorded on equity method .. -- -- -- --
Minority interest in earnings before
depreciation and amortization ................. 192 192 -- --
Interest expense ............................... 13,564 1,280 15,058 27,342
Income tax provision ........................... 6,799 -- -- 6,799
---------------------------------------------------------
63,624 4,245 41,010 100,389
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 38,614 $ -- $ -- $ 38,614
=========================================================
LAND GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 24,387 $ -- $ 34,382 $ 58,769
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 11,864 -- 28,670 40,534
Interest expense ............................... 1,102 -- 5,712 6,814
Income tax provision ........................... 618 -- -- 618
---------------------------------------------------------
13,584 -- 34,382 47,966
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 10,803 $ -- $ -- $ 10,803
=========================================================
LUMBER TRADING GROUP
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 123,325 $ -- $ -- $ 123,325
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 111,998 -- -- 111,998
Interest expense ............................... 5,262 -- -- 5,262
Income tax provision ........................... 2,838 -- -- 2,838
---------------------------------------------------------
120,098 -- -- 120,098
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 3,227 $ -- $ -- $ 3,227
=========================================================
CORPORATE ACTIVITIES
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 1,446 $ -- $ -- $ 1,446
Add back equity method depreciation expense .... -- -- -- --
---------------------------------------------------------
Adjusted revenues .............................. 1,446 -- -- 1,446
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 12,766 -- -- 12,766
Gain on disposition recorded on equity method .. -- -- -- --
Minority interest in earnings before
depreciation and amortization ................. -- -- -- --
Interest expense ............................... 19,251 -- -- 19,251
Income tax provision (benefit) ................. (9,371) -- -- (9,371)
---------------------------------------------------------
22,646 -- -- 22,646
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ (21,200) $ -- $ -- $ (21,200)
=========================================================
TOTAL
---------------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
- -----------------------------------------------------------------------------------------------------------
Revenues ....................................... $ 609,700 $ 62,640 $ 149,589 $ 696,649
Add back equity method depreciation expense .... 16,505 -- (16,505) --
---------------------------------------------------------
Adjusted revenues .............................. 626,205 62,640 133,084 696,649
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ... 358,842 28,787 97,455 427,510
Gain on disposition recorded on equity method .. 11,025 -- (11,025) --
Minority interest in earnings before
depreciation and amortization ................. 12,557 12,557 -- --
Interest expense ............................... 124,602 21,296 46,654 149,960
Income tax provision (benefit) ................. 1,325 -- -- 1,325
---------------------------------------------------------
508,351 62,640 133,084 578,795
---------------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ..................... $ 117,854 $ -- $ -- $ 117,854
=========================================================
RECONCILIATION TO NET EARNINGS:
Earnings before depreciation, amortization
and deferred taxes (EBDT) .................... $ 117,854 $ -- $ -- $ 117,854
Depreciation and amortization - Real
Estate Groups ................................ (83,655) -- -- (83,655)
Deferred taxes - Real Estate Groups ............ (14,236) -- -- (14,236)
Gain on disposition of properties and
other investments, net of tax ................ 7,419 -- 11,025 18,444
Gain on disposition reported on
equity method ................................ 11,025 -- (11,025) --
Extraordinary gain, net of tax ................. 16,343 -- -- 16,343
---------------------------------------------------------
NET EARNINGS ................................... $ 54,750 $ -- $ -- $ 54,750
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FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT
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