Exhibit 13
FOREST CITY RENTAL PROPERTIES CORPORATION PORTFOLIO OF REAL ESTATE
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
RETAIL CENTERS
DATE OF
OPENING/ % OF
NAME ACQUISITION OWNERSHIP LOCATION
- ----------------------------------------------------------------------------
CONSOLIDATED RETAIL CENTERS
42nd Street.....................1999 70.00% Manhattan, NY
Antelope Valley Mall............1990 78.00% Palmdale, CA
Atlantic Center.................1996 75.00% Brooklyn, NY
Atlantic Center Site V..........1998 70.00% Brooklyn, NY
Avenue at Tower City Center.....1990 100.00% Cleveland, OH
Ballston Common Mall............1986 100.00% Arlington, VA
Battery Park City...............2000 70.00% Manhattan, NY
Bay Street......................1999 70.00% Staten Island, NY
Bruckner Boulevard..............1996 70.00% Bronx, NY
Columbia Park Center............1999 52.50% North Bergen, NJ
Court Street....................2000 70.00% Brooklyn, NY
Courtland Center................1968 100.00% Flint, MI
Eastchester.....................2000 70.00% Bronx, NY
Flatbush Avenue............1995/1998 80.00% Brooklyn, NY
Forest Avenue...................2000 70.00% Staten Island, NY
+ Galleria at South Bay......1985/2001 100.00% Redondo Beach, CA
Grand Avenue....................1997 70.00% Queens, NY
Gun Hill Road...................1997 70.00% Bronx, NY
* Harlem Center...................2002 52.50% Manhattan, NY
Hunting Park....................1996 70.00% Philadelphia, PA
Kaufman Studios.................1999 70.00% Queens, NY
Northern Boulevard..............1997 70.00% Queens, NY
** Promenade in Temecula......1999/2002 75.00% Temecula,CA
* Quebec Square...................2002 90.00% Denver, CO
+ Queens Place....................2001 70.00% Queens, NY
Richmond Avenue.................1998 70.00% Staten Island, NY
South Bay Southern Center.......1978 100.00% Redondo Beach, CA
** Station Square.............1994/2002 100.00% Pittsburgh, PA
* Woodbridge Crossing.............2002 70.00% Woodbridge, NJ
GROSS
TOTAL LEASABLE
NAME MAJOR TENANTS SQUARE FEET AREA
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED RETAIL CENTERS
42nd Street................ AMC Theaters; Madame Tussaud's Wax Museum;
HMV Records...............................................305,000 305,000
Antelope Valley Mall....... Sears; J.C. Penney; Harris Gottschalks Mens-Kids-Home;
Harris Gottschalks Womens; Mervyn's; Dillard's..........1,001,000 304,000
Atlantic Center............ Pathmark; OfficeMax; Old Navy; Marshall's; Macy's ...........394,000 394,000
Atlantic Center Site V..... Modell's..................................................... 47,000 47,000
Avenue at Tower City Center Hard Rock Cafe; Abercrombie & Fitch; Morton's of Chicago.....790,000 282,000
Ballston Common Mall....... Hecht's; Sport & Health; Regal Cinemas.......................578,000 310,000
Battery Park City.......... United Artists; New York Sports Club.........................166,000 166,000
Bay Street................. CVS/Pharmacy ................................................ 16,000 16,000
Bruckner Boulevard......... Conway; Seaman's; Old Navy...................................113,000 113,000
Columbia Park Center....... Shop Rite; Old Navy; Circuit City;
Staples; Bally's; Shopper's World.........................347,000 347,000
Court Street............... United Artists; Barnes & Noble...............................103,000 103,000
Courtland Center........... J.C. Penney; Mervyn's; Old Navy..............................458,000 290,000
Eastchester................ Pathmark......................................................63,000 63,000
Flatbush Avenue............ Stop & Shop; Old Navy; Staples; Bally's......................142,000 142,000
Forest Avenue.............. United Artists ............................................. 70,000 70,000
+ Galleria at South Bay...... Robinsons-May; Mervyn's; Nordstrom; General Cinema...........955,000 387,000
Grand Avenue............... Stop & Shop..................................................100,000 100,000
Gun Hill Road.............. Home Depot; Chuck E. Cheese's................................147,000 147,000
* Harlem Center.............. Marshall's; Gap; CVS/Pharmacy; Staples.......................126,000 126,000
Hunting Park............... A.J. Wright..................................................138,000 138,000
Kaufman Studios............ United Artists................................................84,000 84,000
Northern Boulevard......... Stop & Shop; Marshall's; Old Navy............................218,000 218,000
** Promenade in Temecula...... Macy's; J.C. Penney; Sears; Robinsons-May;
Edwards Cinema..........................................1,040,000 474,000
* Quebec Square.............. Wal-Mart; Home Depot; Sam's Club; Linens-N-Things............695,000 187,000
+ Queens Place............... Target; Best Buy; Macy's Furniture;
Designer Shoe Warehouse...................................455,000 221,000
Richmond Avenue............ Circuit City; Staples; Starbucks..............................76,000 76,000
South Bay Southern Center.. CompUSA......................................................137,000 137,000
** Station Square............. Grand Concourse Restaurant; Qwest Communications;
Houlihans; Cheese Cellar..................................282,000 282,000
* Woodbridge Crossing........ Great Indoors; Linens-N-Things; Circuit City;
Modell's; Thomasville Furniture.........................284,000 284,000
--------------------
Consolidated Retail Centers Subtotal..............................................9,330,000 5,813,000
--------------------
DATE OF
OPENING/ % OF
NAME ACQUISITION OWNERSHIP LOCATION
- ----------------------------------------------------------------------------
UNCONSOLIDATED RETAIL CENTERS
Boulevard Mall..................1962 50.00% Amherst, NY
Chapel Hill Mall ...............1966 50.00% Akron, OH
Chapel Hill Suburban............1969 50.00% Akron, OH
Charleston Town Center Mall.....1983 50.00% Charleston, WV
** Galleria at Sunset.........1996/2002 60.00% Henderson, NV
Golden Gate ....................1958 50.00% Mayfield Hts., OH
+ Mall at Robinson ...............2001 56.67% Pittsburgh, PA
+ Mall at Stonecrest..............2001 66.67% Atlanta, GA
Manhattan Town Center Mall......1987 49.98% Manhattan, KS
Marketplace at Riverpark........1996 50.00% Fresno, CA
Midtown Plaza...................1961 50.00% Parma, OH
Plaza at Robinson Town Center.. 1989 50.00% Pittsburgh, PA
* Short Pump Town Center..........2003 50.00% Richmond, VA
Showcase........................1996 20.00% Las Vegas, NV
GROSS
TOTAL LEASABLE
NAME MAJOR TENANTS SQUARE FEET AREA
- ---------------------------------------------------------------------------------------------------------------------
UNCONSOLIDATED RETAIL CENTERS
Boulevard Mall............. J.C. Penney; Kaufmann's; Sears; Kaufmann's Men's..............904,000 331,000
Chapel Hill Mall .......... Kaufmann's; J.C. Penney; Sears................................865,000 306,000
Chapel Hill Suburban....... Value City....................................................112,000 112,000
Charleston Town Center Mall Kaufmann's; J.C. Penney; Sears ...............................897,000 361,000
** Galleria at Sunset......... Dillard's; Robinsons-May; Mervyn's; J.C. Penney; Galyan's...1,012,000 331,000
Golden Gate ............... OfficeMax; Old Navy; Michael's; Linens-N-Things;
World Market; Golf Galaxy..................................362,000 362,000
+ Mall at Robinson .......... Kaufmann's; Sears; J.C. Penney; Dick's Sporting Goods.........856,000 321,000
+ Mall at Stonecrest......... Rich's; Dillard's; J.C. Penney; Parisian; Sears.............1,170,000 332,000
Manhattan Town Center Mall. Dillard's; J.C. Penney; Sears ................................392,000 197,000
Marketplace at Riverpark... J.C. Penney; Best Buy; Linens-N-Things;
Marshall's; Office Max.....................................466,000 466,000
Midtown Plaza.............. Ames; Office Max; Marc's......................................258,000 258,000
Plaza at Robinson Town Cent T.J. Maxx; Ames; Marshall's...................................489,000 489,000
* Short Pump Town Center..... Lord & Taylor; Nordstrom; Hecht's; Dillard's;
Edward's Cinema..........................................1,161,000 289,000
Showcase................... Coca-Cola(R); M&M's World/Ethel M. Chocolates;
Game Works; United Artists.................................186,000 186,000
----------------------
Unconsolidated Retail Centers Subtotal................................. 9,130,000 4,341,000
----------------------
Total Retail Centers at January 31, 2002.............................. 18,460,000 10,154,000
======================
Total Retail Centers at January 31, 2001.............................. 17,523,000 9,968,000
======================
Forest City Enterprises, Inc. - 2001 Annual Report
26
FOREST CITY RENTAL PROPERTIES CORPORATION PORTFOLIO OF REAL ESTATE
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
OFFICE BUILDINGS
DATE OF
OPENING/ % OF
NAME ACQUISITION OWNERSHIP LOCATION
- --------------------------------------------------------------------------------
CONSOLIDATED OFFICE BUILDINGS
* 35 Landsdowne Street..........2002 100.00% Cambridge, MA
* 40 Landsdowne Street .........2003 100.00% Cambridge, MA
45/75 Sidney Street...........1999 100.00% Cambridge, MA
+ 65/80 Landsdowne Street.......2001 100.00% Cambridge, MA
* 88 Sidney Street..............2002 100.00% Cambridge, MA
Chase Financial Tower.........1991 95.00% Cleveland, OH
Eleven MetroTech Center.......1995 65.00% Brooklyn, NY
Halle Building................1986 75.00% Cleveland, OH
Jackson Building..............1987 100.00% Cambridge, MA
Knight Ridder Building
at Fairmont Plaza.........1998 100.00% San Jose, CA
Nine MetroTech Center North...1997 65.00% Brooklyn, NY
* Nine MetroTech Center South...2003 80.00% Brooklyn, NY
One MetroTech Center..........1991 65.00% Brooklyn, NY
One Pierrepont Plaza..........1988 85.00% Brooklyn, NY
Pavilion......................1998 99.00% San Jose, CA
Richards Building.............1990 100.00% Cambridge, MA
Skylight Office Tower.........1991 92.50% Cleveland, OH
Ten MetroTech Center..........1992 80.00% Brooklyn, NY
Terminal Tower................1983 100.00% Cleveland, OH
* Twelve MetroTech Center.......2005 80.00% Brooklyn, NY
Two MetroTech Center..........1990 65.00% Brooklyn, NY
LEASABLE
SQUARE
NAME MAJOR TENANTS FEET
- ------------------------------------------------------------------------------------------------------------------
Consolidated Office Buildings
* 35 Landsdowne Street.......... Millennium Pharmaceuticals...........................................201,000
* 40 Landsdowne Street ......... Millennium Pharmaceuticals...........................................215,000
45/75 Sidney Street........... Millennium Pharmaceuticals; Cereon Genomics..........................277,000
+ 65/80 Landsdowne Street....... Partners HealthCare System ..........................................122,000
* 88 Sidney Street.............. Alkermes.............................................................145,000
Chase Financial Tower......... Chase Manhattan Mortgage.............................................119,000
Eleven MetroTech Center....... City of New York - CDCSA; E-911......................................216,000
Halle Building................ Liggett-Stashower; Focal Communications; Climaco & Co., LPA ........ 382,000
Jackson Building.............. Ariad Pharmaceuticals................................................ 99,000
Knight Ridder Building Knight Ridder; Merrill Lynch; PaineWebber;
at Fairmont Plaza......... Calpine...........................................................324,000
Nine MetroTech Center North... City of New York - Fire Department...................................317,000
* Nine MetroTech Center South... Empire Blue Cross and Blue Shield; City of New York-HRA..............653,000
One MetroTech Center.......... Keyspan; Bear Stearns................................................933,000
One Pierrepont Plaza.......... Morgan Stanley; Goldman Sachs; U.S. Attorney.........................656,000
Pavilion...................... Metromedia Fiber Network.............................................247,000
Richards Building............. Genzyme Tissue Repair; Alkermes......................................126,000
Skylight Office Tower......... Cap Gemini; Ernst & Young; Travelers Indemnity.......................320,000
Ten MetroTech Center.......... Internal Revenue Service.............................................409,000
Terminal Tower................ Forest City Enterprises; Weston Hurd;Walter & Haverfield; OM Group...582,000
* Twelve MetroTech Center....... .....................................................................171,000
Two MetroTech Center.......... Securities Industry Automation Corp.; City of New York-BOE...........521,000
---------
Consolidated Office Buildings Subtotal.........................................7,035,000
---------
DATE OF
OPENING/ % OF
NAME ACQUISITION OWNERSHIP LOCATION
- --------------------------------------------------------------------------------
UNCONSOLIDATED OFFICE BUILDINGS
350 Massachusetts Avenue......1998 50.00% Cambridge, MA
Chagrin Plaza I & II..........1969 66.67% Beachwood, OH
Clark Building................1989 50.00% Cambridge, MA
Emery-Richmond................1991 50.00% Warrensville Hts., OH
Enterprise Place..............1998 50.00% Beachwood, OH
Liberty Center................1986 50.00% Pittsburgh, PA
Washington Plaza..............1990 1.00% Cleveland, OH
One International Place.......2000 50.00% Cleveland, OH
Signature Square I............1986 50.00% Beachwood, OH
Signature Square II...........1989 50.00% Beachwood, OH
LEASABLE
SQUARE
NAME MAJOR TENANTS FEET
- ------------------------------------------------------------------------------------------------------------------
UNCONSOLIDATED OFFICE BUILDINGS
350 Massachusetts Avenue...... Star Market; Tofias, Fleishman, Shapiro & Co.; CompUSA..............169,000
Chagrin Plaza I & II.......... National City Bank; Responsive Database Services....................114,000
Clark Building................ Oravax..............................................................122,000
Emery-Richmond................ Allstate Insurance....................................................5,000
Enterprise Place.............. Leaseway Transportation Group ......................................125,000
Liberty Center................ Federated Investors.................................................527,000
Washington Plaza.............. Washington Group; Chase Manhattan Mortgage..........................482,000
One International Place....... Battelle Memorial....................................................87,000
Signature Square I............ Ciuni & Panichi......................................................79,000
Signature Square II........... PaineWebber; Allen Telecom...........................................82,000
---------
Unconsolidated Office Buildings Subtotal............................................1,792,000
---------
Total Office Buildings at January 31, 2002..........................................8,827,000
=========
Total Office Buildings at January 31, 2001..........................................7,789,000
=========
HOTELS
DATE OF
OPENING/ % OF
NAME ACQUISITION OWNERSHIP LOCATION ROOMS
- -----------------------------------------------------------------------------------------------
CONSOLIDATED HOTELS
Charleston Marriott...........1983 95.00% Charleston, WV......................352
Embassy Suites Hotel..........2000 50.40% Manhattan, NY.......................463
Hilton Times Square...........2000 56.00% Manhattan, NY.......................444
Ritz - Carlton................1990 95.00% Cleveland, OH ......................208
++ Sheraton Station Square..1998/2001 100.00% Pittsburgh, PA......................396
------
Consolidated Hotels Subtotal.........................................1,863
------
UNCONSOLIDATED HOTELS
Courtyard by Marriott.........1985 4.00% Detroit, MI.........................250
University Park Hotel at MIT .1998 50.00% Cambridge, MA.......................210
Westin Convention Center......1986 50.00% Pittsburgh, PA......................616
------
Unconsolidated Hotels Subtotal .............................................1,076
------
Total Hotel Rooms at January 31, 2002................................2,939
======
Total Hotel Rooms at January 31, 2001................................3,040
======
* Property under construction at January 31, 2002. + Property opened or acquired in 2001.
** Expansion of property under construction at ++ Expansion of property opened in 2001.
January 31, 2002.
Forest City Enterprises, Inc. - 2001 Annual Report
27
FOREST CITY RENTAL PROPERTIES CORPORATION PORTFOLIO OF REAL ESTATE
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
APARTMENTS
DATE OF
OPENING/ % OF LEASABLE
NAME ACQUISITION OWNERSHIP LOCATION UNITS
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED APARTMENTS
Burton Place ......................................1999 90.00% Burton, MI ..............................200
Chestnut Grove ....................................2000 80.00% Plainview, NY ........................... 79
Colony Woods ......................................1997 99.00% Bellevue, WA ............................396
Emerald Palms .....................................1996 100.00% Miami, FL ...............................419
Forest Trace ......................................2000 100.00% Lauderhill, FL ..........................324
* Heritage ..........................................2002 100.00% San Diego, CA ...........................230
Laurels ...........................................1995 100.00% Justice, IL .............................520
Metropolitan ......................................1989 100.00% Los Angeles, CA .........................270
Mount Vernon Square ...............................2000 99.00% Alexandria, VA ........................1,387
Museum Towers .....................................1997 100.00% Philadelphia, PA ........................286
One Franklintown ..................................1988 100.00% Philadelphia, PA ........................335
Panorama Towers ...................................1978 99.00% Los Angeles, CA .........................154
Parmatown Towers and Gardens ......................1972-1973 100.00% Parma, OH ...............................412
+ Pine Cove .........................................2001 80.00% Bayshore, NY ............................ 85
Providence at Palm Harbor .........................1991 99.00% Tampa, FL ...............................236
Regency Towers ....................................1994 100.00% Jackson, NJ .............................372
* Residences at University Park .....................2002 100.00% Cambridge, MA ...........................135
Shippan Avenue ....................................1980 100.00% Stamford, CT ............................148
+ Stony Brook Court .................................2001 80.00% Darien, CT .............................. 86
Trowbridge ........................................1988 53.25% Southfield, MI ..........................305
Vineyards .........................................1995 100.00% Broadview Hts., OH ......................336
Westfield Court ...................................2000 80.00% Stamford, CT ............................167
Woodlake ..........................................1998 100.00% Silver Spring, MD .......................534
-----
Consolidated Apartments Subtotal................................................................7,416
-----
UNCONSOLIDATED APARTMENTS
101 San Fernando ..................................2000 0.70% San Jose, CA ............................323
American Cigar Company ............................2000 0.10% Richmond, VA ............................171
* Arbor Glen ........................................2001-2004 50.00% Twinsburg, OH ........................... 96
Arboretum Place ...................................1998 1.99% Newport News, VA ........................184
Bayside Village ...................................1988-1989 50.00% San Francisco, CA .......................862
Big Creek .........................................1996-2001 50.00% Parma Hts., OH ..........................516
Boulevard Towers ..................................1969 50.00% Amherst, NY .............................402
Bowin .............................................1998 1.99% Detroit, MI .............................193
Bridgewater .......................................1998 1.99% Hampton, VA .............................216
Camelot ...........................................1967 50.00% Parma, OH ...............................151
Cherry Tree .......................................1996-2000 50.00% Strongsville, OH ........................442
Chestnut Lake .....................................1969 50.00% Strongsville, OH ........................789
Clarkwood .........................................1963 50.00% Warrensville Hts., OH....................568
Classic Residence by Hyatt ........................1989 50.00% Teaneck, NJ .............................221
Classic Residence by Hyatt ........................1990 50.00% Chevy Chase, MD .........................339
Classic Residence by Hyatt ........................2000 50.00% Yonkers, NY .............................310
Forest City Enterprises, Inc. - 2001 Annual Report
28
FOREST CITY RENTAL PROPERTIES CORPORATION PORTFOLIO OF REAL ESTATE
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
APARTMENTS
OPENING/ % OF LEASABLE
NAME ACQUISITION OWNERSHIP LOCATION UNITS
- -----------------------------------------------------------------------------------------------------------------------------
UNCONSOLIDATED APARTMENTS (CONTINUED)
Coppertree ...................................1998 50.00% Mayfield Hts., OH .............................342
Deer Run .....................................1987-1989 43.03% Twinsburg, OH .................................562
Drake ........................................1998 1.99% Philadelphia, PA ..............................280
Enclave ......................................1997-1998 1.00% San Jose, CA ..................................637
Fenimore Court ...............................1982 0.50% Detroit, MI ...................................144
* Foley Square .................................2002 35.00% New York, NY ..................................329
Fort Lincoln II ..............................1979 45.00% Washington, D.C ...............................176
Fort Lincoln III & IV ........................1981 24.90% Washington, D.C ...............................306
Granada Gardens ..............................1966 50.00% Warrensville Hts., OH..........................940
Grand ........................................1999 0.90% North Bethesda, MD ............................546
Grand Lowry Lofts ............................2000 0.10% Denver, CO ....................................261
Hamptons .....................................1969 50.00% Beachwood, OH .................................649
Hunter's Hollow ..............................1990 50.00% Strongsville, OH ..............................208
Independence Place I .........................1973 50.00% Parma Hts., OH ................................202
Kennedy Biscuit Lofts ........................1990 2.90% Cambridge, MA .................................142
Knolls .......................................1995 1.00% Orange, CA ....................................260
Lakeland .....................................1998 1.98% Waterford, MI .................................200
Lenox Club ...................................1991 0.50% Arlington, VA .................................385
Lenox Park ...................................1992 0.50% Silver Spring, MD .............................406
Liberty Hills ................................1979-1986 50.00% Solon, OH .....................................396
+ Lofts at 1835 Arch ...........................2001 1.99% Philadelphia, PA ..............................191
Mayfair at Glen Cove .........................2000 40.00% Long Island, NY ............................... 79
Mayfair at Great Neck ........................2000 40.00% Great Neck, NY ................................144
Midtown Towers ...............................1969 50.00% Parma, OH .....................................635
Millender Center .............................1985 4.00% Detroit, MI ...................................339
Noble Towers .................................1979 50.00% Pittsburgh, PA ................................133
* Parkwood Village .............................2001-2002 50.00% Brunswick, OH .................................204
Pavilion .....................................1992 0.50% Chicago, IL .................................1,115
Pebble Creek .................................1995-1996 50.00% Twinsburg, OH .................................148
Perrytown ....................................1999 1.00% Pittsburgh, PA ................................231
Pine Ridge Valley ............................1967-1974 50.00% Willoughby, OH ..............................1,147
Queenswood ...................................1990 0.70% Corona, NY ....................................296
* Settler's Landing at Greentree ...............2001-2003 50.00% Streetsboro, OH ...............................224
Silver Hill ..................................1998 1.99% Newport News, VA ..............................153
Surfside Towers ..............................1970 50.00% Eastlake, OH ..................................246
Tamarac ......................................1990-2001 50.00% Willoughby, OH ................................642
Trellis at Lee's Mill ........................1998 1.99% Newport News, VA ..............................176
Twin Lake Towers .............................1966 50.00% Denver, CO ....................................254
Village Green ................................1994-1995 25.00% Beachwood, OH .................................360
Waterford Village ............................1994 1.00% Indianapolis, IN ..............................576
White Acres ..................................1966 50.00% Richmond Hts., OH .............................473
+ Willow Court ..................................2001 56.00% Forest Hills, NY ...............................84
------
Unconsolidated Apartments Subtotal...............................................................21,004
------
Combined Apartments Subtotal.....................................................................28,420
Federally Subsidized Housing (Total of 42 Buildings)..............................................6,966
------
Total Apartments at January 31, 2002.............................................................35,386
======
Total Apartments at January 31, 2001.............................................................36,239
======
* Property under construction at January 31, 2002. + Property opened or acquired in 2001.
Forest City Enterprises, Inc. - 2001 Annual Report
29
SELECTED FINANCIAL DATA
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Years Ended January 31,
-------------------------------------------------------------------
| Pro-Rata
Full Consolidation(1) |Consolidation(1)
- ----------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 | 1998
============================================================================================================================
(in thousands, except per share data) |
OPERATING RESULTS: |
Revenues............................................. $ 906,570 $ 794,785 $ 698,788 $ 609,700 | $ 632,669
====================================================================
Operating earnings,net of tax........................ $ 47,483 $ 43,959 $ 38,008 $ 29,761 | $ 24,539
Minority interest.................................... 7,994 (3,399) (5,557) 1,227 | -
Provision for decline in real estate,net of tax ..... (6,089) (744) (3,060) - | -
Gain (loss) on disposition of operating properties |
and other investments, net of tax................. 55,076 51,821 11,139 7,419 | (23,356)
--------------------------------------------------------------------
Earnings before extraordinary (loss) gain and |
cumulative effect of change in accounting |
principle.......................................... 104,464 91,637 40,530 38,407 | 1,183
Extraordinary (loss) gain, net of tax................. (233) - 272 16,343 | 19,356
Cumulative effect of change in accounting |
principle, net of tax............................. (1,202) - - - | -
--------------------------------------------------------------------
Net earnings........................................ $ 103,029 $ 91,637 $ 40,802 $ 54,750 | $ 20,539
====================================================================
Earnings before depreciation, amortization and |
deferred taxes (EBDT)(2).......................... $ 167,970 $ 147,809 $ 132,639 $ 117,854 | $ 106,910
====================================================================
DILUTED EARNINGS PER COMMON SHARE:(3) |
Earnings before extraordinary (loss) gain |
and cumulative effect of change in accounting |
principle....................................... $ 2.20 $ 2.01 $ .89 $ .85 | $ .02
Extraordinary (loss) gain, net of tax............. - - .01 .36 | .45
Cumulative effect of change in accounting |
principle, net of tax........................... (.03) - - - | -
====================================================================
Net earnings...................................... $ 2.17 $ 2.01 $ .90 $ 1.21 | $ .47
====================================================================
CASH DIVIDENDS DECLARED-CLASS A AND CLASS B(3)...... $ 0.1867 $ 0.1533 $ 0.1267 $ 0.1033 | $ 0.0833
====================================================================
CASH FLOWS: |
Net cash provided by operating activities..... $ 79,115 $ 194,117 $ 170,686 $ 112,385 | $ 84,629
Net cash used in investing activities......... $(210,420) $(506,826) $(521,974) $(537,994)| $ (287,932)
Net cash provided by financing activities..... $ 117,094 $ 292,892 $ 368,341 $ 450,781 | $ 216,855
============================================================================================================================
January 31,
--------------------------------------------------------------------
Full Consolidation(1) | Pro-Rata Consolidation(1)
- ----------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 | 1999 1998
============================================================================================================================
|
(in thousands) |
FINANCIAL POSITION: |
Consolidated assets . . . . . . . . . . . . . . . . . . $4,417,646 $4,027,470 $3,666,355 | $3,417,320 $2,963,353
Real estate portfolio, at cost . . . . . . . . . . . . .$3,944,153 $3,590,219 $3,206,642 | $3,087,498 $2,704,560
Long-term debt, primarily nonrecourse mortgages . . . . $2,894,998 $2,849,812 $2,555,594 | $2,478,872 $2,132,931
============================================================================================================================
(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) 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 excluding the following
items: i) gain (loss) on disposition of operating properties and other
investments (net of tax); ii) beginning in the year ended January 31,
2001, the adjustment to recognize rental revenues and rental expense
using the straight-line method; iii) noncash charges from Forest City
Rental Properties Corporation, a wholly-owned subsidiary of Forest City
Enterprises, Inc., for depreciation, amortization and deferred income
taxes; iv) provision for decline in real estate (net of tax); v)
extraordinary items (net of tax); and vi) cumulative effect of change in
accounting principle (net of tax).
(3) Adjusted for three-for-two split of Class A and Class B Common Stock
effective November 14, 2001.
Forest City Enterprises, Inc. - 2001 Annual Report
30
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
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 annual audit 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, comprehensive income,
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, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2002, 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 13, 2002
Forest City Enterprises, Inc. - 2001 Annual Report
32
CONSOLIDATED BALANCE SHEETS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
January 31,
- ----------------------------------------------------------------------------------------------------------------------
2002 2001
======================================================================================================================
(in thousands)
ASSETS
Real Estate
Completed rental properties .................................................... $ 3,458,756 $ 3,134,667
Projects under development ..................................................... 461,204 432,808
Land held for development or sale .............................................. 24,193 22,744
------------------------------
Real Estate, at cost ........................................................ 3,944,153 3,590,219
Less accumulated depreciation .................................................. (537,325) (496,050)
------------------------------
Total Real Estate ........................................................... 3,406,828 3,094,169
Cash and equivalents ............................................................. 50,054 64,265
Restricted cash .................................................................. 113,073 80,743
Notes and accounts receivable, net ............................................... 276,000 191,967
Inventories ...................................................................... 39,247 39,234
Investments in and advances to real estate affiliates ............................ 394,303 390,336
Other assets ..................................................................... 138,141 166,756
------------------------------
TOTAL ASSETS ................................................................ $ 4,417,646 $ 4,027,470
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse ....................................................... $ 2,620,598 $ 2,439,912
Notes payable .................................................................... 64,554 55,392
Long-term credit facility ........................................................ 54,000 189,500
Senior and subordinated debt ..................................................... 220,400 220,400
Accounts payable and accrued expenses ............................................ 499,722 410,869
Deferred income taxes ............................................................ 227,982 176,671
------------------------------
TOTAL LIABILITIES .............................................................. 3,687,256 3,492,744
Minority Interest ................................................................ 67,877 78,090
------------------------------
Commitments and Contingencies
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; 35,101,288 and 30,542,898
shares issued, 34,756,382 and 29,730,761 outstanding, respectively .......... 11,700 10,181
Class B, convertible, 36,000,000 shares authorized; 15,124,540 and 15,783,030
shares issued, 14,707,390 and 15,365,880 outstanding, respectively .......... 5,042 5,261
------------------------------
16,742 15,442
Additional paid-in capital ....................................................... 228,263 108,863
Retained earnings ................................................................ 432,939 338,792
------------------------------
677,944 463,097
Less treasury stock, at cost; 2002: 344,906 Class A and 417,150 Class B shares
2001: 812,137 Class A and 417,150 Class B shares ............................... (6,140) (10,330)
Accumulated other comprehensive (loss) income .................................... (9,291) 3,869
------------------------------
Total Shareholders' Equity ..................................................... 662,513 456,636
------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................. $ 4,417,646 $ 4,027,470
==============================
The accompanying notes are an integral part of these consolidated financial
statements.
Forest City Enterprises, Inc. - 2001 Annual Report
33
CONSOLIDATED STATEMENTS OF EARNINGS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Years Ended January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
===================================================================================================================================
(in thousands, except per share data)
REVENUES
Rental properties .......................................................... $ 738,508 $ 658,369 $ 538,876
Lumber trading ............................................................. 115,728 105,427 149,357
Equity in earnings of unconsolidated entities .............................. 52,334 30,989 10,555
---------------------------------------------
906,570 794,785 698,788
---------------------------------------------
EXPENSES
Operating expenses ......................................................... 552,517 443,707 415,811
Interest expense ........................................................... 178,580 182,544 139,866
Provision for decline in real estate ....................................... 8,783 1,231 5,062
Depreciation and amortization .............................................. 97,842 98,364 81,504
---------------------------------------------
837,722 725,846 642,243
---------------------------------------------
Gain on disposition of operating properties and other investments ............ 91,109 48,409 13,861
---------------------------------------------
EARNINGS BEFORE INCOME TAXES ................................................. 159,957 117,348 70,406
---------------------------------------------
INCOME TAX EXPENSE
Current .................................................................... 85 10,326 12,257
Deferred ................................................................... 63,402 11,986 12,062
---------------------------------------------
63,487 22,312 24,319
---------------------------------------------
Earnings before minority interest, extraordinary (loss) gain and
cumulative effect of change in accounting principle ........................ 96,470 95,036 46,087
Minority interest ............................................................ 7,994 (3,399) (5,557)
---------------------------------------------
Earnings before extraordinary (loss) gain and
cumulative effect of change in accounting principle ........................ 104,464 91,637 40,530
Extraordinary (loss) gain, net of tax ........................................ (233) -- 272
Cumulative effect of change in accounting principle, net of tax .............. (1,202) -- --
---------------------------------------------
NET EARNINGS ................................................................. $ 103,029 $ 91,637 $ 40,802
=============================================
BASIC EARNINGS PER COMMON SHARE
Earnings before extraordinary (loss) gain and cumulative effect
of change in accounting principle ........................................ $ 2.23 $ 2.03 $ .90
Extraordinary (loss) gain, net of tax ...................................... -- -- .01
Cumulative effect of change in accounting principle, net of tax ............ (.03) -- --
=============================================
Net earnings ............................................................... $ 2.20 $ 2.03 $ .91
=============================================
DILUTED EARNINGS PER COMMON SHARE
Earnings before extraordinary (loss) gain and cumulative effect
of change in accounting principle ........................................ $ 2.20 $ 2.01 $ .89
Extraordinary (loss) gain, net of tax ...................................... -- -- .01
Cumulative effect of change in accounting principle, net of tax ............ (.03) -- --
=============================================
Net earnings ............................................................... $ 2.17 $ 2.01 $ .90
=============================================
The accompanying notes are an integral part of these consolidated
financial statements.
Forest City Enterprises, Inc. - 2001 Annual Report
34
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Years Ended January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
====================================================================================================================================
(in thousands)
Net earnings ........................................................................ $ 103,029 $ 91,637 $ 40,802
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on investments in securities:
Unrealized (loss) gain on securities ............................................ (4,144) (531) 19,157
Reclassification adjustment for loss (gain) included in net earnings ............ 799 (14,757) --
Unrealized derivative losses:
Cumulative effect of change in accounting principle - transition
adjustment of interest rate contracts, net of minority interest ............... (7,820) -- --
Unrealized losses on interest rate contracts, net of minority interest .......... (1,995) -- --
-----------------------------------------
Other comprehensive (loss) income, net of tax ....................................... (13,160) (15,288) 19,157
-----------------------------------------
Comprehensive income ................................................................ $ 89,869 $ 76,349 $ 59,959
=========================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
--------------------------------------------
Class A Class B Additional
--------------------------------------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings
=================================================================================================================================
(in thousands)
BALANCES AT JANUARY 31, 1999,
AS PREVIOUSLY REPORTED ....................... 19,905 $ 6,636 10,979 $ 3,661 $ 114,270 $ 218,967
Three-for-two stock split effective
November 14, 2001 applied retroactively .... 9,952 3,317 5,490 1,828 (5,145) --
--------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 1999, AS ADJUSTED ..... 29,857 9,953 16,469 5,489 109,125 218,967
Net earnings ................................. 40,802
Other comprehensive income, net of tax .......
Dividends $.1267 per share ................... (5,706)
Conversion of Class B to Class A shares ...... 63 21 (63) (21)
Exercise of stock options .................... 4
Restricted stock issued ...................... (605)
Amortization of unearned compensation ........ 93
--------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 2000, AS ADJUSTED ..... 29,920 9,974 16,406 5,468 108,617 254,063
Net earnings ................................. 91,637
Other comprehensive loss, net of tax .........
Dividends $.1533 per share ................... (6,908)
Conversion of Class B to Class A shares ...... 623 207 (623) (207)
Exercise of stock options .................... 107
Amortization of unearned compensation ........ 139
--------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 2001, AS ADJUSTED ..... 30,543 10,181 15,783 5,261 108,863 338,792
Net earnings ................................. 103,029
Other comprehensive loss, net of tax .........
Dividends $.1867 per share ................... (8,882)
Issuance of 3,900,000 Class A common
shares in equity offering .................. 3,900 1,300 116,363
Conversion of Class B to Class A shares ...... 658 219 (658) (219)
Exercise of stock options .................... 1,396
Income tax benefit from stock option exercises 2,123
Restricted stock issued ...................... (1,009)
Amortization of unearned compensation ........ 531
Cash in lieu of fractional shares from
three-for-two stock split .................. (4)
--------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 2002 35,101 $ 11,700 15,125 $ 5,042 $ 228,263 $ 432,939
================================================================================
Accumulated
Treasury Stock Other
------------------ Comprehensive
Shares Amount Income (Loss) Total
====================================================================================================
BALANCES AT JANUARY 31, 1999,
AS PREVIOUSLY REPORTED ....................... 901 $ (11,426) $ -- $ 332,108
Three-for-two stock split effective
November 14, 2001 applied retroactively .... 451 -- -- --
---------------------------------------------------
BALANCES AT JANUARY 31, 1999, AS ADJUSTED ..... 1,352 (11,426) -- 332,108
Net earnings ................................. 40,802
Other comprehensive income, net of tax ....... 19,157 19,157
Dividends $.1267 per share ................... (5,706)
Conversion of Class B to Class A shares ...... --
Exercise of stock options .................... (6) 48 52
Restricted stock issued ...................... (67) 605 --
Amortization of unearned compensation ........ 93
---------------------------------------------------
BALANCES AT JANUARY 31, 2000, AS ADJUSTED ..... 1,279 (10,773) 19,157 386,506
Net earnings ................................. 91,637
Other comprehensive loss, net of tax ......... (15,288) (15,288)
Dividends $.1533 per share ................... (6,908)
Conversion of Class B to Class A shares ...... --
Exercise of stock options .................... (49) 443 550
Amortization of unearned compensation ........ 139
---------------------------------------------------
BALANCES AT JANUARY 31, 2001, AS ADJUSTED ..... 1,230 (10,330) 3,869 456,636
Net earnings ................................. 103,029
Other comprehensive loss, net of tax ......... (13,160) (13,160)
Dividends $.1867 per share ................... (8,882)
Issuance of 3,900,000 Class A common
shares in equity offering .................. 117,663
Conversion of Class B to Class A shares ...... --
Exercise of stock options .................... (355) 3,181 4,577
Income tax benefit from stock option exercises 2,123
Restricted stock issued ...................... (113) 1,009 --
Amortization of unearned compensation ........ 531
Cash in lieu of fractional shares from
three-for-two stock split .................. (4)
---------------------------------------------------
BALANCES AT JANUARY 31, 2002 762 $ (6,140) $ (9,291) $ 662,513
===================================================
The accompanying notes are an integral part of these consolidated financial
statements.
Forest City Enterprises, Inc. - 2001 Annual Report
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Years Ended January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
===================================================================================================================================
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received ............................................. $ 720,808 $ 733,157 $ 671,881
Cash distributions from unconsolidated entities ............................... 29,939 60,018 48,891
Proceeds from land sales ...................................................... 36,842 24,873 13,589
Land development expenditures ................................................. (34,950) (28,686) (11,606)
Operating expenditures ........................................................ (493,434) (417,274) (413,007)
Interest paid ................................................................. (180,090) (177,971) (139,062)
-------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... 79,115 194,117 170,686
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .......................................................... (419,301) (511,974) (464,869)
Proceeds from disposition of operating properties and
other investments ........................................................... 190,011 130,751 --
Changes in investments in and advances to real estate affiliates .............. 18,870 (125,603) (57,105)
-------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ....................................... (210,420) (506,826) (521,974)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in nonrecourse mortgage debt and long-term credit facility ........... 506,851 826,387 570,434
Principal payments on nonrecourse mortgage debt ............................... (302,051) (471,062) (229,126)
Payments on long-term credit facility ......................................... (160,000) -- --
Increase in notes payable ..................................................... 48,617 20,559 95,497
Payments on notes payable ..................................................... (39,455) (37,837) (51,058)
Change in restricted cash and book overdrafts ................................. (31,596) (30,899) (21,860)
Payment of deferred financing costs ........................................... (17,080) (30,682) (6,575)
Exercise of stock options ..................................................... 4,577 550 52
Sale of common stock, net ..................................................... 117,663 -- --
Dividends paid to shareholders ................................................ (8,213) (6,608) (5,399)
(Decrease) increase in minority interest ...................................... (2,219) 2,084 16,376
Proceeds from issuance of subordinated debt ................................... -- 20,400 --
-------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................... 117,094 292,892 368,341
-------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS ................................. (14,211) (19,817) 17,053
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ....................................... 64,265 84,082 67,029
-------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR ............................................. $ 50,054 $ 64,265 $ 84,082
===========================================
Forest City Enterprises, Inc. - 2001 Annual Report
36
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Years Ended January 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
===================================================================================================================================
(in thousands)
RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS .................................................................... $ 103,029 $ 91,637 $ 40,802
Minority interest ............................................................. (7,994) 3,399 5,557
Depreciation .................................................................. 79,454 75,546 63,560
Amortization .................................................................. 18,388 22,818 17,944
Equity in earnings of unconsolidated entities ................................. (52,334) (30,989) (10,555)
Cash distributions from unconsolidated entities ............................... 29,939 60,018 48,891
Deferred income taxes ......................................................... 59,921 12,012 11,978
Gain on disposition of operating properties and other investments ............. (91,109) (48,409) (13,861)
Provision for decline in real estate .......................................... 8,783 1,231 5,062
Extraordinary loss (gain) ..................................................... 386 -- (450)
Cumulative effect of change in accounting principle ........................... 1,988 -- --
Increase in land included in projects under development ....................... (25,882) (10,979) (5,331)
Decrease in land included in completed rental properties ...................... -- 655 13,906
Increase in land held for development or sale ................................. (1,449) (948) (4,281)
Increase in notes and accounts receivable, net ................................ (84,033) (6,503) (1,217)
(Increase) decrease in inventories ............................................ (13) 18,210 (10,145)
Decrease (increase) in other assets ........................................... 8,731 (36,723) (2,132)
Increase in accounts payable and accrued expenses ............................. 31,310 43,142 10,958
-------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... $ 79,115 $ 194,117 $ 170,686
===========================================
SUPPLEMENTAL NON-CASH DISCLOSURE:
The schedule below represents the effect of the following non-cash
transactions for the years ended January 31:
2002 - Property additions included in accounts payable
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
OPERATING ACTIVITIES
Notes and accounts receivable, net ................................. $ -- $ 553 $ 123
Other assets ....................................................... -- 5,074 1,390
Accounts payable and accrued expenses .............................. -- (2,652) (194)
--------------------------------------------------
Total effect on operating activities ............................. $ -- $ 2,975 $ 1,319
==================================================
INVESTING ACTIVITIES
Property additions included in accounts payable .................... $ (43,941) $ -- $ --
Accounts payable ................................................... 43,941 -- --
Disposition of completed rental properties ......................... -- 78,640 32,116
--------------------------------------------------
Total effect on investing activities ............................. $ -- $ 78,640 $ 32,116
==================================================
FINANCING ACTIVITIES
Disposition of nonrecourse mortgage debt ........................... $ -- $(81,505) $(33,435)
Notes payable ...................................................... -- (110) --
--------------------------------------------------
Total effect on financing activities ............................. $ -- $(81,615) $(33,435)
==================================================
The accompanying notes are an integral part of these consolidated financial
statements.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Forest City Enterprises, Inc. principally engages in the ownership,
development, acquisition and management of commercial and residential real
estate throughout the United States. The Company operates under four Strategic
Business Units. THE COMMERCIAL GROUP, the Company's largest business unit,
owns, develops, acquires and operates regional malls, specialty/urban retail
centers, office buildings, hotels and mixed-use projects. The RESIDENTIAL
GROUP owns, develops, acquires, leases and manages residential rental
property, including mature middle-market apartments in urban and suburban
locations, adaptive re-use developments in urban locations and
supported-living facilities. REAL ESTATE GROUPS are the combined Commercial
and Residential Groups. The LAND DEVELOPMENT GROUP acquires and sells both land
and developed lots to residential, commercial and industrial customers. It also
owns and develops land into master-planned communities and mixed-use projects.
The LUMBER TRADING GROUP, a wholesaler, sells lumber to customers in all 50
states and Canadian provinces.
Forest City Enterprises, Inc. has more than $4.4 billion in total assets in
19 states and Washington, D.C. The Company's targeted markets include Boston,
Denver, Los Angeles, New York City, Philadelphia, Richmond, San Francisco and
Washington, D.C. The Company is headquartered in Cleveland, Ohio.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of Forest City Enterprises, Inc., its wholly-owned subsidiaries and entities
which it 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 are allocated to the minority interest
holders based on their respective ownership percentages of the Company's
controlled but less-than- wholly-owned real estate investments. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company to make estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial statements and
related notes. Some of the critical estimates made by the Company include, but
are not limited to, estimates of useful lives for long-lived assets, reserves
for collection on accounts and notes receivable and other investments, and
provisions for decline in real estate.
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 2001, 2000 and 1999 refer to the fiscal years ended January 31,
2002, 2001 and 2000, respectively.
LAND OPERATIONS
Land held for development or sale is stated at the lower of carrying
amount or fair market value less cost to sell.
RECOGNITION OF REVENUE
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 operating properties and land held
for development or sale.
LEASING OPERATIONS-The Company enters into leases with tenants in its
rental properties. The lease terms of tenants occupying space in the retail
centers and office buildings range from 1 to 25 years, excluding leases with
anchor tenants which typically run longer. 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 contractual amounts.
Recoveries from tenants for taxes, insurance, and other commercial property
operating expenses are recognized as revenues in the period the applicable
costs are incurred.
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 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, which 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 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 North America. 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
reports the gross margin on these sales as revenues in the accompanying
Consolidated Statements of Earnings.
Forest City Enterprises, Inc. - 2001 Annual Report
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes. Interest expense
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 quarterly for changes in expected
collectibility.
Depreciation is generally computed using the straight-line method over
the estimated useful life of the asset. 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 reviews its properties to determine if its carrying costs will
be recovered from future operating cash flows whenever events or changes
indicate that recoverability of long-lived assets may not be assured. 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 these 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.
INVESTMENTS IN PARTNERSHIPS
As is customary within the real estate industry, the Company invests in
certain real estate projects through partnerships. The Company provides
funding for certain of its partners' equity contributions. Such advances are
interest- bearing or entitle the Company to a preference on property cash flows
and are included in "Investments in and Advances to Real Estate Affiliates" in
the accompanying Consolidated Balance Sheets.
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 unrealized gains or losses reflected
as Accumulated Other Comprehensive Income (Loss) in Shareholders' Equity.
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. Also included in Other
Comprehensive Income are unrealized gains and losses, net of tax, on the
effective portions of derivative instruments designated and qualified as cash
flow hedges.
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, 2002 was $2,107,077,000
compared to an estimated fair value of $2,077,142,000.
The Company estimates the fair value of its hedging instruments based on
interest rate market pricing models. At January 31, 2002, LIBOR interest rate
caps and Treasury Options were reported at their fair value, $1,600,000, in
Other Assets in the Consolidated Balance Sheet. The fair value of interest
rate swap agreements at January 31, 2002 is an unrealized loss of $5,300,000
and included in Accounts Payable and Accrued Expenses in the Consolidated
Balance Sheet.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES
The Company generally maintains an overall interest rate risk management
strategy that incorporates the use of derivative instruments to minimize
significant unplanned decreases in earnings and cash flow that may be caused
by interest rate volatility. The Company does not enter into derivative
financial instrument contracts for trading or speculative purposes. Derivative
instruments that are used as part of the Company's strategy include interest
rate swaps and option contracts that have indices related to the pricing
Forest City Enterprises, Inc. - 2001 Annual Report
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of specific balance sheet liabilities. The Company enters into interest rate
swaps to convert certain floating-rate debt to fixed-rate long-term debt, and
vice-versa, depending on market conditions. Options products utilized include
interest rate caps and Treasury options. The use of these option products are
consistent with the Company's risk management objective to reduce or eliminate
exposure to variability in future cash flows attributable to changes in the
Treasury rate relating to forecasted financings, and the variability in cash
flows attributable to increases relating to interest payments on its
floating-rate debt. The caps have typical duration 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 credit risk to the Company through its interest rate risk
management strategy is the potential inability of the financial institution
from which the derivative financial instruments were purchased to cover all of
its obligations. If a counterparty fails to fulfill its performance
obligations under a derivative contract, the Company's credit risk will equal
the fair-value gain in a derivative. To mitigate this exposure, the Company
purchases its derivative financial instruments from either the institution
that holds the debt or from institutions with a minimum A- credit rating.
All derivatives are reported in the Consolidated Balance Sheets at their
fair value. On the date that the Company enters into a derivative contract, it
designates the derivative as a hedge of a forecasted transaction or the
variability of cash flows that are to be paid in connection with a recognized
or forecasted liability (a "cash flow" hedge), or to convert certain
fixed-rate long-term debt to floating-rate debt (a "fair value hedge"). The
effective portion of the change in fair value of a derivative that is
designated and qualifies as a cash flow hedge is recorded in other
comprehensive income until earnings are affected by the variability of cash
flows of the hedged transaction. The ineffective portion of all hedges is
recognized in current-period earnings as interest expense in the Consolidated
Statements of Earnings.
On August 1, 2001, the Company began assessing hedge effectiveness based
on the total changes in cash flows on its interest rate caps and Treasury
options as described by the Derivative Implementation Group (DIG) Issue G20,
Cash Flow Hedges: Assessing and Measuring the Effectiveness of a Purchased
Option Used in a Cash Flow Hedge. Accordingly, the Company has elected to
record in Other Comprehensive Income (Loss) all of the subsequent changes
in the fair value, including the changes in the option's time value. Gains or
losses on interest rate caps used to hedge interest rate risk on variable-rate
debt will be reclassified out of Accumulated Other Comprehensive Income (Loss)
into earnings when the forecasted transaction occurs using the "caplet"
methodology. Gains or losses on Treasury options used to hedge the interest
rate risk associated with the anticipated issuance of fixed-rate debt will be
reclassified from Accumulated Other Comprehensive Income (Loss) into earnings
over the term of the debt, based on an effective-yield method.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. The Company also formally
assesses (both at the hedge's inception and on an ongoing basis) whether the
derivatives that are used in hedging transactions have been highly effective
in offsetting changes in the fair value or cash flows of hedged items and
whether those derivatives may be expected to remain highly effective in future
periods.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item; (2) the derivative expires or
is sold, terminated, or exercised; (3) it is no longer probable that the
forecasted transaction will occur; or (4) management determines that
designating the derivative as a hedging instrument is no longer appropriate.
When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, the gain or loss on the derivative remains in accumulated other
comprehensive income and is reclassified into earnings when the forecasted
transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period
or within an additional two-month period of time thereafter, the gains and
losses that were accumulated in other comprehensive income will be recognized
immediately in earnings. When hedge accounting is discontinued due to the
Company's determination that the derivative no longer qualifies as an
effective fair value hedge, the Company will continue to report the derivative
in its Consolidated Balance Sheets at its fair value but cease to adjust the
hedged liability for changes in fair value. In all situations in which hedge
accounting is discontinued and the derivative remains outstanding, the Company
will report the derivative at its fair value in the Consolidated Balance
Sheets, recognizing changes in the fair value in current-period earnings.
During the year ended January 31, 2002, as a result of substantial
decreases in short-term interest rates, the Company de-designated and
subsequently discontinued hedge accounting on certain interest rate caps that
had an aggregate notional amount of approximately $260,000,000, strike rates
averaging 7.75% and maturities extending through February 1, 2003. Subsequent
changes in the fair value of these de-designated interest rate caps were
recorded as interest expense of approximately $102,000 for the year ended
January 31, 2002.
For the year ended January 31, 2002, the Company recorded approximately
$1,912,000 as interest expense in the Consolidated Statements of Earnings,
which represented the total ineffectiveness of all cash flow hedges. The
amount of hedge ineffectiveness relating to hedges designated and qualifying
as fair value hedges was not material. The amount of net derivative losses
reclassified into earnings from other comprehensive income as a result of
forecasted transactions that did not occur by the end of the originally
specified time period or within an additional two-month period of time
thereafter was $1,574,000 for the year ended January 31, 2002. As of January
31, 2002, the Company expects that within the next twelve months it will
reclassify amounts recorded in accumulated other comprehensive income into
earnings as interest expense associated with the effectiveness of cash flow
hedges of approximately $7,108,000, net of tax.
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.
Forest City Enterprises, Inc. - 2001 Annual Report
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Further, as discussed in Note Q, in 2001 the Company paid
a three-for-two stock split effected as a stock dividend. All years presented
have been adjusted to reflect this stock split.
NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS Nos. 137 and 138, which 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, net of minority interest, of the transition amounts of the
derivative instruments resulted in a reduction of net income and other
comprehensive income of approximately $1,200,000 and $7,800,000, respectively.
The transition adjustments are presented as cumulative effect adjustments, as
described in (APBO) 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 may increase or decrease reported net income 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 the Consolidated Statements of
Cash Flows.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations" which
addresses financial accounting and reporting for business combinations and
SFAS No. 142 "Goodwill and Other Intangible Assets" which addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
The provisions of SFAS No. 141 apply to all business combinations initiated
after June 30, 2001. SFAS No. 142 is effective for the fiscal year ending
January 31, 2003. The Company believes the provisions of SFAS Nos. 141 and 142
will not have a material impact on its consolidated financial statements.
Also in June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations" which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement requires the fair value
of the liability for an asset retirement obligation be recognized in the
period in which it is incurred. This new standard becomes effective for the
Company for the year ending January 31, 2004. The Company does not expect this
pronouncement to have a material impact on the Company's financial position,
results of operations, or cash flows.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This standard established a single accounting model for long-lived assets to
be disposed of by sale or which are impaired and resolves some of the
implementation issues as originally described in SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". It retains the fundamental provisions of SFAS No. 121 for (a) recognition
and measurement of the impairment of long-lived assets to be held and used and
(b) measurement of long-lived assets to be disposed of by sale. It also
retains the basic provisions for presenting discontinued operations in the
Consolidated Statement of Earnings but broadens the scope to include a
component of an entity rather than a segment of a business. The new standard
becomes effective for the Company for the year ending January 31, 2003. The
Company does not expect this pronouncement to have a material impact on the
Company's financial position, results of operations or cash flows. However,
the Company expects the adoption of this standard to impact the presentation
of its Consolidated Statements of Earnings by requiring classification of gain
(loss) on the disposal of operating properties and their related operating
earnings through the date of sale as discontinued operations.
Forest City Enterprises, Inc. - 2001 Annual Report
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
B. FINANCIAL STATEMENT PRESENTATION
A reconciliation of the Company's financial statement presentation (full
consolidation method) to its historical presentation (pro-rata consolidation
method) is as follows.
CONSOLIDATED BALANCE SHEET-JANUARY 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments Pro-Rata
Full Consolidation Interest at Pro-Rata Consolidation
==================================================================================================================================
(in thousands)
ASSETS
Real Estate
Completed rental properties ................................... $ 3,458,756 $ 592,988 $ 775,878 $ 3,641,646
Projects under development .................................... 461,204 42,494 124,395 543,105
Land held for development or sale ............................. 24,193 -- 32,692 56,885
-----------------------------------------------------------
Real Estate, at cost ....................................... 3,944,153 635,482 932,965 4,241,636
Less accumulated depreciation ................................. (537,325) (80,877) (175,205) (631,653)
-----------------------------------------------------------
Total Real Estate .......................................... 3,406,828 554,605 757,760 3,609,983
Cash and equivalents ............................................ 50,054 5,030 34,862 79,886
Restricted cash ................................................. 113,073 20,057 33,156 126,172
Notes and accounts receivable,net ............................... 276,000 17,642 14,042 272,400
Inventories ..................................................... 39,247 -- -- 39,247
Investments in and advances to real estate affiliates ........... 394,303 -- (29,810) 364,493
Other assets .................................................... 138,141 23,626 25,512 140,027
-----------------------------------------------------------
TOTAL ASSETS................................................. $ 4,417,646 $ 620,960 $ 835,522 $ 4,632,208
===========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse ...................................... $ 2,620,598 $ 483,624 $ 788,240 $ 2,925,214
Notes payable ................................................... 64,554 14,798 3,195 52,951
Long-term credit facility ....................................... 54,000 -- -- 54,000
Senior and subordinated debt .................................... 220,400 -- -- 220,400
Accounts payable and accrued expenses ........................... 499,722 54,661 44,087 489,148
Deferred income taxes ........................................... 227,982 -- -- 227,982
-----------------------------------------------------------
TOTAL LIABILITIES.............................................. 3,687,256 553,083 835,522 3,969,695
Minority Interest ............................................... 67,877 67,877 -- --
-----------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ...................................... 662,513 -- -- 662,513
-----------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 4,417,646 $ 620,960 $ 835,522 $ 4,632,208
===========================================================
</Table>
Forest City Enterprises, Inc. - 2001 Annual Report
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
================================================================================
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 .............................. $ 3,134,667 $ 574,575 $ 680,028 $ 3,240,120
Projects under development ............................... 432,808 54,947 122,497 500,358
Land held for development or sale ........................ 22,744 - 30,459 53,203
--------------------------------------------------------------------
Real Estate, at cost .................................. 3,590,219 629,522 832,984 3,793,681
Less accumulated depreciation ............................ (496,050) (76,301) (165,572) (585,321)
--------------------------------------------------------------------
Total Real Estate ..................................... 3,094,169 553,221 667,412 3,208,360
Cash and equivalents ....................................... 64,265 8,653 26,351 81,963
Restricted cash ............................................ 80,743 13,206 19,617 87,154
Notes and accounts receivable, net ......................... 191,967 12,251 10,814 190,530
Inventories ................................................ 39,234 - - 39,234
Investments in and advances to real estate affiliates ...... 390,336 - (30,888) 359,448
Other assets ............................................... 166,756 28,647 24,185 162,294
--------------------------------------------------------------------
TOTAL ASSETS .......................................... $ 4,027,470 $ 615,978 $ 717,491 $ 4,128,983
====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse ................................. $ 2,439,912 $ 488,014 $ 674,019 $ 2,625,917
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
Accounts payable and accrued expenses ...................... 410,869 35,180 42,055 417,744
Deferred income taxes ...................................... 176,671 - - 176,671
--------------------------------------------------------------------
TOTAL LIABILITIES ........................................ 3,492,744 537,888 717,491 3,672,347
Minority Interest .......................................... 78,090 78,090 - -
--------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ................................. 456,636 - - 456,636
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 4,027,470 $ 615,978 $ 717,491 $ 4,128,983
====================================================================
Forest City Enterprises, Inc. - 2001 Annual Report
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
B. FINANCIAL STATEMENT PRESENTATION (CONTINUED)
================================================================================
CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 2002
- --------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
(in thousands)
REVENUES
Rental properties ........................................ $ 738,508 $ 118,382 $ 207,362 $ 827,488
Lumber trading ........................................... 115,728 - - 115,728
Equity in earnings of unconsolidated entities ............ 52,334 - (30,564) 21,770
---------------------------------------------------------------
906,570 118,382 176,798 964,986
---------------------------------------------------------------
EXPENSES
Operating expenses ....................................... 552,517 72,444 115,863 595,936
Interest expense ......................................... 178,580 35,206 45,656 189,030
Provision for decline in real estate ..................... 8,783 1,973 - 6,810
Depreciation and amortization ............................ 97,842 16,753 20,960 102,049
---------------------------------------------------------------
837,722 126,376 182,479 893,825
---------------------------------------------------------------
Gain on disposition of operating properties
and other investments ................................... 91,109 - 5,681 96,790
---------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES ............................... 159,957 (7,994) - 167,951
---------------------------------------------------------------
INCOME TAX EXPENSE
Current .................................................. 85 - - 85
Deferred ................................................. 63,402 - - 63,402
---------------------------------------------------------------
63,487 - - 63,487
---------------------------------------------------------------
Earnings before minority interest, extraordinary
loss and cumulative effect of change in
accounting principle ..................................... 96,470 (7,994) - 104,464
Minority interest .......................................... 7,994 7,994 - -
---------------------------------------------------------------
Earnings before extraordinary loss and cumulative
effect of change in accounting principle ................. 104,464 - - 104,464
Extraordinary loss, net of tax ............................. (233) - - (233)
Cumulative effect of change in accounting
principle, net of tax .................................... (1,202) - - (1,202)
---------------------------------------------------------------
NET EARNINGS ............................................... $ 103,029 $ - $ - $ 103,029
===============================================================
Forest City Enterprises, Inc. - 2001 Annual Report
44
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 operating 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. - 2001 Annual Report
45
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 operating 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. - 2001 Annual Report
46
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, 2002
- --------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received ...................... $ 720,808 $ 107,809 $ 169,405 $ 782,404
Cash distributions from unconsolidated entities ........ 29,939 - (29,939) -
Proceeds from land sales ............................... 36,842 2,008 35,112 69,946
Land development expenditures .......................... (34,950) (1,701) (13,023) (46,272)
Operating expenditures ................................. (493,434) (60,219) (91,511) (524,726)
Interest paid .......................................... (180,090) (35,490) (46,028) (190,628)
----------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 79,115 12,407 24,016 90,724
----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................... (419,301) 1,026 (120,436) (540,763)
Proceeds from disposition of operating properties
and other investments ................................ 190,011 - 7,791 197,802
Change in investments in and advances to
real estate affiliates ............................... 18,870 - (1,704) 17,166
----------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ................ (210,420) 1,026 (114,349) (325,795)
----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in nonrecourse mortgage debt and
long-term credit facility ............................ 506,851 83,222 185,184 608,813
Principal payments on nonrecourse mortgage debt ........ (302,051) (87,611) (70,963) (285,403)
Payments on long-term credit facility .................. (160,000) - - (160,000)
Increase in notes payable .............................. 48,617 105 16,952 65,464
Payments on notes payable .............................. (39,455) (1) (15,174) (54,628)
Change in restricted cash and book overdrafts .......... (31,596) (8,233) (13,765) (37,128)
Payment of deferred financing costs .................... (17,080) (2,319) (3,390) (18,151)
Exercise of stock options .............................. 4,577 - - 4,577
Sale of common stock, net .............................. 117,663 - - 117,663
Dividends paid to shareholders ......................... (8,213) - - (8,213)
Decrease in minority interest .......................... (2,219) (2,219) - -
----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .. 117,094 (17,056) 98,844 232,994
----------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS .......... (14,211) (3,623) 8,511 (2,077)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 64,265 8,653 26,351 81,963
----------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 50,054 $ 5,030 $ 34,862 $ 79,886
======================================================================
RECONCILIATION OF NET EARNINGS TO
CASH PROVIDED BY OPERATING ACTIVITIES
NET EARNINGS ............................................. $ 103,029 $ - $ - $ 103,029
Minority interest ...................................... (7,994) (7,994) - -
Depreciation ........................................... 79,454 12,747 18,278 84,985
Amortization ........................................... 18,388 4,006 2,682 17,064
Equity in earnings of unconsolidated entities .......... (52,334) - 30,564 (21,770)
Cash distributions from unconsolidated entities ........ 29,939 - (29,939) -
Deferred income taxes .................................. 59,921 - - 59,921
Gain on disposition of operating properties
and other investments ................................ (91,109) - (5,681) (96,790)
Provision for decline in real estate ................... 8,783 1,973 - 6,810
Extraordinary loss ..................................... 386 - - 386
Cumulative effect of change in accounting principle .... 1,988 - - 1,988
(Increase) decrease in land included in
projects under development ........................... (25,882) (1,751) 11,742 (12,389)
Decrease in land included in completed rental properties - - 191 191
Increase in land held for development or sale .......... (1,449) - (2,233) (3,682)
Increase in notes and accounts receivable, net ......... (84,033) (5,391) (3,228) (81,870)
Increase in inventories ................................ (13) - - (13)
Decrease (increase) in other assets .................... 8,731 4,773 (283) 3,675
Increase in accounts payable and accrued expenses ...... 31,310 4,044 1,923 29,189
----------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............ $ 79,115 $ 12,407 $ 24,016 $ 90,724
======================================================================
Forest City Enterprises, Inc. - 2001 Annual Report
47
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)
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received ............................. $ 733,157 $ 98,718 $ 160,239 $ 794,678
Cash distributions from unconsolidated entities ............... 60,018 - (60,018) -
Proceeds from land sales ...................................... 24,873 - 39,074 63,947
Land development expenditures ................................. (28,686) (2,130) (39,931) (66,487)
Operating expenditures ........................................ (417,274) (43,289) (81,514) (455,499)
Interest paid ................................................. (177,971) (35,150) (44,154) (186,975)
---------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......... 194,117 18,149 (26,304) 149,664
---------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .......................................... (511,974) (80,195) (123,280) (555,059)
Proceeds from disposition of operating properties
and other investments ....................................... 130,751 - 2,703 133,454
Change in investments in and advances to
real estate affiliates ...................................... (125,603) - 88,656 (36,947)
---------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ....................... (506,826) (80,195) (31,921) (458,552)
---------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in nonrecourse mortgage debt and
long-term credit facility ................................... 826,387 205,733 79,812 700,466
Principal payments on nonrecourse mortgage debt ............... (471,062) (131,362) (10,729) (350,429)
Increase in notes payable ..................................... 20,559 598 (656) 19,305
Payments on notes payable ..................................... (37,837) (190) (157) (37,804)
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 - -
Proceeds from issuance of subordinated debt ................... 20,400 - - 20,400
---------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 292,892 64,014 64,778 293,656
---------------------------------------------------------------
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
===============================================================
RECONCILIATION OF NET EARNINGS TO
CASH PROVIDED BY (USED IN) 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 unconsolidated entities ............... 60,018 - (60,018) -
Deferred income taxes ......................................... 12,012 - - 12,012
(Gain) loss on disposition of operating properties
and other investments ....................................... (48,409) 250 (2,359) (51,018)
Provision for decline in real estate .......................... 1,231 - - 1,231
Increase in land included in projects under development ....... (10,979) (1,624) (2,526) (11,881)
Decrease in land included in completed rental properties ...... 655 - - 655
Increase in land held for development or sale ................. (948) - (171) (1,119)
(Increase) decrease in notes and accounts receivable, net ..... (6,503) (13,949) (301) 7,145
Decrease in inventories ....................................... 18,210 - - 18,210
Increase in other assets ...................................... (36,723) (4,997) (2,859) (34,585)
Increase in accounts payable and accrued expenses ............. 43,142 16,053 1,889 28,978
---------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......... $ 194,117 $ 18,149 $ (26,304) $ 149,664
===============================================================
Forest City Enterprises, Inc. - 2001 Annual Report
48
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)
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received .............................. $ 671,881 $ 66,947 $ 146,640 $ 751,574
Cash distributions from unconsolidated entities ................ 48,891 - (48,891) -
Proceeds from land sales ....................................... 13,589 - 25,325 38,914
Land development expenditures .................................. (11,606) - (24,847) (36,453)
Operating expenditures ......................................... (413,007) (24,033) (78,017) (466,991)
Interest paid .................................................. (139,062) (21,607) (42,454) (159,909)
---------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .......... 170,686 21,307 (22,244) 127,135
---------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................................... (464,869) (126,516) (43,315) (381,668)
Change in investments in and advances to
real estate affiliates ....................................... (57,105) - 41,987 (15,118)
---------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ........................ (521,974) (126,516) (1,328) (396,786)
---------------------------------------------------------------
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 ................ (229,126) (60,516) (25,539) (194,149)
Increase in notes payable ...................................... 95,497 13,901 8,929 90,525
Payments on notes payable ...................................... (51,058) (176) (20,674) (71,556)
Change in restricted cash and book overdrafts .................. (21,860) (4,536) 234 (17,090)
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 .................... 368,341 107,878 27,754 288,217
---------------------------------------------------------------
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
===============================================================
RECONCILIATION OF NET EARNINGS TO
CASH PROVIDED BY (USED IN) 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 unconsolidated entities ................ 48,891 - (48,891) -
Deferred income taxes .......................................... 11,978 - - 11,978
(Gain) loss on disposition of operating 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)
Increase in land included in projects under development ........ (5,331) - (2,200) (7,531)
Decrease in land included in completed rental properties ....... 13,906 - 1,320 15,226
(Increase) decrease in land held for development or sale ....... (4,281) - 1,266 (3,015)
(Increase) decrease in notes and accounts receivable, net ...... (1,217) (1,426) 1,295 1,504
Increase in inventories ........................................ (10,145) - - (10,145)
Increase in other assets ....................................... (2,132) (2,157) (5,422) (5,397)
Increase in accounts payable and accrued expenses .............. 10,958 10,029 2,915 3,844
---------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .......... $ 170,686 $ 21,307 $ (22,244) $ 127,135
===============================================================
Forest City Enterprises, Inc. - 2001 Annual Report
49
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, 2002
- -------------------------------------------------------------------------------------------
Less Nonrecourse
Accumulated Mortgage
Total Cost Depreciation Net Cost Debt
===========================================================================================
(in thousands)
COMPLETED RENTAL PROPERTIES
Residential .............. $ 844,827 $ 145,674 $ 699,153 $ 689,656
Commercial
Retail centers ......... 1,340,052 178,111 1,161,941 1,024,201
Office and other
buildings ............. 1,428,813 289,851 1,138,962 1,011,544
Central Station and
Stapleton .............. 728 266 462 -
Corporate and other
equipment .............. 27,226 17,751 9,475 -
------------------------------------------------------------
3,641,646 631,653 3,009,993 2,725,401
------------------------------------------------------------
PROJECTS UNDER DEVELOPMENT
Residential .............. 160,372 - 160,372 87,646
Commercial
Retail centers ......... 171,716 - 171,716 10,765
Office and other
buildings ............. 134,625 - 134,625 49,140
Central Station and
Stapleton .............. 76,392 - 76,392 12,666
------------------------------------------------------------
543,105 - 543,105 160,217
------------------------------------------------------------
LAND HELD FOR
DEVELOPMENT OR SALE ...... 56,885 - 56,885 39,596
------------------------------------------------------------
TOTAL REAL ESTATE AND
MORTGAGE DEBT ............ $4,241,636 $ 631,653 $3,609,983 $2,925,214
============================================================
D. NOTES AND ACCOUNTS RECEIVABLE, NET
================================================================================
The components of notes and accounts receivable, net are as follows.
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
==============================================================================================
(in thousands)
JANUARY 31, 2002
Lumber brokerage ............ $ 123,888 $ - $ - $ 123,888
Real estate sales ........... 18,863 273 3,574 22,164
Syndication activities ...... 65,837 - - 65,837
Receivable from
tenants ................... 37,506 5,058 6,254 38,702
Other receivables ........... 58,991 13,604 4,584 49,971
---------------------------------------------------------------
305,085 18,935 14,412 300,562
Allowance for doubtful
accounts .................. (29,085) (1,293) (370) (28,162)
---------------------------------------------------------------
NOTES AND ACCOUNTS
RECEIVABLE, NET ........... $ 276,000 $ 17,642 $ 14,042 $ 272,400
===============================================================
Weighted average
interest rate ............. 7.80% 7.63%
Total Notes Receivable
included above ............ $ 62,138 $ 64,531
Due within one year ......... $ 22,863 $ 23,794
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 ........... 22,354 631 5,578 27,301
Syndication activities ...... 68,818 - - 68,818
Receivable from
tenants ................... 27,265 5,479 6,823 28,609
Other receivables ........... 35,673 6,708 (1,195) 27,770
---------------------------------------------------------------
241,532 12,818 11,206 239,920
Allowance for doubtful
accounts .................. (49,565) (567) (392) (49,390)
---------------------------------------------------------------
NOTES AND ACCOUNTS
RECEIVABLE, NET ........... $ 191,967 $ 12,251 $ 10,814 $ 190,530
===============================================================
Weighted average
interest rate ............. 6.68% 6.91%
Total Notes Receivable
included above ............ $ 80,114 $ 78,665
Due within one year ......... $ 13,012 $ 15,362
Forest City Enterprises, Inc. - 2001 Annual Report
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
D. NOTES AND ACCOUNTS RECEIVABLE, NET (CONTINUED)
================================================================================
LUMBER TRADING GROUP
The Lumber Trading Group has entered into a three-year agreement expiring in
July 2002 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 Company bears no risk regarding the
collectibility of the accounts receivable once sold, and cannot modify the pool
of receivables. At January 31, 2002 and 2001, the Financial Institution held an
interest of $44,000,000 and $43,000,000, respectively, in the pool of
receivables. Sales of accounts receivable have averaged $44,300,000 and
$57,900,000 per month during the fiscal year ended January 31, 2002 and 2001,
respectively. This arrangement is without recourse to the Company.
To protect against risks associated with the variable interest rates on
current and future borrowings on the liquidity banking agreement supporting the
facility through which the pools of receivables are sold, the Lumber Trading
Group entered into an interest rate swap with a notional amount of $20,000,000.
The swap fixes the LIBOR interest rate at 4.28% and is effective through January
31, 2005.
REVERSAL OF RESERVES ON NOTES RECEIVABLE
The Company, through its Residential Group, is the 1% general partner in 26
Federally Subsidized housing projects owned by syndicated partnerships. Upon
formation of these partnerships approximately 20 years ago, the Company received
interest-bearing notes receivable as consideration for development and other fee
services. At their inception, these notes were fully reserved as their
collection was doubtful based on the limited cash flows generated by the
properties pursuant to their government subsidy contracts. Likewise, a reserve
for the related accrued interest was established each year.
During 2001, 17 of these properties completed a series of events that led to
the reversal of $24,620,000 of these reserves. The first of these was the
modification or expiration of the Government contracts that now allow for market
rate apartment rentals, which provide a significant increase in expected future
cash flows. This, in turn, increased the appraised values of these properties.
As a result, the Company determined that the collection of a portion of these
notes receivable and related accrued interest is now probable. The Company will
continue to review the level of reserves against these notes receivable in
relation to events that could change expected cash flows from these 26
properties. At January 31, 2002 and 2001, $12,615,000 and $34,439,000,
respectively, was included in allowance for doubtful accounts for principle and
interest on these notes receivable.
MILLENDER CENTER- During the year ended January 31, 2001, the Company
reversed $10,775,000 of a 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, is leased to 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. During the year ended January 31, 2002, the Company recognized
interest income on the Note of $1,715,000. At January 31, 2002 and 2001,
$10,165,000 and $10,711,000, respectively, was included in allowance for
doubtful accounts for interest receivable on this note.
Forest City Enterprises, Inc. - 2001 Annual Report
51
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, 2002 2001 2002 2001
=================================================================================================================================
(in thousands)
BALANCE SHEET:
Completed rental properties .................... $ 2,235,274 $ 1,991,096 $ 775,878 $ 680,028
Projects under development ..................... 243,339 294,106 124,395 122,497
Land held for development or sale .............. 69,723 66,063 32,692 30,459
Investment in and advances to
real estate affiliates ....................... - - 78,435 101,935
Accumulated depreciation ....................... (434,466) (405,095) (175,205) (165,572)
Other assets ................................... 280,760 223,934 107,572 80,967
---------------------------------------------------------------------------
Total Assets ................................. $ 2,394,630 $ 2,170,104 $ 943,767 $ 850,314
===========================================================================
Mortgage debt, nonrecourse ..................... $ 2,117,979 $ 1,870,170 $ 788,240 $ 674,019
Advances from general partner .................. 20,455 43,550 - -
Other liabilities .............................. 157,137 161,624 47,282 43,472
Partners' equity ............................... 99,059 94,760 108,245 132,823
---------------------------------------------------------------------------
Total Liabilities and Partners' Equity ....... $ 2,394,630 $ 2,170,104 $ 943,767 $ 850,314
===========================================================================
YEAR ENDED JANUARY 31,
=================================================================================================================================
OPERATIONS:
Revenues ....................................... $ 516,631 $ 500,566 $ 207,362 $ 199,797
Equity in earnings of unconsolidated
entities on a pro-rata basis ................. - - 21,770 11,170
Operating expenses ............................. (283,570) (296,617) (115,863) (118,747)
Interest expense ............................... (120,171) (119,326) (45,656) (43,368)
Depreciation and amortization .................. (72,241) (57,906) (20,960) (20,222)
Gain on disposition of operating
properties and other investments ........... 12,392 4,718 5,681 2,359
Extraordinary gain ............................. 1,110 - 1,054 -
Cumulative effect of change in accounting
principle .................................. (343) - (233) -
---------------------------------------------------------------------------
Net Income ................................... $ 53,808 $ 31,435 $ 53,155 $ 30,989
===========================================================================
Following is a reconciliation of partners' equity to the Company's carrying
value in the accompanying Consolidated Balance Sheets:
Partners' equity, as above .................... $ 99,059 $ 94,760
Equity of other partners ...................... 11,269 5,487
-----------------------------------
Company's investment in partnerships .......... 87,790 89,273
Advances to partnerships, as above ............ 20,455 43,550
Advances to other real estate affiliates ...... 286,058 257,513
-----------------------------------
Investments in and Advances
to Real Estate Affiliates ................... $ 394,303 $ 390,336
===================================
</Table>
As is customary within the real estate industry, the Company invests in
certain real estate projects through partnerships. The Company provides funding
for certain of its partners' equity contributions. The most significant
partnership for which the Company provides funding relates to Forest City Ratner
Companies, representing the Commercial Group's New York City operations. The
Company's partner is the President and Chief Executive Officer of Forest City
Ratner Companies and is the first cousin to four executive officers of the
Company. Of the $286,058,000 and $257,513,000 presented above for "Advances to
other real estate affiliates" at January 31, 2002 and 2001, respectively,
$81,970,000 and $75,942,000, respectively, represents amounts advanced for this
partner. These advances entitle the Company to a preferred return payable from
cash flows of each respective property.
Forest City Enterprises, Inc. - 2001 Annual Report
52
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, 2002
Unamortized costs,
net ............. $ 96,995 $ 19,363 $ 22,711 $100,343
Prepaid expenses
and other ....... 41,146 4,263 2,801 39,684
--------------------------------------------------------
$138,141 $ 23,626 $ 25,512 $140,027
========================================================
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
========================================================
G. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
================================================================================
Included in accounts payable and accrued expenses at January 31, 2002 and
2001 are book overdrafts of approximately $59,832,000 and $54,426,000 for full
consolidation presentation and $59,973,000 and $54,516,000 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
=====================================================================================================
JANUARY 31, 2002
Payable to
Banks .................................. $ 2,188 $ - $ - $ 2,188
Other .................................. 62,366 14,798 3,195 50,763
-------------------------------------------------
$64,554 $14,798 $ 3,195 $52,951
=================================================
Weighted average interest rate ............ 7.50% 7.19%
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%
Notes payable to banks reflect borrowings on the Lumber Trading Group's
$86,000,000 bank lines of credit. The bank lines of credit allow for up to
$5,000,000 in outstanding letters of credit (none outstanding at January 31,
2002) 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 year on
the unused portion of the available commitment. These bank lines of credit are
subject to review and extension annually and expire June 30, 2002.
Other notes payable relate primarily 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)
2002 ...................... $6,165 $6,045 $5,077 $5,011
2001 ...................... $8,113 $7,846 $7,372 $7,166
2000 ...................... $5,965 $5,743 $6,199 $5,901
Forest City Enterprises, Inc. - 2001 Annual Report
53
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, 2002
Fixed .......................... $1,817,234 7.28% $ 339,214 $ 503,329 $1,981,349 7.42%
Variable
Taxable(2) ................... 649,321 5.51% 121,790 209,359 736,890 5.26%
Tax-Exempt ................... 84,600 2.27% 11,700 63,690 136,590 2.35%
UDAG ........................... 69,443 1.73% 10,920 11,862 70,385 2.72%
---------- --------------------------------------------
$2,620,598 6.53% $ 483,624 $ 788,240 $2,925,214 6.52%
========== ============================================
JANUARY 31, 2001
Fixed .......................... $1,711,574 7.53% $ 343,626 $ 472,811 $1,840,759 7.57%
Variable
Taxable ...................... 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) Reflects weighted average interest rates including both the base index and
lender margin.
(2) Taxable variable-rate debt of $649,321 at full consolidation and $736,890
at pro-rata consolidation is protected with LIBOR swaps and caps described
below. These LIBOR-based hedges protect 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, 2003.
Mortgage debt included in the figures above) related to projects under
development at January 31, 2002 is as follows:
Plus
Less Unconsolidated
Full Minority Investments Pro-Rata
Consolidation Interest at Pro-Rata Consolidation
===============================================================================
(in thousands)
Variable(1) .............. $110,978 $ 12,715 $ 49,410 $147,673
Fixed ..................... 2,022 681 11,203 12,544
--------------------------------------------------
Total ................... $113,000 $ 13,396 $ 60,613 $160,217
==================================================
Commitment
from lenders ............ $360,923 $ 52,018 $ 83,784 $392,689
==================================================
(1) Includes tax-exempt debt of $31,000 at full consolidation and $42,650 at
pro-rata consolidation.
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 hedges for its nonrecourse mortgage debt portfolio as follows:
Full Consolidation Caps Swaps(1)
- ------------------------------------------------------------------
Average Average
Period Covered Amount Rate Amount Rate
==================================================================
(dollars in thousands)
02/01/02 - 02/01/03.......$608,361 7.64% $317,759 3.88%
02/01/03 - 02/01/04.......$849,787(2) 6.57% $ 2,924 2.49%
02/01/04 - 02/01/05.......$168,400 8.00%
02/01/05 - 02/01/06.......$133,900 8.00%
Pro-Rata Consolidation Caps Swaps(1)
- ------------------------------------------------------------------
Average Average
Period Covered Amount Rate Amount Rate
==================================================================
(dollars in thousands)
02/01/02 - 02/01/03.......$622,806 7.73% $401,221 3.54%
02/01/03 - 02/01/04.......$863,186(2) 6.65% $ 25,776 4.67%
02/01/04 - 02/01/05.......$263,638 8.00%
02/01/05 - 02/01/06.......$155,600 8.00%
(1) Swaps include long-term LIBOR contracts that have an average maturity
greater than six months. Swaps in the amount of $4,823 at full
consolidation and $40,519 at pro-rata consolidation were entered into in
February 2002.
(2) Includes interest rate caps in the amount of $400,000 that were purchased
in February 2002.
The interest rate hedges summarized in the tables 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 purchased Treasury Options. The Company owns
Treasury Options of $238,200,000 at full consolidation and $159,421,000 at
pro-rata consolidation with a weighted average strike rate of approximately 200
basis points over the 10-year Treasury rate at January 31, 2002 and thus the
Options have only limited value.
Forest City Enterprises, Inc. - 2001 Annual Report
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
I. MORTGAGE DEBT, NONRECOURSE (CONTINUED)
================================================================================
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 (including scheduled amortization and balloon
payments) for the next five years are as follows:
Full Pro-Rata
Years Ending January 31, Consolidation Consolidation
================================================================================
(in thousands)
2003 ...................................... $398,077 $446,497
2004 ...................................... $337,059 $374,991
2005 ...................................... $ 81,899 $122,232
2006 ...................................... $133,765 $224,682
2007 ...................................... $401,240 $373,123
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, 2002, the Company had refinancing commitments and extension
options on upcoming maturities as follows:
Full Pro-Rata
Consolidation Consolidation
================================================================================
(in thousands)
Refinancing commitments ........................... $ 35,000 $ 39,050
Extension options available ....................... $152,313 $319,684
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)
2002 ...................... $169,478 $170,934 $182,321 $183,811
2001 ...................... $162,466 $159,395 $175,790 $173,782
2000 ...................... $133,443 $133,774 $152,784 $154,185
J. LONG-TERM CREDIT FACILITIES
================================================================================
At January 31, 2002 and 2001, the Company had $54,000,000 and $189,500,000,
respectively, outstanding under its $265,000,000 revolving credit facility. The
balance was paid in full on March 5, 2002 with the proceeds from a new term loan
discussed below. The revolving credit facility was scheduled to mature on March
31, 2003 and allowed for up to a combined amount of $30,000,000 in outstanding
letters of credit and surety bonds ($17,087,000 and $9,675,000, respectively,
were outstanding at January 31, 2002). The outstanding letters of credit reduced
the credit available to the Company. The revolving credit available was reduced
quarterly by $2,500,000. At January 31, 2002, the revolving credit line was
$250,000,000.
Effective March 5, 2002, the Company increased its credit facility to
$350,000,000. The credit facility now includes a $100,000,000 term loan and a
$250,000,000 revolving line of credit that will mature in February 2006.
Quarterly principal payments of $6,250,000 on the four-year term loan commence
on July 1, 2002. The revolving line of credit allows up to a combined amount of
$40,000,000 in outstanding letters of credit or surety bonds.
The long-term credit facilities provide, among other things, for: 1) at the
Company's election, 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 and
stock repurchases. At January 31, 2002, retained earnings of $12,529,000 were
available for payment of dividends.
In order to mitigate the short-term variable interest rate risk on its
long-term credit facilities, the Company entered into a LIBOR interest rate swap
and purchased LIBOR interest rate caps. The swap expires January 31, 2003,
effectively fixes the LIBOR rate at 4.38% and had an original notional amount of
$100,000,000. Effective February 1, 2002, this $100,000,000 interest rate swap
was reduced to $75,000,000. The interest rate caps have an average rate of 8.00%
for 2002 and a notional amount of $54,161,000. In February 2002, LIBOR interest
rate caps were purchased at an average rate of 5.50% at a notional amount of
$100,000,000 covering the period February 1, 2003 through November 1, 2003.
Interest incurred on long-term credit facilities was $10,969,000 in 2001,
$16,163,000 in 2000 and $10,897,000 in 1999. Interest paid on long-term credit
facilities was $11,540,000 in 2001, $15,162,000 in 2000 and $9,984,000 in 1999.
Forest City Enterprises, Inc. - 2001 Annual Report
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
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. 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 facilities (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 bonds bear interest at 8.25% and are due September 15,
2010. Interest is payable semi-annually on March 15 and September 15. This debt
is unsecured and subordinated to the senior notes and the revolving credit
facility. Financial convenants associated with this debt are similar to that of
the senior notes.
Interest incurred on the above debt was $18,591,000 in 2001, $17,234,000 in
2000 and $17,000,000 in 1999. Interest paid was $18,194,000 in 2001 and
$17,000,000 in 2000 and 1999.
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)
2002
Interest incurred ............ $ 205,203 $ 35,476 $ 47,231 $ 216,958
Interest capitalized ......... (26,623) (270) (1,575) (27,928)
------------------------------------------------------
Net interest expense ....... $ 178,580 $ 35,206 $ 45,656 $ 189,030
======================================================
Interest paid ................ $ 206,713 $ 218,556
========= =========
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 ................ $ 199,403 $ 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
========= =========
L. INCOME TAXES
================================================================================
The income tax provision consists of the following:
Years Ended January 31,
- --------------------------------------------------------------------------------
2002 2001 2000
================================================================================
(in thousands)
Current
Federal ............................. $ (1,749) $ 7,991 $ 8,620
Foreign ............................. 499 422 446
State ............................... 1,335 1,913 3,191
--------------------------------------
85 10,326 12,257
--------------------------------------
Deferred
Federal ............................. 51,445 9,495 10,796
Foreign ............................. 23 40 28
State ............................... 11,934 2,451 1,238
--------------------------------------
63,402 11,986 12,062
--------------------------------------
Total provision ........................ $ 63,487 $ 22,312 $ 24,319
======================================
The effective tax rate for income taxes varies from the federal statutory
rate of 35% due to the following items.
Years Ended January 31,
- --------------------------------------------------------------------------------
2002 2001 2000
================================================================================
(in thousands)
Financial statement earnings
before income taxes,
after minority interest .......... $ 167,951 $ 113,949 $ 64,849
========================================
Income taxes computed at
the statutory rate ............... $ 58,783 $ 39,882 $ 22,697
Increase (decrease) in tax
resulting from:
State taxes, net of
federal benefit ................. 7,788 7,834 3,016
General Business Credits ......... (4,851) - -
Valuation allowance .............. (482) (2,262) (423)
Cancellation of debt ............. - (23,589) -
Other items ...................... 2,249 447 (971)
----------------------------------------
Total provision ..................... $ 63,487 $ 22,312 $ 24,319
========================================
Effective tax rate .................. 37.80% 19.58% 37.50%
Forest City Enterprises, Inc. - 2001 Annual Report
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
L. INCOME TAXES (CONTINUED)
================================================================================
The components of the deferred tax provision are as follows.
Years Ended January 31,
- --------------------------------------------------------------------------------
2002 2001 2000
================================================================================
(in thousands)
Excess of tax over financial
statement depreciation
and amortization .................... $ 11,749 $ 5,389 $ 2,035
Cancellation of debt ................... - (23,589) -
Gains deferred for tax purposes ........ 33,587 14,636 4,219
Costs on land and rental
properties under
development expensed
for tax purposes .................... 5,721 3,852 2,509
Revenues and expenses
recognized in different
periods for tax and financial
statement purposes .................. 8,737 (412) (1,121)
Difference between tax and
financial statement related to
unconsolidated entities ............. 3,587 4,792 (421)
Provision for decline in
real estate ......................... (802) (431) (1,772)
Deferred state taxes, net
of federal benefit .................. 6,772 4,817 1,188
Utilization (benefit) of tax loss
carryforward excluding
effect of stock options ............. (1,945) 13,221 15,577
Valuation allowance .................... (482) (2,262) (423)
General Business Credits ............... (4,851) - -
Alternative Minimum Tax
credits used (available) ........... 1,329 (8,027) (9,729)
----------------------------------
Deferred provision ..................... $ 63,402 $ 11,986 $ 12,062
==================================
The components of the deferred income tax liability are as follows.
January 31,
------------------------------------------------------------
Temporary Differences Deferred Tax
------------------------------------------------------------
2002 2001 2002 2001
(in thousands)
============================================================
Depreciation .................. $ 165,769 $ 154,487 $ 65,561 $ 61,099
Capitalized costs(1) ......... 451,931 322,482 178,739 127,542
Tax loss carryforward ......... (21,649) (10,026) (7,577)(2) (3,509)
Federal tax credits ........... - - (36,393) (32,871)
Other comprehensive
(loss) income ................ (15,370) 6,400 (6,079) 2,531
Basis in unconsolidated
entities ..................... 94,653 110,977 37,435 43,892
Other ......................... (29,259) (70,830) (3,704) (22,013)
----------------------------------------------------------
$ 646,075 $ 513,490 $ 227,982 $ 176,671
==========================================================
(1) Additions to capitalized costs during the years ended January 31, 2002 and
2001 include $102,408 and $56,910, respectively, related to replacement
property of tax-deferred exchanges.
(2) Including $2,123 of benefit from stock option exercises.
Total income taxes paid were $11,419,000, $15,511,000 and $7,176,000 for the
years ended January 31, 2002, 2001 and 2000, respectively. At January 31, 2002,
the Company had tax loss carryforwards of $21,649,000 that will expire in the
years ending January 31, 2011 through January 31, 2022, General Business Credit
carryovers of $6,433,000 that will expire in the years ending January 31, 2004
through January 31, 2022, and an Alternative Minimum Tax credit carryforward of
$29,960,000.
The Company's net deferred tax liability at January 31, 2002 is comprised of
deferred tax liabilities of $409,093,000 deferred tax assets of $182,568,000 and
a valuation allowance related to state taxes of $1,457,000.
M. SEGMENT INFORMATION
================================================================================
Strategic Business Units are determined by the type of customers served or
the products sold. The Company operates with four Strategic Business Units. The
Commercial Group, the Company's largest unit, owns, develops, acquires and
operates regional malls, specialty/urban retail centers, office buildings,
hotels and mixed-use projects. New York City operations through the Company's
partnership with Forest City Ratner Companies are part of the Commercial Group.
The Residential Group owns, develops, acquires, leases and manages residential
rental property, including mature middle-market apartments in suburban
locations, upscale adaptive re-use developments in urban locations, and
supported-living facilities. Real Estate Groups are the combined Commercial and
Residential Groups. The Land Development Group acquires and sells both raw land
and developed lots to residential, commercial and industrial customers. It also
owns and develops raw land into master- planned communities, mixed-use and other
residential developments. The Lumber Trading Group serves as a wholesaler,
selling lumber to homebuilders and other customers in all 50 states and the
Canadian provinces.
The Company uses an additional measure, along with net earnings, to report
its operating results. This measure, 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 flow to meet its funding requirements. EBDT
is defined as net earnings excluding the following items: i) gain (loss) on
disposition of operating properties and other investments (net of tax); ii)
beginning in the year ended January 31, 2001, the adjustment to recognize rental
revenues and rental expense using the straight-line method; iii) noncash charges
from Forest City Rental Properties Corporation, a wholly-owned subsidiary of
Forest City Enterprises, Inc., for depreciation, amortization and deferred
income taxes; iv) provision for decline in real estate (net of tax); v)
extraordinary items (net of tax); and vi) cumulative effect of change in
accounting principle (net of tax).
Forest City Enterprises, Inc. - 2001 Annual Report
57
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 Development and Lumber Trading Groups and Corporate. The table
is presented 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, 2002,
2001 and 2000. All amounts, including footnotes, are presented in thousands.
January 31, Years Ended January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable Assets Expenditures for Additions to Real Estate
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 2002 2001 2000
====================================================================================================================================
Commercial Group ............................... $3,078,152 $2,759,969 $2,558,206 $415,028 $256,679 $272,814
Residential Group .............................. 1,109,901 1,010,889 800,175 118,099 267,208 76,039
Land Development Group ......................... 198,160 153,582 136,477 44,870 54,207 48,429
Lumber Trading Group ........................... 171,353 136,175 208,836 1,902 2,483 3,899
Corporate ...................................... 74,642 68,368 90,990 2,508 912 2,476
---------------------------------------- -----------------------------------------
Consolidated at pro-rata ..................... 4,632,208 4,128,983 3,794,684 $582,407 $581,489 $403,657
Minority interest and unconsolidated entities (214,562) (101,513) (128,329) =========================================
----------------------------------------
Consolidated ................................. $4,417,646 $4,027,470 $3,666,355
========================================
Years Ended January 31,
--------------------------------------------------------------------------------------------------------
Revenues Interest Expense Depreciation & Amortization Expense
--------------------------------- ---------------------------------- -----------------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
================================= ================================= ====================================
Commercial Group ......... $545,995 $522,841 $442,992 $113,919 $115,091 $94,356 $76,276 $75,564 $66,848
Residential Group ........ 219,654 167,052 158,768 40,082 32,534 26,447 21,187 19,837 17,808
Land Development Group ... 82,982 64,656 41,356 3,385 4,726 7,370 756 382 240
Lumber Trading Group(1) .. 115,728 105,427 149,357 3,131 5,584 5,288 2,147 2,340 2,125
Corporate ................ 627 540 598 28,513 32,489 26,258 1,683 1,446 1,123
--------------------------------- ---------------------------------- -----------------------------------
Consolidated at pro-rata 964,986 860,516 793,071 189,030 190,424 159,719 102,049 99,569 88,144
Minority interest and
unconsolidated entities (58,416) (65,731) (94,283) (10,450) (7,880) (19,853) (4,207) (1,205) (6,640)
--------------------------------- ---------------------------------- -----------------------------------
Consolidated ........... $906,570 $794,785 $698,788 $178,580 $182,544 $139,866 $97,842 $98,364 $81,504
================================= ================================= ====================================
Earnings Before
Income Taxes (EBIT)(2)
--------------------------------------
Commercial Group ............................................................. $40,343 $65,033 $50,589
Residential Group ............................................................ 49,046 40,359 40,472
Land Development Group ....................................................... 30,739 2,868 (5,746)
Lumber Trading Group ......................................................... 5,494 1,310 12,258
Corporate .................................................................... (47,651) (45,408) (38,374)
Provision for decline in real estate ......................................... (6,810) (1,231) (5,062)
Gain on disposition of operating properties and other investments ............ 96,790 51,018 10,712
--------------------------------------
Consolidated at pro-rata ................................................... 167,951 113,949 64,849
Minority interest and unconsolidated entities .............................. (7,994) 3,399 5,557
--------------------------------------
Consolidated ............................................................... $159,957 $117,348 $70,406
======================================
Earnings Before Depreciation,
Amortization & Deferred Taxes (EBDT)
--------------------------------------
Commercial Group ............................................................. $102,471 $121,446 $105,877
Residential Group ............................................................ 68,989 55,787 46,411
Land Development Group ....................................................... 21,429 2,191 (3,489)
Lumber Trading Group ......................................................... 3,073 283 7,070
Corporate .................................................................... (27,992) (31,898) (23,230)
Provision for decline in real estate ......................................... - - -
Gain on disposition of operating properties and other investments ............ - - -
--------------------------------------
Consolidated at pro-rata ................................................... 167,970 147,809 132,639
Minority interest and unconsolidated entities ..............................
Consolidated ...............................................................
RECONCILIATION OF EBDT TO NET EARNINGS:
Depreciation and amortization - Real Estate Groups ............................. (98,368) (95,763) (84,586)
Deferred taxes - Real Estate Groups ............................................ (26,126) (23,518) (12,453)
Straight-line rent adjustment .................................................. 6,594 9,423 -
Provision for decline in real estate, net of tax ............................... (4,116) (744) (3,060)
Gain on disposition of operating properties and other investments, net of tax... 58,510 54,430 7,990
Extraordinary (loss) gain, net of tax .......................................... (233) - 272
Cumulative effect of change in accounting principle, net of tax ................ (1,202) - -
--------------------------------------
NET EARNINGS ................................................................... $103,029 $91,637 $40,802
======================================
(1) The Company recognizes the gross margin on lumber brokerage sales as
Revenues. Sales invoiced for the years ended January 31, 2002, 2001 and 2000
were $2,627,000, $2,674,000 and $3,712,000, respectively.
(2) See Consolidated Statements of Earnings on page 30 for reconciliation of
EBIT to net earnings.
Forest City Enterprises, Inc. - 2001 Annual Report
58
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)
2003 ........... $234,610 $45,143 $52,628 $242,095
2004 ........... 229,534 45,288 49,549 233,795
2005 ........... 213,691 43,356 45,891 216,226
2006 ........... 202,567 41,769 42,691 203,489
2007 ........... 179,794 37,532 37,858 180,120
Later years 1,349,652 319,910 148,849 1,178,591
-------------------------------------------------------------
$2,409,848 $532,998 $377,466 $2,254,316
=============================================================
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)
2002 ............................................. $94,910 $96,156
2001 ............................................. $86,827 $87,025
2000 ............................................. $72,949 $75,954
THE COMPANY AS LESSEE
The Company is a lessee under various operating lease 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, 2002 are as follows.
Plus
Less Unconsolidated
YEARS ENDING Full Minority Investments Pro-Rata
JANUARY 31, Consolidation Interest at Pro-Rata Consolidation
================================================================================
(in thousands)
2003 ................... $ 15,201 $ 3,160 $ 1,117 $ 13,158
2004 .................... 14,825 3,176 1,099 12,748
2005 ................... 13,794 3,145 1,066 11,715
2006 ................... 12,874 3,086 1,032 10,820
2007 ................... 12,751 3,094 1,020 10,677
Later years ............. 634,656 194,462 44,290 484,484
------------------------------------------------------
$704,101 $210,123 $ 49,624 $543,602
======================================================
The following table summarizes rent expense paid.
YEARS ENDED Full Pro-Rata
JANUARY 31, Consolidation Consolidation
================================================================================
(in thousands)
2002 .............................................. $14,619 $11,552
2001 .............................................. $16,621 $15,036
2000 .............................................. $13,541 $13,361
O. COMMITMENTS AND CONTINGENCIES
================================================================================
As of January 31, 2002, the Company has guaranteed loans of $1,400,000,
letters of credit outstanding of $17,087,000 and surety bonds outstanding of
$9,675,000.
The Company, as a general partner for certain limited partnerships,
guarantees the funding of operating deficits of newly-opened apartment projects
for an average of five years. In addition, in return for their capital
contributions, the limited partners receive certain tax indemnity guarantees on
their investments, namely specified amounts of tax losses and tax credits. To
date, the partnerships have performed within projected returns and the Company
has not been required to provide any funding of operating deficits or
indemnifications.
The Company customarily guarantees lien-free completion of projects under
construction. Upon completion, the guarantees are released. At January 31, 2002,
completion guarantees of construction loan and other funding totaled
approximately $1,300,000,000 on projects estimated to have total costs of
approximately $1,800,000,000 which are approximately 50% complete in the
aggregate. To date, the Company has been successful in consistently delivering
lien-free completion of construction projects.
The Company is also involved in certain claims and litigation related to its
operations. Based on the facts known at this time, management has consulted with
legal counsel and 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 is
3,375,000. The maximum award to a person during any calendar year is 112,500 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
625,795 options in 2001, 22,500 options in 2000 and 566,687 options in 1999. 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 No. 25 and related interpretations in accounting
for its Plan. The "intrinsic value" on the grant dates has been zero, thus no
compensation costs have been recognized for the Plan.
Forest City Enterprises, Inc. - 2001 Annual Report
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
P. STOCK-BASED COMPENSATION (CONTINUED)
================================================================================
Had compensation costs been determined in accordance with SFAS No. 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,
- --------------------------------------------------------------------------------
2002 2001 2000
================================================================================
Net earnings (in thousands)
As reported ........................... $103,029 $91,637 $40,802
Pro forma ............................. $ 99,653 $89,316 $38,502
Basic earnings per share
As reported ........................... $ 2.20 $ 2.03 $ .91
Pro forma ............................. $ 2.13 $ 1.98 $ .85
Diluted earnings per share
As reported ........................... $ 2.17 $ 2.01 $ .90
Pro forma ............................. $ 2.11 $ 1.97 $ .86
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 2001, 2000 and 1999, respectively: dividend yield of .7%, .7% and
...6%; expected volatility of 34.2%, 34.9% and 36.8%; risk-free interest rate of
4.9%, 6.0% and 5.2%; expected life of 8.7 years in all years; and turnover of
3.7%, 3.7% and 2.0%.
A summary of stock option activity is presented below.
Years Ended January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
====================================================================================================================================
Outstanding at beginning of year ............... 1,593,587 $14.94 1,620,474 $ 14.71 1,085,925 $14.57
Granted ........................................ 625,795 $28.53 22,500 $ 23.38 566,687 $14.95
Exercised ...................................... (354,731) $12.90 (49,387) $ 11.13 (5,400) $ 9.58
Forfeited ...................................... (5,400) $28.53 - $ - (26,738) $15.20
--------- --------- ---------
Outstanding at end of year ..................... 1,859,251 $19.87 1,593,587 $ 14.94 1,620,474 $14.71
========= ========= =========
Options exercisable at end of year ............. 568,621 $14.22 587,925 $ 11.71 244,912 $ 9.59
Number of shares available for
granting of options at end of year ........... 1,099,706 1,720,101 1,742,601
Weighted average fair value of
options granted during the year .............. $ 13.40 $11.74 $ 7.53
The following table summarizes information about fixed stock options
outstanding at January 31, 2002.
Options Outstanding Options Exercisable
-------------------------------------------------------- -----------------------------------
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding at Remaining Average Exercisable at Average
Prices January 31, 2002 Contractual Life Exercise Prices January 31, 2002 Exercise Prices
==============================================================================================================
$ 8.56 - 11.41 247,375 4.6 years $ 9.58 247,375 $ 9.58
$ 14.27 - 17.12 503,837 7.2 years $ 14.92 94,575 $14.92
$ 17.12 - 19.97 465,144 6.2 years $ 18.97 226,671 $18.98
$ 22.83 - 25.67 22,500 8.6 years $ 23.38 - $ -
$ 25.68 - 28.53 620,395 9.1 years $ 28.53 - $ -
--------- -------
1,859,251 568,621
========= =======
The Compensation Committee also granted 112,500 and 67,500 shares of
restricted Class A common stock to key employees in 2001 and 1999, respectively.
The restricted shares were awarded out of treasury stock, having a cost basis of
$1,009,000 and $605,000 in 2001 and 1999, respectively, 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 No. 25, the market value on
the date of grant of $3,191,000 and $1,114,000 in 2001 and 1999, respectively,
was recorded as unearned compensation to be charged to expense over the
respective vesting periods. The unearned compensation is reported as an offset
of Additional Paid-In Capital in the accompanying consolidated financial
statements. At January 31, 2002, the unamortized unearned compensation relating
to all restricted stock amounted to $3,541,000.
Forest City Enterprises, Inc. - 2001 Annual Report
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Q. Capital Stock
================================================================================
The Company paid a three-for-two common stock split of both the Company's
Class A and Class B Common Stock on November 14, 2001 effected as a stock
dividend. The stock split was given retroactive effect to the beginning of the
earliest period presented in the accompanying Consolidated Balance Sheets and
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.
On September 28, 2001, the Company sold to the public 3,900,000 (2,600,000
pre-split) shares of Class A common stock for $32.23 ($48.35 pre-split) per
share. The offering generated net proceeds of $117,663,000 of which $104,000,000
was used to reduce borrowings under the revolving credit facility.
Class A common stock totaling 354,731, 49,387 and 5,400 shares in 2001, 2000
and 1999, 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 (loss) gain and cumulative effect of change in accounting
principle".
Earnings Before
Extraordinary (Loss) Weighted
Gain and Cumulative Average
Effect of Change in Common
Accounting Principle Shares Per
(Numerator) Outstanding Common
Years Ended January 31, (in thousands) (Denominator) Share
================================================================================
2002
Basic earnings per share ......... $104,464 46,740,561 $2.23
Effect of dilutive
securities-stock options ......... - 646,331 (.03)
----------------------------------------
Diluted earnings
per share ........................ $104,464 47,386,892 $2.20
========================================
2001
Basic earnings per share ......... $ 91,637 45,052,691 $2.03
Effect of dilutive
securities-stock options ......... - 447,472 (.02)
----------------------------------------
Diluted earnings
per share ........................ $ 91,637 45,500,163 $2.01
========================================
2000
Basic earnings per share ......... $ 40,530 45,024,485 $0.90
Effect of dilutive
securities-stock options ......... - 205,101 (.01)
----------------------------------------
Diluted earnings
per share ........................ $ 40,530 45,229,586 $0.89
========================================
Forest City Enterprises, Inc. - 2001 Annual Report
61
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 of Forest City Enterprises, Inc. engaged in the
ownership, development, acquisition and management of real estate projects,
including apartment complexes, regional malls and retail centers, hotels, office
buildings and mixed-use facilities, as well as large land development projects.
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, 2002
- ---------------------------------------------------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
===========================================================================================================================
(in thousands)
ASSETS
Real Estate
Completed rental properties ....................... $ 3,431,569 $ 592,988 $ 775,839 $ 3,614,420
Projects under development ........................ 461,204 42,494 124,395 543,105
-------------------------------------------------------------------
Real estate, at cost ........................... 3,892,773 635,482 900,234 4,157,525
Less accumulated depreciation ..................... (519,584) (80,877) (175,195) (613,902)
-------------------------------------------------------------------
Total Real Estate .............................. 3,373,189 554,605 725,039 3,543,623
Cash and equivalents ................................ 17,404 5,030 29,676 42,050
Restricted cash ..................................... 112,577 20,057 31,284 123,804
Notes and accounts receivable, net .................. 133,532 17,642 10,954 126,844
Investments in and advances to real estate affiliates 339,663 - (6,268) 333,395
Other assets ........................................ 119,495 23,626 24,678 120,547
-------------------------------------------------------------------
TOTAL ASSETS ................................... $ 4,095,860 $ 620,960 $ 815,363 $ 4,290,263
===================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse .......................... $ 2,613,528 $ 483,624 $ 755,713 $ 2,885,617
Notes payable ....................................... 55,711 14,798 487 41,400
Long-term credit facility ........................... 54,000 - - 54,000
Subordinated debt ................................... 20,400 - - 20,400
Accounts payable and accrued expenses ............... 502,682 54,661 59,163 507,184
Deferred income taxes ............................... 255,952 - - 255,952
-------------------------------------------------------------------
TOTAL LIABILITIES ................................. 3,502,273 553,083 815,363 3,764,553
Minority Interest ................................... 67,877 67,877 - -
-------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital ......... 200,878 - - 200,878
Retained earnings ................................... 334,054 - - 334,054
-------------------------------------------------------------------
534,932 - - 534,932
Accumulated other comprehensive loss ................ (9,222) - - (9,222)
-------------------------------------------------------------------
Total Shareholder's Equity ........................ 525,710 - - 525,710
-------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ..... $ 4,095,860 $ 620,960 $ 815,363 $ 4,290,263
===================================================================
Forest City Enterprises, Inc. - 2001 Annual Report
62
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, 2001
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
=========================================================================================================================
(in thousands)
ASSETS
Real Estate
Completed rental properties ....................... $ 3,110,052 $ 574,575 $ 679,934 $ 3,215,411
Projects under development ........................ 432,808 54,947 122,497 500,358
-----------------------------------------------------------------
Real estate, at cost ........................... 3,542,860 629,522 802,431 3,715,769
Less accumulated depreciation ..................... (480,353) (76,301) (165,552) (569,604)
-----------------------------------------------------------------
Total Real Estate .............................. 3,062,507 553,221 636,879 3,146,165
Cash and equivalents ................................ 24,770 8,653 20,422 36,539
Restricted cash ..................................... 80,451 13,206 18,125 85,370
Notes and accounts receivable, net .................. 88,331 12,251 5,736 81,816
Investments in and advances to real estate affiliates 338,220 - (2,584) 335,636
Other assets ........................................ 144,917 28,647 23,125 139,395
-----------------------------------------------------------------
TOTAL ASSETS ................................... $ 3,739,196 $ 615,978 $ 701,703 $ 3,824,921
=================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse .......................... $ 2,433,649 $ 488,014 $ 642,562 $ 2,588,197
Notes payable ....................................... 50,860 14,694 1,222 37,388
Long-term credit facility ........................... 189,500 - - 189,500
Subordinated debt ................................... 20,400 - - 20,400
Accounts payable and accrued expenses ............... 317,376 35,180 57,919 340,115
Deferred income taxes ............................... 201,015 - - 201,015
-----------------------------------------------------------------
TOTAL LIABILITIES ................................. 3,212,800 537,888 701,703 3,376,615
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 ..... $ 3,739,196 $ 615,978 $ 701,703 $ 3,824,921
=================================================================
Forest City Enterprises, Inc. - 2001 Annual Report
63
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
- ---------------------------------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
=========================================================================================================
(in thousands)
YEAR ENDED JANUARY 31, 2002
REVENUES
Real estate operations .................. $ 720,441 $ 118,384 $ 184,587 $ 786,644
Unconsolidated entities ................. 47,378 (2) (27,734) 19,646
---------------------------------------------------------
767,819 118,382 156,853 806,290
---------------------------------------------------------
Operating expenses ........................ 416,384 72,444 98,531 442,471
Interest expense .......................... 173,245 35,206 43,287 181,326
Provision for decline in real estate ...... 8,783 1,973 - 6,810
Depreciation and amortization ............. 93,877 16,753 20,716 97,840
---------------------------------------------------------
692,289 126,376 162,534 728,447
---------------------------------------------------------
Gain on disposition of operating properties
and other investments ................... 95,374 - 5,681 101,055
---------------------------------------------------------
EARNINGS BEFORE INCOME TAXES .............. 170,904 (7,994) - 178,898
INCOME TAX EXPENSE
Current ................................. 389 - - 389
Deferred ................................ 64,860 - - 64,860
---------------------------------------------------------
65,249 - - 65,249
---------------------------------------------------------
EARNINGS BEFORE MINORITY INTEREST,
EXTRAORDINARY LOSS AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE ....... 105,655 (7,994) - 113,649
Minority interest ......................... 7,994 7,994 - -
Extraordinary loss, net of tax ............ (233) - - (233)
Cumulative effect of change in accounting
principle, net of tax ................... (1,202) - - (1,202)
---------------------------------------------------------
NET EARNINGS .............................. $ 112,214 $ - $ - $ 112,214
=========================================================
YEAR ENDED JANUARY 31, 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 operating
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
=========================================================
Forest City Enterprises, Inc. - 2001 Annual Report
64
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 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Plus
Unconsolidated
Less Minority Investments at Pro-Rata
Full Consolidation Interest Pro-Rata Consolidation
==============================================================================================================
(in thousands)
YEAR ENDED JANUARY 31, 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 operating 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
====================================================
Forest City Enterprises, Inc. - 2001 Annual Report
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
T. GAIN (LOSS) ON DISPOSITION OF OPERATING PROPERTIES AND OTHER INVESTMENTS,
PROVISION FOR DECLINE IN REAL ESTATE AND EXTRAORDINARY ITEMS
================================================================================
The following table summarizes the gain (loss) on disposition of operating
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)
2002
Tucson Mall(*)................................Tucson, AZ $ 86,096 $ - $ - $ 86,096
Palm Villas Apartments(*)..................Henderson, NV 7,259 - - 7,259
Bowling Green Mall(*) .................Bowling Green, KY 1,892 - - 1,892
Peppertree Apartments ...............College Station, TX 1,682 - - 1,682
Whitehall Terrace Apartments(*).................Kent, OH 1,105 - - 1,105
The Oaks Apartments ...........................Bryan, TX (1,010) - - (1,010)
Chapel Hill Towers Apartments(*)...............Akron, OH - - 5,007 5,007
Baymont Inn............................Mayfield Hts., OH - - 674 674
Available-for-sale equity securities ................... (5,586) - - (5,586)
Other .................................................. (329) - - (329)
------------------------------------------------------------------
Total ............................................... $ 91,109 $ - $ 5,681 $ 96,790
==================================================================
2001
Studio Colony Apartments(*) .............Los Angeles, CA $ 25,726 $ - $ - $ 25,726
Tucson Place(*) ..............................Tucson, AZ 8,734 - - 8,734
Highlands Apartments...................Grand Terrace, CA 599 - - 599
Canton Centre Mall(*) ........................Canton, OH (436) - - (436)
Gallery at Metrotech........................Brooklyn, NY (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(*)..........................Akron, OH $ 13,861 $ 2,738 $ - $ 11,123
Other .................................................. - - (411) (411)
------------------------------------------------------------------
Total ............................................... $ 13,861 $ 2,738 $ (411) $ 10,712
==================================================================
(*) Sold in a tax-deferred exchange for a replacement property through an
intermediary.
PROVISION FOR DECLINE IN REAL ESTATE - During the year ended January 31,
2002, the Company recorded a Provision for Decline in Real Estate totaling
$8,783,000. The provision represents the adjustment to fair market value of land
held by the Commercial and Residential Groups.
The Provision for Decline in Real Estate of $1,231,000 for the year ended
January 31, 2001 represents 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 Development 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 Real Estate 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 ITEMS - During the year ended January 31, 2002, the Company
recorded an extraordinary loss, net of tax, of $233,000 ($386,000 pre-tax)
representing the impact of early extinguishment of nonrecourse debt. This
extraordinary loss is comprised of an extraordinary gain, net of tax, of
$637,000 ($1,054,000 pre-tax) related to the Enclave, a residential property
located in San Jose, California and an extraordinary loss, net of tax, of
$870,000 ($1,440,000 pre-tax) related to Mount Vernon, a residential property
located in Alexandria, Virginia.
There were no extraordinary items during the year ended January 31, 2001.
The extraordinary gain, net of tax, of $272,000 ($450,000 pre-tax) for the year
ended January 31, 2000 represents extinguishment of nonrecourse debt related to
Plaza at Robinson Town Center in Pittsburgh, Pennsylvania.
Forest City Enterprises, Inc. - 2001 Annual Report
66
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Quarter Ended
- ----------------------------------------------------------------------------------------------------------------------
JAN. 31, OCT. 31, JULY 31, APR. 30,
2002 2001 2001 2001
======================================================================================================================
(in thousands, except per share data)
Revenues ........................................... $ 251,963 $ 232,661 $ 230,263 $ 191,683
Earnings before income taxes ....................... $ 9,941 $ 107,849 $ 26,090 $ 16,077
Earnings before extraordinary loss and cumulative
effect of change in accounting principle(1) ...... $ 12,747 $ 66,598 $ 15,472 $ 9,647
Net earnings ....................................... $ 12,747 $ 65,728 $ 15,472 $ 9,082
Basic earnings per common share
Earnings before extraordinary loss and cumulative
effect of change in accounting principle(1)(2)(4) $ .26 $ 1.42 $ .34 $ .21
Net earnings(4) .................................. $ .26 $ 1.40 $ .34 $ .20
Diluted earnings per common share
Earnings before extraordinary loss and cumulative
effect of change in accounting principle(1)(2)(4) $ .25 $ 1.40 $ .34 $ .21
Net earnings(4) .................................. $ .25 $ 1.38 $ .34 $ .20
Quarterly dividends declared per common share(3)(4)
Class A and Class B ........................... $ .0500 $ .0500 $ .0467 $ .0400
Market price range of common stock(4)
Class A
High ......................................... $ 41.00 $ 35.80 $ 36.67 $ 30.83
Low .......................................... $ 31.92 $ 31.53 $ 28.83 $ 27.27
Class B
High ......................................... $ 40.75 $ 35.33 $ 36.14 $ 30.72
Low .......................................... $ 32.00 $ 31.80 $ 29.07 $ 27.83
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
Earnings before extraordinary loss and cumulative
effect of change in accounting principle ......... $ 4,176 $ 13,079 $ 46,833 $ 27,549
Net earnings ....................................... $ 4,176 $ 13,079 $ 46,833 $ 27,549
Basic earnings per common share
Earnings before extraordinary loss and cumulative
effect of change in accounting principle(2)(4) .. $ .09 $ .29 $ 1.04 $ .61
Net earnings(4) .................................. $ .09 $ .29 $ 1.04 $ .61
Diluted earnings per common share
Earnings before extraordinary loss and cumulative
effect of change in accounting principle(2)(4) .. $ .09 $ .29 $ 1.03 $ .61
Net earnings(4) .................................. $ .09 $ .29 $ 1.03 $ .61
Quarterly dividends declared per common share(3)(4)
Class A and Class B ........................... $ .0400 $ .0400 $ .0400 $ .0333
Market price range of common stock(4)
Class A
High ......................................... $ 27.88 $ 24.70 $ 24.54 $ 20.26
Low .......................................... $ 24.47 $ 22.34 $ 18.67 $ 16.46
Class B
High ......................................... $ 28.20 $ 25.54 $ 24.84 $ 23.88
Low .......................................... $ 24.70 $ 23.60 $ 19.84 $ 20.26
Both classes of common stock are traded on the New York Stock Exchange under
the symbols FCEA and FCEB. As of March 1, 2002, the number of registered holders
of Class A and Class B common stock were 753 and 572, respectively.
(1) Excludes the extraordinary loss, net of tax of $(233) ($.00 basic and
diluted per share) and cumulative effect of change in accounting principle,
net of tax of $(1,202)($.03 basic and diluted per share) for the year ended
January 31, 2002. These items are explained in Note T and Note A,
respectively, 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
$12,529 was available for payment of dividends as of January 31, 2002, under
the restrictions contained in the revolving credit agreement with a group of
banks.
(4) Adjusted for three-for-two split of Class A and Class B Common Stock
effective November 14, 2001.
Forest City Enterprises, Inc. - 2001 Annual Report
67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CORPORATE DESCRIPTION
The Company principally engages in the ownership, development, acquisition
and management of commercial and residential real estate throughout the United
States. The Company consists of four Strategic Business Units. The Commercial
Group, the Company's largest business unit, owns, develops, acquires and
operates regional malls, specialty/urban retail centers, office buildings,
hotels and mixed-use projects. New York City operations through the Company's
partnership with Forest City Ratner Companies are part of the Commercial Group.
The Residential Group owns, develops, acquires, leases and manages residential
rental property, including mature middle-market apartments in urban and suburban
locations, adaptive re-use developments in urban locations and supported-living
facilities. Real Estate Groups are the combined Commercial and Residential
Groups. The Land Development Group acquires and sells both land and developed
lots to residential, commercial and industrial customers. It also owns and
develops land into master-planned communities and mixed-use projects. The Lumber
Trading Group, a wholesaler, sells lumber to customers in all 50 states and
Canadian provinces. The Company has more than $4.4 billion of assets in 19
states and Washington, D.C. The Company's targeted markets included Boston,
Denver, Los Angeles, New York, Philadelphia, Richmond, San Francisco and
Washington, D.C. The Company is headquartered in Cleveland, Ohio.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company include accounts of the
Company and subsidiaries where the Company has financial or operational control.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements and related notes. In
preparing these financial statements, the Company has made its best estimates
and judgments of certain amounts included in the financial statements, giving
due consideration to materiality. The application of these accounting policies
involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.
RECOGNITION OF REVENUE
REAL ESTATE SALES - The Company follows the provisions of Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate" for
reporting the disposition of operating properties and land held for development
or sale.
LEASING OPERATIONS - The Company enters into leases with tenants in its
rental properties. The lease terms of tenants occupying space in the retail
centers and office buildings range from 1 to 25 years, excluding leases with
anchor tenants which typically run longer. Minimum rents are recognized on a
straight-line basis over the term of the related lease. Overage rents are
recognized as revenue when tenants' sales exceed contractual amounts. Recoveries
from tenants for taxes, insurance and other commercial property operating
expenses are recognized as revenues in the period the applicable costs are
incurred.
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 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 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 North America. 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
reports the gross margin on these sales as revenues in its Consolidated
Statements of Earnings.
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.
Forest City Enterprises, Inc. - 2001 Annual Report
68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes. Interest expense and
real estate taxes during development and construction are capitalized as 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 quarterly for changes in
expected collectibility. Depreciation is generally computed using the
straight-line method over the estimated useful life of the asset. 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 Statement of Earnings.
The Company reviews its properties to determine if its carrying costs will
be recovered from future operating cash flows whenever events or changes
indicate that recoverability of long-lived assets may not be assured. 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.
INVESTMENTS IN PARTNERSHIPS
As is customary within the real estate industry, the Company invests in
certain real estate projects through partnerships. The Company provides funding
for certain of its partners' equity contributions. Such advances are interest
bearing and are included in "Investments in and Advances to Real Estate
Affiliates" in the Company's Consolidated Balance Sheets.
The most significant partnership for which the Company provides funding
relates to Forest City Ratner Companies representing the Commercial Group's New
York City operations. The Company's partner is the President and Chief Executive
Officer of Forest City Ratner Companies and is the first cousin to four
executive officers of the Company. Of the amounts included in Investments in and
Advances to Real Estate Affiliates at January 31, 2002 and 2001, $81,970,000 and
$75,942,000, respectively, represents amounts advanced for this partner. These
advances entitle the Company to a preferred return payable from cash flows of
each respective property.
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 Company uses an additional measure, along with net earnings, to report
its operating results. This measure, 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 flow to meet its funding requirements. EBDT
is defined and discussed in detail under "Results of Operations - EBDT."
The Company's EBDT for 2001 grew by 13.6% to $167,970,000 from $147,809,000.
The increase in EBDT is primarily attributable to the opening or acquisition of
12 properties, the full year impact in 2001 of the 17 property additions in
2000, the increase in land sales in the Denver Stapleton and Chicago Central
Station projects and the reversal of previously fully reserved notes receivable.
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. This table presents amounts for both full
consolidation and pro-rata consolidation, providing a reconciliation of the
difference between the two methods, as well as a reconciliation from EBDT to net
earnings. Under the pro-rata consolidation method, the Company presents its
partnership investments proportionate to its share of ownership for each line
item of its consolidated financial statements. Under full consolidation,
partnership assets and liabilities are reported as consolidated at 100 percent
if deemed under the Company's control, or on the equity method of accounting if
the Company does not have control.
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 2001 was $334,787,000
compared to $339,321,000 in 2000, a 1.3% decrease. Comparable NOI for Real
Estate Groups (NOI for properties in operation throughout both years) increased
2.5% excluding the hotel portfolio and was flat including the hotel portfolio
from 2000 to 2001. The Company's comparable NOI increased 3.2% from 1999 to
2000. Including the expected NOI for the twelve months following stabilization
for the properties that were opened, expanded or acquired in 2001, net of
property disposals, NOI for Real Estate Groups would be approximately
$384,000,000 for 2001.
Forest City Enterprises, Inc. - 2001 Annual Report
69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
COMMERCIAL GROUP
The following table presents the significant increases in revenues and
operating expenses incurred by the Commercial Group for newly opened or acquired
properties for 2001 compared to 2000 (dollars in thousands):
FULL
Quarter Sq. Ft./ FULL CONSOLIDATION Pro-Rata
and Year No. of CONSOLIDATION Pro-Rata OPERATING Operating
Property Location Opened Rooms REVENUES Revenues EXPENSES Expenses
=================================================================================================================================
RETAIL CENTERS:
Galleria at South Bay(a) Redondo Beach, CA Q3 - 2001 955,000 $ 5,917 $ 5,917 $ 2,958 $ 2,958
Queens Place Queens, NY Q3 - 2001 455,000 3,568 2,498 1,281 896
Mall at Robinson Pittsburgh, PA Q3 - 2001 856,000 242 2,294 N/A 1,307
Mall at Stonecrest Atlanta, GA Q3 - 2001 1,170,000 351 2,854 N/A 1,336
Battery Park City Manhattan, NY Q2 - 2000 166,000 1,281(b) 896(b) 2,545 1,781
Court Street Brooklyn, NY Q2 - 2000 103,000 1,498 1,049 779 545
Eastchester Bronx, NY Q2 - 2000 63,000 1,062 743 345 241
Forest Avenue Staten Island, NY Q2 - 2000 70,000 258 181 841 589
OFFICE BUILDING:
65/80 Landsdowne Cambridge, MA Q3 - 2001 122,000 3,345 3,345 594 594
HOTELS:
Embassy Suites Manhattan, NY Q2 - 2000 463 8,711(c) 4,391(c) 9,314 4,694
Hilton Times Square Manhattan, NY Q2 - 2000 444 9,691 5,427 11,503 6,442
--------------------------------------------------------
TOTAL $ 35,924 $ 29,595 $ 30,160 $ 21.383
========================================================
N/A - not applicable - property recorded under equity method of accounting.
(a) Acquired property.
(b) Property temporarily closed September 11, 2001. Amounts include $1,036 and
$725 of business interruption insurance proceeds under full and pro-rata
consolidation, respectively.
(c) Property temporarily closed September 11, 2001. Amounts include $7,031 and
$3,544 of business interruption insurance proceeds under full and pro-rata
consolidation, respectively.
The following table presents the significant increases in revenues and
operating expenses reported by the Commercial Group for newly-opened or acquired
properties for 2000 compared to 1999 (dollars in thousands):
FULL
Quarter Sq. Ft./ FULL CONSOLIDATION Pro-Rata
and Year No. of CONSOLIDATION Pro-Rata OPERATING Operating
Property Location Opened Rooms REVENUES Revenues EXPENSES Expenses
=====================================================================================================================
RETAIL CENTERS:
Promenade in Temecula Temecula, CA Q3 -1999 1,040,000 $ 8,237 $ 5,983 $ 4,388 $ 3,291
Kaufman Studios Queens, NY Q3 -1999 84,000 1,912 1,338 305 214
42nd Street Manhattan, NY Q3 -1999 305,000 11,032 7,722 3,906 2,734
Columbia Park Center North Bergen, NJ Q3 -1999 347,000 8,502 4,463 1,479 776
Battery Park City Manhattan, NY Q2 -2000 166,000 3,980 2,786 824 576
Court Street Brooklyn, NY Q2 -2000 103,000 2,297 1,608 753 527
Eastchester Bronx, NY Q2 -2000 63,000 1,007 705 547 383
Forest Avenue Staten Island, NY Q2 -2000 70,000 1,451 1,016 522 365
OFFICE BUILDING:
45/75 Sidney Cambridge, MA Q1 -1999 277,000 3,306 3,306 1,615 1,615
HOTELS:
Embassy Suites Manhattan, NY Q2 -2000 463 20,716 10,441 14,578 7,347
Hilton Times Square Manhattan, NY Q2 -2000 444 24,783 13,879 16,991 9,515
-------------------------------------------------
TOTAL $ 87,223 $ 53,247 $ 45,908 $ 27,343
=================================================
REVENUES - Revenues for the Commercial Group increased by $24,659,000 or
4.6% in 2001 compared to 2000 under full consolidation and $24,741,000 or 4.9%
under the pro-rata consolidation method. These increases are primarily the
result of opening new properties as noted in the table above. In addition,
Twelve MetroTech Center construction fees resulted in an increase in net revenue
of $7,479,000 and $4,488,000 under full consolidation and pro-rata
consolidation, respectively. In the second quarter of 2001, the Company broke
ground on Twelve MetroTech Center in Brooklyn, New York and, when complete in
2005, this building will have 32 stories totaling over 1,100,000 square feet
owned in condominium by the Company and the City of New York. Net revenues also
increased as a result of a retail lease termination fee at Atlantic Center in
Brooklyn, New York of $3,500,000 and $2,625,000 under full and pro-rata
consolidation, respectively, and from increased rental income under both full
and pro-rata consolidation of: $2,481,000 from Knight Ridder Building at
Fairmont Plaza, an office building in San Jose; $1,138,000 from
Forest City Enterprises, Inc. - 2001 Annual Report
70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
45/75 Sidney and $751,000 from the Richards Building, both located in University
Park at MIT in Cambridge, Massachusetts. Additionally, revenues increased by
$7,950,000 for both full and pro-rata consolidation as the result of the sale of
a non-operating property at Ballston Common Mall in Arlington, Virginia and the
sale of a participating interest in a regional mall. These increases were
partially offset by decreases of $15,401,000 under full consolidation and
$5,673,000 under pro-rata consolidation as a result of commercial land sales in
2000 that did not recur in 2001 as well as decreases in the Company's hotel
portfolio primarily as a result of the overall decline in the travel industry.
Excluding the increase for the two New York City hotels in the table above, the
Company's remaining hotel portfolio revenues decreased during 2001 by $8,995,000
under full consolidation and $9,903,000 under pro-rata consolidation. Additional
decreases resulted from the dispositions in 2000 of three specialty retail
centers, Tucson Place, Canton Centre Mall and Gallery at Metrotech and the
disposition in 2001 of Tucson Mall totaling $21,056,000 and $13,408,000 for full
consolidation and pro-rata, respectively. The balance of the remaining increase
in revenues in the Commercial Group of approximately $10,900,000 under full
consolidation and $4,700,000 under pro-rata was generally due to improvements in
operations and increase in rental income at mature office properties.
Revenues for the Commercial Group increased by $105,598,000 or 24.5% in 2000
compared to 1999 under full consolidation and $66,538,000 or 15.0% under the
pro-rata consolidation method. These increases are primarily the result of
openings of new properties as noted in the table above. Additionally, revenues
increased as a result of commercial land sales of $3,445,000 under full
consolidation, but decreased by $2,040,000 under pro-rata consolidation.
Improved operations at Pavilion increased revenues $4,910,000 and $4,884,000
under full consolidation and pro-rata consolidation, respectively, One
Pierrepont Plaza in Brooklyn, New York increased revenues $3,679,000 and
$3,127,000 for full consolidation and pro-rata consolidation, respectively and
the expansion and sale of airrights at Ballston Common Mall $5,366,000 for both
full and pro-rata consolidation. Under full consolidation, increased equity in
earnings of unconsolidated entities of $3,567,000 also increased revenues. These
increases were offset by dispositions in 2000 of Tucson Place of $1,918,000 for
full and pro-rata consolidation and in 2001, Rolling Acres Mall which resulted
in a decrease in revenue of $4,877,000 and $3,902,000 under full and pro-rata
consolidation, respectively. The balance of the increase in revenues in the
Commercial Group of approximately $4,200,000 under full consolidation and
$7,800,000 under pro-rata consolidation was generally due to improved operations
at mature properties.
OPERATING AND INTEREST EXPENSES - Operating expenses for the Commercial
Group increased $52,423,000 or 19.9% in 2001 compared to 2000 under full
consolidation and $47,063,000 or 17.9% under pro-rata consolidation. The
increase in operating expenses was attributable primarily to costs associated
with the opening and acquisition of new properties as noted in the table above
and an increase in development project write-offs. Due to the challenging
economic conditions in 2001, the Company chose to withdraw from certain projects
in New York City and increased development project write-offs by $14,348,000 and
$11,880,000 over the prior year under full and pro-rata consolidation,
respectively. The risk-adjusted returns of the projects that were written off
had deteriorated when compared to other projects in the development program and,
by exiting these projects, the Company moved forward on new development
opportunities having a more favorable anticipated return. Additional costs of
$4,300,000 under both full and pro-rata consolidation were incurred in 2001 in
connection with the sale of a non-operating property and participating interest
in a regional mall. Higher occupancy and utility charges in 2001 compared to
2000 increased combined operating expenses of $7,211,000 and $6,048,000 under
full consolidation and pro-rata consolidation, respectively, at One Pierrepont
Plaza and 42nd Street retail center, both located in Manhattan, New York, Knight
Ridder Building at Fairmont Plaza and 45/75 Sidney. Operating costs increased by
$1,566,000 and $822,000 due to the Company taking over operations of the theater
in 2001 at Columbia Park Center, an urban retail center in North Bergen, New
Jersey. These increases were partially offset by $12,479,000 under full
consolidation and $9,463,000 under pro-rata consolidation relating to reduced
expenses from the 2000 dispositions of Tucson Place, Canton Centre Mall and
Gallery at Metrotech. Operating expenses also decreased by $2,661,000 and
$3,640,000 under full and pro-rata consolidation, respectively, at the Company's
hotel properties excluding those listed in the table above due to a decrease in
occupancy. Additionally, expenses decreased as a result of lower costs of
commercial land sales in 2001 compared to 2000 under full consolidation of
$4,742,000, but increased by $1,458,000 under pro-rata consolidation primarily
from the outlot sales at two commercial malls. The balance of the change in
operating expenses of $14,700,000 under full consolidation and $14,200,000 under
pro-rata consolidation was generally due to fluctuations in operating costs at
mature properties, including insurance.
Interest expense for the Commercial Group increased by $3,428,000 or 2.9% in
2001 compared to 2000 under the full consolidation method. The increase under
full consolidation is primarily attributable to the net increase in interest
expense from the opening and acquisition of new properties in 2000 and 2001 and
expansion of existing properties greater than the decrease in interest expense
from asset dispositions during 2000 and 2001. Interest expense under the
pro-rata consolidation method decreased by $1,172,000 or 1.0% in 2001 compared
to 2000. The decrease under pro-rata consolidation is also due to lower interest
rates on existing properties in addition to the decrease in interest expense
from asset dispositions during 2000 and 2001 partially offset by the increase in
interest expense from the opening and acquisition of new properties and
expansion of existing properties in 2000 and 2001.
During 2000, operating expenses for the Commercial Group increased by
$51,255,000 or 24.5% compared to 1999 under full consolidation and by
$32,066,000 or 13.9% under the pro-rata consolidation. These increases are
primarily the result of openings of new properties as noted in the table above
and increase in expenses at One Pierrepont Plaza by $2,847,000
Forest City Enterprises, Inc. - 2001 Annual Report
71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
and $2,420,000 for full consolidation and pro-rata consolidation, respectively.
As a result of land sales, costs associated with commercial land sales increased
by $533,000 under full consolidation, but decreased by $1,900,000 under pro-rata
consolidation. These increases were offset by dispositions in 2000 of Tucson
Place and Rolling Acres Mall, which resulted in a decrease in expenses of
$3,424,000 and $3,032,000 under full and pro-rata consolidation, respectively.
The balance of the change in operating expenses was generally due to
fluctuations in operating costs at mature properties. Interest expense increased
by $31,251,000 or 35.6% in 2000 compared to 1999 under the full consolidation
method and by $20,735,000 or 22.0% under the pro-rata consolidation method. The
increase in interest expense is primarily attributable to the 1999 and 2000
additions to the Commercial Group portfolio.
RESIDENTIAL GROUP
The following table presents the significant increases (decreases) in
revenues and operating expenses incurred by the Residential Group for newly
opened or acquired properties for 2001 compared to 2000 (dollars in thousands):
FULL
Quarter FULL CONSOLIDATION Pro-Rata
and Year No. of CONSOLIDATION Pro-Rata OPERATING Operating
Property Location Opened Units REVENUES Revenues EXPENSES Expenses
======================================================================================================================
CONSOLIDATED
Mount Vernon Square(a) Alexandria, VA Q2-2000 1,387 $ 6,759 $ 6,625 $ 2,240 $ 2,198
Forest Trace(a) Lauderhill, FL Q3-2000 324 6,763 6,763 4,030 4,030
Chestnut Grove Plainview, NY Q3-2000 79 2,609 2,087 2,031 1,625
Westfield Court(a) Stamford, CT Q4-2000 167 6,226 4,980 4,624 3,699
Pine Cove Bayshore, NY Q3-2001 85 617 494 723 578
Stony Brook Court(a) Darien, CT Q3-2001 86 678 543 452 362
UNCONSOLIDATED
Classic Residence By Hyatt Yonkers, NY Q3-2000 310 1,302 1,560 N/A 1,402
Mayfair at Great Neck(a) Great Neck, NY Q3-2000 144 (98) 1,542 N/A 1,198
Mayfair at Glen Cove(a) Long Island, NY Q3-2000 79 (425) 879 N/A 462
Lofts at 1835 Arch Philadelphia, PA Q1-2001 191 (638) (638) N/A(s) N/A(s)
Arbor Glen Twinsburg, OH Q2-2001 96(b) 208 118 N/A 137
Parkwood Village Brunswick,OH Q2-2001 96(b) 100 107 N/A 77
Settler's Landing Streetsboro, OH Q3-2000 152(b) (27) 456 N/A 178
Willow Court Forest Hills, NY Q3-2001 84 346 42 N/A 249
---------------------------------------------
TOTAL $ 24,420 $ 25,558 $ 14,100 $ 16,195
=============================================
N/A - not applicable - property recorded under equity method of accounting.
N/A (s) - not applicable - syndicated residential property accounted for on the
equity method under both pro-rata and full consolidation.
(a) Acquired property.
(b) Phased projects. Represents completed units at January 31, 2002.
The following table presents the significant increases in revenues and
operating expenses incurred by the Residential Group for newly opened or
acquired properties for 2000 compared to 1999 (dollars in thousands):
FULL
Quarter FULL CONSOLIDATION Pro-Rata
and Year No. of CONSOLIDATION Pro-Rata OPERATING Operating
Property Location Opened Units REVENUES Revenues EXPENSES Expenses
==========================================================================================================================
CONSOLIDATED
Mount Vernon Square(a) Alexandria, VA Q2-2000 1,387 $15,222 $ 8,510 $ 5,186 $ 3,211
Forest Trace(a) Lauderhill, FL Q3-2000 324 6,006 6,006 3,272 3,272
Chestnut Grove Plainview, NY Q3-2000 79 1,173 938 986 789
Burton Place(a) Southfield, MI Q2-2000 200 995 895 1,924 1,731
UNCONSOLIDATED
Classic Residence By Hyatt Yonkers, NY Q3-2000 310 1,488 475 N/A 1,244
Mayfair at Great Neck(a) Great Neck, NY Q3-2000 144 367 866 N/A 739
Mayfair at Glen Cove(a) Long Island, NY Q3-2000 79 155 579 N/A 359
---------------------------------------------
TOTAL $25,406 $18,269 $11,368 $11,345
=============================================
N/A - not applicable - property recorded under equity method of accounting.
(a) Acquired property.
Forest City Enterprises, Inc. - 2001 Annual Report
72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
REVENUES - Revenues for the Residential Group increased by $42,857,000 or
32.0% in 2001 compared to 2000 under full consolidation. Under pro-rata
consolidation, revenues for the Residential Group increased by $52,805,000 or
31.5% in 2001 compared to 2000. These increases were primarily the result of the
acquisitions made and properties opened as noted in the table above and an
increase of $24,620,000 under both pro-rata and full consolidation for reversal
of reserves for notes receivable and related accrued interest in the syndicated
property portfolio. During 2001, the Company completed a series of events that
led to the reversal of these reserves. The first of these was the modification
or expiration of the Government contracts that now allow for market rate
apartment rentals, which provide a significant increase in expected future cash
flows. This, in turn, increased the appraised values of these properties. As a
result, the Company determined that the collection of a portion of these notes
receivable and related accrued interest is now probable. Additionally, there was
an increase in investment earnings from The Grand ($1,199,000), a 546-unit
luxury high-rise community in North Bethesda, Maryland. These increases are
offset by the dispositions of properties under both full consolidation and
pro-rata of Studio Colony ($1,122,000), a 450-unit apartment complex in Los
Angeles, California, in the first quarter of 2000 and Palm Villas ($1,305,000),
a 350-unit apartment complex in Henderson, Nevada, in the third quarter of 2001.
The remaining increase in revenue was generally due to overall improved results
of mature properties.
Revenues for the Residential Group increased by $11,695,000 or 9.6% in 2000
compared to 1999 under full consolidation. Under pro-rata consolidation,
revenues for the Residential Group increased by $8,609,000 or 5.4% in 2000
compared to 1999. These increases were primarily the result of the acquisitions
made and properties opened as noted in the table above. Additionally, increases
in revenue under both full consolidation and pro-rata were attributable to the
lease-up of Colony Woods ($678,000), an adaptive re-use 396-unit project in
Bellevue, Washington and the reversal of reserves of notes receivable and
accrued interest in the syndicated housing property portfolio ($2,057,000). The
acquisition of an additional 49% interest in Providence at Palm Harbor, a
236-unit apartment community in Tampa, Florida increased full consolidation
revenue ($281,000) and pro-rata revenue ($1,169,000). These increases were
partially offset under both full consolidation and pro-rata by the dispositions
of Studio Colony ($5,025,000), Highlands ($3,961,000), a 556-unit apartment
building in Grand Terrace, California and the Toscana litigation settlement
proceeds ($4,500,000) received in 1999 which did not recur.
OPERATING AND INTEREST EXPENSES - Operating expenses for the Residential
Group increased by $32,118,000 or 66.8% in 2001 compared to 2000 under full
consolidation. Under pro-rata consolidation, operating expenses for the
Residential Group increased by $35,017,000 or 47.1% in 2001 compared to 2000.
These increases in operating expenses under both full consolidation and pro-rata
were primarily due to the reduction in the reserve for the collection of a note
receivable in 2000 from Millender Center ($10,775,000) that did not recur in
2001. Operating expenses also increased due to the write-off in 2001 of
abandoned development projects under full consolidation ($12,787,000) and
pro-rata ($10,504,000), primarily in New York City and Northern California.
Additionally, increases from acquisitions made and properties opened during
fiscal 2000 and 2001 are noted in the table above. The balances of the increases
were generally due to increased operating costs of mature properties. Interest
expense decreased by $72,000 or 0.3% in 2001 compared to 2000 under the full
consolidation method. Under the pro-rata consolidation method, interest expense
increased by $7,548,000 or 23.2% in 2001 compared to 2000. The increase in
interest expense is the result of acquisitions and openings of new properties.
Operating expenses for the Residential Group decreased by $1,950,000 or 3.9%
in 2000 compared to 1999 under full consolidation. Under pro-rata consolidation,
operating expenses for the Residential Group increased by $281,000 or .4% in
2000 compared to 1999. These variances in operating expenses were primarily due
to acquisitions made and properties opened during fiscal 1999 and 2000 as noted
in the table above. Additionally, for both full consolidation and pro-rata,
expenses decreased due to the dispositions of Studio Colony($1,937,000) and
Highlands ($1,745,000) and a reduction in the reserve for the collection of a
note receivable in 2000 from Millender Center ($10,775,000). Under pro-rata
consolidation, operating expenses also increased for the write-off of
development project costs ($2,658,000).
Interest expense increased by $10,144,000 or 75.6% in 2000 compared to 1999
under the full consolidation method. Under the pro-rata consolidation method,
interest expense increased by $6,087,000 or 23.0% in 2000 compared to 1999. The
increase in interest expense is the result of property acquisitions and openings
of new properties partially offset by property dispositions.
LAND DEVELOPMENT GROUP
REVENUES - Sales of land and related gross margins vary from period to
period depending on management's decisions regarding the disposition of
significant land holdings. Revenues for the Land Development Group increased by
$36,426,000 under the full consolidation method and by $18,326,000 under
pro-rata consolidation in 2001 compared to 2000. These increases are primarily
the result of combined increases in land sales of $45,674,000 for full
consolidation and $42,748,000 for pro-rata consolidation compared to the prior
year at four major land developments: Stapleton in Denver, Colorado, Central
Station in Chicago, Illinois and Waterbury and Avalon in North Ridgeville, Ohio.
These increases were reduced by decreases in revenues of $4,741,000 at Westwood
Lakes in Tampa, Florida for both full and pro-rata consolidation.
In addition, full consolidation revenues increased at Greens at Birkdale
Village in Huntersville, North Carolina by $2,640,000. The net increase in full
consolidation revenues was partially offset by decreases in revenues from
certain other projects, primarily Old Stone Crossing at Caldwell Creek in
Charlotte, North Carolina ($3,573,000) and Aberdeen in Highland Heights, Ohio
($2,465,000).
Forest City Enterprises, Inc. - 2001 Annual Report
73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
The increases in pro-rata consolidation revenues were also partially offset
by decreases in revenues from certain land development projects in 2001 compared
to 2000, primarily Seven Hills in Henderson, Nevada ($4,203,000), Aberdeen
($3,099,000), Old Stone Crossing at Caldwell Creek ($3,072,000), Canterberry
Crossing in Parker, Colorado ($2,428,000), Thornbury in Solon, Ohio ($2,103,000)
and Silver Lakes in Fort Lauderdale, Florida ($1,180,000).
Revenues for the Land Development Group increased by $11,084,000 under the
full consolidation method and by $23,300,000 under pro-rata consolidation in
2000 compared to 1999. These increases under full consolidation are primarily
the result of an increase in land sales at Seven Hills($9,819,000), Old Stone
Crossing at Caldwell Creek ($3,573,000) and Canterberry Crossing ($814,000),
partially offset by decreases in land sales due to the 1999 completion of Silver
Lakes in Fort Lauderdale, Florida ($4,277,000). The increase in revenues under
pro-rata consolidation was the result of increased land sales at Seven Hills
($6,306,000), Central Station ($4,726,000), Old Stone Crossing at Caldwell Creek
($4,946,000) and Canterberry Crossing ($2,147,000). In addition, 2000 revenues
increased due to the 1999 reversal of interest income of $4,001,000 that did not
recur in 2000, relating to Granite Development Partners, L.P.
OPERATING AND INTEREST EXPENSES - The fluctuation in Land Development Group
operating expenses primarily reflects costs associated with land sales volume in
each period. Operating expenses increased by $8,247,000 in 2001 compared to 2000
under the full consolidation method and decreased by $8,544,000 in 2001 compared
to 2000 under pro-rata consolidation.
Operating expenses increased under full consolidation in 2001 compared to
2000 primarily from increased combined expenses of $16,443,000 at full
consolidation and $14,369,000 at pro-rata consolidation at four major land
development projects: Stapleton, Central Station, Waterbury and Avalon. These
increases were partially offset by decreases in expenses of $4,155,000 as the
result of decreases in land sales volume at Westwood Lakes for both full and
pro-rata consolidation.
Other land projects with decreases in operating expenses under full
consolidation were Old Stone Crossing at Caldwell Creek ($2,273,000)
and Aberdeen($1,237,000). Under pro-rata consolidation, additional operating
expense decreased as a result of decreased land sales volume at Seven Hills
($8,127,000), Silver Lakes ($2,940,000), Old Stone Crossing at Caldwell Creek
($1,251,000), Aberdeen ($1,738,000), Canterberry Crossing ($1,816,000) and
Thornbury ($1,578,000).
Operating expenses increased by $7,717,000 under the full consolidation
method and $17,293,000 under pro-rata consolidation in 2000 compared to 1999.
Under both full and pro-rata consolidation, the 1999 reduction of certain
valuation allowances in Land Development Group of $4,729,000 did not recur in
2000. Additionally, the increase is primarily the result of an increase in
combined costs relating to a higher volume of land sales for Central Station and
Old Stone Crossing at Caldwell Creek of $3,403,000 for full consolidation and
$9,432,000 for pro-rata consolidation. Also, under pro-rata consolidation,
operating expenses increased for Thornbury ($1,467,000) and Canterberry Crossing
($1,228,000).
Interest expense decreased by $1,341,000 and $891,000 in 2001 compared to
2000 under the pro-rata and full consolidation methods, respectively. Interest
expense decreased by $2,644,000 and $5,244,000 in 2000 compared to 1999 under
the pro-rata and full consolidation methods, respectively. Interest expense
varies from year to year depending on the level of interest-bearing debt within
the Land Development Group.
LUMBER TRADING GROUP
REVENUES - Revenues for the Lumber Trading Group increased by $10,301,000 in
2001 compared to 2000. The increase was primarily due to an increase in lumber
trading margins in 2001 compared to 2000. The increase in lumber trading margins
in 2001 results from improved market conditions for portions of the year
including the spring when lumber prices increased significantly.
Revenues for the Lumber Trading Group decreased by $43,930,000 in 2000
compared to 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.
OPERATING AND INTEREST EXPENSES - Operating expenses for the Lumber Trading
Group increased by $8,569,000 in 2001 compared to 2000. This increase is
primarily due to increased variable expenses, principally traders' commissions,
due to increased lumber trading margins compared to 2000. Interest expense
decreased $2,453,000 in 2001 compared to 2000 due to a reduction in both the
amount of borrowing levels and interest rates.
Operating expenses for the Lumber Trading Group decreased by $33,277,000 in
2000 compared to 1999. The decrease reflected lower variable expenses due to
decreased volume and trading margins. Interest expense increased $296,000 in
2000 compared to 1999.
CORPORATE ACTIVITIES
REVENUES - Corporate Activities' revenues increased $87,000 in 2001 compared
to 2000 and decreased $58,000 in 2000 compared to 1999. 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 $6,307,000 in 2001 compared to 2000 and $673,000 in 2000
compared to 1999. Operating expenses for 2001 increased over 2000 primarily as
the result of an increase in general insurance accruals and additional
information technology costs. Interest expense decreased as a result of
decreased borrowings and reduced variable interest rates, $3,976,000 in 2001
compared to 2000 and increased $6,231,000 in 2000 compared to 1999. Corporate
Activities' interest expense consists primarily of interest expense on the 8.50%
Senior Notes and the long- term credit facilities that has not been allocated to
a strategic business unit (see "Financial Condition and Liquidity").
Forest City Enterprises, Inc. - 2001 Annual Report
74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
OTHER TRANSACTIONS
GAIN (LOSS) ON DISPOSITION OF OPERATING PROPERTIES AND OTHER INVESTMENTS -
The following table summarizes the gain (loss) on disposition of operating
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)
2002
Tucson Mall(*)....................................Tucson, AZ $ 86,096 $ - $ - $ 86,096
Palm Villas Apartments(*)......................Henderson, NV 7,259 - - 7,259
Bowling Green Mall(*)......................Bowling Green, KY 1,892 - - 1,892
Peppertree Apartments....................College Station, TX 1,682 - - 1,682
Whitehall Terrace Apartments(*).....................Kent, OH 1,105 - - 1,105
The Oaks Apartments................................Bryan, TX (1,010) - - (1,010)
Chapel Hill Towers Apartments(*)...................Akron, OH - - 5,007 5,007
Baymont Inn............................... Mayfield Hts., OH - - 674 674
Available-for-sale equity securities........................ (5,586) - - (5,586)
Other....................................................... (329) - - (329)
-----------------------------------------------------------
Total.................................................... $ 91,109 $ - $ 5,681 $ 96,790
===========================================================
2001
Studio Colony Apartments(*)..................Los Angeles, CA $ 25,726 $ - $ - $ 25,726
Tucson Place(*)...................................Tucson, AZ 8,734 - - 8,734
Highlands Apartments.......................Grand Terrace, CA 599 - - 599
Canton Centre Mall(*).............................Canton, OH (436) - - (436)
Gallery at Metrotech........................... Brooklyn, NY (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(*)..............................Akron, OH $ 13,861 $ 2,738 $ - $ 11,123
Other....................................................... - - (411) (411)
===========================================================
Total.................................................... $ 13,861 $ 2,738 $ (411) $ 10,712
===========================================================
(*) Sold in a tax-deferred exchange for a replacement property through an
intermediary.
PROVISION FOR DECLINE IN REAL ESTATE - During the year ended January 31,
2002, the Company recorded a Provision for Decline in Real Estate totaling
$8,783,000. The provision represents the adjustment to fair market value of land
held by the Commercial and Residential Groups.
The Provision for Decline in Real Estate of $1,231,000 for the year ended
January 31, 2001 represents 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 Development 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 Real Estate 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 ITEMS - During the year ended January 31, 2002, the Company
recorded an extraordinary loss, net of tax, of $233,000 ($386,000 pre-tax)
representing the impact of early extinguishment of nonrecourse debt. This
extraordinary loss is comprised of an extraordinary gain, net of tax, of
$637,000 ($1,054,000 pre-tax) related to the Enclave, a residential property
located in San Jose, California and an extraordinary loss, net of tax, of
$870,000 ($1,440,000 pre-tax) related to Mount Vernon, a residential property
located in Alexandria, Virginia.
There were no extraordinary items during the year ended January 31, 2001.
The extraordinary gain, net of tax, of $272,000 ($450,000 pre-tax) for the year
ended January 31, 2000 represents extinguishment of nonrecourse debt related to
Plaza at Robinson Town Center in Pittsburgh, Pennsylvania.
INCOME TAXES - Income tax expense totaled $63,487,000, $22,312,000 and
$24,319,000 in 2001, 2000 and 1999, respectively. At January 31, 2002, the
Company had a net operating loss carryforward for tax purposes of $21,649,000
(generated primarily from the impact of depreciation expense from real estate
properties on the Company's net earnings) that will expire in the years ending
January 31, 2011 through 2022, General Business Credit carryovers of $6,433,000
which will expire in the years ending January 31, 2004 through 2022
Forest City Enterprises, Inc. - 2001 Annual Report
75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
and Alternative Minimum Tax ("AMT") carryforward of $29,960,000 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") is defined as net earnings excluding the following items: i) gain
(loss) on disposition of operating properties and other investments (net of
tax); ii) beginning in the year ended January 31, 2001, the adjustment to
recognize rental revenues and rental expense using the straight-line method;
iii) noncash charges from Forest City Rental Properties Corporation, a
wholly-owned subsidiary of Forest City Enterprises, Inc., for depreciation,
amortization and deferred income taxes; iv) provision for decline in real estate
(net of tax); v) extraordinary items (net of tax); and vi) cumulative effect of
change in accounting principle (net of tax). The Company excludes gain (loss) on
the disposition of operating properties and other investments 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 operating
properties and other investments, other than commercial land and air rights or
land held by the Land Development Group, as nonrecurring items. Extraordinary
items are generally the result of early extinguishment and restructuring of
nonrecourse debt obligations and are not considered to be a component of the
Company's operating results. The adjustment to recognize 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 the tenants or due to the landlord. The Company excludes depreciation
and amortization expense related to real estate operations from EBDT because
they are noncash 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 noncash
items. The provision for decline in real estate is excluded from EBDT because it
is a noncash item that varies from year to year based on factors unrelated to
the Company's overall financial performance. 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
to meet its funding obligations. 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.
STOCK OFFERING - On September 28, 2001, the Company sold 3,900,000 shares of
Class A common stock at an initial price of $32.23 per share (on a post split
basis) and realized net proceeds, after offering costs, of $117,663,000. The
proceeds were used to reduce borrowings under the revolving credit facility by
$104,000,000 and to fund development projects.
LONG-TERM CREDIT FACILITIES - At January 31, 2002 and 2001, the Company had
$54,000,000 and $189,500,000, respectively, outstanding under its $265,000,000
revolving credit facility. The balance was paid in full on March 5, 2002 with
the proceeds from a new term loan discussed below. The revolving credit facility
was scheduled to mature on March 31, 2003 and allowed for up to a combined
amount of $30,000,000 in outstanding letters of credit and surety bonds
($17,087,000 and $9,675,000, respectively, were outstanding at January 31,
2002). The outstanding letters of credit reduced the credit available to the
Company. The revolving credit available was reduced quarterly by $2,500,000. At
January 31, 2002, the revolving credit line was $250,000,000.
Effective March 5, 2002, the Company increased its long-term credit
facilities to $350,000,000. The credit facilities now include a $100,000,000
term loan and a $250,000,000 revolving line of credit, both of which mature in
February 2006. Quarterly principal payments of $6,250,000 on the term loan
commence on July 1, 2002. The revolving line of credit allows up to a combined
amount of $40,000,000 in outstanding letters of credit or surety bonds. The
outstanding letters of credit reduce the credit available to the Company.
The long-term credit facilities provide, among other things, for: 1) at the
Company's election, 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 and
stock repurchases. At January 31, 2002, retained earnings of $12,529,000 were
available for payment of dividends.
In order to mitigate the short-term variable interest rate risk on its
long-term credit facilities, the Company has entered into a LIBOR interest rate
swap and purchased LIBOR interest rate caps. The swap expires January 31, 2003,
effectively fixes the LIBOR rate at 4.38% and had an original notional amount of
$100,000,000. Effective February 1, 2002, the notional amount of this swap was
reduced to $75,000,000. The interest rate caps have an average rate of 8.00% for
2002 and a notional amount of $54,161,000. In February 2002, LIBOR interest rate
caps were purchased at an average rate of 5.50% at a notional amount of
$100,000,000 covering the period February 1, 2003 through November 1, 2003.
Interest incurred on long-term credit facilities was $10,969,000 in 2001,
$16,163,000 in 2000 and $10,897,000 in 1999. Interest paid on long-term credit
facilities was $11,540,000 in 2001, $15,162,000 in 2000 and $9,984,000 in 1999.
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."
Forest City Enterprises, Inc. - 2001 Annual Report
76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
MORTGAGE FINANCINGS
The Company is actively working to extend the maturities and/or refinance
the nonrecourse debt that is coming due in 2002 and 2003, generally pursuing
long-term fixed-rate debt. During the year ended January 31, 2002, the Company
completed the following financings:
Full Pro-Rata
PURPOSE OF FINANCING Consolidation Consolidation
===============================================================================================
(in thousands)
Refinancings .......................................... $ 215,350 $ 225,437
Development projects (commitment) ..................... 315,430 397,707
Loan extensions ....................................... 298,426 233,115
Acquisitions .......................................... 118,756 119,689
Other ................................................. 1,116 26,760
----------------------------
$ 949,078 $1,002,708
============================
Reduction of mortgage debt due to property dispositions $ 111,952 $ 95,869
============================
INTEREST RATE EXPOSURE
On January 31, 2002, 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 ......... $1,817,234 7.28% $ 339,214 $ 503,329 $1,981,349 7.42%
Variable ......
Taxable(2) .. 649,321 5.51% 121,790 209,359 736,890 5.26%
Tax-Exempt .. 84,600 2.27% 11,700 63,690 136,590 2.35%
UDAG .......... 69,443 1.73% 10,920 11,862 70,385 2.72%
---------- ----------------------------------------------
$2,620,598 6.53% $ 483,624 $ 788,240 $2,925,214 6.52%
========== ==============================================
(1) Reflects weighted average interest rate including both the base index and
lender margin.
(2) Taxable variable rate debt of $649,321 at full consolidation and $736,890 at
pro-rata consolidation is protected with LIBOR swaps and caps described
below. These LIBOR-based hedges protect 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, 2003.
Forest City Enterprises, Inc. - 2001 Annual Report
77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
INTEREST RATE EXPOSURE (CONTINUED)
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 hedges for its mortgage debt portfolio as follows:
Full Consolidation Caps Swaps(1)
- --------------------------------------------------------------------------------
Average Average
Period Covered Amount Rate Amount Rate
================================================================================
(dollars in thousands)
02/01/02 - 02/01/03.........$608,361 7.64% $ 317,759 3.88%
02/01/03 - 02/01/04.........$849,787(2) 6.57% $ 2,924 2.49%
02/01/04 - 02/01/05.........$168,400 8.00%
02/01/05 - 02/01/06.........$133,900 8.00%
Pro-Rata Consolidation Caps Swaps(1)
- --------------------------------------------------------------------------------
Average Average
Period Covered Amount Rate Amount Rate
================================================================================
(dollars in thousands)
02/01/02 - 02/01/03.......$622,806 7.73% $ 401,221 3.54%
02/01/03 - 02/01/04.......$863,186(2) 6.65% $ 25,776 4.67%
02/01/04 - 02/01/05.......$263,638 8.00%
02/01/05 - 02/01/06.......$155,600 8.00%
(1) Swaps include long-term LIBOR contracts that have an average maturity
greater than six months. Swaps in the amount of $4,823 at full consolidation
and $40,519 at pro-rata consolidation were entered into in February 2002.
(2) Includes interest rate caps in the amount of $400,000 that were purchased in
February 2002.
The interest rate hedges summarized in the tables 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. The Company owns
Treasury Options of $238,200,000 at full consolidation and $159,421,000 at
pro-rata consolidation with a weighted average strike rate of approximately 200
basis points over the 10-year Treasury rate at January 31, 2002 and thus the
Options have only limited value.
Including properties accounted for under the equity method, 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
$3,000,000 at January 31, 2002. This increase is net of the protection provided
by the interest rate swaps and long-term LIBOR contracts in place as of January
31, 2002. 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 rates would increase the annual pre-tax interest cost of
the Company's tax-exempt variable-rate debt by approximately $3,500,000.
LUMBER TRADING GROUP LIQUIDITY
Lumber Trading Group is separately financed with two revolving lines of
credit and an asset securitization facility.
At January 31, 2002, Lumber Trading Group's two revolving lines of credit
totaled $86,000,000, expiring June 30, 2002. 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, 2002, $2,188,000 was outstanding under these
revolving lines of credit.
Lumber Trading Group has entered into a three-year agreement expiring in
July 2002 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 Company bears no risk regarding the
collectability of the accounts receivable once sold, and cannot modify the pool
of receivables. At January 31, 2002 and 2001, the Financial Institution held an
interest of $44,000,000 and $43,000,000, respectively, in the pool of
receivables. Sales of accounts receivable have averaged $44,300,000 and
$57,900,000 per month during the fiscal year ended January 31, 2002 and 2001,
respectively.
To protect against risks associated with the variable interest rates on
current and future borrowings on the liquidity banking agreement supporting the
facility through which the pools of receivables are sold, the Lumber Trading
Group entered into a interest rate swap with a notional amount of $20,000,000.
The swap fixes the LIBOR interest rate at 4.28% and is effective through January
31, 2005.
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 - FULL CONSOLIDATION
Net cash provided by operating activities was $79,115,000, $194,117,000 and
$170,686,000 for 2001, 2000 and 1999, respectively. The decrease in net cash
provided by operating activities in 2001 from 2000 is the result of an increase
of $76,160,000 in operating expenditures, a decrease in cash distributions from
operations of unconsolidated entities of $30,079,000, a decrease of $12,349,000
in rents and other revenues received (primarily attributable to an increase in
operating revenues of $90,440,000, offset by an increase in net notes and
accounts receivable of $36,465,000 in 2001 for Lumber Trading Group compared to
a decrease in net notes and accounts receivable, of $56,942,000 in 2000 as well
as the reversal of $24,620,000 of reserves against Residential Group notes
receivable), a decrease of $6,264,000 in land development expenditures and an
increase in interest paid of $2,119,000. These decreases were partially offset
by an increase in proceeds from land sales of $11,969,000.
Forest City Enterprises, Inc. - 2001 Annual Report
78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
The increase in net cash provided by operating activities in 2000 from 1999
is the result of an increase of $61,276,000 in rents and other revenues received
(primarily attributable to an increase in operating revenues of $75,563,000), an
increase in land sales of $11,284,000 and an increase in cash distributions from
operations of unconsolidated entities of $11,127,000, partially offset by an
increase in interest paid of $38,909,000, an increase of $17,080,000 in land
development expenditures and a decrease of $4,267,000 in operating expenditures.
Net cash used in investing activities totaled $210,420,000, $506,826,000 and
$521,974,000 for 2001, 2000 and 1999, respectively. Capital expenditures totaled
$419,301,000, $511,974,000 and $464,869,000 in 2001, 2000 and 1999,
respectively, and were financed with approximately $267,000,000, $337,000,000
and $194,000,000 in new nonrecourse mortgage indebtedness incurred in 2001, 2000
and 1999, respectively, cash provided from operations, borrowings under the
long-term credit facility and, in 2001, proceeds from the sale of common stock
through a public offering of $117,663,000 of which $104,000,000 was used to
reduce the long-term credit facility.
In 2001, 2000 and 1999, $190,011,000, $130,751,000 and $-0- was collected in
proceeds from the disposition of real estate properties and other investments.
In 2001, the Company collected proceeds from the sale of Tucson Mall, Bowling
Green Mall and Chapel Hill Mall and Whitehall Terrace, Peppertree, Palm Villas
and The Oaks, residential apartment properties, all of which were partially used
to reduce total mortgage debt by $111,952,000 (see "Mortgage Financings"). 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.
In 2001, the Company received a return on its investment in and advances to
real estate affiliates of $18,870,000. The Company invested $125,603,000 and
$57,105,000 in investments in and advances to real estate affiliates in 2000 and
1999 respectively. The 2000 investments were primarily related to advances on
behalf of the Company's joint venture partner in the 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 in Denver,
Colorado; and American Cigar Co. ($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 and advances to real estate
affiliates of $23,270,000 was received on 101 San Fernando in San Jose,
California.
Net cash provided by financing activities totaled $117,094,000, $292,892,000
and $368,341,000 in 2001, 2000 and 1999, 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 and proceeds from the issuance on common stock and the
related $104,000,000 repayment of the long-term credit facility is included in
the preceding paragraph discussing net cash used in investing activities. Net
cash provided by financing activities for 2001 also reflected an additional
repayment of $56,000,000 on the long-term credit facility.
Net cash provided by financing activities for 2001 reflected an increase of
$37,002,000 in restricted cash (primarily from the Stapleton project in Denver,
Colorado and an assisted-living residential project in Long Island, New York),
an increase in book overdrafts of $5,406,000 (representing checks issued but not
yet paid), payment of deferred financing costs of $17,079,000, a net increase of
$9,162,000 in notes payable, a decrease in minority interest of $2,219,000,
proceeds of $4,577,000 from the exercise of shareholder stock options and
payments of $8,213,000 of dividends to shareholders.
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 $17,278,000 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($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 $8,582,000 (representing checks issued but not
yet paid). In addition, the Company reported a net increase of $44,439,000 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.
Forest City Enterprises, Inc. - 2001 Annual Report
79
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CASH FLOWS - PRO-RATA CONSOLIDATION
Net cash provided by operating activities was $90,724,000, $149,664,000 and
$127,135,000 for 2001, 2000 and 1999, respectively. The decrease in net cash
provided by operating activities in 2001 from 2000 is the result of an increase
of $69,227,000 in operating expenditures, a decrease of $12,274,000 in rents and
other revenues received (primarily attributable to an increase in operating
revenues of $93,870,000, offset by an increase in notes and accounts receivable
net of $36,466,000 in 2001 for Lumber Trading Group compared to a decrease in
notes and accounts receivable, net of $56,942,000 in 2000 as well as the
reversal of $24,620,000 of reserves against Residential Group notes receivable),
and an increase in interest paid of $3,653,000. These decreases were partially
offset by a decrease of $20,215,000 from land development expenditures and an
increase in proceeds from land sales of $5,999,000.
The increase in net cash provided by operating activities in 2000 from 1999
is the result of an increase of $43,104,000 in rents and other 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, an increase in land
sales of $25,033,000 and a decrease of $11,492,000 in operating expenditures
(primarily from the Lumber Trading Group) partially offset by an increase of
$30,034,000 in land development expenditures and an increase in interest paid of
$27,066,000.
Net cash used in investing activities totaled $325,795,000, $458,552,000 and
$396,786,000 for 2001, 2000 and 1999, respectively. Capital expenditures, other
than development and acquisition activities, totaled $83,505,000, $29,156,000
and $37,822,000 (including both recurring and investment capital expenditures)
in 2001, 2000 and 1999, respectively, and were financed with cash provided from
operating activities and cash on hand at the beginning of the year. The Company
invested $457,258,000, $525,903,000 and $343,846,000 in acquisition and
development of real estate projects in 2001, 2000 and 1999, respectively. These
expenditures were financed with approximately $359,000,000, $337,000,000 and
$194,000,000 in new nonrecourse mortgage indebtedness incurred in 2001, 2000 and
1999, respectively, cash provided from operations, borrowings under the
long-term credit facility and, in 2001, proceeds from the sale of common stock
through a public offering of $117,663,000 of which $104,000,000 was used to
reduce the long-term credit facility.
In 2001, 2000 and 1999, $197,802,000, $133,454,000 and $-0- was collected in
proceeds from the disposition of operating properties and other investments. In
2001, the Company collected proceeds from the sale of Tucson Mall, Bowling Green
Mall and Chapel Hill Mall, Chapel Hill Towers and Whitehall Terrace, Peppertree,
Palm Villas and The Oaks, residential apartment properties, all of which were
partially used to reduce total mortgage debt by $95,869,000. In 2000, proceeds
from the sale of two residential apartment properties, Studio Colony and
Highlands, one specialty retail center, 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 2001, the Company received a
return on investment and advances to real estate affiliates of $17,166,000
primarily from the Halle Building, a commercial office building in Cleveland,
Ohio. In 2000 and 1999, the Company invested $36,947,000 and $15,118,000 in
investments in and advances to real estate affiliates. The 2000 investments were
primarily related to New York City area urban retail development ($18,754,000)
and two regional malls: 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
in Denver, Colorado; and American Cigar Co. ($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 joint venture partner 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.
Net cash provided by financing activities totaled $232,994,000, $293,656,000
and $288,217,000 in 2001, 2000 and 1999, 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 and proceeds from the issuance of common stock and the
related $104,000,000 repayment of the long-term credit facility is included in
the preceding paragraph discussing net cash used in investing activities. Net
cash provided by financing activities for 2001 also reflected an additional
repayment of $56,000,000 on the long-term credit facility.
Net cash provided by financing activities for 2001 reflected an increase in
restricted funds of $42,585,000 (primarily related to Foley Square, a
residential project in Manhattan, New York, the Stapleton project in Denver,
Colorado and an assisted-living residential project in Long Island, New York),
an increase in book overdrafts (representing checks issued but not yet paid) of
$5,457,000, payment of deferred financing costs of $18,151,000 and payments of
$8,213,000 of dividends to shareholders. In addition, the Company reported a net
increase of $10,836,000 in notes payable and $4,577,000 from the exercise of
stock options.
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 borrowings of subordinated debt of $20,400,000, a net decrease of
$18,499,000 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.
Forest City Enterprises, Inc. - 2001 Annual Report
80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
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 ($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
$8,582,000 (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.
COMMITMENTS AND CONTINGENCIES
As of January 31, 2002, the Company has guaranteed loans of $1,400,000,
letters of credit outstanding of $17,087,000 and surety bonds outstanding of
$9,675,000.
The Company, as a general partner for certain limited partnerships,
guarantees the funding of operating deficits of newly-opened apartment projects
for an average of five years. In addition, in return for their capital
contributions, the limited partners receive certain tax indemnity guarantees on
their investments, namely specified amounts of tax losses and tax credits. To
date, the partnerships have performed within projected returns and the Company
has not been required to provide any funding of operating deficits or
indemnifications.
The Company customarily guarantees lien-free completion of projects under
construction. Upon completion, the guarantees are released. At January 31, 2002,
completion guarantees of construction loan and other funding totaled
approximately $1,300,000,000 on projects estimated to have total costs of
approximately $1,800,000,000 which are approximately 50% complete in the
aggregate. To date, the Company has been successful in consistently delivering
lien-free completion of construction projects.
LEGAL PROCEEDINGS
The Company is defending a lawsuit relating to Emporium, a retail and office
development project in San Francisco. The lawsuit is challenging the Company's
right to entitlements under California environmental law. The Company obtained a
favorable verdict in May 2001; however, an appeal was filed by the plaintiffs
and is currently pending. The Company is also involved in other claims and
lawsuits incidental to its business, and management and legal counsel are of the
opinion that these claims and lawsuits will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
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 and
$126,000,000 through two common equity offerings completed on May 20, 1997 and
September 28, 2001, respectively, and $200,000,000 through a debt offering
completed on March 16, 1998. At January 31, 2002, the Company had available
approximately $92,000,000 on the second shelf registration statement of debt,
equity or any combination thereof.
On March 25, 2002, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the potential offering of up to 1,500,000
shares of Class A common stock that may be offered for sale from time to time by
shareholders of the stock in the public market. The selling shareholders are
family entities controlled by members of the Ratner, Shafran and Miller families
which own a controlling interest in Forest City Enterprises, Inc. The Company
will not receive any cash proceeds from the sale of these shares and,
accordingly, all fees, expenses, discounts and commissions will be paid by the
selling shareholders.
STOCK SPLIT/ DIVIDENDS
The Board of Directors approved a three-for-two stock split of both the
Company's Class A and Class B Common Stock, effective November 14, 2001. The
stock split was effected as a stock dividend.
On June 6, 2001, the Board of Directors voted to increase the 2001 quarterly
dividend to $.0467 per share (adjusted for the three-for-two stock split) on
both Class A and Class B Common Stock, representing a 16.7% annual increase over
the previous quarterly dividend. Quarterly dividends were increased by Board of
Director vote on September 4, 2001 providing an additional annual increase of
7.1% over the previous quarterly dividend.
The first, second, third and fourth 2001 quarterly dividends of $.0400,
$.0467, $.0500 and $.0500, respectively, per share (on a post-split basis) on
shares of both Class A and Class B Common Stock were paid June 15, 2001,
September 19, 2001, December 17, 2001 and March 15, 2002, respectively.
The first 2002 quarterly dividend of $.0500 per share on both Class A and
Class B Common Stock was declared on March 12, 2002 and will be paid on June 17,
2002 to shareholders of record at the close of business on June 3, 2002.
Forest City Enterprises, Inc. - 2001 Annual Report
81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS Nos. 137 and 138, which 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, net of minority
interest, of the transition amounts of the derivative instruments resulted in a
reduction of net income and other comprehensive income of approximately
$1,200,000 and $7,800,000, respectively. The transition adjustments are
presented as cumulative effect adjustments, as described in (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 may increase or
decrease reported net income 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
statements of cash flows.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations" which
addresses financial accounting and reporting for business combinations and SFAS
No. 142 "Goodwill and Other Intangible Assets" which addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
These statements became effective for the fiscal year ended January 31, 2002.
The Company believes the provisions of SFAS Nos. 141 and 142 will not have a
significant impact on the consolidated financial statements.
Also in June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations" which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement requires the fair value of the
liability for an asset retirement obligation be recognized in the period in
which it is incurred. This new standard becomes effective for the Company for
the year ending January 31, 2004. The Company does not expect this pronouncement
to have a material impact on its financial position, results of operations, or
cash flows.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This standard
harmonizes the accounting for impaired assets and resolves some of the
implementation issues as originally described in SFAS No. 121. It retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. It also retains the basic
provisions for presenting discontinued operations in the income statement but
broadens the scope to include a component of an entity rather than a segment of
a business. The new standard becomes effective for the Company for the year
ending January 31, 2003. The Company does not expect this pronouncement to have
a material impact on the Company's financial position, results of operations or
cash flows. The Company expects the adoption of this standard to impact the
presentation of its Statements of Earnings by requiring classification of gain
(loss) on the disposal of operating properties and their related operating
earnings with operations as discontinued operations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Annual Report, together with other statements and information publicly
disseminated by the Company, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements reflect
management's current views with respect to financial results related to future
events and are based on assumptions and expectations which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial or otherwise, may differ from the results
discussed in the forward-looking statements. Risks and other factors that might
cause differences, some of which could be material, include, but are not limited
to, the effect of economic and market conditions on a nationwide basis as well
as regionally in areas where the Company has a geographic concentration of
properties; failure to consummate financing arrangements; development risks,
including lack of satisfactory financing, construction and lease-up delays and
cost overruns; the level and volatility of interest rates; financial stability
of tenants within the retail industry, which may be impacted by competition and
consumer spending; the rate of revenue increases versus 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. - 2001 Annual Report
82
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, 2002
COMMERCIAL GROUP
----------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
Revenues .................................................................... $ 560,750 $ 110,425 $ 95,670 $ 545,995
Exclude straight-line rent adjustment ....................................... (11,724) -- -- (11,724)
Add back equity method depreciation expense ................................. 12,984 -- (12,984) --
---------------------------------------------------
Adjusted revenues ........................................................... 562,010 110,425 82,686 534,271
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ................................. 321,602 64,173 58,028 315,457
Exclude straight-line rent adjustment ....................................... (5,130) -- -- (5,130)
---------------------------------------------------
Operating expenses excluding
straight-line rent adjustment ............................................... 316,472 64,173 58,028 310,327
Gain on disposition recorded on equity method ............................... 674 -- (674) --
Minority interest in earnings before
depreciation and amortization ............................................... 12,396 12,396 -- --
Interest expense ............................................................ 122,443 33,856 25,332 113,919
Income tax provision ........................................................ 7,554 -- -- 7,554
---------------------------------------------------
459,539 110,425 82,686 431,800
---------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) .............................................. $ 102,471 $ -- $ -- $ 102,471
===================================================
RESIDENTIAL GROUP
----------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
Revenues .................................................................... $ 168,713 $ 5,877 $ 56,818 $ 219,654
Exclude straight-line rent adjustment ....................................... -- -- -- --
Add back equity method depreciation expense ................................. 8,260 -- (7,732) 528
-----------------------------------------------------
Adjusted revenues ........................................................... 176,973 5,877 49,086 220,182
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ................................. 80,205 7,010 36,144 109,339
Exclude straight-line rent adjustment ....................................... -- -- -- --
-----------------------------------------------------
Operating expenses excluding
straight-line rent adjustment ............................................... 80,205 7,010 36,144 109,339
Gain on disposition recorded on equity method ............................... 5,007 -- (5,007) --
Minority interest in earnings before
depreciation and amortization ............................................... (2,483) (2,483) -- --
Interest expense ............................................................ 23,483 1,350 17,949 40,082
Income tax provision ........................................................ 1,772 -- -- 1,772
-----------------------------------------------------
107,984 5,877 49,086 151,193
-----------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) ............................................. $ 68,989 $ -- $ -- $ 68,989
=====================================================
LAND DEVELOPMENT GROUP
----------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
Revenues .................................................................... $ 60,752 $ 2,080 $ 24,310 $ 82,982
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ................................. 27,807 1,261 21,935 48,481
Minority interest in earnings before
depreciation and amortization ............................................... 819 819 -- --
Interest expense ............................................................ 1,010 -- 2,375 3,385
Income tax provision ........................................................ 9,687 -- -- 9,687
---------------------------------------------------
39,323 2,080 24,310 61,553
---------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) .............................................. $ 21,429 $ -- $ -- $ 21,429
===================================================
LUMBER TRADING GROUP
-----------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
Revenues .................................................................... $115,728 $ -- $ -- $ 115,728
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ................................. 107,103 -- -- 107,103
Minority interest in earnings before
depreciation and amortization ............................................... -- -- -- --
Interest expense ............................................................ 3,131 -- -- 3,131
Income tax provision ........................................................ 2,421 -- -- 2,421
-----------------------------------------------------
112,655 -- -- 112,655
-----------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) .............................................. $ 3,073 $ -- $ -- $ 3,073
=====================================================
CORPORATE ACTIVITIES
----------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
Revenues .................................................................... $ 627 $- $ -- $ 627
Exclude straight-line rent adjustment ....................................... -- -- -- --
Add back equity method depreciation expense ................................. -- -- -- --
---------------------------------------------------
Adjusted revenues ........................................................... 627 -- -- 627
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ............................. 19,766 -- -- 19,766
Exclude straight-line rent adjustment ....................................... -- -- -- --
---------------------------------------------------
Operating expenses excluding
straight-line rent adjustment .......................................... 19,766 -- -- 19,766
Gain on disposition recorded on equity method................................ -- -- -- --
Minority interest in earnings before
depreciation and amortization .......................................... -- -- -- --
Interest expense ............................................................ 28,513 -- -- 28,513
Income tax (benefit) provision .............................................. (19,660) -- -- (19,660)
---------------------------------------------------
28,619 -- -- 28,619
---------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) .............................................. $ (27,992) $-- $-- $ (27,992)
===================================================
TOTAL
----------------------------------------------------
Plus
Less Unconsolidated
Full Minority Investments at Pro-Rata
Consolidation Interest Pro-Rata Consolidation
===================================================================================================================================
Revenues .................................................................... $ 906,570 $ 118,382 $ 176,798 $ 964,986
Exclude straight-line rent adjustment ....................................... (11,724) -- -- (11,724)
Add back equity method depreciation expense ................................. 21,244 -- (20,716) 528
---------------------------------------------------
Adjusted revenues ........................................................... 916,090 118,382 156,082 953,790
Operating expenses, including depreciation
and amortization for non-Real Estate Groups ............................ 556,483 72,444 116,107 600,146
Exclude straight-line rent adjustment ....................................... (5,130) -- -- (5,130)
---------------------------------------------------
Operating expenses excluding
straight-line rent adjustment .......................................... 551,353 72,444 116,107 595,016
Gain on disposition recorded on equity method................................ 5,681 -- (5,681) --
Minority interest in earnings before
depreciation and amortization .......................................... 10,732 10,732 -- --
Interest expense ............................................................ 178,580 35,206 45,656 189,030
Income tax (benefit) provision .............................................. 1,774 -- -- 1,774
----------------------------------------------------
748,120 118,382 156,082 785,820
----------------------------------------------------
EARNINGS BEFORE DEPRECIATION, AMORTIZATION
AND DEFERRED TAXES (EBDT) .............................................. $ 167,970 $ -- $ -- $ 167,970
====================================================
RECONCILIATION TO NET EARNINGS:
Earnings before depreciation, amortization and deferred taxes (EBDT) ........ $ 167,970 $ -- $ -- $ 167,970
Depreciation and amortization - Real Estate Groups .......................... (98,368) -- -- (98,368)
Deferred taxes - Real Estate Groups ......................................... (26,126) -- -- (26,126)
Straight-line rent adjustment ............................................... 6,594 -- -- 6,594
Provision for decline in real estate, net of tax ............................ (6,089) (1,973) -- (4,116)
Minority interest in provision for decline in real estate ................... 1,973 1,973 -- --
Gain on disposition of operating properties and other investments, net of tax 55,076 -- 3,434 58,510
Gain on disposition reported on equity method ............................... 3,434 -- (3,434) --
Extraordinary loss, net of tax .............................................. (233) -- -- (233)
Cumulative effect of change in accounting principle, net of tax ............. (1,202) -- -- (1,202)
----------------------------------------------------
NET EARNINGS ................................................................ $ 103,029 $ -- $ -- $ 103,029
====================================================
Forest City Enterprises, Inc. - 2001 Annual Report
83
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 DEVELOPMENT 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 (benefit) provision ........................................... (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 (benefit) provision ........................................... 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 (loss) 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. - 2001 Annual Report 84
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 DEVELOPMENT 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 (benefit) provision ................................. (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 (benefit) provision ................................. 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 (benefit) provision ................................. (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 (benefit) provision ................................. 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 (loss) 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. - 2001 Annual Report 85