EX-13 2 l87828aex13.txt EXHIBIT 13 1 SELECTED FINANCIAL DATA Forest City Enterprises, Inc. and Subsidiaries Effective January 31, 2001, the Company implemented a change in the presentation of its financial results from the pro-rata method of consolidation to the full consolidation method. A discussion regarding this change is included in Note A - Summary of Significant Accounting Policies. Certain prior year amounts have been re-presented under the full consolidation method.
Years Ended January 31, ----------------------------------------------------------------- Full Consolidation(1) Pro-Rata Consolidation(1) ------------------------------------------------------------------------------------------ --------------------------- 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------ --------------------------- (in thousands, except per share data) OPERATING RESULTS: Revenues ............................................ $ 794,785 $ 698,788 $ 609,700 $ 632,669 $ 610,449 ============================================================= Operating earnings, net of tax(2) ................... $ 43,959 $ 38,008 $ 29,761 $ 24,539 $ 6,986 Minority interest ................................... (3,399) (5,557) 1,227 - - Provision for decline in real estate, net of tax .... (744) (3,060) - - (7,413) Gain (loss) on disposition of properties and other investments, net of tax .......................... 51,821 11,139 7,419 (23,356) 9,598 ------------------------------------------------------------- Earnings before extraordinary gain .................. 91,637 40,530 38,407 1,183 9,171 Extraordinary gain, net of tax ...................... - 272 16,343 19,356 2,900 ------------------------------------------------------------- Net earnings ........................................ $ 91,637 $ 40,802 $ 54,750 $ 20,539 $ 12,071 ============================================================= Earnings before depreciation, amortization and deferred taxes (EBDT)(2)(3)(4) ................... $ 147,809 $ 132,639 $ 117,854 $ 106,910 $ 90,404 ============================================================= DILUTED EARNINGS PER COMMON SHARE: Earnings before extraordinary gain ............... $ 3.02 $ 1.34 $ 1.27 $ 0.04 $ 0.35 Extraordinary gain, net of tax ................... - 0.01 0.54 0.67 0.11 ------------------------------------------------------------- Net earnings ................................... $ 3.02 $ 1.35 $ 1.81 $ 0.71 $ 0.46 ============================================================= CASH DIVIDENDS DECLARED - CLASS A AND CLASS B ....... $ 0.230 $ 0.190 $ 0.155 $ 0.125 $ 0.137 ============================================================= CASH FLOWS: Net cash provided by operating activities ........ $ 206,313 $ 166,056 $ 112,385 $ 84,629 $ 48,278 Net cash used in investing activities ............ $(519,021) $(528,667) $(537,994) $(287,932) $(139,609) Net cash provided by financing activities ........ $ 292,891 $ 379,664 $ 450,781 $ 216,855 $ 93,488 ---------------------------------------------------------------------------------------------------------------------
January 31, ---------------------------------------------------------------- Full Consolidation(1) Pro-Rata Consolidation(1) ---------------------------------------------------------------------------------------- -------------------------------------- 2001 2000 1999 1998 1997 ---------------------------------------------------------------------------------------- -------------------------------------- (in thousands) FINANCIAL POSITION: Consolidated assets ........................................... $4,030,470 $3,666,355 $3,417,320 $2,963,353 $2,760,673 Real estate portfolio, at cost ................................ $3,526,146 $3,206,642 $3,087,498 $2,704,560 $2,520,179 Long-term debt, primarily nonrecourse mortgages ............... $2,849,812 $2,555,594 $2,478,872 $2,132,931 $1,991,428 ================================================================================================================================
(1) Effective January 31, 2001, the Company implemented a change in the presentation of its financial results. Prior to January 31, 2001, the Company used the pro-rata method of consolidation to report its partnership investments proportionate to its share of ownership for each line item of its consolidated financial statements. In accordance with the FASB's Emerging Issues Task Force Issue No. 00-1, "Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures," the Company can no longer use the pro-rata consolidation method for partnerships. Accordingly, partnership investments that were previously reported on the pro-rata method are now reported as consolidated at 100%, if deemed under the Company's control, or otherwise on the equity method of accounting. While a number of the line items on the Company's consolidated financial statements have changed under the new full consolidation method, there is no impact on EBDT, net earnings or shareholders' equity for all years presented. Certain data for the years ended January 31, 2000 and 1999 have been re-presented. (2) Excludes the provision for decline in real estate and gain (loss) on disposition of properties and other investments, net of tax. (3) The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results or cash flows from operations as defined by generally accepted accounting principles and may not be directly comparable to similarly-titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations and, along with net earnings, is necessary to understand its operating results. The Company's view is that EBDT is also an indicator of the Company's ability to generate cash to meet its funding requirements. EBDT is defined as net earnings before extraordinary gain, excluding the following items: i) provision for decline in real estate; ii) gain (loss) on disposition of properties and other investments; iii) beginning in the year ended January 31, 2001, the adjustment to recognize rental revenues and rental expenses using the straight-line method; and iv) noncash charges from Forest City Rental Properties Corporation for depreciation, amortization and deferred income taxes. (4) Includes $6,991,000 for the year ended January 31, 1998 related to the litigation settlement and sale of Toscana. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 26 2 REAL ESTATE ACTIVITY Forest City Enterprises, Inc. and Subsidiaries
January 31, --------------------------------------------------------------------------------- Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) FOREST CITY RENTAL PROPERTIES CORPORATION - REAL ESTATE ACTIVITY(1) Real estate - end of year Completed rental properties .................... $ 3,215,411 $ 2,866,913 $ 2,601,648 $ 2,387,569 $ 2,224,459 Projects under development ..................... 500,358 478,766 412,072 251,416 215,960 ----------------------------------------------------------------------------- Real estate, at cost ........................ 3,715,769 3,345,679 3,013,720 2,638,985 2,440,419 Less accumulated depreciation .................. (569,604) (532,607) (477,253) (436,377) (387,733) ----------------------------------------------------------------------------- Total real estate ........................... $ 3,146,165 $ 2,813,072 $ 2,536,467 $ 2,202,608 $ 2,052,686 ============================================================================= REAL ESTATE ACTIVITY DURING THE YEAR Completed rental properties Capital additions ............................ $ 326,169 $ 295,681 $ 127,065 $ 166,740 $ 160,690 Acquisitions ................................. 181,394 - 156,879 90,438 22,264 ----------------------------------------------------------------------------- Total additions ........................... 507,563 295,681 283,944 257,178 182,954 Dispositions ................................. (159,065)(2) (30,416)(3) (69,865)(4) (94,068)(5) (40,379) ----------------------------------------------------------------------------- Completed rental properties, net additions ... 348,498 265,265 214,079 163,110 142,575 ============================================================================= Projects under development New development ............................. 303,209 324,553 243,106 154,746 98,403 Transferred to completed rental properties .. (281,617) (257,859) (82,450) (119,290) (128,683) ----------------------------------------------------------------------------- Projects under development, net additions ... 21,592 66,694 160,656 35,456 (30,280) ----------------------------------------------------------------------------- Increase in real estate, at cost ............... $ 370,090 $ 331,959 $ 374,735 $ 198,566 $ 112,295 =============================================================================
(1) The table includes only the real estate activity for Forest City Rental Properties Corporation. (2) Primarily reflects the dispositions of Tucson Place, Canton Centre Mall, Gallery at Metrotech, Studio Colony and Highlands. Tucson Place has 276,000 square feet in Tucson, Arizona. Canton Centre Mall has 680,000 square feet in Canton, Ohio and Gallery at Metrotech has 163,000 square feet in Brooklyn, New York. Studio Colony and Highlands are apartment communities in California with 369 and 556 units, respectively. (3) Primarily reflects the disposition of Rolling Acres Mall, a 1,014,000-square-foot mall in Akron, Ohio. (4) Primarily reflects the dispositions of Summit Park Mall, Trolley Plaza and San Vicente office building. Summit Park has 695,000 square feet in Wheatfield, New York. Trolley Plaza is a 351-unit apartment complex in Detroit, Michigan. San Vicente has 469,000 square feet in Brentwood, California. (5) Reflects the sale of Toscana, a residential complex with 563 units in Irvine, California. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 27 3 MANAGEMENT'S REPORT The management of Forest City Enterprises, Inc. is responsible for the accompanying consolidated financial statements. These statements have been prepared by the Company in accordance with generally accepted accounting principles and include amounts based on judgments of management. The financial information contained elsewhere in this annual report conforms with that in the consolidated financial statements. The Company maintains a system of internal accounting control which provides reasonable assurance in all material respects that the assets are safeguarded and transactions are executed in accordance with management's authorization and accurately recorded in the Company's books and records. The concept of reasonable assurance recognizes that limitations exist in any system of internal accounting control based upon the premise that the cost of such controls should not exceed the benefits derived. The Audit Committee, composed of three members of the Board of Directors who are not employees of the Company, meets regularly with representatives of management, the independent accountants and the Company's internal auditors to monitor the functioning of the accounting and control systems and to review the results of the auditing activities. The Audit Committee recommends the independent accountants to be appointed by the Board of Directors for approval by the shareholders. The Committee reviews the scope of the audit and the fee arrangements. The independent accountants conduct an objective, independent examination of the consolidated financial statements. The Audit Committee reviews results of the audit effort with the independent accountants. The Audit Committee also meets with the independent accountants and the internal auditors without management present to ensure that they have open access to the Audit Committee. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Forest City Enterprises, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Forest City Enterprises, Inc. and its Subsidiaries (the "Company") at January 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Cleveland, Ohio March 10, 2001 FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 28 4 CONSOLIDATED BALANCE SHEETS Forest City Enterprises, Inc. and Subsidiaries
January 31, ------------------------------------------------------------------------------------------------------------ 2001 2000 ------------------------------------------------------------------------------------------------------------ (in thousands) ASSETS Real Estate Completed rental properties ................................................. $ 3,111,581 $ 2,685,448 Projects under development .................................................. 391,821 499,399 Land held for development or sale ........................................... 22,744 21,795 -------------------------- Real Estate, at cost ..................................................... 3,526,146 3,206,642 Less accumulated depreciation ............................................... (489,540) (458,235) -------------------------- Total Real Estate ........................................................ 3,036,606 2,748,407 Cash and equivalents .......................................................... 64,265 84,082 Restricted cash ............................................................... 68,243 68,127 Notes and accounts receivable, net ............................................ 219,118 214,860 Inventories ................................................................... 39,234 57,444 Investments in and advances to real estate affiliates ......................... 436,248 338,465 Other assets .................................................................. 166,756 154,970 -------------------------- TOTAL ASSETS ............................................................. $ 4,030,470 $ 3,666,355 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage debt, nonrecourse .................................................... $ 2,439,912 $ 2,188,594 Accounts payable and accrued expenses ......................................... 413,869 404,207 Notes payable ................................................................. 55,392 72,780 Long-term credit facility ..................................................... 189,500 167,000 Senior and subordinated debt .................................................. 220,400 200,000 Deferred income taxes ......................................................... 176,671 174,661 -------------------------- Total Liabilities ........................................................... 3,495,744 3,207,242 Minority Interest ............................................................. 78,090 72,607 -------------------------- SHAREHOLDERS' EQUITY Preferred stock - convertible, without par value 5,000,000 shares authorized; no shares issued ............................... - - Common stock - $.33 1/3 par value Class A, 96,000,000 shares authorized; 20,361,932 and 19,946,756 shares issued, 19,820,507 and 19,372,406 outstanding, respectively ....... 6,787 6,649 Class B, convertible, 36,000,000 shares authorized; 10,522,020 and 10,937,196 shares issued, 10,243,920 and 10,659,096 outstanding, respectively ....... 3,508 3,646 -------------------------- 10,295 10,295 Additional paid-in capital .................................................... 114,010 113,764 Retained earnings ............................................................. 338,792 254,063 -------------------------- 463,097 378,122 Less treasury stock, at cost; 2001: 541,425 Class A and 278,100 Class B shares 2000: 574,350 Class A and 278,100 Class B shares ............................ (10,330) (10,773) Accumulated other comprehensive income ........................................ 3,869 19,157 -------------------------- Total Shareholders' Equity .................................................. 456,636 386,506 -------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $ 4,030,470 $ 3,666,355 ==========================
The accompanying notes are an integral part of these consolidated financial statements. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 29 5 CONSOLIDATED STATEMENTS OF EARNINGS Forest City Enterprises, Inc. and Subsidiaries
Years Ended January 31, -------------------------------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------------------------------- (in thousands, except per share data) REVENUES Rental properties ........................................ $ 658,369 $ 538,876 $ 453,946 Lumber trading ........................................... 105,427 149,357 123,325 Equity in earnings of unconsolidated entities ............ 30,989 10,555 32,429 ----------------------------------------- 794,785 698,788 609,700 ----------------------------------------- EXPENSES Operating expenses ....................................... 443,707 415,811 355,937 Interest expense ......................................... 182,544 139,866 124,602 Provision for decline in real estate ..................... 1,231 5,062 -- Depreciation and amortization ............................ 98,364 81,504 83,839 ----------------------------------------- 725,846 642,243 564,378 ----------------------------------------- Gain on disposition of properties and other investments .... 48,409 13,861 19,532 ----------------------------------------- EARNINGS BEFORE INCOME TAXES ............................... 117,348 70,406 64,854 ----------------------------------------- INCOME TAX EXPENSE Current .................................................. 10,326 12,257 (86) Deferred ................................................. 11,986 12,062 27,760 ----------------------------------------- 22,312 24,319 27,674 ----------------------------------------- EARNINGS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN ... 95,036 46,087 37,180 Minority interest .......................................... 3,399 5,557 (1,227) ----------------------------------------- EARNINGS BEFORE EXTRAORDINARY GAIN ......................... 91,637 40,530 38,407 Extraordinary gain, net of tax ............................. -- 272 16,343 ----------------------------------------- NET EARNINGS ............................................... $ 91,637 $ 40,802 $ 54,750 ========================================= BASIC EARNINGS PER COMMON SHARE Earnings before extraordinary gain ....................... $ 3.05 $ 1.35 $ 1.28 Extraordinary gain, net of tax ........................... -- .01 .55 ----------------------------------------- Net earnings ............................................. $ 3.05 $ 1.36 $ 1.83 ========================================= DILUTED EARNINGS PER COMMON SHARE Earnings before extraordinary gain ....................... $ 3.02 $ 1.34 $ 1.27 Extraordinary gain, net of tax ........................... -- .01 .54 ----------------------------------------- Net earnings ............................................. $ 3.02 $ 1.35 $ 1.81 =========================================
The accompanying notes are an integral part of these consolidated financial statements. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 30 6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Forest City Enterprises, Inc. and Subsidiaries
Common Stock ----------------------------------- Class A Class B Additional Comprehensive ----------------------------------- Paid-In Retained Income Shares Amount Shares Amount Capital Earnings --------------------------------------------------------------------------------------------------------------------- (in thousands) BALANCES AT JANUARY 31, 1998 .............. 19,813 $ 6,606 11,071 $ 3,691 $114,270 $168,864 Net earnings ............................. $ 54,750 54,750 ======== Dividends: $.035 per share (one quarter) .......... (1,049) $.04 per share (three quarters) ........ (3,598) Conversion of Class B to Class A shares .. 92 30 (92) (30) Exercise of stock options ................ --------------------------------------------------------- BALANCES AT JANUARY 31, 1999 .............. 19,905 6,636 10,979 3,661 114,270 218,967 Comprehensive income: Net earnings ........................... $ 40,802 40,802 Other comprehensive income, net of tax Unrealized gain on securities ........ 19,157 -------- Total comprehensive income ............... $ 59,959 ======== Dividends: $.04 per share (one quarter) ........... (1,199) $.05 per share (three quarters) ........ (4,507) Conversion of Class B to Class A shares .. 42 14 (42) (14) Exercise of stock options ................ 4 Restricted stock issued .................. (605) Amortization of unearned compensation .... 93 Rounding adjustments ..................... (1) (1) 2 --------------------------------------------------------- BALANCES AT JANUARY 31, 2000 .............. 19,947 6,649 10,937 3,646 113,764 254,063 Comprehensive income: Net earnings ........................... $ 91,637 91,637 Other comprehensive income, net of tax Unrealized loss on securities ........ (531) Less reclassification adjustment for gain included in net earnings .. (14,757) -------- Total comprehensive income ............... $ 76,349 ======== Dividends: $.05 per share (one quarter) ........... (1,502) $.06 per share (three quarters) ........ (5,406) Conversion of Class B to Class A shares .. 415 138 (415) (138) Exercise of stock options ................ 107 Amortization of unearned compensation .... 139 --------------------------------------------------------- BALANCES AT JANUARY 31, 2001 .............. 20,362 $ 6,787 10,522 $ 3,508 $114,010 $338,792 ========================================================= Treasury Stock Accumulated Other ---------------- Comprehensive Shares Amount Income Total --------------------------------------------------------------------------------------- (in thousands) BALANCES AT JANUARY 31, 1998 .............. 905 $(11,486) $ -- $281,945 Net earnings ............................. 54,750 Dividends: $.035 per share (one quarter) .......... (1,049) $.04 per share (three quarters) ........ (3,598) Conversion of Class B to Class A shares .. -- Exercise of stock options ................ (4) 60 60 ------------------------------------------ BALANCES AT JANUARY 31, 1999 .............. 901 (11,426) -- 332,108 Comprehensive income: Net earnings ........................... 40,802 Other comprehensive income, net of tax Unrealized gain on securities ........ 19,157 19,157 Total comprehensive income ............... Dividends: $.04 per share (one quarter) ........... (1,199) $.05 per share (three quarters) ........ (4,507) Conversion of Class B to Class A shares .. -- Exercise of stock options ................ (4) 48 52 Restricted stock issued .................. (45) 605 -- Amortization of unearned compensation .... 93 Rounding adjustments ..................... -- ------------------------------------------ BALANCES AT JANUARY 31, 2000 .............. 852 (10,773) 19,157 386,506 Comprehensive income: Net earnings ........................... 91,637 Other comprehensive income, net of tax Unrealized loss on securities ........ (531) (531) Less reclassification adjustment for gain included in net earnings .. (14,757) (14,757) Total comprehensive income ............... Dividends: $.05 per share (one quarter) ........... (1,502) $.06 per share (three quarters) ........ (5,406) Conversion of Class B to Class A shares .. -- Exercise of stock options ................ (32) 443 550 Amortization of unearned compensation .... 139 ------------------------------------------ BALANCES AT JANUARY 31, 2001 .............. 820 $(10,330) $ 3,869 $456,636 ==========================================
The accompanying notes are an integral part of these consolidated financial statements. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 31 7 CONSOLIDATED STATEMENTS OF CASH FLOWS Forest City Enterprises, Inc. and Subsidiaries
Years Ended January 31, --------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Rents and other revenues received .................................... $ 732,458 $ 669,304 $ 520,704 Cash distributions from operations of unconsolidated entities ........ 60,018 48,891 27,430 Proceeds from land sales ............................................. 24,979 17,529 11,194 Land development expenditures ........................................ (21,062) (12,226) (14,865) Operating expenditures ............................................... (402,962) (418,380) (310,083) Interest paid ........................................................ (187,118) (139,062) (121,995) ------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 206,313 166,056 112,385 ------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................................. (518,709) (465,137) (461,146) Proceeds from disposition of properties and other investments ........ 130,751 -- 1,145 Changes in investments in and advances to real estate affiliates ..... (131,063) (63,530) (77,993) ------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES .............................. (519,021) (528,667) (537,994) ------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of senior and subordinated debt ............... 20,400 -- 200,000 Payment of senior notes issuance costs ............................... -- -- (6,297) Increase in nonrecourse mortgage debt and long-term credit facility .. 826,387 570,434 648,586 Principal payments on nonrecourse mortgage debt on real estate ....... (471,062) (228,576) (316,833) Payments on long-term credit facility ................................ -- -- (114,000) Increase in notes payable ............................................ 20,630 96,585 38,524 Payments on notes payable ............................................ (37,909) (52,150) (39,306) Change in restricted cash and book overdrafts ........................ (30,899) (11,083) 34,500 Payment of deferred financing costs .................................. (30,682) (6,575) (16,072) Exercise of stock options ............................................ 550 52 60 Dividends paid to shareholders ....................................... (6,608) (5,399) (4,497) Increase in minority interest ........................................ 2,084 16,376 26,116 ------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 292,891 379,664 450,781 ------------------------------------------- NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS ........................ (19,817) 17,053 25,172 CASH AND EQUIVALENTS AT BEGINNING OF YEAR .............................. 84,082 67,029 41,857 ------------------------------------------- CASH AND EQUIVALENTS AT END OF YEAR .................................... $ 64,265 $ 84,082 $ 67,029 ===========================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 32 8 CONSOLIDATED STATEMENTS OF CASH FLOWS Forest City Enterprises, Inc. and Subsidiaries
Years Ended January 31, ------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------- (in thousands) RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES NET EARNINGS .......................................................... $ 91,637 $ 40,802 $ 54,750 Minority interest ................................................... 3,399 5,557 (1,227) Depreciation ........................................................ 75,546 63,560 55,614 Amortization ........................................................ 22,818 17,944 28,225 Equity in earnings of unconsolidated entities ....................... (30,989) (10,555) (32,429) Cash distributions from operations of unconsolidated entities ....... 60,018 48,891 27,430 Deferred income taxes ............................................... 12,012 11,978 32,427 Gain on disposition of properties and other investments ............. (48,409) (13,861) (19,532) Provision for decline in real estate ................................ 1,231 5,062 -- Extraordinary gain .................................................. -- (450) (27,036) Decrease in commercial land included in projects under development .. 655 13,906 19,627 Increase in land held for development or sale ....................... (948) (4,281) (7,262) Decrease (increase) in notes and accounts receivable ................ (4,813) 146 (41,841) Decrease (increase) in inventories .................................. 18,210 (10,145) 11,397 Increase in other assets ............................................ (37,049) (2,129) (17,503) Increase (decrease) in accounts payable and accrued expenses ........ 42,995 (369) 29,745 ------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... $ 206,313 $ 166,056 $ 112,385 =========================================== SUPPLEMENTAL NON-CASH DISCLOSURE: The schedule below represents the effect of the following non-cash transactions for the years ended January 31: 2001 - Disposition of interest in Canton Centre Mall and Gallery at Metrotech Increase in interest in Granite Development Partners, L.P., Providence at Palm Harbor and Museum Towers 2000 - Disposition of interest in Rolling Acres Mall 1999 - Disposition of interest in Summit Park Mall and Trolley Plaza
OPERATING ACTIVITIES Notes and accounts receivable ....................................... $ 553 $ 123 $ 565 Other assets ........................................................ 5,074 1,390 1,138 Accounts payable and accrued expenses ............................... (2,652) (194) 2,760 ------------------------------------------- Total effect on operating activities .............................. $ 2,975 $ 1,319 $ 4,463 =========================================== INVESTING ACTIVITIES Disposition of completed rental properties .......................... $ 78,640 $ 32,116 $ 42,312 ------------------------------------------- Total effect on investing activities .............................. $ 78,640 $ 32,116 $ 42,312 =========================================== FINANCING ACTIVITIES Disposition of nonrecourse mortgage debt ............................ $ (81,505) $ (33,435) $ (46,775) Notes payable ....................................................... (110) -- -- ------------------------------------------- Total effect on financing activities .............................. $ (81,615) $ (33,435) $ (46,775) ===========================================
The accompanying notes are an integral part of these consolidated financial statements. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 33 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Forest City Enterprises, Inc. is a major, vertically integrated national real estate company with four strategic business units. The COMMERCIAL GROUP owns, develops, acquires and operates shopping centers, office buildings and mixed-use projects including hotels. The RESIDENTIAL GROUP owns, develops, acquires and operates the Company's multi-family properties. REAL ESTATE GROUPS are the combined Commercial and Residential Groups. The LAND GROUP owns and develops raw land into master planned communities and other residential developments for resale. The LUMBER TRADING GROUP operates the Company's lumber wholesaling business. Forest City Enterprises, Inc. owns approximately $3.5 billion of real estate, at cost, in 22 states and Washington, D.C. The Company's executive offices are in Cleveland, Ohio. Regional offices are located in New York, Los Angeles, Boston, Tucson, Denver, Washington, D.C. and San Francisco. FINANCIAL STATEMENT PRESENTATION Effective January 31, 2001, the Company implemented a change in the presentation of its financial results. While a number of the line items on the Company's consolidated financial statements have changed under the new full consolidation method, there is no impact on net earnings or shareholders' equity for all years presented. This required financial reporting presentation change will have no effect on the way the Company operates or manages its business. Prior to January 31, 2001, the Company used the pro-rata method of consolidation to report its partnerships. Under this method, the Company presented its partnership investments proportionate to its share of ownership for each line item of its consolidated financial statements. In accordance with the FASB's Emerging Issues Task Force Issue No. 00-1, "Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures" (effective for years ending after June 15, 2000), the Company can no longer use the pro-rata consolidation method for partnerships. Accordingly, partnership investments that were previously reported on the pro-rata method are now reported as consolidated at 100 percent, if deemed under the Company's control, or otherwise on the equity method of accounting. As an aid in adjusting to the new reporting presentation, the Company has provided a reconciliation from the new full consolidation presentation to the historical pro-rata presentation in Note B. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Forest City Enterprises, Inc., its wholly-owned subsidiaries and entities in which it has a majority voting interest or otherwise controls. Entities which the Company does not control are accounted for on the equity method. Significant intercompany balances and transactions are eliminated in consolidation. Earnings before minority interest is allocated to the minority interest holders based on their respective ownership percentages of the Company's controlled less-than-wholly-owned real estate investments, as adjusted for any preferential returns or allocations contained in the related operating agreements. Minority interest in the accompanying Consolidated Balance Sheets represents the minority interest holders' proportionate share of the equity of the Company's controlled less-than-wholly-owned real estate investments. The Company does not necessarily own or hold any direct ownership interest in the various real estate assets consolidated in its financial statements but generally holds this ownership through its direct or indirect subsidiaries, except for certain parcels of land held for development or sale. USE OF ESTIMATES The Company is required to make estimates and assumptions when preparing its financial statements and accompanying notes in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATION Certain prior years' amounts in the accompanying financial statements have been reclassified to conform to the current year's presentation. FISCAL YEAR The years 2000, 1999 and 1998 refer to the fiscal years ended January 31, 2001, 2000 and 1999, respectively. LAND OPERATIONS Land held for sale is stated at the lower of carrying amount or fair market value less cost to sell. RECOGNITION OF REVENUE AND PROFIT REAL ESTATE SALES - The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 66, "Accounting for Sales of Real Estate" for reporting the disposition of properties. LEASING OPERATIONS - The Company enters into leases with tenants in its rental properties. The lease terms of tenants occupying space in the shopping centers and office buildings range from 1 to 25 years, excluding leases with anchor tenants. Minimum rents are recognized on a straight-line basis over the term of the related leases. Overage rents are recognized as revenues when tenants' sales exceed the applicable break points. Recoveries from tenants for taxes, insurance, and other commercial property operating expenses are recognized as revenues in the period the applicable costs are incurred. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 34 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENTS IN UNCONSOLIDATED ENTITIES - The Company accounts for its investments in unconsolidated entities (included in Investments in and Advances to Real Estate Affiliates on the Consolidated Balance Sheets) using the equity method of accounting whereby the cost of an investment is adjusted for the Company's share of equity in net income or loss from the date of acquisition and reduced by distributions received. The income or loss for each unconsolidated entity is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the Company's carrying value of its investment in the unconsolidated entities and the Company's share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets or liabilities, as applicable. LUMBER BROKERAGE - The Lumber Trading Group sells to a large number of customers across many regions of the country. The Company fills customer orders either through the simultaneous purchase of products from various third parties with delivery directly to the customer, or from relieving its existing short-term inventory position of previously purchased lumber products. Revenue is recorded when title to the goods transfers to the customers. The Company recognizes the gross margin on these sales as revenue. CONSTRUCTION - Revenue and profit on long-term fixed-price contracts are recorded using the percentage-of-completion method. On reimbursable cost-plus fee contracts, revenues are recorded in the amount of the accrued reimbursable costs plus proportionate fees at the time the costs are incurred. OTHER COMPREHENSIVE INCOME - Net unrealized gain or loss on securities, net of tax, is included in Other Comprehensive Income and represents the difference between the market value of investments in unaffiliated companies that are available for sale at the balance sheet date and the Company's cost. RECOGNITION OF COSTS AND EXPENSES Operating expenses primarily represent the recognition of operating costs, administrative expenses and taxes other than income taxes. Interest and real estate taxes during development and construction are capitalized as a part of the project cost. The Company provides an allowance for doubtful accounts against the portion of accounts or notes receivable that is estimated to be uncollectible. Such allowances are reviewed and updated periodically for changes in expected collectibility. Depreciation is generally computed on a straight-line method over the estimated useful asset lives. The estimated useful lives of buildings are primarily 50 years. Major improvements and tenant improvements are capitalized and expensed through depreciation charges. Repairs, maintenance and minor improvements are expensed as incurred. Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the respective accounts and any resulting gains or losses are reported in the Consolidated Statements of Earnings. The Company periodically reviews its properties to determine if its carrying costs will be recovered from future operating cash flows. In cases where the Company does not expect to recover its carrying costs, an impairment loss is recorded as a provision for decline in real estate. CASH AND EQUIVALENTS The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company maintains operating cash and reserve for replacement balances in financial institutions which, from time to time, may exceed Federally-insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of loss is minimal. RESTRICTED CASH Restricted cash represents deposits with mortgage lenders for taxes and insurance, security deposits, capital replacement, improvement and operating reserves, bond funds and development and construction escrows. INVENTORIES The lumber brokerage inventories are stated at the lower of cost or market. Inventory cost is determined by specific identification and average cost methods. OTHER ASSETS Included in other assets are costs incurred in connection with obtaining financing which are deferred and amortized over the life of the related debt. Costs incurred in connection with leasing space to tenants are also included in other assets and are deferred and amortized using the straight-line method over the lives of the related leases. Investments in securities classified as available for sale are reflected in other assets at market value with the changes in market value reflected as other comprehensive income in shareholders' equity. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates that the Company believes approximates the current market. The carrying amount of the Company's total fixed-rate debt at January 31, 2001 was $2,000,000,000 compared to an estimated fair value of $1,940,000,000. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 35 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At January 31, 2001, the unamortized book value of the Company's hedging instruments was approximately $17,000,000 compared to an estimated fair value of approximately $2,000,000. INTEREST RATE PROTECTION AGREEMENTS The Company follows a practice of hedging its variable interest rate risk by purchasing LIBOR-based interest rate caps and Treasury options. The LIBOR caps have typical durations ranging from one to three years while the Treasury options are for periods of five to 10 years. The Company also enters into interest rate swap agreements for hedging purposes for periods of one to five years. The principal risk to the Company through its interest rate hedging strategy is the potential inability of the financial institution from which the interest rate protection was purchased to cover all of its obligations. To mitigate this exposure, the Company purchases its interest rate protection from either the institution that holds the debt or from institutions with a minimum A- credit rating. The cost of interest rate protection is capitalized in Other Assets in the Consolidated Balance Sheets and amortized over the benefit period as interest expense in the Consolidated Statements of Earnings. INCOME TAXES Deferred tax assets and liabilities reflect the tax consequences on future years of differences between the tax and financial statement basis of assets and liabilities at year-end. The Company has recognized the benefits of its tax loss carryforward and general business tax credits which it expects to use as a reduction of the deferred tax expense. STOCK-BASED COMPENSATION The Company follows Accounting Principles Board Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees", and related Interpretations to account for stock-based compensation. As such, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount the employee is required to pay for the stock. CAPITAL STOCK The 5,000,000 authorized shares of preferred stock without par value, none of which have been issued, are convertible into Class A common stock. Class A common shareholders elect 25% of the members of the Board of Directors and Class B common shareholders elect the remaining directors annually. The Company currently has 13 directors. Class B common stock is convertible into Class A common stock on a share-for-share basis. EARNINGS PER SHARE Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilutive effect of the Company's stock option plan by adjusting the denominator using the treasury stock method. The sum of the four quarters' earnings per share may not equal the annual earnings per share due to the weighting of stock and option activity occurring during the year. All earnings per share disclosures appearing in these financial statements were computed assuming dilution unless otherwise indicated. NEW ACCOUNTING STANDARDS In May 2000, the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) released Issue No. 00-1, "Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures." The Company has adopted this EITF, as discussed further on page 34 under "Financial Statement Presentation." In June 1999, the FASB issued SFAS No. 137, which defers the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," to all fiscal quarters of fiscal years beginning after June 15, 2000. The Company implemented SFAS No. 133 on February 1, 2001. The effect of the adoption of SFAS No. 133 on the Company's financial statements in the first quarter of 2001 will be a reduction of net income and other comprehensive income of approximately $1,000,000 and $8,000,000, respectively, net of tax. In December 1999, the SEC released Staff Accounting Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial Statements," which summarizes the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB No. 101 in the fourth quarter of 2000, and such adoption did not have a material effect on the consolidated financial statements. In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued to amend the provisions of SFAS No. 125. The new standard is generally effective for all periods after March 31, 2001. The Company believes the provisions of SFAS No. 140 will have no material impact on the accounting treatment and disclosures currently being applied under SFAS No. 125. In April 2000, FASB Interpretation No. 44 (FIN No. 44), "Accounting for Certain Transactions involving Stock Compensation," was issued which addresses the application of APB Opinion No. 25, "Accounting for Stock Issued to Employees." Based on the Company's current stock compensation plan and recent plan activity, the Company believes that FIN No. 44 has no material impact on the consolidated financial statements. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 36 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION A reconciliation of the Company's new financial statement presentation (full consolidation method) to its historical presentation (pro-rata consolidation method) is as follows.
CONSOLIDATED BALANCE SHEET - JANUARY 31, 2001 -------------------------------------------------------------------------------------------------------------------- Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation -------------------------------------------------------------------------------------------------------------------- (in thousands) ASSETS Real Estate Completed rental properties................ $ 3,111,581 $ 574,575 $ 703,114 $ 3,240,120 Projects under development ................ 391,821 54,947 163,484 500,358 Land held for development or sale ......... 22,744 -- 30,459 53,203 ----------------------------------------------------------- Real Estate, at cost ................... 3,526,146 629,522 897,057 3,793,681 Less accumulated depreciation ............. (489,540) (76,301) (172,082) (585,321) ----------------------------------------------------------- Total Real Estate ...................... 3,036,606 553,221 724,975 3,208,360 Cash and equivalents ......................... 64,265 8,653 26,351 81,963 Restricted cash .............................. 68,243 10,706 19,617 77,154 Notes and accounts receivable, net ........... 219,118 18,751 10,814 211,181 Inventories .................................. 39,234 -- -- 39,234 Investments in and advances to real estate affiliates ............................. 436,248 -- (88,451) 347,797 Other assets ................................. 166,756 28,647 24,185 162,294 ----------------------------------------------------------- TOTAL ASSETS............................ $ 4,030,470 $ 619,978 $ 717,491 $ 4,127,983 =========================================================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage debt, nonrecourse.................... $ 2,439,912 $ 488,014 $ 674,019 $ 2,625,917 Accounts payable and accrued expenses ........ 413,869 39,180 42,055 416,744 Notes payable ................................ 55,392 14,694 1,417 42,115 Long-term credit facility .................... 189,500 -- -- 189,500 Senior and subordinated debt ................. 220,400 -- -- 220,400 Deferred income taxes ........................ 176,671 -- -- 176,671 ----------------------------------------------------------- Total Liabilities .......................... 3,495,744 541,888 717,491 3,671,347 Minority Interest ............................ 78,090 78,090 -- -- ----------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock- convertible, without par value 5,000,000 shares authorized; no shares issued ........................... -- -- -- -- Common stock - $.33 1/3 par value Class A, 96,000,000 shares authorized, 20,361,932 shares issued, 19,820,507 outstanding ................. 6,787 -- -- 6,787 Class B, convertible, 36,000,000 shares authorized, 10,522,020 shares issued, 10,243,920 outstanding .................. 3,508 -- -- 3,508 ----------------------------------------------------------- 10,295 -- -- 10,295 Additional paid-in capital ................... 114,010 -- -- 114,010 Retained earnings ............................ 338,792 -- -- 338,792 ----------------------------------------------------------- 463,097 -- -- 463,097 Less treasury stock, at cost; 541,425 Class A and 278,100 Class B shares ................. (10,330) -- -- (10,330) Accumulated other comprehensive income ....... 3,869 -- -- 3,869 ----------------------------------------------------------- Total Shareholders' Equity ................. 456,636 -- -- 456,636 ----------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $ 4,030,470 $ 619,978 $ 717,491 $ 4,127,983 ===========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 37 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED BALANCE SHEET - JANUARY 31, 2000
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------------------------- (in thousands) ASSETS Real Estate Completed rental properties ...................... $ 2,685,448 $ 430,376 $ 636,418 $ 2,891,490 Projects under development ....................... 499,399 126,273 105,640 478,766 Land held for development or sale ................ 21,795 -- 31,057 52,852 ----------------------------------------------------------------- Real Estate, at cost ........................... 3,206,642 556,649 773,115 3,423,108 Less accumulated depreciation .................... (458,235) (66,690) (155,934) (547,479) ----------------------------------------------------------------- Total Real Estate .............................. 2,748,407 489,959 617,181 2,875,629 Cash and equivalents ............................... 84,082 6,685 19,798 97,195 Restricted cash .................................... 68,127 8,243 16,778 76,662 Notes and accounts receivable, net ................. 214,860 4,906 10,843 220,797 Inventories ........................................ 57,444 -- -- 57,444 Investments in and advances to real estate affiliates ....................................... 338,465 -- (30,595) 307,870 Other assets ....................................... 154,970 19,981 24,098 159,087 ----------------------------------------------------------------- TOTAL ASSETS ................................... $ 3,666,355 $ 529,774 $ 658,103 $ 3,794,684 ================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage debt, nonrecourse ......................... $ 2,188,594 $ 419,587 $ 613,373 $ 2,382,380 Accounts payable and accrued expenses .............. 404,207 23,295 40,327 421,239 Notes payable ...................................... 72,780 14,285 4,403 62,898 Long-term credit facility .......................... 167,000 -- -- 167,000 Senior and subordinated debt ....................... 200,000 -- -- 200,000 Deferred income taxes .............................. 174,661 -- -- 174,661 ----------------------------------------------------------------- Total Liabilities ................................ 3,207,242 457,167 658,103 3,408,178 Minority Interest .................................. 72,607 72,607 -- -- ----------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock - convertible, without par value 5,000,000 shares authorized; no shares issued .... -- -- -- -- Common stock - $.33 1/3 par value Class A, 96,000,000 shares authorized, 19,946,756 shares issued, 19,372,406 outstanding ......................... 6,649 -- -- 6,649 Class B, convertible, 36,000,000 shares authorized, 10,937,196 shares issued, 10,659,096 outstanding ......................... 3,646 -- -- 3,646 ----------------------------------------------------------------- 10,295 -- -- 10,295 Additional paid-in capital ......................... 113,764 -- -- 113,764 Retained earnings .................................. 254,063 -- -- 254,063 ----------------------------------------------------------------- 378,122 -- -- 378,122 Less treasury stock, at cost; 574,350 Class A and 278,100 Class B shares ....... (10,773) -- -- (10,773) Accumulated other comprehensive income ............. 19,157 -- -- 19,157 ----------------------------------------------------------------- Total Shareholders' Equity ....................... 386,506 -- -- 386,506 ----------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 3,666,355 $ 529,774 $ 658,103 $ 3,794,684 =================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 38 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 2001
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-rata Consolidation --------------------------------------------------------------------------------------------------------------------------- (in thousands) REVENUES Rental properties ............................... $ 658,369 $ 114,247 $ 199,797 $ 743,919 Lumber trading .................................. 105,427 -- -- 105,427 Equity in earnings of unconsolidated entities ... 30,989 -- (19,819) 11,170 -------------------------------------------------------- 794,785 114,247 179,978 860,516 -------------------------------------------------------- EXPENSES Operating expenses .............................. 443,707 56,093 118,747 506,361 Interest expense ................................ 182,544 35,488 43,368 190,424 Provision for decline in real estate ............ 1,231 -- -- 1,231 Depreciation and amortization ................... 98,364 19,017 20,222 99,569 -------------------------------------------------------- 725,846 110,598 182,337 797,585 -------------------------------------------------------- Gain (loss) on disposition of properties and other investments ............................... 48,409 (250) 2,359 51,018 -------------------------------------------------------- EARNINGS BEFORE INCOME TAXES ...................... 117,348 3,399 -- 113,949 -------------------------------------------------------- INCOME TAX EXPENSE Current ......................................... 10,326 -- -- 10,326 Deferred ........................................ 11,986 -- -- 11,986 -------------------------------------------------------- 22,312 -- -- 22,312 -------------------------------------------------------- EARNINGS BEFORE MINORITY INTEREST ................. 95,036 3,399 -- 91,637 Minority interest ................................. 3,399 3,399 -- -- -------------------------------------------------------- NET EARNINGS ...................................... $ 91,637 $ -- $ -- $ 91,637 ========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 39 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 2000
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation ---------------------------------------------------------------------------------------------------------------------- (in thousands) REVENUES Rental properties ............................. $ 538,876 $ 68,244 $ 170,907 $ 641,539 Lumber trading ................................ 149,357 -- -- 149,357 Equity in earnings of unconsolidated entities.. 10,555 -- (8,380) 2,175 ------------------------------------------------------------- 698,788 68,244 162,527 793,071 ------------------------------------------------------------- EXPENSES Operating expenses ............................ 415,811 31,354 101,552 486,009 Interest expense .............................. 139,866 22,029 41,882 159,719 Provision for decline in real estate .......... 5,062 -- -- 5,062 Depreciation and amortization ................. 81,504 12,042 18,682 88,144 ------------------------------------------------------------- 642,243 65,425 162,116 738,934 ------------------------------------------------------------- Gain (loss) on disposition of properties and other investments ............................. 13,861 2,738 (411) 10,712 ------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES .................... 70,406 5,557 -- 64,849 ------------------------------------------------------------- INCOME TAX EXPENSE Current ....................................... 12,257 -- -- 12,257 Deferred ...................................... 12,062 -- -- 12,062 ------------------------------------------------------------- 24,319 -- -- 24,319 ------------------------------------------------------------- EARNINGS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN ........................ 46,087 5,557 -- 40,530 Minority interest ............................... 5,557 5,557 -- -- ------------------------------------------------------------- EARNINGS BEFORE EXTRAORDINARY GAIN .............. 40,530 -- -- 40,530 Extraordinary gain, net of tax .................. 272 -- -- 272 ------------------------------------------------------------- NET EARNINGS .................................... $ 40,802 $ -- $ -- $ 40,802 =============================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 40 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED STATEMENT OF EARNINGS - YEAR ENDED JANUARY 31, 1999
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) REVENUES Rental properties ............................... $ 453,946 $ 62,640 $ 174,604 $ 565,910 Lumber trading .................................. 123,325 -- -- 123,325 Equity in earnings of unconsolidated entities ... 32,429 -- (25,015) 7,414 --------------------------------------------------------------------- 609,700 62,640 149,589 696,649 --------------------------------------------------------------------- EXPENSES Operating expenses .............................. 355,937 28,787 96,947 424,097 Interest expense ................................ 124,602 21,296 46,654 149,960 Depreciation and amortization ................... 83,839 13,784 17,013 87,068 --------------------------------------------------------------------- 564,378 63,867 160,614 661,125 --------------------------------------------------------------------- Gain on disposition of properties and other investments ..................................... 19,532 -- 11,025 30,557 --------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES ...................... 64,854 (1,227) -- 66,081 --------------------------------------------------------------------- INCOME TAX EXPENSE Current ......................................... (86) -- -- (86) Deferred ........................................ 27,760 -- -- 27,760 --------------------------------------------------------------------- 27,674 -- -- 27,674 --------------------------------------------------------------------- EARNINGS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN .......................... 37,180 (1,227) -- 38,407 Minority interest ................................. (1,227) (1,227) -- -- --------------------------------------------------------------------- EARNINGS BEFORE EXTRAORDINARY GAIN ................ 38,407 -- -- 38,407 Extraordinary gain, net of tax .................... 16,343 -- -- 16,343 --------------------------------------------------------------------- NET EARNINGS ...................................... $ 54,750 $ -- $ -- $ 54,750 =====================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 41 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED JANUARY 31, 2001
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES NET EARNINGS ............................................. $ 91,637 $ -- $ -- $ 91,637 Minority interest ...................................... 3,399 3,399 -- -- Depreciation ........................................... 75,546 12,473 17,410 80,483 Amortization ........................................... 22,818 6,544 2,812 19,086 Equity in earnings of unconsolidated entities .......... (30,989) -- 19,819 (11,170) Cash distributions from operations of unconsolidated entities ............................... 60,018 -- (60,018) -- Deferred income taxes .................................. 12,012 -- -- 12,012 (Gain) loss on disposition of properties and other investments ................................. (48,409) 250 (2,359) (51,018) Provision for decline in real estate ................... 1,231 -- -- 1,231 Decrease in commercial land included in projects under development ............................ 655 -- -- 655 Increase in land held for development or sale .......... (948) -- (171) (1,119) Decrease (increase) in notes and accounts receivable ... (4,813) (13,949) (301) 8,835 Decrease in inventories ................................ 18,210 -- -- 18,210 Increase in other assets ............................... (37,049) (4,997) (2,859) (34,911) Increase in accounts payable and accrued expenses ...... 42,995 16,053 1,886 28,828 ------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......................................... $ 206,313 $ 19,773 $ (23,781) $ 162,759 ================================================================== CASH FLOWS FROM OPERATING ACTIVITIES Rents and other revenues received ...................... $ 732,458 $ 98,087 $ 165,099 $ 799,470 Cash distributions from operations of unconsolidated entities ............................... 60,018 -- (60,018) -- Proceeds from land sales ............................... 24,979 -- 34,214 59,193 Land development expenditures .......................... (21,062) -- (35,824) (56,886) Operating expenditures ................................. (402,962) (42,826) (91,907) (452,043) Interest paid .......................................... (187,118) (35,488) (35,345) (186,975) ------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......................................... 206,313 19,773 (23,781) 162,759 ------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................... (518,709) (81,819) (125,803) (562,693) Proceeds from disposition of properties and other investments ........................................... 130,751 -- 2,703 133,454 Investments in and advances to real estate affiliates .. (131,063) -- 88,656 (42,407) ------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES ................ (519,021) (81,819) (34,444) (471,646) ------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of subordinated debt ............ 20,400 -- -- 20,400 Increase in nonrecourse mortgage debt and long-term credit facility ............................. 826,387 205,733 79,812 700,466 Principal payments on nonrecourse mortgage debt on real estate ........................................ (471,062) (131,362) (10,729) (350,429) Increase (decrease) in notes payable ................... 20,630 598 (656) 19,376 Payments on notes payable .............................. (37,909) (190) (157) (37,876) Change in restricted cash and book overdrafts .......... (30,899) (1,712) (1,202) (30,389) Payment of deferred financing costs .................... (30,682) (11,137) (2,290) (21,835) Exercise of stock options .............................. 550 -- -- 550 Dividends paid to shareholders ......................... (6,608) -- -- (6,608) Increase in minority interest .......................... 2,084 2,084 -- -- ------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 292,891 64,014 64,778 293,655 ------------------------------------------------------------------ NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS .......... (19,817) 1,968 6,553 (15,232) CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 84,082 6,685 19,798 97,195 ------------------------------------------------------------------ CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 64,265 $ 8,653 $ 26,351 $ 81,963 ==================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 42 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED JANUARY 31, 2000
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES NET EARNINGS ............................................. $ 40,802 $ -- $ -- $ 40,802 Minority interest ...................................... 5,557 5,557 -- -- Depreciation ........................................... 63,560 9,020 16,075 70,615 Amortization ........................................... 17,944 3,022 2,607 17,529 Equity in earnings of unconsolidated entities .......... (10,555) -- 8,380 (2,175) Cash distributions from operations of unconsolidated entities .............................. 48,891 -- (48,891) -- Deferred income taxes .................................. 11,978 -- -- 11,978 (Gain) loss on disposition of properties and other investments ................................ (13,861) (2,738) 411 (10,712) Provision for decline in real estate ................... 5,062 -- -- 5,062 Extraordinary gain ..................................... (450) -- -- (450) Decrease in commercial land included in projects under development ........................... 13,906 -- 1,320 15,226 (Increase) decrease in land held for development or sale .............................................. (4,281) -- 1,266 (3,015) Decrease (increase) in notes and accounts receivable ... 146 (1,426) 1,295 2,867 Increase in inventories ................................ (10,145) -- -- (10,145) Increase in other assets ............................... (2,129) (2,157) (5,425) (5,397) (Decrease) increase in accounts payable and accrued expenses ..................................... (369) 10,029 2,828 (7,570) ------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......................................... $ 166,056 $ 21,307 $ (20,134) $ 124,615 ================================================================== CASH FLOWS FROM OPERATING ACTIVITIES Rents and other revenues received ...................... $ 669,304 $ 66,947 $ 151,794 $ 754,151 Cash distributions from operations of unconsolidated entities .............................. 48,891 -- (48,891) -- Proceeds from land sales ............................... 17,529 -- 20,171 37,700 Land development expenditures .......................... (12,226) -- (25,406) (37,632) Operating expenditures ................................. (418,380) (24,033) (75,348) (469,695) Interest paid .......................................... (139,062) (21,607) (42,454) (159,909) ------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......................................... 166,056 21,307 (20,134) 124,615 ------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................... (465,137) (126,516) (45,516) (384,137) Investments in and advances to real estate affiliates .. (63,530) -- 41,987 (21,543) ------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES ................ (528,667) (126,516) (3,529) (405,680) ------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Increase in nonrecourse mortgage debt and long-term credit facility ............................ 570,434 144,230 65,651 491,855 Principal payments on nonrecourse mortgage debt on real estate ....................................... (228,576) (60,516) (25,539) (193,599) Increase in notes payable .............................. 96,585 13,901 10,074 92,758 Payments on notes payable .............................. (52,150) (176) (21,815) (73,789) Change in restricted cash and book overdrafts .......... (11,083) (4,536) 321 (6,226) Payment of deferred financing costs .................... (6,575) (1,401) (847) (6,021) Exercise of stock options .............................. 52 -- -- 52 Dividends paid to shareholders ......................... (5,399) -- -- (5,399) Increase in minority interest .......................... 16,376 16,376 -- -- ------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 379,664 107,878 27,845 299,631 ------------------------------------------------------------------ NET INCREASE IN CASH AND EQUIVALENTS ..................... 17,053 2,669 4,182 18,566 CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 67,029 4,016 15,616 78,629 ------------------------------------------------------------------ CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 84,082 $ 6,685 $ 19,798 $ 97,195 ==================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 43 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries B. FINANCIAL STATEMENT PRESENTATION (CONTINUED) CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED JANUARY 31, 1999
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) RECONCILIATION OF NET EARNINGS TO CASH PROVIDED BY OPERATING ACTIVITIES NET EARNINGS ............................................. $ 54,750 $ -- $ -- $ 54,750 Minority interest ...................................... (1,227) (1,227) -- -- Depreciation ........................................... 55,614 8,038 14,332 61,908 Amortization ........................................... 28,225 5,746 2,681 25,160 Equity in earnings of unconsolidated entities .......... (32,429) -- 25,015 (7,414) Cash distributions from operations of unconsolidated entities .............................. 27,430 -- (27,430) -- Deferred income taxes .................................. 32,427 -- -- 32,427 Gain on disposition of properties and other investments ................................ (19,532) -- (11,025) (30,557) Extraordinary gain ..................................... (27,036) -- -- (27,036) Decrease in commercial land included in projects under development ........................... 19,627 -- -- 19,627 (Increase) decrease in land held for development or sale .............................................. (7,262) -- 691 (6,571) Decrease (increase) in notes and accounts receivable ... (41,841) (382) 2,899 (38,560) Decrease in inventories ................................ 11,397 -- -- 11,397 (Increase) decrease in other assets .................... (17,503) (2,850) 859 (13,794) Increase (decrease) in accounts payable and accrued expenses ..................................... 29,745 1,695 (3,682) 24,368 ------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES ............ $ 112,385 $ 11,020 $ 4,340 $ 105,705 ================================================================== CASH FLOWS FROM OPERATING ACTIVITIES Rents and other revenues received ...................... $ 520,704 $ 62,258 $ 141,239 $ 599,685 Cash distributions from operations of unconsolidated entities .............................. 27,430 -- (27,430) -- Proceeds from land sales ............................... 11,194 -- 36,105 47,299 Land development expenditures .......................... (14,865) -- (30,919) (45,784) Operating expenditures ................................. (310,083) (27,260) (67,086) (349,909) Interest paid .......................................... (121,995) (23,978) (47,569) (145,586) ------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 112,385 11,020 4,340 105,705 ------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................... (461,146) (56,131) (55,328) (460,343) Proceeds from disposition of properties ................ 1,145 -- 32,200 33,345 Investments in and advances to real estate affiliates .. (77,993) -- (13,919) (91,912) ------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES ................ (537,994) (56,131) (37,047) (518,910) ------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes ................. 200,000 -- -- 200,000 Payment of senior notes issuance costs ................. (6,297) -- -- (6,297) Increase in nonrecourse mortgage and long-term credit facility ............................ 648,586 103,093 159,229 704,722 Principal payments on nonrecourse mortgage debt on real estate ....................................... (316,833) (80,465) (134,602) (370,970) Payments on long-term credit facility .................. (114,000) -- -- (114,000) Increase in notes payable .............................. 38,524 16 11,983 50,491 Payments on notes payable .............................. (39,306) (1,096) (3,171) (41,381) Change in restricted cash and book overdrafts .......... 34,500 (736) 181 35,417 Payment of deferred financing costs .................... (16,072) (1,309) (1,802) (16,565) Exercise of stock options .............................. 60 -- -- 60 Dividends paid to shareholders ......................... (4,497) -- -- (4,497) Increase in minority interest .......................... 26,116 26,116 -- -- ------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES .............. 450,781 45,619 31,818 436,980 ------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .......... 25,172 508 (889) 23,775 CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................ 41,857 3,508 16,505 54,854 ------------------------------------------------------------------ CASH AND EQUIVALENTS AT END OF YEAR ...................... $ 67,029 $ 4,016 $ 15,616 $ 78,629 ==================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 44 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries C. REAL ESTATE AND RELATED NONRECOURSE MORTGAGE DEBT The components of real estate cost and related nonrecourse mortgage debt are presented below on the pro-rata consolidation method.
January 31, 2001 --------------------------------------------------------------------------------------------- Less Nonrecourse Accumulated Mortgage Total Cost Depreciation Net Cost Debt --------------------------------------------------------------------------------------------- (in thousands) COMPLETED RENTAL PROPERTIES Residential ................ $ 809,398 $ 140,364 $ 669,034 $ 663,739 Commercial Shopping centers ......... 1,125,190 174,320 950,870 876,290 Office and other buildings .............. 1,279,832 254,717 1,025,115 951,886 Land ....................... 991 203 788 -- Corporate and other equipment ................ 24,709 15,717 8,992 -- ---------------------------------------------------------- 3,240,120 585,321 2,654,799 2,491,915 ---------------------------------------------------------- PROJECTS UNDER DEVELOPMENT Residential ................ 124,739 -- 124,739 23,655 Commercial Shopping centers ......... 225,920 -- 225,920 35,151 Office and other buildings .............. 103,997 -- 103,997 30,933 Land ....................... 45,702 -- 45,702 6,543 ---------------------------------------------------------- 500,358 -- 500,358 96,282 ---------------------------------------------------------- LAND HELD FOR DEVELOPMENT OR SALE ...... 53,203 -- 53,203 37,720 ---------------------------------------------------------- TOTAL REAL ESTATE AND MORTGAGE DEBT ............ $3,793,681 $ 585,321 $3,208,360 $2,625,917 ==========================================================
D. NOTES AND ACCOUNTS RECEIVABLE, NET
Plus Less Unconsolidated Full Minority Investments Pro-Rata Consolidation Interest at Pro-Rata Consolidation ----------------------------------------------------------------------------------------- (in thousands) JANUARY 31, 2001 Lumber brokerage ....... $ 87,422 $ -- $ -- $ 87,422 Real estate sales ...... 16,041 -- 5,578 21,619 Syndication activities.. 17,668 -- -- 17,668 Receivable from tenants .............. 27,265 5,479 6,823 28,609 Other receivables ...... 79,486 13,839 (1,195) 64,452 --------------------------------------------------------- 227,882 19,318 11,206 219,770 Allowance for doubtful accounts ............. (8,764) (567) (392) (8,589) --------------------------------------------------------- NOTES AND ACCOUNTS RECEIVABLE, NET ...... $ 219,118 $ 18,751 $ 10,814 $ 211,181 ========================================================= Weighted average interest rate......... 6.65% 7.00% Total Notes Receivable included above........ $ 59,939 $ 61,155 Due within one year.............. $ 12,558 $ 15,362
Plus Less Unconsolidated Full Minority Investments Pro-Rata Consolidation Interest at Pro-Rata Consolidation ----------------------------------------------------------------------------------------- (in thousands) JANUARY 31, 2000 Lumber brokerage ...... $ 144,364 $ -- $ -- $ 144,364 Real estate sales ..... 18,695 -- 5,356 24,051 Syndication activities 10,210 -- 1,200 11,410 Receivable from tenants ............. 14,361 2,906 4,845 16,300 Other receivables ..... 35,351 2,109 (37) 33,205 ----------------------------------------------------------- 222,981 5,015 11,364 229,330 Allowance for doubtful accounts ............ (8,121) (109) (521) (8,533) ----------------------------------------------------------- NOTES AND ACCOUNTS RECEIVABLE, NET ... $ 214,860 $ 4,906 $ 10,843 $ 220,797 =========================================================== Weighted average interest rate ....... 8.80% 8.55%
In July 1999, the Lumber Trading Group entered into a three-year agreement (The "Agreement") under which it is selling an undivided interest in a pool of receivables up to a maximum of $102,000,000 to a large financial institution (the "Financial Institution"). The agreement expires in July 2002. The Company has recorded such transactions under the terms of SFAS No. 125, "Accounting for Transfers of Servicing of Financial Assets and Extinguishments of Liabilities." Sales under the Agreement are nonrecourse against the Company. The Company bears no risk regarding the collectibility of the accounts receivable once sold, and cannot modify the pool of receivables. At January 31, 2001 and 2000, the Financial Institution held an interest of $43,000,000 and $55,000,000, respectively, in the pool of receivables. Sales of accounts receivable have averaged $57,900,000 and $63,400,000 per month during the fiscal year ended January 31, 2001 and 2000, respectively. During the year ended January 31, 2001, the Company reversed a $10,775,000 reserve, representing a portion of the reserve recorded in 1995 against a Note Receivable (the Note) from Millender Center (the Project), a mixed-use apartment, retail and hotel project located in downtown Detroit, Michigan. The Company had previously reversed $3,500,000 in the year ended January 31, 1999 and $500,000 in the year ended January 31, 2000 for a total reserve reversal of $14,775,000. The Company owns a 1% general partner interest in the Project and loaned $14,775,000 to the 99% limited partners in 1985, as evidenced by the Note. A full reserve against the Note was recorded in 1995 when the Company determined that collection was doubtful, due to the operating performance of the Project at that time. In October 1998, the Project entered into a lease agreement with General Motors (GM) whereby the Project, except for the apartments, are being leased by GM through 2010, when it is expected that GM will exercise a purchase option. This lease arrangement, coupled with the recent resurgence of downtown Detroit's economy as a result of GM's relocation of its corporate headquarters to a location adjacent to the Project and the entry of gaming during the second quarter of 2000, has significantly improved the operating performance of the Project. The Company believes that the current and prospective improved performance of the Project supports its assessment that the Note is now fully collectible. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 45 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries E. INVESTMENTS IN AND ADVANCES TO REAL ESTATE AFFILIATES Included in Investments in and Advances to Real Estate Affiliates are unconsolidated investments accounted for on the equity method. Summarized combined financial information for these investments, along with the Company's pro-rata share, is as follows.
Combined Pro-Rata Share ------------------------------------------------------------------ JANUARY 31, 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------------------- (in thousands) BALANCE SHEET: Completed rental properties ............... $ 2,014,182 $ 1,785,948 $ 703,114 $ 636,418 Projects under development ................ 335,093 267,279 163,484 105,640 Land held for development or sale ......... 66,063 79,201 30,459 31,057 Investment in and advances to real estate affiliates .................. -- -- 101,935 87,264 Accumulated depreciation .................. (411,605) (365,319) (172,082) (155,934) Other assets .............................. 223,934 210,688 80,967 71,517 ----------------------------------------------------------------- Total Assets ............................ $ 2,227,667 $ 1,977,797 $ 907,877 $ 775,962 ================================================================= Mortgage debt, nonrecourse ................ $ 1,870,170 $ 1,686,497 $ 674,019 $ 613,373 Advances from general partner ............. 43,550 36,131 -- -- Other liabilities ......................... 161,624 176,375 43,472 44,730 Partners' equity .......................... 152,323 78,794 190,386 117,859 ----------------------------------------------------------------- Total Liabilities and Partners' Equity .............................. $ 2,227,667 $ 1,977,797 $ 907,877 $ 775,962 ================================================================= YEAR ENDED JANUARY 31, ------------------------------------------------------------------------------------------------------------------- OPERATIONS: Revenues ................................ $ 500,566 $ 434,944 $ 199,797 $ 170,907 Equity in earnings of unconsolidated entities on a pro-rata basis .......... -- -- 11,170 2,175 Operating expenses ...................... (296,617) (273,233) (118,747) (101,552) Interest expense ........................ (119,326) (111,618) (43,368) (41,882) Depreciation and amortization ........... (57,906) (50,529) (20,222) (18,682) Gain (loss) on disposition of properties and other investments ................. 4,718 (1,645) 2,359 (411) ----------------------------------------------------------------- Net Income (Loss) ................. $ 31,435 $ (2,081) $ 30,989 $ 10,555 ================================================================= Following is a reconciliation of partners' equity to the Company's carrying value. Partners' equity, as above ................ $ 152,323 $ 78,794 Equity (deficit) of other partners ........ 5,487 (2,934) ----------------------------- Company's investment in partnerships ...... 146,836 81,728 Advances to partnerships, as above ........ 43,550 36,131 Advances to other real estate affiliates .. 245,862 220,606 ----------------------------- Investments in and Advances to Real Estate Affiliates ............... $ 436,248 $ 338,465 =============================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 46 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries F. OTHER ASSETS Included in other assets are costs incurred in connection with obtaining financing which are deferred and amortized over the life of the related debt. Costs incurred in connection with leasing space to tenants are also included in other assets and are deferred and amortized using the straight-line method over the lives of the related leases.
Plus Less Unconsolidated Full Minority Investments Pro-Rata Consolidation Interest at Pro-Rata Consolidation ---------------------------------------------------------------------------------- (in thousands) JANUARY 31, 2001 Unamortized costs, net .............. $ 96,338 $ 20,803 $ 19,645 $ 95,180 Prepaid expenses and other ........ 70,418 7,844 4,540 67,114 -------------------------------------------------- $166,756 $ 28,647 $ 24,185 $162,294 ================================================== JANUARY 31, 2000 Unamortized costs, net .............. $ 86,478 $ 17,634 $ 17,009 $ 85,853 Prepaid expenses and other ........ 68,492 2,347 7,089 73,234 -------------------------------------------------- $154,970 $ 19,981 $ 24,098 $159,087 ==================================================
G. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Included in accounts payable and accrued expenses at January 31, 2001 and 2000 are book overdrafts of approximately $54,426,000 and $85,419,000 for full consolidation presentation and $54,516,000 and $85,506,000 for pro-rata consolidation presentation, respectively. The overdrafts are a result of the Company's cash management program and represent checks issued but not yet presented to a bank for collection. H. NOTES PAYABLE The components of notes payable, which represent indebtedness whose original maturity dates are within one year of issuance, are as follows.
Plus Less Unconsolidated Full Minority Investments Pro-Rata Consolidation Interest at Pro-Rata Consolidation ------------------------------------------------------------------------------------- (dollars in thousands) JANUARY 31, 2001 Payable to Banks ................ $ -- $ -- $ -- $ -- Other ................ 55,392 14,694 1,417 42,115 ------------------------------------------------ $55,392 $14,694 $ 1,417 $42,115 ================================================ Weighted average interest rate ........ 7.85% 7.75% JANUARY 31, 2000 Payable to Banks ................ $21,486 $ -- $ -- $21,486 Other ................ 51,294 14,285 4,403 41,412 ------------------------------------------------ $72,780 $14,285 $ 4,403 $62,898 ================================================ Weighted average interest rate......... 8.11% 8.15%
Notes payable to banks reflect borrowings on the Lumber Trading Group's $87,000,000 bank lines of credit. The bank lines of credit allow for up to $5,000,000 in outstanding letters of credit (none was outstanding at January 31, 2001) which reduce the credit available to the Lumber Trading Group. Borrowings under these bank lines of credit, which are nonrecourse to the Company, are collateralized by all the assets of the Lumber Trading Group, bear interest at the lender's prime rate or 1.5% over LIBOR, and have a fee of 0.2% per annum on the unused portion of the available commitment. These bank lines of credit are subject to review and extension annually and expire June 30, 2001. Other notes payable relate to improvements and construction funded by tenants, property and liability insurance premium financing and advances from affiliates and partnerships. The following table summarizes interest incurred and paid on notes payable.
Full Consolidation Pro-Rata Consolidation ------------------------------------------- Year Ended January 31, Incurred Paid Incurred Paid ---------------------------------------------------------------------- (in thousands) 2001 ............. $8,113 $7,846 $7,372 $7,166 2000 ............. 5,965 5,743 6,199 5,901 1999 ............. 6,004 5,659 7,331 5,664
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 47 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries I. MORTGAGE DEBT, NONRECOURSE Mortgage debt, which is collateralized by completed rental properties, projects under development and certain undeveloped land, is as follows:
Less Plus Unconsolidated Full Minority Investments Pro-Rata Consolidation Rate (1) Interest at Pro-Rata Consolidation Rate (1) ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands) JANUARY 31, 2001 Fixed ............................ $ 1,711,574 7.53% $ 343,626 $ 472,811 $ 1,840,759 7.57% Variable Taxable (2)..................... 605,796 8.73% 128,287 143,223 620,732 8.59% Tax-Exempt...................... 54,150 6.20% 5,638 46,093 94,605 5.36% UDAG.............................. 68,392 1.61% 10,463 11,892 69,821 2.65% ----------- ---------------------------------------------- $ 2,439,912 7.65% $ 488,014 $ 674,019 $ 2,625,917 7.61% =========== ============================================== JANUARY 31, 2000 Fixed ............................ $ 1,366,132 7.48% $ 259,560 $ 458,048 $ 1,564,620 7.52% Variable Swapped......................... 205,615 7.34% 65,100 58,277 198,792 7.44% Taxable......................... 437,473 7.81% 79,612 38,791 396,652 7.86% Tax-Exempt...................... 110,899 4.44% 4,807 46,365 152,457 4.10% UDAG ............................. 68,475 1.53% 10,508 11,892 69,859 2.57% ----------- ---------------------------------------------- $ 2,188,594 7.19% $ 419,587 $ 613,373 $ 2,382,380 7.21% =========== ==============================================
(1) The weighted average interest rates shown above include both the base index and the lender margin. (2) As of January 31, 2001, $605,796 at full consolidation and $620,732 at pro-rata consolidation of taxable variable-rate debt is protected with LIBOR caps as described below. These caps protect the current debt outstanding as well as the anticipated increase in debt outstanding for projects currently under development or anticipated to be under development during the year ending January 31, 2002. Debt related to projects under development at January 31, 2001 are as follows:
Plus Less Unconsolidated Full Minority Investments Pro-Rata Consolidation Interest at Pro-Rata Consolidation -------------------------------------------------------------------------------- (in thousands) Variable ........... $ 58,583 $ 14,656 $ 26,551 $ 70,478 Fixed .............. 26,498 1,924 1,230 25,804 -------------------------------------------------- Total ............ $ 85,081 $ 16,580 $ 27,781 $ 96,282 ================================================== Commitment from lenders ..... $213,371 $ 24,926 $ 72,793 $261,238 ==================================================
The Company generally borrows funds for development and construction projects with maturities of two to five years utilizing variable-rate financing. Upon opening and achieving stabilized operations, the Company generally pursues long-term fixed-rate financing. The Company has purchased London Interbank Offered Rate ("LIBOR") interest rate caps for the mortgage debt portfolio as follows:
Full Consolidation Pro-Rata Consolidation ---------------------------------------------- Average Average Coverage Amount Rate Amount Rate ----------------------------------------------------------------------- (dollars in thousands) 02/01/01 - 01/31/02 ... $605,780 7.11% $ 590,568 7.03% 02/01/02 - 01/31/03 ... 568,574 7.68% 586,210 7.76% 02/01/03 - 01/31/04 ... 391,800 7.75% 389,699 7.87% 02/01/04 - 01/31/05 ... 211,800 8.00% 285,337 8.00% 02/01/05 - 01/31/06 ... 177,300 8.00% 177,300 8.00%
The interest rate caps listed above were purchased to mitigate short-term variable interest rate risk. The Company currently intends to convert a significant portion of its committed variable-rate debt to fixed-rate debt. In order to protect against significant increases in long-term interest rates, the Company has purchased Treasury Options as follows:
Full Consolidation Pro-Rata Consolidation -------------------------------- ---------------------------------- Weighted Remaining Weighted Remaining Average Years at Average Years at Term Amount Rate 1/31/01 Amount Rate 1/31/01 --------------------------------------------------------------------------------------- (dollars in thousands) 10 years $123,100 7.00% 0.21 $ 86,890 7.00% 0.21 10 years 321,800 6.92% 1.35 210,262 6.93% 1.38
The Urban Development Action Grants and other subsidized loans bear interest at rates which are below prevailing commercial lending rates and are granted to the Company by government agencies as an inducement to develop real estate in targeted areas. A right to participate by the local government in the future cash flows of the project is generally a condition of these loans. Participation in annual cash flows generated from operations is recognized as an expense in the period earned. Participation in appreciation and cash flows resulting from a sale or refinancing is recorded as an expense at the time of sale or is capitalized as additional basis and amortized if amounts are paid prior to the disposition of the property. Mortgage debt maturities for the next five years are as follows:
Full Pro-Rata Years Ending January 31, Consolidation Consolidation -------------------------------------------------------------------- (in thousands) 2002 ............................. $572,511 $521,244 2003 ............................. 163,165 225,192 2004 ............................. 525,449 491,053 2005 ............................. 60,392 80,856 2006 ............................. 119,059 181,417
The Company is engaged in discussions with its current lenders and is actively pursuing new lenders to extend and refinance maturing mortgage debt. As of January 31, 2001, the Company had refinancing commitments and extension options on upcoming maturities as follows:
Full Pro-Rata Consolidation Consolidation ---------------------------------------------------------------------- (in thousands) Refinancing commitments ......... $ 2,521 $ 14,767 Extension options available ..... 196,518 252,710
The following table summarizes interest incurred and paid on mortgage debt, nonrecourse.
Full Consolidation Pro-Rata Consolidation ---------------------------------------------------- Year Ended January 31, Incurred Paid Incurred Paid -------------------------------------------------------------------------------- (in thousands) 2001 ................. $162,466 $168,542 $175,790 $173,782 2000 ................. 133,443 133,774 152,784 154,185 1999 ................. 119,816 124,330 144,890 148,959
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 48 24 Notes to Consolidated Financial Statements Forest City Enterprises, Inc. and Subsidiaries J. LONG-TERM CREDIT FACILITY At January 31, 2001 and 2000, the Company had $189,500,000 and $167,000,000, respectively, outstanding under its $265,000,000 revolving credit facility. The revolving credit facility matures March 31, 2003, unless extended, and allows for up to a combined amount of $30,000,000 in outstanding letters of credit and surety bonds ($7,222,000 and $14,675,000, respectively, were outstanding at January 31, 2001). The outstanding letters of credit reduce the credit available to the Company. Annually, within 60 days after January 31, the revolving credit facility may be extended by one year by unanimous consent of the participating banks. At its maturity date, the outstanding revolving credit loans, if any, may be converted by the Company into a four-year term loan. The revolving credit available is reduced quarterly by $2,500,000, which began October 1, 2000. At January 31, 2001, the revolving credit line was $260,000,000. The revolving credit agreement provides, among other things, for 1) interest rates of 2.125% over LIBOR or 0.5% over the prime rate; 2) maintenance of debt service coverage ratios and specified levels of net worth and cash flow (as defined); and 3) restriction on dividend payments. At January 31, 2001, retained earnings of $8,198,000 were available for payment of dividends. The Company has purchased LIBOR interest rate caps at an average rate of 6.82% for 2001 and 7.75% for 2002 at notional amounts of $187,484,000 and $54,161,000, respectively. Interest incurred on the long-term credit facility was $16,163,000 in 2000, $10,897,000 in 1999 and $6,317,000 in 1998. Interest paid on the long-term credit facility was $15,162,000 in 2000, $9,984,000 in 1999 and $6,010,000 in 1998. K. SENIOR AND SUBORDINATED DEBT On March 16, 1998, the Company issued $200,000,000 of 8.50% senior notes, due March 15, 2008, in a public offering. Net proceeds in the amount of $195,500,000 were contributed to the capital of Forest City Rental Properties Corporation, a wholly-owned subsidiary, and were then used to repay loans under its credit agreement with banks and to finance acquisitions and development of real estate projects. Accrued interest is payable semi-annually on March 15 and September 15. The senior notes are unsecured senior obligations of the Company; however, they are subordinated to all existing and future indebtedness and other liabilities of the Company's subsidiaries, including the revolving credit facility. The indenture contains covenants providing, among other things, limitations on incurring additional debt and payment of dividends. The dividend limitation is not as restrictive as that imposed by the Company's revolving credit facility (Note J). The senior notes may be redeemed by the Company, in whole or in part, at any time on or after March 15, 2003 at redemption prices beginning at 104.25% for the year beginning March 15, 2003 and systematically reduced to 100% in the years thereafter. In November 2000, the Company issued $20,400,000 of redevelopment bonds in a private placement. The proceeds were used to repay nonrecourse debt that was issued to finance an apartment facility in Philadelphia, Pennsylvania. The bonds bear interest at 8.25% and are due September 15, 2010. Interest is payable semi-annually on each March 15 and September 15 beginning March 15, 2001. This debt is unsecured and subordinated to the senior notes and the revolving credit facility. Financial covenants associated with this debt are similar to that of the senior notes. Interest incurred on the above debt was $17,234,000 in 2000, $17,000,000 in 1999 and $14,922,000 in 1998. Interest paid was $17,000,000 in 2000 and 1999 and $8,453,000 in 1998. CONSOLIDATED INTEREST The following table summarizes interest incurred, capitalized and paid on all forms of indebtedness (included in Notes H, I, J and K).
Plus Less Unconsolidated Full Minority Investments Pro-Rata Years Ended January 31, Consolidation Interest at Pro-Rata Consolidation ----------------------------------------------------------------------------------------- (in thousands) 2001 Interest incurred ...... $ 203,976 $ 36,605 $ 49,188 $ 216,559 Interest capitalized ... (21,432) (1,117) (5,820) (26,135) --------------------------------------------------------- Net interest expense .. $ 182,544 $ 35,488 $ 43,368 $ 190,424 ========================================================= Interest paid .......... $ 208,550 $ 213,110 ========= ========= 2000 Interest incurred ...... $ 167,305 $ 24,485 $ 44,060 $ 186,880 Interest capitalized ... (27,439) (2,456) (2,178) (27,161) --------------------------------------------------------- Net interest expense .. $ 139,866 $ 22,029 $ 41,882 $ 159,719 ========================================================= Interest paid .......... $ 166,501 $ 187,070 ========= ========= 1999 Interest incurred ...... $ 147,059 $ 22,576 $ 48,977 $ 173,460 Interest capitalized ... (22,457) (1,280) (2,323) (23,500) --------------------------------------------------------- Net interest expense .. $ 124,602 $ 21,296 $ 46,654 $ 149,960 ========================================================= Interest paid .......... $ 144,452 $ 169,086 ========= =========
L. Income Taxes The income tax provision consists of the following components.
Years Ended January 31, ------------------------------------------------------------------------ 2001 2000 1999 ------------------------------------------------------------------------ (in thousands) Current Federal ................. $ 7,991 $ 8,620 $ (570) Foreign ................. 422 446 409 State ................... 1,913 3,191 75 ------------------------------------- 10,326 12,257 (86) ===================================== Deferred Federal ................. 9,495 10,796 21,996 Foreign ................. 40 28 16 State ................... 2,451 1,238 5,748 ------------------------------------- 11,986 12,062 27,760 ------------------------------------- Total provision ............ $ 22,312 $ 24,319 $ 27,674 =====================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 49 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries L. INCOME TAXES (CONTINUED) The effective tax rate for income taxes varies from the federal statutory rate of 35% due to the following items.
Years Ended January 31, -------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------- (in thousands) Statement earnings before income taxes, after minority interest ...... $ 113,949 $ 64,849 $ 66,081 ========================================= Income taxes computed at the statutory rate ........... $ 39,882 $ 22,697 $ 23,129 Increase (decrease) in tax resulting from: State taxes, net of federal benefit ............. 7,834 3,016 3,452 Contribution carryover ................... (361) (201) 1,113 Adjustment of prior estimated taxes ............. 190 64 (116) Valuation allowance .......... (2,262) (423) 165 Cancellation of debt ......... (23,589) -- -- Other items .................. 618 (834) (69) ----------------------------------------- Total provision ................ $ 22,312 $ 24,319 $ 27,674 ========================================= Effective tax rate ............. 19.58% 37.50% 41.88%
An analysis of the deferred tax provision is as follows.
Years Ended January 31, -------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------- (in thousands) Excess of tax over statement depreciation and amortization ..................... $ 5,389 $ 2,035 $ 3,040 Cancellation of debt .................... (23,589) -- -- Gains deferred for tax .................. 14,636 4,219 -- Costs on land and rental properties under development expensed for tax purposes ..................... 3,852 2,509 3,657 Revenues and expenses recognized in different periods for tax and statement purposes ................... (412) (1,121) 9,294 Difference between tax and statement related to unconsolidated entities .............. 4,792 (421) 6,519 Provision for decline in real estate .......................... (431) (1,772) -- Deferred state taxes, net of federal benefit ................... 4,817 1,188 3,019 Utilization of tax loss carryforward ......................... 13,221 15,577 5,423 Valuation allowance ..................... (2,262) (423) 165 Alternative minimum tax credits .............................. (8,027) (9,729) (3,357) ---------------------------------- Deferred provision ...................... $ 11,986 $ 12,062 $ 27,760 ==================================
The types of differences that gave rise to significant portions of the deferred income tax liability are presented in the following table.
January 31, ------------------------------------------------- Temporary Differences Deferred Tax ------------------------------------------------- 2001 2000 2001 2000 -------------------------------------------------------------------------------- (in thousands) Depreciation ............... $ 154,487 $ 169,817 $ 61,099 $ 67,163 Capitalized costs (1) ...... 322,482 221,539 127,542 87,619 Net operating losses ....... (10,026) (41,513) (3,509) (14,530) Federal tax credits ........ -- -- (32,871) (23,263) Comprehensive income ....... 6,400 31,690 2,531 12,533 Basis in unconsolidated entities .................. 110,977 89,133 43,892 35,252 Other ...................... (70,830) 12,154 (22,013) 9,887 ------------------------------------------------- $ 513,490 $ 482,820 $ 176,671 $ 174,661 =================================================
(1) Included in capitalized costs at January 31, 2001 is $56,910 related to replacement property of tax-deferred exchanges. Income taxes paid totaled $15,511,000, $7,176,000 and $3,740,000 in the years ended January 31, 2001, 2000 and 1999, respectively. At January 31, 2001, the Company had a net operating loss carryforward for tax purposes of $10,026,000 which will expire in the year ending January 31, 2011, general business credit carryovers of $1,582,000 which will expire in the years ending January 31, 2004 through January 31, 2015 and alternative minimum tax carryforward of $31,289,000. The Company's net deferred tax liability at January 31, 2001 is comprised of deferred liabilities of $309,072,000 deferred assets of $134,340,000 and a valuation allowance related to state taxes and general business credits of $1,939,000. M. SEGMENT INFORMATION Strategic business units are determined by the type of customer served or the product sold. The Commercial Group owns, develops, acquires and operates shopping centers, office buildings and mixed-use projects, including hotels. The Residential Group owns, develops, acquires and operates the Company's multi-family properties. Real Estate Groups are the combined Commercial and Residential Groups. The Land Group owns and develops raw land into master planned communities and other residential developments for resale to users principally in Arizona, Colorado, Florida, Illinois, Nevada, New York, North Carolina and Ohio. The Lumber Trading Group operates the Company's lumber wholesaling business. Corporate includes interest on corporate borrowings and general corporate expenses. The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results or cash flows from operations as defined by generally accepted accounting principles and may not be directly comparable to similarly-titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations and, along with net earnings, is necessary to understand its operating results. The Company's view is that EBDT is an indicator of the Company's ability to generate cash to meet its funding requirements. EBDT is defined as earnings before extraordinary gain (loss), excluding the following items: i) provision for decline in real estate; ii) gain (loss) on disposition of properties and other investments; iii) beginning in the year ended January 31, 2001, the adjustment to recognize rental revenues and rental expenses using the straight-line method; and iv) noncash charges from Forest City Rental Properties Corporation for depreciation, amortization and deferred income taxes. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 50 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries M. SEGMENT INFORMATION (CONTINUED) The following tables summarize financial data for the Commercial, Residential, Land and Lumber Trading Groups and Corporate. The table is presented by using the pro-rata consolidation method, which is the method used by management for internal reporting. A reconciliation to the full consolidation method is included for certain information for the years ended January 31, 2001, 2000 and 1999. All amounts, including footnotes, are presented in thousands.
January 31, Years Ended January 31, ------------------------------------------------------------------------------------------------------------------------------------ Expenditures for Additions Identifiable Assets (3) to Real Estate (3) ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ Commercial Group .................................... $2,758,969 $2,558,206 $2,290,100 $ 256,679 $ 272,814 $ 367,985 Residential Group ................................... 1,010,889 800,175 712,808 267,208 76,039 75,258 Land Group .......................................... 153,582 136,477 130,587 54,207 48,429 43,063 Lumber Trading Group ................................ 136,175 208,836 218,551 2,483 3,899 2,301 Corporate ........................................... 68,368 90,990 65,274 912 2,476 426 --------------------------------------------------------------------------- Consolidated at pro-rata ........................... 4,127,983 3,794,684 $3,417,320 $ 581,489 $ 403,657 $ 489,033 ================================================= Minority interest and unconsolidated entities....... (97,513) (128,329) ----------------------- Consolidated ....................................... $4,030,470 $3,666,355 =======================
Years Ended January 31, ------------------------------------------------------------------------------------------------------ Revenues Interest Expense Depreciation & Amortization Expense ------------------------------------------------------------------------------------------------------ 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------------------------------------------------------------------------------------------------ Commercial Group .......... $ 522,841 $ 442,992 $ 374,106 $ 115,091 $ 94,356 $ 91,291 $ 75,564 $ 66,848 $ 65,527 Residential Group ......... 167,052 158,768 139,003 32,534 26,447 27,342 19,837 17,808 18,128 Land Group ................ 64,656 41,356 58,769 4,726 7,370 6,814 382 240 562 Lumber Trading Group(1) ... 105,427 149,357 123,325 5,584 5,288 5,262 2,340 2,125 2,045 Corporate ................. 540 598 1,446 32,489 26,258 19,251 1,446 1,123 806 ------------------------------------------------------------------------------------------------------ Consolidated at pro-rata.. 860,516 793,071 696,649 190,424 159,719 149,960 99,569 88,144 87,068 Minority interest and unconsolidated entities.. (65,731) (94,283) (86,949) (7,880) (19,853) (25,358) (1,205) (6,640) (3,229) ------------------------------------------------------------------------------------------------------ Consolidated ............. $ 794,785 $ 698,788 $ 609,700 $ 182,544 $ 139,866 $ 124,602 $ 98,364 $ 81,504 $ 83,839 ======================================================================================================
Earnings Before Earnings Before Depreciation, Income Taxes (EBIT)(2) Amortization & Deferred Taxes (EBDT) ----------------------------------------------------------------------- Commercial Group ........................................... $ 65,033 $ 50,589 $ 27,480 $ 121,446 $ 105,877 $ 86,410 Residential Group .......................................... 40,359 40,472 27,285 55,787 46,411 38,614 Land Group ................................................. 2,868 (5,746) 5,265 2,191 (3,489) 10,803 Lumber Trading Group ....................................... 1,310 12,258 6,066 283 7,070 3,227 Corporate .................................................. (45,408) (38,374) (30,572) (31,898) (23,230) (21,200) Provision for decline in real estate ....................... (1,231) (5,062) - - - - Gain on disposition of properties and other investments .... 51,018 10,712 30,557 - - - ----------------------------------------------------------------------- Consolidated at pro-rata .................................. 113,949 64,849 66,081 147,809 132,639 117,854 Minority interest and unconsolidated entities ............. 3,399 5,557 (1,227) -------------------------------- Consolidated .............................................. $117,348 $ 70,406 $ 64,854 ================================ RECONCILIATION OF EBDT TO NET EARNINGS: Depreciation and amortization - Real Estate Groups .......................................... (95,763) (84,586) (83,655) Deferred taxes - Real Estate Groups ......................................................... (23,518) (12,453) (14,236) Straight-line rent adjustment ............................................................... 9,423 - - Provision for decline in real estate, net of tax ............................................ (744) (3,060) - Gain on disposition of properties and other investments, net of tax ......................... 51,821 11,139 7,419 Minority interest in gain on disposition .................................................... 250 (2,738) - Gain (loss) on disposition reported on equity method ........................................ 2,359 (411) 11,025 Extraordinary gain, net of tax .............................................................. - 272 16,343 ------------------------------- NET EARNINGS ................................................................................ $ 91,637 $ 40,802 $ 54,750 ===============================
(1) The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the years ended January 31, 2001, 2000 and 1999 were $2,674,000, $3,712,000 and $2,979,000, respectively. (2) See Consolidated Statements of Earnings on page 30 for reconciliation of EBIT to net earnings. (3) Beginning in the year ended January 31, 2001, the Central Station project in Chicago, Illinois, which was previously reported in the Commercial Group, and the Stapleton project in Denver, Colorado, which was previously reported in the Residential Group, are now being reported in the Land Group. Prior years' segment information has been restated to reflect these changes. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 51 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries N. LEASES THE COMPANY AS LESSOR The following table summarizes the minimum future rental income to be received on noncancelable operating leases of commercial properties that generally extend for periods of more than one year.
Plus Less Unconsolidated YEARS ENDING Full Minority Investments Pro-Rata JANUARY 31, Consolidation Interest at Pro-Rata Consolidation ------------------------------------------------------------------------------- (in thousands) 2002 ......... $ 224,117 $ 48,066 $ 44,470 $ 220,521 2003 ......... 217,780 47,033 42,201 212,948 2004 ......... 211,096 46,797 39,078 203,377 2005 ......... 192,853 44,267 35,446 184,032 2006 ......... 181,233 42,260 31,612 170,585 Later years... 1,507,021 388,603 123,203 1,241,621 --------------------------------------------------------- $2,534,100 $ 617,026 $ 316,010 $ 2,233,084 =========================================================
Most of the commercial leases include provisions for reimbursements of other charges including real estate taxes and operating costs. The following table summarizes total reimbursements.
YEARS ENDED Full Pro-Rata JANUARY 31, Consolidation Consolidation --------------------------------------------------------------------- (in thousands) 2001 ................................ $ 86,827 $ 87,025 2000 ................................ 72,949 75,954 1999 ................................ 64,909 67,659
THE COMPANY AS LESSEE The Company is a lessee under various operating leasing arrangements for real property and equipment having terms expiring through 2095, excluding optional renewal periods. Minimum fixed rental payments under long-term leases (over one year) in effect at January 31, 2001 are as follows.
Plus Less Unconsolidated YEARS ENDING Full Minority Investments Pro-Rata JANUARY 31, Consolidation Interest at Pro-Rata Consolidation ------------------------------------------------------------------------------------------- (in thousands) 2002 ........................... $ 15,532 $ 3,366 $ 1,160 $ 13,326 2003 ........................... 14,910 3,443 1,126 12,593 2004 ........................... 14,375 3,387 1,115 12,103 2005 ........................... 13,192 3,235 1,084 11,041 2006 ........................... 12,566 3,252 1,050 10,364 Later years .................... 552,349 164,593 46,625 434,381 ---------------------------------------------------- $622,924 $181,276 $ 52,160 $493,808 ====================================================
The following table summarizes rent expense paid.
YEARS ENDED Full Pro-Rata JANUARY 31, Consolidation Consolidation ---------------------------------------------------------------------- (in thousands) 2001 ................................. $ 16,621 $ 15,036 2000 ................................. 13,541 13,361 1999 ................................. 11,540 10,267
O. CONTINGENT LIABILITIES As of January 31, 2001, the Company has guaranteed loans of $1,825,000, letters of credit outstanding of $7,222,000 and surety bonds outstanding of $14,675,000. The Company customarily guarantees lien-free completion of its construction. Upon completion, the guarantees are released. For certain limited partnerships in which the Company is a general partner, it guarantees the funding of operating deficits of newly-opened apartment projects for periods averaging five years. The Company is also involved in certain claims and litigation related to its operations. Based upon the facts known at this time, management is of the opinion that the ultimate outcome of all such claims and litigation will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. P. STOCK-BASED COMPENSATION Class A fixed options in the form of either incentive stock options or non-qualified stock options may be awarded under the 1994 Stock Option Plan ("Plan") to key employees and non-employee members of the Company's Board of Directors. The maximum number of options that may be awarded under the Plan was increased to 2,250,000 by shareholder approval in June 1998. The maximum award to a person during any calendar year is 75,000 and the maximum term of an option is 10 years. The exercise price of all options must equal the fair market value of the stock on the date of grant, except, if incentive stock options are granted to someone who owns more than 10% of the total combined voting power of all classes of stock of the Company, then the exercise price will be 110% of the fair market value of the stock on the date of grant and the term of the option will be five years. The Plan is administered by the Compensation Committee of the Board of Directors. The Company granted 15,000 options in 2000, 377,800 options in 1999 and 390,800 in 1998. All options granted under the Plan to date have been for a term of 10 years and vest over two to four years. The Company applies APBO 25 and related interpretations in accounting for its Plan. The "intrinsic value" on the grant dates have been zero, thus no compensation costs have been recognized for the Plan. Had compensation costs been determined in accordance with SFAS 123 "Accounting for Stock-Based Compensation", net earnings and earnings per share would have been reduced to the pro forma amounts indicated below.
Years Ended January 31, -------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------- Net earnings (in thousands) As reported ........................ $ 91,637 $ 40,802 $ 54,750 Pro forma .......................... $ 89,316 $ 38,502 $ 53,150 Basic earnings per share As reported ........................ $ 3.05 $ 1.36 $ 1.83 Pro forma .......................... $ 2.97 $ 1.28 $ 1.77 Diluted earnings per share As reported ........................ $ 3.02 $ 1.35 $ 1.81 Pro forma .......................... $ 2.95 $ 1.29 $ 1.77
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 52 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries P. STOCK-BASED COMPENSATION (CONTINUED) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for the grants in 2000, 1999 and 1998, respectively: dividend yield of .7%, .6% and .5%; expected volatility of 34.9%, 36.8% and 38.0%; risk-free interest rate of 6.0%, 5.2% and 5.7%; expected life of 8.7 years in all years; and turnover of 3.7%, 2.0% and 3.0%. A summary of stock option activity is presented below.
Years Ended January 31, ------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Price Options Exercise Price Options Exercise Price ------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year ...... 1,080,325 $ 22.06 723,950 $ 21.86 354,600 $ 14.38 Granted ............................... 15,000 $ 35.07 377,800 $ 22.42 390,800 $ 28.50 Exercised ............................. (32,925) $ 16.69 (3,600) $ 14.38 (4,350) $ 14.38 Forfeited ............................. -- $ -- (17,825) $ 22.81 (17,100) $ 20.32 --------- ---------- --------- Outstanding at end of year ............ 1,062,400 $ 22.41 1,080,325 22.06 723,950 $ 21.86 ========= ========= Options exercisable at end of year .... 391,950 $ 17.56 163,275 $ 14.38 82,500 $ 14.38 Number of shares available for granting of options at end of year .. 1,146,725 1,161,725 1,521,700 Weighted average fair value of options granted during the year ..... $17.61 $11.29 $15.12
The following table summarizes information about fixed stock options outstanding at January 31, 2001.
Options Outstanding Options Exercisable ----------------------------------------------------- --------------------------------- Range of Number Weighted Average Weighted Number Weighted Exercise Outstanding at Remaining Average Exercisable at Average Prices January 31, 2001 Contractual Life Exercise Prices January 31, 2001 Exercise Prices ------------------------------------------------------------------------------------------------------------- $ 14.38 303,600 5.6 years $ 14.38 303,600 $14.38 $ 22.38 - 25.69 374,200 8.2 years $ 22.42 -- $ -- $ 28.50 - 35.07 384,600 7.2 years $ 28.76 88,350 $28.50 --------- ------- 1,062,400 391,950 ========= =======
During 1999 the Compensation Committee granted 45,000 shares of restricted Class A common stock to key employees. The restricted shares were awarded out of treasury stock, having a cost basis of $605,000, with rights to vote the shares and receive dividends while being subject to restrictions on disposition and transferability and risk of forfeiture. The shares become nonforfeitable over a period of four years. In accordance with APBO 25, the market value on the date of grant of $1,114,000 was initially recorded as unearned compensation to be charged to expense over the respective vesting periods. The unearned compensation is reported as a reduction of Additional Paid-In Capital in the accompanying consolidated financial statements. Unamortized unearned compensation amounted to $882,000 and $1,021,000 at January 31, 2001 and 2000, respectively. SUBSEQUENT EVENT - In March 2001 the Compensation Committee approved grants to key employees of 417,200 Class A common stock options and 60,000 shares of restricted Class A common stock. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 53 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries Q. CAPITAL STOCK The Company paid a two-for-one common stock split on July 16, 1998 effected as a stock dividend. The stock split was given retroactive effect to the beginning of the earliest period presented in the accompanying Consolidated Statements of Shareholders' Equity. All share and per share data included in this annual report, including stock option plan information, have been restated to reflect the stock split. In June 1998 the shareholders approved an amendment to the Company's Articles of Incorporation to increase the Company's authorized shares of stock. Class A common shares were increased from 48,000,000 to 96,000,000 shares. Class B common shares were increased from 18,000,000 to 36,000,000 shares. Class A common stock totaling 32,925, 3,600 and 4,350 shares in 2000, 1999 and 1998, respectively, were issued out of treasury stock upon the exercise of stock options (See Note P). R. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for "earnings before extraordinary gain".
Earnings Weighted Before Average Extraordinary Common Gain Shares Per (Numerator) Outstanding Common Years Ended January 31, (in thousands) (Denominator) Share --------------------------------------------------------------------------- 2001 Basic earnings per share ....... $ 91,637 30,035,127 $ 3.05 Effect of dilutive securities- stock options ................. -- 298,315 (.03) --------------------------------------- Diluted earnings per share ..... $ 91,637 30,333,442 $ 3.02 ======================================= 2000 Basic earnings per share ....... $ 40,530 30,016,323 $ 1.35 Effect of dilutive securities- stock options ................. -- 136,734 (.01) --------------------------------------- Diluted earnings per share ..... $ 40,530 30,153,057 $ 1.34 ======================================= 1999 Basic earnings per share ....... $ 38,407 29,980,200 $ 1.28 Effect of dilutive securities- stock options ................. -- 193,730 (.01) --------------------------------------- Diluted earnings per share ..... $ 38,407 30,173,930 $ 1.27 =======================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 54 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries S. SUMMARIZED FINANCIAL INFORMATION Forest City Rental Properties Corporation ("Rental Properties") is a wholly-owned subsidiary engaged in the development, acquisition and management of real estate projects, including apartment complexes, regional malls and shopping centers, hotels, office buildings and mixed-use facilities. Consolidated balance sheets and statements of earnings for Rental Properties and its subsidiaries follow. FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - JANUARY 31, 2001
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation -------------------------------------------------------------------------------------------------------------------------------- (in thousands) ASSETS Real Estate Completed rental properties .......................... $ 3,086,966 $ 574,575 $ 703,020 $ 3,215,411 Projects under development ........................... 391,821 54,947 163,484 500,358 -------------------------------------------------------------------- Real estate, at cost .............................. 3,478,787 629,522 866,504 3,715,769 Less accumulated depreciation ........................ (473,843) (76,301) (172,062) (569,604) -------------------------------------------------------------------- Total Real Estate ................................. 3,004,944 553,221 694,442 3,146,165 Cash and equivalents ................................... 24,770 8,653 20,422 36,539 Restricted cash ........................................ 67,951 10,706 18,125 75,370 Notes and accounts receivable, net ..................... 115,482 18,751 5,736 102,467 Investments in and advances to real estate affiliates .. 384,132 -- (60,147) 323,985 Other assets ........................................... 144,917 28,647 23,125 139,395 -------------------------------------------------------------------- TOTAL ASSETS ...................................... $ 3,742,196 $ 619,978 $ 701,703 $ 3,823,921 ==================================================================== LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES Mortgage debt, nonrecourse ............................. $ 2,433,649 $ 488,014 $ 642,562 $ 2,588,197 Accounts payable and accrued expenses .................. 320,376 39,180 57,919 339,115 Notes payable .......................................... 50,860 14,694 1,222 37,388 Long-term credit facility .............................. 189,500 -- -- 189,500 Subordinated debt ...................................... 20,400 -- -- 20,400 Deferred income taxes .................................. 201,015 -- -- 201,015 -------------------------------------------------------------------- Total Liabilities .................................... 3,215,800 541,888 701,703 3,375,615 Minority Interest ...................................... 78,090 78,090 -- -- -------------------------------------------------------------------- SHAREHOLDER'S EQUITY Common stock and additional paid-in capital ............ 200,878 -- -- 200,878 Retained earnings ...................................... 243,559 -- -- 243,559 -------------------------------------------------------------------- 444,437 -- -- 444,437 Accumulated other comprehensive income ................. 3,869 -- -- 3,869 -------------------------------------------------------------------- Total Shareholder's Equity ........................... 448,306 -- -- 448,306 -------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ........ $ 3,742,196 $ 619,978 $ 701,703 $ 3,823,921 ====================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 55 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries S. SUMMARIZED FINANCIAL INFORMATION (CONTINUED) FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - JANUARY 31, 2000
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation -------------------------------------------------------------------------------------------------------------------------------- (in thousands) ASSETS Real Estate Completed rental properties .......................... $ 2,660,957 $ 430,376 $ 636,332 $ 2,866,913 Projects under development ........................... 499,399 126,273 105,640 478,766 -------------------------------------------------------------------- Real estate, at cost .............................. 3,160,356 556,649 741,972 3,345,679 Less accumulated depreciation ........................ (443,381) (66,690) (155,916) (532,607) -------------------------------------------------------------------- Total Real Estate ................................. 2,716,975 489,959 586,056 2,813,072 Cash and equivalents ................................... 17,707 6,685 14,298 25,320 Restricted cash ........................................ 67,765 8,243 16,167 75,689 Notes and accounts receivable, net ..................... 57,438 4,906 5,487 58,019 Investments in and advances to real estate affiliates .. 289,340 -- (2,033) 287,307 Other assets ........................................... 138,355 19,981 23,168 141,542 -------------------------------------------------------------------- TOTAL ASSETS ...................................... $ 3,287,580 $ 529,774 $ 643,143 $ 3,400,949 ==================================================================== LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES Mortgage debt, nonrecourse ............................. $ 2,185,628 $ 419,587 $ 590,014 $ 2,356,055 Accounts payable and accrued expenses .................. 217,730 23,295 50,893 245,328 Notes payable .......................................... 46,504 14,285 2,236 34,455 Long-term credit facility .............................. 167,000 -- -- 167,000 Deferred income taxes .................................. 199,791 -- -- 199,791 -------------------------------------------------------------------- Total Liabilities .................................... 2,816,653 457,167 643,143 3,002,629 Minority Interest ...................................... 72,607 72,607 -- -- -------------------------------------------------------------------- SHAREHOLDER'S EQUITY Common stock and additional paid-in capital ............ 200,878 -- -- 200,878 Retained earnings ...................................... 178,285 -- -- 178,285 -------------------------------------------------------------------- 379,163 -- -- 379,163 Accumulated other comprehensive income ................. 19,157 -- -- 19,157 -------------------------------------------------------------------- Total Shareholder's Equity ........................... 398,320 -- -- 398,320 -------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ........ $ 3,287,580 $ 529,774 $ 643,143 $ 3,400,949 ====================================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 56 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries S. SUMMARIZED FINANCIAL INFORMATION (CONTINUED) FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS - YEARS ENDED JANUARY 31,
Plus Unconsolidated Less Minority Investments at Pro-Rata Full Consolidation Interest Pro-Rata Consolidation --------------------------------------------------------------------------------------------------------------- (in thousands) 2001 REVENUES Real estate operations ................... $ 633,695 $ 114,247 $ 165,531 $ 684,979 Unconsolidated entities .................. 30,311 -- (20,670) 9,641 ------------------------------------------------------------ 664,006 114,247 144,861 694,620 ------------------------------------------------------------ Operating expenses ......................... 318,761 56,093 86,715 349,383 Interest expense ........................... 173,964 35,488 40,544 179,020 Provision for decline in real estate ....... 1,231 -- -- 1,231 Depreciation and amortization .............. 94,496 19,017 19,961 95,440 ------------------------------------------------------------ 588,452 110,598 147,220 625,074 ------------------------------------------------------------ Gain (loss) on disposition of properties and other investments ................... 49,609 (250) 2,359 52,218 ------------------------------------------------------------ EARNINGS BEFORE INCOME TAXES ............... 125,163 3,399 -- 121,764 ------------------------------------------------------------ INCOME TAX EXPENSE Current .................................. 11,990 -- -- 11,990 Deferred ................................. 11,200 -- -- 11,200 ------------------------------------------------------------ 23,190 -- -- 23,190 ------------------------------------------------------------ EARNINGS BEFORE MINORITY INTEREST .......... 101,973 3,399 -- 98,574 Minority interest .......................... 3,399 3,399 -- -- ------------------------------------------------------------ NET EARNINGS ............................... $ 98,574 $ -- $ -- $ 98,574 ============================================================ 2000 REVENUES Real estate operations ................... $ 515,783 $ 68,244 $ 151,391 $ 598,930 Unconsolidated entities .................. 19,809 -- (16,980) 2,829 ------------------------------------------------------------ 535,592 68,244 134,411 601,759 ------------------------------------------------------------ Operating expenses ......................... 264,208 31,354 73,761 306,615 Interest expense ........................... 127,433 22,029 41,657 147,061 Depreciation and amortization .............. 78,044 12,042 18,583 84,585 ------------------------------------------------------------ 469,685 65,425 134,001 538,261 ------------------------------------------------------------ Gain (loss) on disposition of properties and other investments ................... 13,861 2,738 (410) 10,713 ------------------------------------------------------------ EARNINGS BEFORE INCOME TAXES ............... 79,768 5,557 -- 74,211 ------------------------------------------------------------ INCOME TAX EXPENSE Current .................................. 12,446 -- -- 12,446 Deferred ................................. 15,139 -- -- 15,139 ------------------------------------------------------------ 27,585 -- -- 27,585 ------------------------------------------------------------ EARNINGS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN ....................... 52,183 5,557 -- 46,626 Minority interest .......................... 5,557 5,557 -- -- Extraordinary gain, net of tax ............. 272 -- -- 272 ------------------------------------------------------------ NET EARNINGS ............................... $ 46,898 $ -- $ -- $ 46,898 ============================================================ 1999 REVENUES Real estate operations ................... $ 438,855 $ 62,640 $ 138,421 $ 514,636 Unconsolidated entities .................. 27,859 -- (23,213) 4,646 ------------------------------------------------------------ 466,714 62,640 115,208 519,282 ------------------------------------------------------------ Operating expenses ......................... 224,498 28,787 68,785 264,496 Interest expense ........................... 117,909 21,296 40,943 137,556 Depreciation and amortization .............. 80,934 13,784 16,505 83,655 ------------------------------------------------------------ 423,341 63,867 126,233 485,707 ------------------------------------------------------------ Gain on disposition of properties and other investments ................... 19,865 -- 11,025 30,890 ------------------------------------------------------------ EARNINGS BEFORE INCOME TAXES ............... 63,238 (1,227) -- 64,465 ------------------------------------------------------------ INCOME TAX EXPENSE Current .................................. (705) -- -- (705) Deferred ................................. 26,389 -- -- 26,389 ------------------------------------------------------------ 25,684 -- -- 25,684 ------------------------------------------------------------ EARNINGS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN ....................... 37,554 (1,227) -- 38,781 Minority interest .......................... (1,227) (1,227) -- -- Extraordinary gain, net of tax ............. 16,343 -- -- 16,343 ------------------------------------------------------------ NET EARNINGS ............................... $ 55,124 $ -- $ -- $ 55,124 ============================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 57 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Forest City Enterprises, Inc. and Subsidiaries T. GAIN ON DISPOSITION OF PROPERTIES AND OTHER INVESTMENTS, EXTRAORDINARY GAIN AND PROVISION FOR DECLINE IN REAL ESTATE The following table summarizes the gain (loss) on disposition of properties and other investments by year.
Plus Unconsolidated Less Minority Investments at Pro-Rata YEARS ENDED JANUARY 31, Full Consolidation Interest Pro-Rata Consolidation --------------------------------------------------------------------------------------------------------- (in thousands) 2001 Studio Colony(*) ...................... $ 25,726 $ -- $ -- $ 25,726 Highlands ............................. 599 -- -- 599 Tucson Place(*) ....................... 8,734 -- -- 8,734 Canton Centre Mall(*) ................. (436) -- -- (436) Gallery at Metrotech .................. (6,868) (250) -- (6,618) Available-for-sale equity securities .. 20,654 -- 2,359 23,013 -------------------------------------------------------- Total .............................. $ 48,409 $ (250) $ 2,359 $ 51,018 ======================================================== 2000 Rolling Acres Mall(*) ................. $ 13,861 $ 2,738 $ -- $ 11,123 Other ................................. -- -- (411) (411) -------------------------------------------------------- Total .............................. $ 13,861 $ 2,738 $ (411) $ 10,712 ======================================================== 1999 Summit Park Mall(*) ................... $ 13,897 $ -- $ -- $ 13,897 San Vicente(*) ........................ -- -- 10,403 10,403 Courtyard ............................. -- -- 622 622 Trolley Plaza(*) ...................... 4,941 -- -- 4,941 Other ................................. 694 -- -- 694 -------------------------------------------------------- Total .............................. $ 19,532 $ -- $ 11,025 $ 30,557 ========================================================
(*) Tax-deferred exchange Studio Colony and Highlands are apartment communities in California. Tucson Place, Canton Centre Mall and Gallery at Metrotech are shopping centers in Arizona, Ohio and New York, respectively. Rolling Acres Mall is located in Ohio. Summit Park Mall and Courtyard are shopping centers in New York and Michigan, respectively. San Vicente is an office building in California and Trolley Plaza is an apartment community in Michigan. PROVISION FOR DECLINE IN REAL ESTATE - During the year ended January 31, 2001, the Company recorded a Provision for Decline in Real Estate of $1,231,000 related to the write-down to estimated fair value, less cost to sell, of Canton Centre Mall. During the year ended January 31, 2000, the Company recorded a Provision for Decline in Real Estate of $5,062,000 related to the write-down to estimated net realizable value of the Land Group's investment in Granite Development Partners L.P. (Granite). The Company, at that time, owned a 43.75% interest in Granite as the result of a capital contribution of land, which was classified as Investments in and Advances to Affiliates on the Company's Consolidated Balance Sheets. Granite owns an interest in several raw land developments held for resale, the most significant of which is a one-third interest in Seven Hills in Henderson, Nevada. The revised projection of costs to complete the project indicated that the Company may not recover its capital investment in Granite. EXTRAORDINARY GAIN - There were no extraordinary gains during the year ended January 31, 2001. Extraordinary gain, net of tax, totaled $272,000 and $16,343,000 in the years ended January 31, 2000 and 1999, respectively, representing extinguishment of nonrecourse debt and related accrued interest. Extraordinary gain for the year ended January 31, 2000 represents extinguishment of $450,000 ($272,000 after tax) of nonrecourse debt related to Plaza at Robinson Town Centre in Pittsburgh, Pennsylvania. The extraordinary gain for the year ended January 31, 1999 represents extinguishment of nonrecourse debt related to Terminal Tower ($13,947,000 or $8,431,000 after tax) and Skylight Office Tower ($3,619,000 or $2,188,000 after tax), both located in Cleveland, Ohio; Courtland ($7,381,000 or $4,462,000 after tax), a regional mall in Flint, Michigan; One Franklintown ($1,350,000 or $816,000 after tax), an apartment complex in Philadelphia, Pennsylvania; Boot Ranch ($187,000 or $113,000 after tax), an apartment property in Tampa, Florida; and Trolley Plaza ($552,000 or $333,000 after tax). FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 58 34 QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED) Forest City Enterprises, Inc. and Subsidiaries
Quarter Ended --------------------------------------------------------------------------------------------------------------------- JAN. 31, OCT. 31, JULY 31, APR. 30, 2001 2000 2000 2000 --------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Revenues ......................................... $ 226,129 $ 211,526 $ 190,263 $ 166,867 Earnings before income taxes ..................... $ 9,446 $ 21,927 $ 41,703 $ 44,272 Net earnings before extraordinary gain ........... $ 4,176 $ 13,079 $ 46,833 $ 27,549 Net earnings ..................................... $ 4,176 $ 13,079 $ 46,833 $ 27,549 Basic earnings per share Net earnings before extraordinary gain(2) ...... $ .14 $ .44 $ 1.56 $ .92 Net earnings(2) ................................ $ .14 $ .44 $ 1.56 $ .92 Diluted earnings per share Net earnings before extraordinary gain(2) ...... $ .14 $ .43 $ 1.55 $ .91 Net earnings(2) ................................ $ .14 $ .43 $ 1.55 $ .91 Dividends declared per common share(3) Quarterly dividend Class A ..................................... $ .06 $ .06 $ .06 $ .05 Class B ..................................... $ .06 $ .06 $ .06 $ .05 Market price range of common stock Class A High ....................................... $ 41.82 $ 37.05 $ 36.81 $ 30.38 Low ........................................ $ 36.70 $ 33.50 $ 28.00 $ 24.69 Class B High ....................................... $ 42.30 $ 38.31 $ 37.25 $ 35.81 Low ........................................ $ 37.05 $ 35.40 $ 29.75 $ 30.38 Quarter Ended --------------------------------------------------------------------------------------------------------------------- Jan. 31, Oct. 31, July 31, Apr. 30, 2000 1999 1999 1999 --------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Revenues ......................................... $ 197,925 $ 164,878 $ 174,062 $ 161,923 Earnings before income taxes ..................... $ 39,566 $ 12,697 $ 8,918 $ 9,225 Net earnings before extraordinary gain(1) ........ $ 23,463 $ 7,033 $ 4,740 $ 5,294 Net earnings ..................................... $ 23,521 $ 7,033 $ 4,740 $ 5,508 Basic earnings per share Net earnings before extraordinary gain(1)(2) ... $ .78 $ .23 $ .16 $ .17 Net earnings(2) ................................ $ .78 $ .23 $ .16 $ .18 Diluted earnings per share Net earnings before extraordinary gain(1)(2) ... $ .78 $ .23 $ .16 $ .17 Net earnings(2) ................................ $ .78 $ .23 $ .16 $ .18 Dividends declared per common share(3) Quarterly dividend Class A ..................................... $ .05 $ .05 $ .05 $ .04 Class B ..................................... $ .05 $ .05 $ .05 $ .04 Market price range of common stock Class A High ....................................... $ 28.25 $ 26.50 $ 28.75 $ 25.88 Low ........................................ $ 23.82 $ 21.88 $ 24.75 $ 19.88 Class B High ....................................... $ 31.44 $ 27.50 $ 28.63 $ 26.00 Low ........................................ $ 27.07 $ 25.00 $ 25.00 $ 20.69
Both classes of common stock are traded on the New York Stock Exchange under the symbols FCEA and FCEB. As of March 1, 2001, the number of registered holders of Class A and Class B common stock were 820 and 600, respectively. (1) Excludes the extraordinary gain, net of tax of $272 ($.01 basic and diluted per share) in the year ended January 31, 2000. This item is explained in Note T in the Notes to Consolidated Financial Statements. (2) The sum of quarterly earnings per share may not equal annual earnings per share due to the weighting of stock and option activity during the year. (3) Future dividends will depend upon such factors as earnings, capital requirements and financial condition of the Company. Retained earnings of $8,198 was available for payment of dividends as of January 31, 2001, under the restrictions contained in the revolving credit agreement with a group of banks. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 59 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries GENERAL The Company owns, develops, acquires and operates commercial and residential real estate properties in 22 states and the District of Columbia. The Company owns a portfolio that is diversified both geographically and by property types and operates through four strategic business units: Commercial Group, Residential Group, Land Group and Lumber Trading Group. The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of operating results or cash flows from operations as defined by generally accepted accounting principles and may not be directly comparable to similarly-titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations and, along with net earnings, is necessary to understand its operating results. The Company's view is that EBDT is an indicator of the Company's ability to generate cash to meet its funding requirements. EBDT is defined and discussed in detail under "Results of Operations - EBDT." The Company's EBDT for 2000 grew by 11.4% to $147,809,000 from $132,639,000. The increase in EBDT is primarily attributable to improved results from the opening or acquisition of 24 new properties in 1999 and 2000 and increasing rental rates at existing properties. Effective January 31, 2001, the Company implemented a change in the presentation of its financial results. While a number of the line items on the Company's consolidated financial statements have changed under the new full consolidation method, there is no impact on EBDT, net earnings or shareholders' equity for all years presented. This required financial reporting presentation change will have no impact on the way the Company operates or manages its business. Prior to January 31, 2001, the Company used the pro-rata method of consolidation to report its partnerships. Under this method, the Company presented its partnership investments proportionate to its share of ownership for each line item of its consolidated financial statements. In accordance with the FASB's Emerging Issues Task Force Issue No. 00-1, "Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures," the Company can no longer use the pro-rata consolidation method for partnerships. Accordingly, partnership investments that were previously reported on the pro-rata method are now reported as consolidated at 100 percent, if deemed under the Company's control, or otherwise on the equity method of accounting. RESULTS OF OPERATIONS The Company reports its results of operations by each of its four strategic business units as it believes it provides the most meaningful understanding of the Company's financial performance. The major components of EBDT are Revenues, Operating Expenses and Interest Expense, each of which is discussed below. Net Operating Income ("NOI") is defined as Revenues less Operating Expenses. See the information in the table "Three Year Summary of Earnings before Depreciation, Amortization and Deferred Taxes" at the end of this Management's Discussion and Analysis of Financial Condition and Results of Operations. NET OPERATING INCOME FROM REAL ESTATE GROUPS - Management analyzes property NOI using the pro-rata consolidation method. NOI from the combined Commercial Group and Residential Group ("Real Estate Groups") for 2000 was $339,321,000 compared to $296,521,000 in 1999, a 14.4% increase. Comparable NOI for Real Estate Groups (NOI for properties in operation throughout both years) increased 3.2% from 1999 to 2000 and 4.9% from 1998 to 1999. Including the expected NOI for the twelve months following stabilization for the properties that were opened, expanded or acquired in 2000, net of property disposals, NOI for Real Estate Groups would be approximately $374,000,000 for 2000. Commercial Group - Pro-Rata Consolidation REVENUES - Revenues for the Commercial Group increased $66,538,000, or 15.0%, to $509,530,000 in 2000 from $442,992,000 in 1999. This increase was primarily the result of the openings of 13 new properties during 1999 and 2000 and increased rents in existing properties. Revenues increased from the openings of Promenade in Temecula, a 795,000-square-foot regional mall in Temecula, California ($5,983,000), 45/75 Sidney Street, an office building at University Park at MIT in Cambridge, Massachusetts ($3,306,000), several openings in the Company's urban retail portfolio in the boroughs of New York City including Columbia Park Center, 42nd Street, Battery Park City, Court Street, Forest Avenue, Eastchester, and Kaufman Studios ($20,732,000), improved operations at Pavilion, an office tower in San Jose, California ($4,884,000) and One Pierrepont Plaza in Brooklyn, New York ($3,127,000), and the expansion and sale of airrights at Ballston Common Mall, a shopping center in Arlington, Virginia ($5,366,000). Revenues also increased in the hotel portfolio ($31,621,000) which includes the newly-opened Embassy Suites Hotel and Hilton Times Square, both in New York City, and existing portfolio assets of Westin Convention Center and Sheraton Station Square both located in Pittsburgh, Pennsylvania, Ritz-Carlton Hotel in Cleveland, Ohio, Charleston Marriott in Charleston, West Virginia and the University Park Hotel at MIT in Cambridge, Massachusetts. These increases were partially offset by the dispositions of Tucson Place ($1,918,000) in 2000 and Rolling Acres Mall ($3,902,000) in 1999 and decreased land sales of $2,040,000 in 2000 as compared to 1999. Revenues for the Commercial Group increased $62,728,000, or 16.5%, to $442,992,000 in 1999 from $380,264,000 in 1998. This increase is primarily the result of the openings of 45/75 Sidney Street ($11,496,000), 350 Massachusetts Avenue at University Park at MIT ($1,029,000) a mixed-use facility that opened in 1998, University Park Hotel at MIT ($4,358,000) and Promenade in Temecula ($2,175,000). The 1998 acquisitions increased revenues as follows: Sheraton Station Square ($4,866,000), the 324,000-square-foot Fairmont Plaza ($6,221,000) and the adjacent 247,000-square-foot Pavilion retail center in San Jose, California ($1,555,000). Revenues also increased as a result of improved operations at Liberty Center ($1,832,000), Avenue at Tower City Center in Cleveland, Ohio ($5,545,000), Ritz-Carlton Hotel ($1,233,000), Tucson Mall ($1,948,000) in Tucson, Arizona, and openings in the Company's urban retail portfolio in the boroughs of New York City ($4,669,000) including Columbia Park, Kaufman Studios and Bay Street. These increases were partially offset by a decrease in revenues due to the 1998 disposition of Summit Park Mall ($2,229,000). The Commercial Group also recorded FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 60 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries additional land sales of $11,276,000 in 1999 compared to 1998. The remainder of the increase (approximately $6,500,000) was due to improved operations as a result of rental rate and occupancy increases. OPERATING AND INTEREST EXPENSES - During 2000, operating expenses for the Commercial Group increased $32,066,000, or 13.9%, to $263,264,000 from $231,198,000 in 1999. This increase was primarily attributable to costs associated with the openings of Promenade in Temecula ($3,291,000) and 45/75 Sidney Street ($1,615,000), One Pierrepont Plaza ($2,420,000), the New York City urban retail portfolio ($5,716,000) and openings in the hotel portfolio ($23,649,000). These increases in expenses were partially offset by the dispositions of Tucson Place and Rolling Acres Mall ($3,032,000) and a net decrease in land sales for 2000 as compared to 1999 ($1,900,000). Interest expense for 2000 increased by $20,735,000, or 22.0%, to $115,091,000 from $94,356,000 for 1999. The increase in interest expense is primarily attributable to the 1999 and 2000 additions to the Commercial Group portfolio. During 1999, operating expenses for the Commercial Group increased $35,232,000, or 18.0%, to $231,198,000 from $195,966,000 in 1998. This increase was primarily attributable to costs associated with the 1999 openings of 45/75 Sidney Street ($3,136,000), Promenade in Temecula ($586,000), the 1998 openings of 350 Massachusetts Avenue ($534,000) and University Park Hotel at MIT ($2,877,000), and the 1998 acquisitions of Sheraton Station Square ($2,674,000), Fairmont Plaza ($1,860,000) and Pavilion ($88,000). Operating expenses also increased at Liberty Center ($1,266,000), Ritz-Carlton Hotel ($1,160,000), and Avenue at Tower City ($4,129,000) in connection with improved operations, and also as a result of 1998 and 1999 openings in the New York City urban retail portfolio ($1,242,000). In addition, development expenses increased $1,941,000 over 1998, cost of sales associated with increased land sales activity were $5,916,000 over 1998 and operating expenses for mature properties increased approximately $5,000,000. Interest expense for 1999 increased by $3,065,000, or 3.4%, to $94,356,000 from $91,291,000 for 1998. The increase in interest expense is primarily attributable to the 1999 additions to the Commercial Group portfolio discussed above, and a full year of interest for 1998 openings. NET OPERATING INCOME - Commercial Group NOI for 2000 was $246,266,000 compared to $211,794,000 in 1999, a 16.3% increase. NOI increased 3.1% from 1999 to 2000 and 4.9% from 1998 to 1999 for Commercial Group properties in operation throughout both years. Including the expected NOI for the twelve months after stabilization for the Commercial Group properties that were opened or acquired in 2000, NOI would be approximately $253,000,000 for 2000. Commercial Group - Full Consolidation REVENUES - Revenues for the Commercial Group increased $105,598,000, or 24.5%, to $537,351,000 in 2000 from $431,753,000 in 1999. This increase was primarily the result of the openings of new properties during 1999 and 2000 and increased rents at existing properties. Revenues increased from the openings of Promenade in Temecula, a 795,000-square-foot regional mall in Temecula, California ($8,237,000), 45/75 Sidney Street, an office building at University Park at MIT in Cambridge, Massachusetts ($3,306,000), several openings in the Company's urban retail portfolio in the boroughs of New York City including Columbia Park Center, 42nd Street, Battery Park City, Court Street, Forest Avenue, Eastchester, and Kaufman Studios ($31,744,000), improved operations at Pavilion, an office tower in San Jose, California ($4,910,000) and One Pierrepont Plaza in Brooklyn, New York ($3,679,000), the expansion of and sale of airrights at Ballston Common Mall, a shopping center in Arlington, Virginia ($5,366,000), increased land sales of $3,445,000 in 2000 as compared to 1999, and increased equity in earnings of unconsolidated entities of $3,567,000. Revenues also increased from the hotel portfolio ($50,426,000) including the newly-opened Embassy Suites Hotel and Hilton Times Square both in New York City, which were added to the existing portfolio which includes Sheraton Station Square located in Pittsburgh, Pennsylvania and Ritz-Carlton Hotel in Cleveland, Ohio. These increases were partially offset by the dispositions of Tucson Place ($1,918,000) in 2000 and Rolling Acres Mall ($4,877,000) in 1999. Revenues for the Commercial Group increased $56,944,000, or 15.2%, to $431,753,000 in 1999 from $374,809,000 in 1998. This increase is primarily the result of the openings of 45/75 Sidney Street ($11,496,000) and Promenade in Temecula ($2,901,000). The 1998 acquisitions of the Sheraton Station Square increased revenues by $4,866,000, the 324,000-square-foot Fairmont Plaza by $6,221,000 and the adjacent 247,000-square-foot Pavilion retail center in San Jose, California by $1,570,000. Revenues also increased as a result of improved operations at Avenue at Tower City Center in Cleveland, Ohio ($5,545,000), Ritz-Carlton Hotel ($1,298,000), Tucson Mall ($2,885,000) in Tucson, Arizona, and openings in the Company's urban retail portfolio in the boroughs of New York City ($6,790,000) including Columbia Park Center, Kaufman Studios and Bay Street. These increases were partially offset by a decrease in revenues due to the 1998 disposition of Summit Park Mall ($2,229,000) and a decrease in the equity of unconsolidated entities ($9,215,000) primarily from the disposition of San Vicente, an office building in Brentwood, California. The Commercial Group also recorded additional land sales of $10,177,000 in 1999 compared to 1998. The remainder of the increase (approximately $14,000,000) was due to improved operations as a result of rental rate and occupancy increases. OPERATING AND INTEREST EXPENSES - During 2000, operating expenses for the Commercial Group increased $51,255,000, or 24.1%, to $264,049,000 from $212,794,000 in 1999. This increase was primarily attributable to costs associated with the openings of Promenade in Temecula ($4,388,000) and 45/75 Sidney Street ($1,615,000), One Pierrepont Plaza ($2,847,000), the New York City urban retail portfolio ($8,538,000), a net increase in the cost of land sales for 2000 as compared to 1999 ($533,000) and openings in the hotel portfolio ($36,676,000). These increases in expenses were partially offset by the dispositions of Tucson Place and Rolling Acres Mall ($3,424,000). Interest expense for 2000 increased by $31,251,000, or 35.6%, to $119,015,000 from $87,764,000 for 1999. The increase in interest expense is primarily attributable to the 1999 and 2000 additions to the Commercial Group portfolio. During 1999, operating expenses for the Commercial Group increased $33,649,000, or 18.8%, to $212,794,000 from $179,145,000 in 1998. This increase was attributable primarily to costs associated with the 1999 openings of 45/75 Sidney Street ($3,136,000), Promenade in Temecula ($781,000), and the 1998 acquisitions of Sheraton Station Square ($2,674,000), Fairmont Plaza ($1,860,000) and Pavilion ($89,000). Operating FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 61 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries expenses also increased at Ritz-Carlton Hotel ($1,221,000) and Avenue at Tower City ($4,129,000) as a result of increased revenues, and also as a result of 1998 and 1999 openings in the New York City urban retail portfolio ($1,741,000). In addition, development expenses increased $1,941,000 over 1998, cost of sales associated with increased land sales activity were $9,569,000 over 1998, and operating expenses for mature properties increased approximately $6,000,000. Interest expense for 1999 increased by $2,341,000, or 2.7%, to $87,764,000 from $85,423,000 for 1998. The increase in interest expense is primarily attributable to the 1999 additions to the Commercial Group portfolio discussed above, and a full year of interest for 1998 openings. Residential Group - Pro-Rata Consolidation REVENUES - Revenues for the Residential Group increased by $8,609,000, or 5.4%, in 2000 to $167,377,000 from $158,768,000 in 1999. This increase was primarily attributable to the acquisitions of Mount Vernon Square, a 1,387-unit community in Alexandria, Virginia ($8,510,000), Forest Trace, a 324-unit supported-living community in Lauderhill, Florida ($6,006,000), Burton Place, a 200-unit apartment community in Southfield, Michigan ($895,000), Mayfair at Great Neck, a 144-unit supported-living community on Long Island, New York ($866,000), Mayfair at Glen Cove, a 79-unit supported-living community on Long Island, New York ($579,000), the openings of Chestnut Grove, a 79-unit supported-living community in Plainview, New York ($938,000) and Classic Residence by Hyatt, a 310-unit supported-living community in Yonkers, New York ($475,000), the acquisition of an additional 49% interest in Providence at Palm Harbor (formerly Boot Ranch), a 236-unit apartment community in Tampa, Florida ($1,169,000), the lease-up of Colony Woods, an adaptive re-use 396-unit project in Bellevue, Washington ($678,000) and the collection of a fully-reserved note receivable from a syndicated affordable housing apartment property ($2,057,000). These increases were partially offset by the dispositions of Studio Colony, a 450-unit building in Los Angeles, California ($5,025,000), Highlands, a 556-unit apartment building in Grand Terrace, California ($3,961,000) and the Toscana litigation settlement proceeds ($4,500,000) received in 1999 which did not recur. Revenues for the Residential Group increased by $19,765,000, or 14.2%, in 1999 to $158,768,000 from $139,003,000 in 1998. This increase was primarily attributable to proceeds from the Toscana litigation settlement ($4,500,000), the recognition of development and other fees of $5,722,000 relating to several projects including: The Grand, a 546-unit luxury high-rise apartment building in North Bethesda, Maryland; The Drake, a 280-unit high-rise building in Philadelphia, Pennsylvania; Enclave, a 637-unit apartment complex in San Jose, California; and 101 San Fernando, a 323-unit apartment complex also in San Jose, California, a full year of operations for the 1998 acquisitions of the 534-unit Woodlake Apartments in Silver Spring, Maryland ($2,663,000), an additional 20% ownership in Studio Colony, ($934,000) and a 50% interest in the 342-unit complex Coppertree in Mayfield Heights, Ohio ($520,000). In addition, revenues increased at Bayside Village, an 862-unit complex in San Francisco, California ($770,000), the Company's supported-living properties in Michigan, New Jersey, and Maryland ($1,182,000), an increase in units in three Cleveland properties ($796,000) and as a result of the lease-up of Colony Woods ($1,872,000). These increases were partially offset by a decrease due to the sale of Trolley Plaza, a 351-unit apartment community in Detroit, Michigan ($1,504,000). The balance of the increase in revenues ($2,300,000) within the Residential Group was generally due to improved operations. OPERATING AND INTEREST EXPENSES - Operating expenses for the Residential Group increased by $281,000, or .4%, in 2000, to $74,322,000 from $74,041,000 in 1999. The increase in operating expenses was primarily due to the acquisitions of Mount Vernon Square ($3,211,000), Forest Trace ($3,272,000), Burton Place ($1,731,000), Mayfair at Great Neck ($739,000), Mayfair at Glen Cove ($359,000), write off of development project costs ($2,658,000), and the openings of Chestnut Grove ($789,000) and Classic Residence by Hyatt ($1,244,000). These increases are partially offset by the dispositions of Studio Colony ($1,937,000) and Highlands ($1,745,000) and the full restoration in 2000 of the reserved Millender Center note receivable ($10,275,000). Interest expense increased by $6,087,000 in 2000, or 23.0%, to $32,534,000 from $26,447,000 in 1999. This increase is primarily due to property acquisitions partially offset by property dispositions. Operating expenses for the Residential Group increased by $7,793,000, or 11.8%, in 1999, to $74,041,000 from $66,248,000 in 1998. The increase in operating expenses was primarily due to the reduction in a reserve for collection of a note receivable in 1998 from Millender Center ($3,000,000), additional costs associated with the generation of increased development fees ($999,000), increased operating expenses for mature properties (approximately $2,000,000), increased expenses due to lease-up at Colony Woods ($353,000) and the three Cleveland properties ($316,000), and the 1998 acquisitions of Woodlake Apartments ($1,356,000) and Coppertree ($355,000). These increases were partially offset by a decrease due to the sale in 1998 of Trolley Plaza ($1,135,000). Interest expense decreased by $895,000 in 1999, or 3.3%, to $26,447,000 from $27,342,000 in 1998. This decrease is primarily the result of an increase in capitalized interest on funded development projects. NET OPERATING INCOME - Residential Group NOI for 2000 was $93,055,000, compared to $84,727,000 in 1999, a 9.8% increase. NOI increased 3.6% from 1999 to 2000 and 5.0% from 1998 to 1999 for Residential Group properties in operation throughout both years. Including the expected NOI for the twelve months after stabilization for Residential Group properties that were opened, expanded or acquired in 2000, NOI would be approximately $122,000,000 for 2000. Residential Group - Full Consolidation REVENUES - Revenues for the Residential Group increased by $11,695,000, or 9.6%, in 2000 to $134,116,000 from $122,421,000 in 1999. This increase was primarily attributable to the acquisitions of Mount Vernon Square, a 1,387-unit community in Alexandria, Virginia ($15,222,000), Forest Trace, a 324-unit supported-living community in Lauderhill, Florida ($6,006,000), Burton Place, a 200-unit apartment community in Southfield, Michigan ($995,000), Providence at Palm Harbor (formerly Boot Ranch), a 236-unit apartment community in Tampa, Florida ($281,000), the lease-up of Colony Woods, an adaptive re-use 396-unit project in Bellevue, Washington ($678,000), the opening of Chestnut Grove, a 79-unit supported- living community in Plainview, New York ($1,173,000) and the collection of a fully-reserved note receivable from a syndicated affordable housing apartment property ($2,057,000). These increases were partially offset by the dispositions of Studio FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 62 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries Colony, a 450-unit building in Los Angeles, California ($5,025,000) and Highlands, a 556-unit apartment building in Grand Terrace, California ($3,961,000), and the Toscana litigation settlement proceeds ($4,500,000) received in 1999 which did not recur. Revenues for the Residential Group increased by $20,183,000, or 19.7%, in 1999 to $122,421,000 from $102,238,000 in 1998. This increase was primarily attributable to proceeds from the Toscana litigation settlement ($4,500,000), the recognition of development and other fees ($5,722,000) on several projects including: The Grand, a 546-unit luxury high-rise apartment building in North Bethesda, Maryland; The Drake, a 280-unit high-rise building in Philadelphia, Pennsylvania; Enclave, a 637-unit apartment complex in San Jose, California; and 101 San Fernando, a 323-unit apartment complex also in San Jose, California, a full year of operations for the 1998 acquisitions of the 534-unit Woodlake Apartments in Silver Spring, Maryland ($2,663,000). In addition, revenues increased at Trowbridge, the Company's supported-living property in Southfield, Michigan ($1,181,000), Studio Colony ($686,000), as a result of lease-up of Colony Woods ($1,872,000) and the increased equity in unconsolidated entities ($3,091,000). These increases were partially offset by a decrease due to the sale in the second quarter of 1998 of Trolley Plaza, a 351-unit apartment community in Detroit, Michigan ($1,504,000). The balance of the increase in revenues ($2,000,000) within the Residential Group was generally due to improved operations. OPERATING AND INTEREST EXPENSES - Operating expenses for the Residential Group decreased by $1,950,000, or 3.9%, in 2000, to $48,087,000 from $50,037,000 in 1999. The decrease in operating expenses was primarily due to the dispositions of Studio Colony ($1,937,000) and Highlands ($1,745,000), and the full restoration in 2000 of the reserved Millender Center note receivable ($10,275,000). These decreases are partially offset by the acquisitions of Mount Vernon Square ($5,186,000), Forest Trace ($3,272,000) and Burton Place ($1,924,000), and the opening of Chestnut Grove ($986,000). Interest expense increased by $10,144,000 in 2000, or 75.6%, to $23,555,000 from $13,411,000 in 1999. This increase is primarily due to property acquisitions partially offset by property dispositions. Operating expenses for the Residential Group increased by $6,968,000, or 16.2%, in 1999, to $50,037,000 from $43,069,000 in 1998. The increase in operating expenses was primarily due to the reduction in a reserve for collection of a note receivable in 1998 from Millender Center ($3,000,000), additional costs associated with the generation of increased development fees ($999,000), increased operating expenses for mature properties (approximately $2,400,000), increased expenses due to lease-up at Colony Woods ($353,000) and the 1998 acquisition of Woodlake Apartments ($1,356,000). These increases were partially offset by a decrease due to the sale in 1998 of Trolley Plaza ($1,135,000). Interest expense decreased by $153,000 in 1999, or 1.1%, to $13,411,000 from $13,564,000 in 1998. This decrease is primarily the result of an increase in capitalized interest on funded development projects. Land Group - Pro-Rata Consolidation Beginning in 2000, the Central Station project in Chicago, Illinois, which was previously reported in the Commercial Group, and the Stapleton project in Denver, Colorado, which was previously reported in the Residential Group, are now both being reported in the Land Group. REVENUES - Revenues for the Land Group increased by $23,300,000 to $64,656,000 in 2000 from $41,356,000 in 1999. This increase is a result of increases in land sales at Canterberry Crossing, a 470-acre residential golf course community in Parker, Colorado ($2,147,000), Central Station, a mixed-use community in Chicago, Illinois ($4,726,000), Caldwell Road, a 418-acre mixed-use community in Charlotte, North Carolina ($4,946,000), Thornbury, a 250-acre residential community in Solon, Ohio ($2,044,000), Seven Hills, a 1,300-acre planned-unit development project in Henderson, Nevada ($6,306,000) and a land sale at Quincy Avenue in Cleveland, Ohio ($2,750,000). These increases were partially offset by decreases in land sale activity at Silver Lakes, 2,400 acres and 5,108 units in Fort Lauderdale, Florida ($2,009,000), The Cascades in Brooklyn, Ohio ($1,254,000), The Ledges, a 133-acre residential community in Twinsburg, Ohio ($1,415,000) and Eaton Estate, a 22-acre apartment and cluster site in Sagamore Hills, Ohio ($525,000). Included in 1999 is a forgiveness of interest income relating to Granite Development Partners L.P. ("Granite") ($4,001,000) that did not recur in 2000. During 1999, the Company was informed by the project manager/partner of costs that would be incurred in excess of budget to complete Seven Hills. At that point in time, the Company owned a 14.57% interest in Seven Hills through its investment in Granite (see "Other Transactions - Provision for Decline in Real Estate"). As a result of this deterioration in Seven Hills' margins, the Company entered into an agreement ("Agreement") during 1999 with the project manager/partner to restructure the partnership agreement and reposition the project. In accordance with the Agreement, the Company has agreed to forgo its fee and interest income to which it was entitled in order to preserve cash flow available to meet the project's obligations. Revenues for the Land Group decreased by $11,255,000 to $41,356,000 in 1999 from $52,611,000 in 1998. This decrease is a result of forgiveness of interest income relating to Granite ($4,001,000) discussed above and decreased revenues at: various other projects owned by Granite (approximately $4,000,000); Greens at Birkdale Village, a 220-acre mixed-use community in Huntersville, North Carolina ($2,791,000); Chestnut Lakes, an 85-acre planned-unit development in North Ridgeville, Ohio ($3,151,000); and Eaton Estate ($848,000). Revenues also decreased approximately $10,000,000 in 1999 compared to 1998 as a result of a cumulative adjustment to properly reflect the Company's share of the revenues of Seven Hills pursuant to the Agreement discussed above. These decreases were partially offset by increases in revenues at Westwood Lakes, 475-acres, 657 lots located in Tampa, Florida ($5,960,000); Silver Lakes ($2,724,000); and Canterberry Crossing ($4,649,000). Sales of land and related gross margins vary from period to period, depending on management's decisions regarding the disposition of significant land holdings. OPERATING AND INTEREST EXPENSES - The fluctuation in Land Group operating expenses primarily reflects costs associated with land sales volume in each period. Operating expenses increased by $17,293,000 in 2000 to $57,025,000 from $39,732,000 in 1999. This increase is primarily the result of an increase in costs relating to increased land sales at: Canterberry Crossing ($1,228,000), Central Station ($6,342,000), Caldwell Road ($3,090,000), and Quincy Avenue ($1,165,000). These increases were partially offset by a decrease at The Cascades ($731,000). Operating expenses were also lower in 1999 by FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 63 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries $4,729,000 due to certain valuation allowances relating to Land Group investments that did not recur in 2000. These accruals are reviewed periodically and adjusted to reflect management's estimated value of the Land Group's portfolio. Operating expenses decreased by $800,000 in 1999 to $39,732,000 from $40,532,000 in 1998. This decrease is primarily the result of a decrease in costs related to lower sales volume at various projects owned by Granite ($1,666,000), Greens at Birkdale Village ($2,372,000), Chestnut Lakes ($2,575,000) and Eaton Estate ($696,000). Operating expenses also decreased approximately $3,500,000 in 1999 compared to 1998 as a result of a cumulative adjustment to properly reflect the Company's share of the revenues of Seven Hills pursuant to the Agreement discussed above. These decreases were partially offset by increases in operating expenses related to increased sales volume at Westwood Lakes ($4,157,000), Seven Hills ($3,500,000), Silver Lakes ($2,903,000) and Canterberry Crossing ($4,155,000). Operating expenses also decreased for 1999 by $4,729,000 due to certain valuation allowances relating to Land Group investments. These accruals are reviewed periodically and adjusted to reflect management's estimated value of the Land Group's portfolio. Interest expense decreased by $2,644,000 in 2000 to $4,726,000 from $7,370,000 in 1999. Interest expense increased by $556,000 in 1999 to $7,370,000 from $6,814,000 in 1998. Interest expense varies from year to year depending on the level of interest-bearing debt within the Land Group. Land Group - Full Consolidation REVENUES - Revenues for the Land Group increased by $11,084,000 to $24,326,000 in 2000 from $13,242,000 in 1999. This increase is a result of increases at Caldwell Road, a 418-acre mixed-use community in Charlotte, North Carolina ($3,573,000), a land sale at Quincy Avenue in Cleveland, Ohio ($2,750,000) and the increase in equity in unconsolidated entities ($9,819,000) primarily as a result of the 1999 loss at Granite Development Partners L.P. ("Granite") which did not recur in 2000. These increases were partially offset by decreases in land sale activity at The Cascades in Brooklyn, Ohio ($1,254,000) and Silver Lakes ($2,839,000), 2,400 acres and 5,108 units located in Fort Lauderdale, Florida. During 1999, the Company was informed by the project manager/partner of costs that would be incurred in excess of budget to complete Seven Hills. At that point in time, the Company owned a 14.57% interest in Seven Hills through its investment in Granite (see "Other Transactions - Provision for Decline in Real Estate). As a result of this deterioration in Seven Hills' margins, the Company entered into an agreement ("Agreement") during 1999 with the project manager/partner to restructure the partnership agreement and reposition the project. In accordance with the Agreement, the Company has agreed to forgo its fee and interest income to which it was entitled in order to preserve cash flow available to meet the project's obligations. Revenues for the Land Group decreased by $11,145,000 to $13,242,000 in 1999 from $24,387,000 in 1998. This decrease is a result of decreases in land sale activity at Chestnut Lakes, an 85-acre planned-unit development in North Ridgeville, Ohio ($3,151,000) and a decrease in equity in unconsolidated entities ($18,504,000) primarily from Granite ($11,166,000) and Central Station ($6,157,000). These decreases were partially offset by increases in revenues at Westwood Lakes, 475-acres and 657 lots located in Tampa, Florida ($5,960,000) and Silver Lakes ($2,839,000). Sales of land and related gross margins vary from period to period, depending on management's decisions regarding the disposition of significant land holdings. OPERATING AND INTEREST EXPENSES - The fluctuation in Land Group operating expenses primarily reflects costs associated with land sales volume in each period. Operating expenses increased by $7,717,000 in 2000 to $19,560,000 from $11,843,000 in 1999. This increase is primarily the result of an increase in cost of sales relating to increased land sales activity at Caldwell Road ($2,273,000) and Quincy Avenue ($1,165,000). These increases were partially offset by a decrease at The Cascades ($731,000). Operating expenses decreased by $21,000 in 1999 to $11,843,000 from $11,864,000 in 1998. Interest expense decreased by $5,244,000 in 2000 to $1,901,000 from $7,145,000 in 1999. Interest expense increased by $6,043,000 in 1999 to $7,145,000 from $1,102,000 in 1998. Interest expense varies from year to year depending on the level of interest-bearing debt within the Land Group. Lumber Trading Group REVENUES - Revenues for the Lumber Trading Group decreased by $43,930,000 in 2000 to $105,427,000 from $149,357,000 in 1999. The decrease was due primarily to lower volume and trading margins caused by a significant decline in lumber prices due to over production and moderate reductions of demand in the market. Revenues for the Lumber Trading Group increased by $26,032,000 in 1999 to $149,357,000 from $123,325,000 in 1998. The increase was due primarily to increased lumber trading margins of $26,159,000 for 1999 compared to 1998. OPERATING AND INTEREST EXPENSES - Operating expenses for the Lumber Trading Group decreased by $33,277,000 in 2000 to $98,534,000 from $131,811,000 in 1999. The decrease reflected lower variable expenses due to decreased volume and trading margins. Interest expense increased $296,000 in 2000 to $5,584,000 from $5,288,000 in 1999. Operating expenses for the Lumber Trading Group increased by $19,813,000 in 1999 to $131,811,000 from $111,998,000 in 1998. The increase reflected higher variable expenses due to increased lumber trading margins compared to 1998. Interest expense increased $26,000 in 1999 to $5,288,000 from $5,262,000 in 1998. Corporate Activities REVENUES - Corporate Activities' revenues decreased $58,000 in 2000 to $540,000 from $598,000 in 1999 and decreased $848,000 in 1999 to $598,000 from $1,446,000 in 1998. Corporate Activities' revenues consist primarily of interest income from investments and loans made by the Company and vary from year to year depending on interest rates and the amount of loans outstanding. OPERATING AND INTEREST EXPENSES - Operating expenses for Corporate Activities increased $673,000 in 2000 to $13,459,000 from $12,786,000 in 1999 and increased $20,000 in 1999 to $12,786,000 from $12,766,000 in 1998. The increases represent general corporate expenses. Interest expense increased $6,231,000 in 2000 to $32,489,000 from $26,258,000 in 1999 and increased $7,007,000 in 1999 to $26,258,000 from $19,251,000 in 1998. Corporate Activities' interest expense consists primarily of interest expense on the 8.50% FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 64 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries Senior Notes and the Revolving Credit Agreement that has not been allocated to a strategic business unit (see "Financial Condition and Liquidity"). Other Transactions PROVISION FOR DECLINE IN REAL ESTATE - During 2000, the Company recorded a Provision for Decline in Real Estate of $1,231,000 related to the write-down to estimated fair value less cost to sell of Commercial Group's investment in Canton Centre Mall in Canton, Ohio. During 1999, the Company recorded a Provision for Decline in Real Estate of $5,062,000 related to the write-down to estimated net realizable value of the Land Group's investment in Granite. The Company, at that time, owned a 43.75% interest in Granite as a result of a capital contribution of land that was classified as Investments in and Advances to Real Estate Affiliates on the Company's consolidated balance sheet. Granite owns an interest in several raw land developments held for resale, the most significant of which is a one-third interest in Seven Hills in Henderson, Nevada. The projection of costs to complete the project indicated that the Company may not recover its capital investment in Granite. GAIN ON DISPOSITION OF PROPERTIES AND OTHER INVESTMENTS - The following table summarizes the gain (loss) on disposition of properties and other investments by year.
Plus Less Unconsolidated Full Minority Investments Pro-Rata YEARS ENDED JANUARY 31, Consolidation Interest at Pro-Rata Consolidation ---------------------------------------------------------------------------------------- (in thousands) 2001 Studio Colony* ........... $ 25,726 $ -- $ -- $ 25,726 Highlands ................ 599 -- -- 599 Tucson Place* ............ 8,734 -- -- 8,734 Canton Centre Mall* ...... (436) -- -- (436) Gallery at Metrotech ..... (6,868) (250) -- (6,618) Available-for-sale equity securities ... 20,654 -- 2,359 23,013 ----------------------------------------------------------- Total .................. $ 48,409 $ (250) $ 2,359 $ 51,018 =========================================================== 2000 Rolling Acres Mall* ...... $ 13,861 $ 2,738 $ -- $ 11,123 Other .................... -- -- (411) (411) ----------------------------------------------------------- Total .................. $ 13,861 $ 2,738 $ (411) $ 10,712 =========================================================== 1999 Summit Park Mall* ........ $ 13,897 $ -- $ -- $ 13,897 San Vicente* ............. -- -- 10,403 10,403 Courtyard ................ -- -- 622 622 Trolley Plaza* ........... 4,941 -- -- 4,941 Other .................... 694 -- -- 694 ----------------------------------------------------------- Total .................. $ 19,532 $ -- $ 11,025 $ 30,557 ===========================================================
*Tax-deferred exchange Studio Colony and Highlands are apartment communities in California. Tucson Place, Canton Centre Mall and Gallery at Metrotech are shopping centers in Arizona, Ohio and New York, respectively. Rolling Acres Mall is located in Ohio. Summit Park Mall and Courtyard are shopping centers in New York and Michigan, respectively. San Vicente is an office building in California and Trolley Plaza is an apartment community in Michigan. EXTRAORDINARY GAIN - There was no extraordinary gain in 2000. Extraordinary gain, net of tax, totaled $272,000 and $16,343,000 in 1999 and 1998, respectively, representing extinguishment of nonrecourse debt and related accrued interest. The 1999 extraordinary gain was the result of the extinguishment of $450,000 of nonrecourse debt related to Plaza at Robinson Town Centre in Pittsburgh, Pennsylvania. The 1998 extraordinary gain represents extinguishment of nonrecourse debt related to Terminal Tower ($13,947,000) and Skylight Office Tower ($3,619,000) both located in Cleveland, Ohio; Courtland ($7,381,000), a regional mall in Flint, Michigan; One Franklintown ($1,350,000), an apartment complex in Philadelphia, Pennsylvania; Providence at Palm Harbor ($187,000); an apartment community in Tampa, Florida; and Trolley Plaza ($552,000). INCOME TAXES - Income tax expense totaled $22,312,000, $24,319,000, and $27,674,000 in 2000, 1999, and 1998, respectively. The Company recorded a net deferred income tax expense of $11,986,000 for the year ended January 31, 2001 comprised of net deferred income tax expense of $35,575,000 incurred in the normal course of business offset by a deferred income tax benefit of $23,589,000. This benefit represented a reversal of a portion of a deferred tax liability recorded in 1994 relating to the cancellation of debt income of Park Labrea Towers, a residential property which was sold that same year. In certain situations that applied to Park Labrea Towers in 1994, the Internal Revenue Code allowed for the deferral of cancellation of debt income. As a result of certain steps taken by the Company in the respective periods above, the deferred income will never be recognized for tax purposes and, accordingly, the related deferred tax liability was reversed. At January 31, 2001, the Company had a net operating loss carryforward for tax purposes of $10,026,000 (generated primarily from the impact of depreciation expense from real estate properties on the Company's net earnings) that will expire in the year ending January 31, 2011, general business credit carryovers of $1,582,000 which will expire in the years ending January 31, 2004 through January 31, 2015 and alternative minimum tax ("AMT") carryforward of $31,289,000 that is available until used to reduce Federal tax to the AMT amount. The Company's policy is to consider a variety of tax-saving strategies when evaluating its future tax position. EBDT - Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT") consists of earnings before extraordinary gain, excluding the following items: i) provision for decline in real estate; ii) gain (loss) on disposition of properties and other investments; iii) beginning with the year ended January 31, 2001, the adjustment to recognize rental revenues using the straight-line method; and iv) noncash charges from Forest City Rental Properties Corporation for depreciation, amortization and deferred income taxes. The provision for decline in real estate is excluded from EBDT because it is a non-cash item that varies from year to year based on factors unrelated to the Company's overall financial performance. The Company excludes gain (loss) on the disposition of properties from EBDT because it develops and acquires properties for long-term investment, not short-term trading gains. As a result, the Company views dispositions of properties and other investments other than commercial land and airrights or land held by the Land Group as nonrecurring items. Extraordinary items are generally the result of the restructuring of nonrecourse debt obligations and are not considered to be a component of the Company's operating results. The adjustment to recognized rental revenues and rental expenses on the straight-line method is excluded because it is management's opinion that rental revenues and expenses should be recognized when due from FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 65 41 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries the tenants or due to the landlord. The Company excludes depreciation and amortization expense related to real estate operations from EBDT because they are non-cash items and the Company believes the values of its properties, in general, have appreciated, over time, in excess of their original cost. Deferred income taxes from real estate operations are excluded because they are non-cash items. The Company's EBDT may not be directly comparable to similarly-titled measures reported by other companies. FINANCIAL CONDITION AND LIQUIDITY The Company believes that its sources of liquidity and capital are adequate. The Company's principal sources of funds are cash provided by operations, the revolving credit facility and refinancings of existing properties. The Company's principal use of funds are the financing of development and acquisitions of real estate projects, capital expenditures for its existing portfolio and payments on nonrecourse mortgage debt on real estate. REVOLVING CREDIT FACILITY - At January 31, 2001 and 2000, the Company had $189,500,000 and $167,000,000, respectively, outstanding under its revolving credit facility. On August 9, 2000, the Company increased its revolving credit facility to $265,000,000 from $200,000,000 with nine participating banks. The Company's revolving credit facility matures March 31, 2003, unless extended, and allows for up to a combined amount of $30,000,000 in outstanding letters of credit or surety bonds ($7,222,000 and $14,675,000, respectively, at January 31, 2001). The outstanding letters of credit reduce the credit available to the Company. Annually, within 60 days after January 31, the revolving credit facility may be extended for one year with unanimous consent of the participating banks. At its maturity date, the outstanding revolving credit loans, if any, may be converted by the Company to a four-year term loan. The revolving credit available is reduced quarterly by $2,500,000, beginning October 1, 2000. The revolving credit facility provides, among other things, for: 1) interest rates of 2.125% over LIBOR or 1/2% over the prime rate; 2) maintenance of debt service coverage ratios and specified levels of net worth and cash flow (as defined); and 3) restriction on dividend payments. Prior to August 9, 2000, the revolving credit facility had similar terms and a December 10, 2001 maturity date. The Company has purchased LIBOR interest rate caps at an average rate of 6.82% for 2001 and 7.75% for 2002 at notional amounts of $187,484,000 and $54,161,000, respectively. SENIOR NOTES - On March 16,1998, the Company issued $200,000,000 in 8.50% senior notes due March 15, 2008 in a public offering. Accrued interest on the senior notes is payable semiannually on March 15 and September 15. The senior notes are unsecured senior obligations of the Company; however, they are subordinated to all existing and future indebtedness and other liabilities of the Company's subsidiaries including borrowings under the revolving credit facility. The indenture contains covenants providing, among other things, limitations on incurring additional debt and payment of dividends. SUBORDINATED DEBT - In November 2000, the Company issued $20,400,000 of redevelopment bonds in a private placement. The proceeds were used to repay nonrecourse debt that was issued to finance an apartment facility in Philadelphia, Pennsylvania. The 8.25% bonds are due September 15, 2010. Interest is payable semiannually on each March 15 and September 15 beginning March 15, 2001. This debt is unsecured and subordinated to the senior notes and the revolving credit facility. Financial covenants associated with this debt are similar to that of the senior notes. LUMBER TRADING GROUP - The Lumber Trading Group is financed separately from the rest of the Company's strategic business units. The financing obligations of Lumber Trading Group are without recourse to the Company. Accordingly, the liquidity of Lumber Trading Group is discussed separately below under "Lumber Trading Group Liquidity." Mortgage Refinancings The Company is actively working to extend the maturities and/or refinance the nonrecourse debt that is coming due in 2001 and 2002, generally pursuing long-term fixed-rate debt. During the year ended January 31, 2001, the Company completed the following financings:
Full Pro-Rata PURPOSE OF FINANCING Consolidation Consolidation ------------------------------------------------------------------------------------------- (in thousands) Acquisitions ............................................... $ 138,919 $ 153,750 Refinancing ................................................ 376,765 312,549 Loan extension ............................................. 273,476 210,114 New development projects ................................... 214,152 238,708 ----------------------------- $1,003,312 $ 915,121 ============================= Reduction of mortgage debt due to property dispositions .... $ 188,545 $ 173,120 =============================
Interest Rate Exposure At January 31, 2001, the composition of nonrecourse mortgage debt was as follows:
Less Plus Unconsolidated Full Minority Investments Pro-Rata Consolidation Rate (1) Interest at Pro-Rata Consolidation Rate (1) --------------------------------------------------------------------------------------------------------------- (dollars in thousands) Fixed ............. $1,711,574 7.53% $ 343,626 $ 472,811 $1,840,759 7.57% Variable Taxable (2) ..... 605,796 8.73% 128,287 143,223 620,732 8.59% Tax-Exempt ...... 54,150 6.20% 5,638 46,093 94,605 5.36% UDAG .............. 68,392 1.61% 10,463 11,892 69,821 2.65% ---------- -------------------------------------------- $2,439,912 7.65% $ 488,014 $ 674,019 $2,625,917 7.61% ========== ============================================
(1) The weighted average interest rates shown above include both the base index and the lender margin. (2) The $605,796 at full consolidation and $620,732 at pro-rata consolidation of taxable variable rate debt is protected with LIBOR caps as described below. These caps protect the current debt outstanding as well as the anticipated increase in debt outstanding for projects currently under development or anticipated to be under development during the year ending January 31, 2002. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 66 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries The Company has purchased London Interbank Offered Rate ("LIBOR") interest rate caps for the mortgage debt portfolio as follows:
Full Consolidation Pro-Rata Consolidation -------------------------------------------------- Average Average Coverage Amount Rate Amount Rate ---------------------------------------------------------------------------- (dollars in thousands) 02/01/01 - 01/31/02 .... $605,780 7.11% $590,568 7.03% 02/01/02 - 01/31/03 .... 568,574 7.68% 586,210 7.76% 02/01/03 - 01/31/04 .... 391,800 7.75% 389,699 7.87% 02/01/04 - 01/31/05 .... 211,800 8.00% 285,337 8.00% 02/01/05 - 01/31/06 .... 177,300 8.00% 177,300 8.00%
The interest rate caps highlighted in the previous table were purchased to mitigate short-term variable interest rate risk. The Company currently intends to convert a significant portion of its committed variable-rate debt to fixed-rate debt. In order to protect against significant increases in long-term interest rates, the Company has purchased Treasury Options as follows:
Full Consolidation Pro-Rata Consolidation -------------------------- ----------------------------- Weighted Remaining Weighted Remaining Average Years at Average Years at Term Amount Rate 1/31/01 Amount Rate 1/31/01 --------------------------------------------------------------------- (dollars in thousands) 10 years $123,100 7.00% 0.21 $ 86,890 7.00% 0.21 10 years 321,800 6.92% 1.35 210,262 6.93% 1.38
At January 31, 2001, a 100 basis point increase in taxable interest rates would increase the annual pre-tax interest cost of the Company's taxable variable-rate debt by approximately $3,300,000. The effect of such an increase is reduced due to the average 7.11% LIBOR caps that are currently in place. Although tax-exempt rates generally increase in an amount that is smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt interest rates would increase the annual pre-tax interest cost of the Company's tax-exempt variable-rate debt by approximately $500,000. The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At January 31, 2001, the carrying amount of the Company's hedging instruments was $17,000,000 compared to an estimated fair value of $2,000,000. Lumber Trading Group Liquidity Lumber Trading Group is separately financed with two revolving lines of credit and an asset securitization facility. At January 31, 2001, Lumber Trading Group's two revolving lines of credit totaled $87,000,000, expiring June 30, 2001. These credit lines are secured by the assets of the Lumber Trading Group and are used to finance its working capital needs. At January 31, 2001, no borrowings were outstanding under these revolving lines of credit. In July 1999, the Lumber Trading Group entered into a three-year agreement (The "Agreement") under which it is selling an undivided interest in a pool of receivables up to a maximum of $102,000,000 to a large financial institution (the "Financial Institution"). The agreement expires in July 2002. The Company has recorded such transactions under the terms of SFAS No. 125, "Accounting for Transfers of Servicing of Financial Assets and Extinguishments of Liabilities." Sales under the agreement are nonrecourse to the Company. The Company bears no risk regarding the collectibility of the accounts receivable once sold, and cannot modify the pool of receivables. In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", was issued to amend the provisions of SFAS No. 125. The new standard is generally effective for all periods after March 31, 2001. The Company believes the provisions of SFAS No.140 will have no material impact on the accounting treatment and disclosures currently being applied under SFAS No.125. At January 31, 2001 and 2000, the financial institution held an interest of $43,000,000 and $55,000,000, respectively, in the pool of receivables. Sales of accounts receivable have averaged $57,900,000 and $63,400,000 per month during the fiscal year ended January 31, 2001 and 2000, respectively. These credit facilities are without recourse to the Company. The Company believes that the amounts available under these credit facilities will be sufficient to meet the Lumber Trading Group's liquidity needs. Cash Flows-Pro-Rata Consolidation Net cash provided by operating activities was $162,759,000, $124,615,000 and $105,705,000 for 2000, 1999 and 1998, respectively. The increase in net cash provided by operating activities in 2000 from 1999 is the result of an increase of $45,319,000 in rents and revenues received primarily attributable to an increase in operating revenues of $58,450,000 and a decrease in notes and accounts receivable of $11,702,000, a decrease of $17,652,000 in operating expenditures (primarily from the Lumber Trading Group) and an increase in land sales of $21,493,000, partially offset by an increase in interest paid of $27,066,000 and an increase of $19,254,000 in land development expenditures. The increase in net cash provided by operating activities in 1999 from 1998 is the result of an increase of $154,466,000 in rents and other revenues received principally comprised of an increase in consolidated revenues of $96,422,000 and a decrease in notes and accounts receivable of $41,427,000 (resulting from a decrease of $2,867,000 in 1999 versus an increase of $38,560,000 in 1998) primarily from Lumber Trading Group, and a decrease of $8,152,000 in land development expenditures. These increases were partially offset by a $119,786,000 increase in expenditures for operating expenses due to an increase in accounts payable of $31,011,000, an increase in Lumber Trading Group's inventory of $21,542,000 and a $62,217,000 increase in operating expenditures, an increase of $14,323,000 in interest paid, and a decrease of $9,599,000 in proceeds from land sales. Net cash used in investing activities totaled $471,646,000, $405,680,000, and $518,910,000 for 2000, 1999 and 1998, respectively. Capital expenditures, other than development and acquisition activities, totaled $29,156,000, $37,822,000, and $44,615,000 (including both recurring and investment capital expenditures) in 2000, 1999, and 1998, respectively, and were financed with cash provided from operating activities. The Company invested $533,537,000, $346,315,000 and $415,728,000 in acquisition and development of real estate projects in 2000, 1999 and 1998, respectively. These expenditures were financed with approximately $337,000,000, $194,000,000, and $203,000,000 in new nonrecourse mortgage indebtedness incurred in 2000, 1999 and 1998, respectively, cash provided from operations, borrowings under the long-term credit facility and, in 2000, proceeds from the disposition of properties and other investments. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 67 43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries In 2000, 1999, and 1998, $133,454,000, $-0- and $33,345,000 was collected in proceeds from the disposition of real estate properties and other investments. In 2000, proceeds from the sale of Studio Colony, Highlands, Tucson Place, and the sale of available-for-sale equity securities were used to reduce total mortgage debt by $173,120,000 (see "Mortgage Refinancings"). In 1998, proceeds were received from the disposition of San Vicente, an office building in Brentwood, California, Courtyard, a strip shopping center in Flint, Michigan, and the Company's interest in three apartment buildings in Houston, Texas. The Company invested $42,407,000, $21,543,000, and $91,912,000 in investments in and advances to affiliates in 2000, 1999 and 1998, respectively. The 2000 investments were primarily related to New York City area urban retail development ($18,754,000), and two commercial shopping centers: Mall at Stonecrest in Atlanta, Georgia ($8,648,000) and Mall at Robinson in Pittsburgh, Pennsylvania ($6,896,000). The 1999 investments were primarily in the following syndicated Residential Group projects: The Grand ($15,200,000), a 546-unit luxury high-rise apartment building in North Bethesda, Maryland that opened in February 1999; Grand Lowry Lofts ($9,600,000), 261 units under construction in Denver, Colorado; and American Cigar Co. (formerly Philip Morris-$10,300,000), a 171-unit apartment renovation project in Richmond, Virginia. In addition, investments of $10,000,000 were made on behalf of the Company's partners during 1999 for New York City area urban development projects. During 1999, a return on investment of $23,270,000 was received on 101 San Fernando in San Jose, California. The 1998 investments were primarily in the following syndicated Residential Group projects:101 San Fernando ($31,100,000); Enclave ($16,300,000) in San Jose, California; The Grand ($7,800,000); American Cigar Co. (formerly Philip Morris-$4,900,000) and The Drake ($5,200,000). In addition, investments were made during 1998 on behalf of the Company's partner for the following projects: $11,772,000 for New York City area urban development; $5,181,000 for Promenade in Temecula, a regional mall in Temecula, California; $5,400,000 for Mall at Robinson and $6,000,000 in Land Group joint ventures. Net cash provided by financing activities totaled $293,655,000, $299,631,000 and $436,980,000 in 2000, 1999, and 1998, respectively. The Company's refinancing of mortgage indebtedness is discussed above in "Mortgage Refinancings" and borrowings under new nonrecourse mortgage indebtedness for acquisition and development activities is included in the preceding paragraph discussing net cash used in investing activities. Net cash provided by financing activities for 2000 reflected a decrease in book overdrafts of $30,990,000 (representing checks issued but not yet paid), an increase in borrowings of subordinated debt of $20,400,000, a net decrease of $18,500,000 in notes payable (primarily comprised of a reduction in borrowings outstanding against the line of credit in the Lumber Trading Group), payment of deferred financing costs of $21,835,000 and payments of $6,608,000 of dividends to shareholders. Net cash provided by financing activities for 1999 reflected an increase of $25,672,000 in restricted cash primarily related to the financing of 45/75 Sidney Street ($8,676,000), an office building at University Park at MIT in Cambridge, Massachusetts, and a good faith deposit on Residential property to be acquired in the year 2000 ($11,514,000), net of an increase in book overdrafts of $19,446,000 (representing checks issued but not yet paid). In addition, the Company reported a net increase of $18,969,000 in notes payable primarily from two New York City hotels under construction payable to the hotel management company, payment of deferred financing costs of $6,021,000 and payment of $5,399,000 of dividends. Net cash provided by financing activities for 1998 reflected a reduction of $26,579,000 in restricted cash primarily related to the financing of Enclave and the sale of the mortgage servicing division of Forest City Capital Corp., net proceeds from the issuance of senior notes in March 1998 of $193,703,000, which were initially used to repay $114,000,000 of the long-term credit facility, and an increase in book overdrafts of $8,838,000 (representing checks issued but not yet paid). In addition, the Company reported a net increase of $9,110,000 in notes payable primarily from the 101 San Fernando, payment of deferred financing costs of $16,565,000 and payment of $4,497,000 of dividends. Cash Flows - Full Consolidation Net cash provided by operating activities was $206,313,000, $166,056,000 and $112,385,000 for 2000, 1999, and 1998, respectively. The increase in net cash provided by operating activities in 2000 from 1999 is the result of an increase of $63,154,000 in rents and revenues received primarily attributable to an increase in operating revenues of $75,563,000, a decrease of $15,418,000 in operating expenditures (primarily from the Lumber Trading Group), an increase in land sales of $7,450,000 and an increase in cash distributions from operations of unconsolidated entities of $11,127,000, partially offset by an increase in interest paid of $48,056,000 and an increase of $8,836,000 in land development expenditures. The increase in net cash provided by operating activities in 1999 from 1998 is the result of an increase of $148,600,000 in rents and other revenues received principally comprised of an increase in revenues of $89,088,000 and a decrease in notes and accounts receivable of $41,987,000 (resulting from a decrease of $146,000 in 1999 versus an increase of $41,841,000 in 1998) primarily from Lumber Trading Group, an increase in land sales of $6,335,000, an increase in cash distributions from operations of unconsolidated entities of $21,461,000 and a decrease of $2,639,000 in land development expenditures. These increases were partially offset by a $108,297,000 increase in expenditures for operating expenses (primarily due to an increase in accounts payable of $30,114,000, an increase in Lumber Trading Group's inventory of $21,542,000 and a $59,874,000 increase in operating expenses) and an increase of $17,067,000 in interest paid. Net cash used in investing activities totaled $519,021,000, $528,667,000, and $537,994,000 for 2000, 1999, and 1998, respectively. Capital expenditures totaled $518,709,000, $465,137,000 and $461,146,000 in 2000, 1999 and 1998, respectively, and were financed with cash provided from operating activities, new nonrecourse mortgage indebtedness, borrowings on the long-term credit facility and, in 2000, proceeds from the disposition of properties and other investments. In 2000, 1999, and 1998, $130,751,000, $-0- and $1,145,000 was collected in proceeds from the disposition of real estate properties and other investments. In 2000, proceeds from the sale of Studio Colony, Highlands, Tucson Place, and the sale of available-for-sale equity securities were used to reduce total mortgage debt by $188,545,000 (see "Mortgage FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 68 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries Refinancings"). In 1998, proceeds were received from the disposition of the Company's interest in three apartment buildings in Houston, Texas. The Company invested $131,063,000, $63,530,000 and $77,993,000 in investments in and advances to affiliates in 2000, 1999 and 1998, respectively. The 2000 investments were primarily related to New York City area urban retail development ($18,754,000), and two commercial shopping centers: Mall at Stonecrest in Atlanta, Georgia ($8,648,000) and Mall at Robinson in Pittsburgh, Pennsylvania ($6,896,000) and unconsolidated entities of $88,656,000. The 1999 investments were primarily in the following Residential Group projects: The Grand ($15,200,000), a 546-unit luxury high-rise apartment building in North Bethesda, Maryland; Grand Lowry Lofts ($9,600,000), 261 units under construction in Denver, Colorado; and American Cigar Co. (formerly Philip Morris -$10,300,000), a 171-unit apartment renovation project in Richmond, Virginia. In addition, investments of $10,000,000 were made on behalf of the Company's partners during 1999 for New York City area urban development projects, and contributions were made to unconsolidated entities of $41,987,000. During 1999, a return on investment of $23,270,000 was received on 101 San Fernando in San Jose, California. The 1998 investments were primarily in the following syndicated Residential Group projects: 101 San Fernando ($31,100,000); Enclave ($16,300,000) in San Jose, California; The Grand ($7,800,000); American Cigar Co. (formerly Philip Morris -$4,900,000) and The Drake ($5,200,000). In addition, investments were made during 1998 on behalf of the Company's partner for the following projects: $11,772,000 for New York City area urban development; $5,181,000 for Promenade in Temecula, a regional mall in Temecula, California; $5,400,000 for Mall at Robinson and $6,000,000 in Land Group joint ventures. Net cash provided by financing activities totaled $292,891,000, $379,664,000 and $450,781,000 in 2000, 1999 and 1998, respectively. The Company's refinancing of mortgage indebtedness is discussed above in "Mortgage Refinancings" and borrowings under new nonrecourse mortgage indebtedness for acquisition and development activities is included in the preceding paragraph discussing net cash used in investing activities. Net cash provided by financing activities for 2000 reflected a decrease in book overdrafts of $30,993,000 (representing checks issued but not yet paid), an increase in minority interest of $2,084,000, an increase in borrowings of subordinated debt of $20,400,000, a net decrease of $17,279,000 in notes payable (primarily comprised of a reduction in borrowings outstanding against the line of credit in the Lumber Trading Group), payment of deferred financing costs of $30,682,000 and payments of $6,608,000 of dividends to shareholders. Net cash provided by financing activities for 1999 reflected an increase of $30,442,000 in net restricted cash primarily related to the financing of 45/75 Sidney Street ($8,676,000), Columbia Park Center ($8,599,000) and a good faith deposit on Residential property to be acquired in the year 2000 ($11,514,000), net of an increase in book overdrafts of $19,359,000 (representing checks issued but not yet paid). In addition, the Company reported a net increase of $44,435,000 in notes payable primarily from two New York City hotels under construction payable to the hotel management company, minority interest of $16,376,000, payment of deferred financing costs of $6,575,000 and payment of $5,399,000 of dividends. Net cash provided by financing activities for 1998 reflected a reduction of $29,118,000 in restricted cash primarily related to the financing of Enclave apartment project in San Jose, California and the sale of the mortgage servicing division of Forest City Capital Corp., net proceeds from the issuance of senior notes in March 1998 of $193,703,000, which were initially used to repay $114,000,000 of the long-term credit facility, and an increase in book overdrafts of $5,382,000 (representing checks issued but not yet paid). In addition, the Company reported a net decrease of $782,000 in notes payable, payment of deferred financing costs of $16,072,000, minority interest of $26,116,000 and payment of $4,497,000 of dividends. SHELF REGISTRATION On December 3, 1997, the Company filed a shelf registration statement with the Securities and Exchange Commission for the potential offering on a delayed basis of up to $250,000,000 in debt or equity securities. This registration was in addition to the shelf registration filed March 4, 1997 of up to $250,000,000 in debt or equity securities. The Company has sold approximately $82,000,000 through a common equity offering completed on May 20, 1997 and $200,000,000 through a debt offering completed on March 16, 1998. The Company currently has available approximately $218,000,000 on the second shelf registration statement of debt, equity or any combination thereof. DIVIDENDS On June 7, 2000, the Board of Directors voted to increase the 2000 quarterly dividend to $.06 per share on both Class A and Class B Common Stock, representing a 20% annual increase over the previous quarterly dividend. The first, second, third and fourth 2000 quarterly dividends of $.05, $.06, $.06 and $.06, respectively, per share on shares of both Class A and Class B Common Stock were paid June 15, 2000, September 15, 2000, December 15, 2000 and March 15, 2001, respectively. The first 2001 quarterly dividend of $.06 per share on both Class A and Class B Common Stock was declared on March 9, 2001 and will be paid on June 15, 2001 to shareholders of record at the close of business on June 1, 2001. LEGAL PROCEEDINGS In September 1999, a complaint was filed in state court in Los Angeles County against Forest City Enterprises, Inc., Forest City California Residential Development, Inc., Forest City Residential West, Inc. and others. Plaintiffs were 63 construction workers who claim to have been exposed to asbestos and mold and mildew while engaged in renovation work at a construction site in Washington. Three of the plaintiffs also claimed to have been exposed to asbestos and lead paint at a construction site in California. Plaintiffs sought damages for unspecified personal injuries, lost income and diminished earning capacity and also sought punitive and treble damages. The matter has been settled as of January 31, 2001 and the cases have been dismissed. The settlement is reflected in the accompanying consolidated financial statements and did not have a material effect. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 69 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries NEW ACCOUNTING STANDARDS In May 2000, the Financial Accounting Standards Board's Emerging Issues Task force (the EITF) released Issue No. 00-1, "Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures" (effective for years ending after June 15, 2000). Effective January 31, 2001, the Company adopted this EITF which precludes the further use of the pro-rata consolidation method for partnerships. Accordingly, partnership investments that were previously reported on the pro-rata method will now be reported as consolidated at 100 percent, if deemed under the Company's control, or otherwise on the equity method of accounting. Prior to January 31, 2001, the Company used the pro-rata method of consolidation to report its partnerships. Under this method, the Company presented its partnership investments proportionate to its share of ownership for each line item of its consolidated financial statements. While a number of the line items on the Company's consolidated financial statements have changed under the new full consolidation method, there is no impact on net earnings or shareholders' equity for all years presented. This required financial reporting presentation change will have no effect on the way the Company operates or manages its business. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, requires companies to record derivatives on the balance sheet as assets or liabilities measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company uses derivative instruments to protect against the risk of adverse price or interest rate movements on the value of certain firm commitments and liabilities or on future cash flows. On February 1, 2001, the Company adopted SFAS No. 133 and, at that time, designated the derivative instruments in accordance with the requirements of the new standard. On February 1, 2001, the after-tax impact of the transition amounts of the derivative instruments resulted in a reduction of net earnings and other comprehensive income of approximately $1,000,000 and $8,000,000, respectively. The transition adjustments will be presented as cumulative effect adjustments, as described in Accounting Principles Board (APB) Opinion No. 20, "Accounting Changes", in the 2001 consolidated financial statements. The transition amounts were determined based on the interpretive guidance issued by the FASB to date. The FASB continues to issue interpretive guidance that could require changes in the Company's application of the standard and adjustments to the transition amounts. SFAS No. 133 may increase or decrease reported net earnings and shareholders' equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. In December 1999, the SEC released Staff Accounting Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial Statements", which summarizes the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB 101 in the fourth quarter of 2000, and such adoption did not have a material effect on the consolidated financial statements. In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", was issued to amend the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The new standard is generally effective for all periods after March 31, 2001. The Company believes the provisions of SFAS No. 140 will have no material impact on the accounting treatment and disclosures currently being applied under SFAS No. 125. In April 2000, FASB Interpretation 44 (FIN No. 44), "Accounting for Certain Transactions involving Stock Compensation", was issued which addresses the application of APB Opinion No. 25, "Accounting for Stock Issued to Employees". Based on the Company's current stock compensation plan and recent plan activity, FIN No. 44 has had no material impact on the consolidated financial statements. INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS This Annual Report, together with other statements and information publicly disseminated by the Company, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements reflect management's current views with respect to financial results related to future events and are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ from the results discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, the effect of economic and market conditions on a nationwide basis as well as regionally in areas where the Company has a geographic concentration of properties; failure to consummate financing arrangements; development risks, including lack of satisfactory financing, construction and lease-up delays and cost overruns; the level and volatility of interest rates; financial stability of tenants within the retail industry, which may be impacted by competition and consumer spending; the rate of revenue increases versus expense increases; the cyclical nature of the lumber wholesaling business; as well as other risks listed from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company has no obligation to revise or update any forward-looking statements as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements. FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 70 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries Summary of Earnings Before Depreciation, Amortization and Deferred Taxes - Year Ended January 31, 2001
COMMERCIAL GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ........................................ $ 538,034 $ 103,839 $ 88,646 $ 522,841 Exclude straight-line rent adjustment ........... (13,311) -- -- (13,311) Add back equity method depreciation expense ..... 12,628 -- (12,628) -- --------------------------------------------------------- Adjusted revenues ............................... 537,351 103,839 76,018 509,530 Operating expenses, including depreciation and amortization for non-Real Estate Groups .... 267,937 51,325 50,540 267,152 Exclude straight-line rent adjustment ........... (3,888) -- -- (3,888) --------------------------------------------------------- Operating expenses excluding straight-line rent adjustment ................. 264,049 51,325 50,540 263,264 Gain on disposition recorded on equity method ... 2,359 -- (2,359) -- Minority interest in earnings before depreciation and amortization .................. 20,753 20,753 -- -- Interest expense ................................ 119,015 31,761 27,837 115,091 Income tax provision ............................ 9,729 -- -- 9,729 --------------------------------------------------------- 415,905 103,839 76,018 388,084 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ...................... $ 121,446 $ -- $ -- $ 121,446 ======================================================== RESIDENTIAL GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ........................................ $ 126,458 $ 10,408 $ 51,002 $ 167,052 Exclude straight-line rent adjustment ........... -- -- -- -- Add back equity method depreciation expense ..... 7,658 -- (7,333) 325 --------------------------------------------------------- Adjusted revenues ............................... 134,116 10,408 43,669 167,377 Operating expenses, including depreciation and amortization for non-Real Estate Groups .... 48,087 4,728 30,963 74,322 Exclude straight-line rent adjustment ........... -- -- -- -- --------------------------------------------------------- Operating expenses excluding straight-line rent adjustment ................. 48,087 4,728 30,963 74,322 Gain on disposition recorded on equity method ... -- -- -- -- Minority interest in earnings before depreciation and amortization .................. 1,953 1,953 -- -- Interest expense ................................ 23,555 3,727 12,706 32,534 Income tax provision ............................ 4,734 -- -- 4,734 --------------------------------------------------------- 78,329 10,408 43,669 111,590 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ...................... $ 55,787 $ -- $ -- $ 55,787 =========================================================
LAND GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ........................................ $ 24,326 $ -- $ 40,330 $ 64,656 Operating expenses, including depreciation and amortization for non-Real Estate Groups .... 19,560 40 37,505 57,025 Minority interest in earnings before depreciation and amortization .................. (40) (40) -- -- Interest expense ................................ 1,901 -- 2,825 4,726 Income tax provision ............................ 714 -- -- 714 --------------------------------------------------------- 22,135 -- 40,330 62,465 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ...................... $ 2,191 $ -- $ -- $ 2,191 ========================================================= LUMBER TRADING GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ........................................ $ 105,427 $ -- $ -- $ 105,427 Operating expenses, including depreciation and amortization for non-Real Estate Groups .... 98,534 -- -- 98,534 Minority interest in earnings before depreciation and amortization .................. -- -- -- -- Interest expense ................................ 5,584 -- -- 5,584 Income tax provision ............................ 1,026 -- -- 1,026 --------------------------------------------------------- 105,144 -- -- 105,144 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ...................... $ 283 $ -- $ -- $ 283 =========================================================
CORPORATE ACTIVITIES --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ........................................ $ 540 $ -- $ -- $ 540 Exclude straight-line rent adjustment ........... -- -- -- -- Add back equity method depreciation expense ..... -- -- -- -- --------------------------------------------------------- Adjusted revenues ............................... 540 -- -- 540 Operating expenses, including depreciation and amortization for non-Real Estate Groups .... 13,459 -- -- 13,459 Exclude straight-line rent adjustment ........... -- -- -- -- --------------------------------------------------------- Operating expenses excluding straight-line rent adjustment ................. 13,459 -- -- 13,459 Gain on disposition recorded on equity method ... -- -- -- -- Minority interest in earnings before depreciation and amortization .................. -- -- -- -- Interest expense ................................ 32,489 -- -- 32,489 Income tax provision (benefit) .................. (13,510) -- -- (13,510) --------------------------------------------------------- 32,438 -- -- 32,438 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ...................... $ (31,898) $ -- $ -- $ (31,898) ========================================================= TOTAL --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ........................................ $ 794,785 $ 114,247 $ 179,978 $ 860,516 Exclude straight-line rent adjustment ........... (13,311) -- -- (13,311) Add back equity method depreciation expense ..... 20,286 -- (19,961) 325 --------------------------------------------------------- Adjusted revenues ............................... 801,760 114,247 160,017 847,530 Operating expenses, including depreciation and amortization for non-Real Estate Groups .... 447,577 56,093 119,008 510,492 Exclude straight-line rent adjustment ........... (3,888) -- -- (3,888) --------------------------------------------------------- Operating expenses excluding straight-line rent adjustment ................. 443,689 56,093 119,008 506,604 Gain on disposition recorded on equity method ... 2,359 -- (2,359) -- Minority interest in earnings before depreciation and amortization .................. 22,666 22,666 -- -- Interest expense ................................ 182,544 35,488 43,368 190,424 Income tax provision (benefit) .................. 2,693 -- -- 2,693 --------------------------------------------------------- 653,951 114,247 160,017 699,721 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ...................... $ 147,809 $ -- $ -- $ 147,809 ======================================================== RECONCILIATION TO NET EARNINGS: Earnings before depreciation, amortization and deferred taxes (EBDT) ...................... $ 147,809 $ -- $ -- $ 147,809 Depreciation and amortization - Real Estate Groups ................................. (95,763) -- -- (95,763) Deferred taxes - Real Estate Groups ............. (23,518) -- -- (23,518) Straight-line rent adjustment ................... 9,423 -- -- 9,423 Provision for decline in real estate, net of tax .................................... (744) -- -- (744) Gain on disposition of properties and other investments, net of tax ....................... 51,821 (250) 2,359 54,430 Minority interest in gain on disposition ........ 250 250 -- -- Gain on disposition reported on equity method ... 2,359 -- (2,359) -- --------------------------------------------------------- NET EARNINGS .................................... $ 91,637 $ -- $ -- $ 91,637 =========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 71 47 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries Summary of Earnings Before Depreciation, Amortization and Deferred Taxes - Year Ended January 31, 2000
COMMERCIAL GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 419,910 $ 63,675 $ 86,757 $ 442,992 Add back equity method depreciation expense .... 11,843 -- (11,843) -- --------------------------------------------------------- Adjusted revenues .............................. 431,753 63,675 74,914 442,992 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 212,794 28,606 47,010 231,198 Loss on disposition recorded on equity method .. (411) -- 411 -- Minority interest in earnings before depreciation and amortization ................. 14,168 14,168 -- -- Interest expense ............................... 87,764 20,901 27,493 94,356 Income tax provision ........................... 11,561 -- -- 11,561 --------------------------------------------------------- 325,876 63,675 74,914 337,115 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 105,877 $ -- $ -- $ 105,877 ========================================================= RESIDENTIAL GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 115,681 $ 4,569 $ 47,656 $ 158,768 Add back equity method depreciation expense .... 6,740 -- (6,740) -- --------------------------------------------------------- Adjusted revenues .............................. 122,421 4,569 40,916 158,768 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 50,037 2,748 26,752 74,041 Loss on disposition recorded on equity method .. -- -- -- -- Minority interest in earnings before depreciation and amortization ................. 693 693 -- -- Interest expense ............................... 13,411 1,128 14,164 26,447 Income tax provision ........................... 11,869 -- -- 11,869 --------------------------------------------------------- 76,010 4,569 40,916 112,357 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 46,411 $ -- $ -- $ 46,411 =========================================================
LAND GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 13,242 $ -- $ 28,114 $ 41,356 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 11,843 -- 27,889 39,732 Interest expense ............................... 7,145 -- 225 7,370 Income tax provision (benefit) ................. (2,257) -- -- (2,257) --------------------------------------------------------- 16,731 -- 28,114 44,845 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ (3,489) $ -- $ -- $ (3,489) ========================================================= LUMBER TRADING GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 149,357 $ -- $ -- $ 149,357 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 131,811 -- -- 131,811 Interest expense ............................... 5,288 -- -- 5,288 Income tax provision (benefit) ................. 5,188 -- -- 5,188 --------------------------------------------------------- 142,287 -- -- 142,287 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 7,070 $ -- $ -- $ 7,070 =========================================================
CORPORATE ACTIVITIES --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 598 $ -- $ -- $ 598 Add back equity method depreciation expense .... -- -- -- -- --------------------------------------------------------- Adjusted revenues .............................. 598 -- -- 598 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 12,786 -- -- 12,786 Loss on disposition recorded on equity method .. -- -- -- -- Minority interest in earnings before depreciation and amortization ................. -- -- -- -- Interest expense ............................... 26,258 -- -- 26,258 Income tax provision (benefit) ................. (15,216) -- -- (15,216) --------------------------------------------------------- 23,828 -- -- 23,828 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ (23,230) $ -- $ -- $ (23,230) ========================================================= TOTAL --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 698,788 $ 68,244 $ 162,527 $ 793,071 Add back equity method depreciation expense .... 18,583 -- (18,583) -- --------------------------------------------------------- Adjusted revenues .............................. 717,371 68,244 143,944 793,071 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 419,271 31,354 101,651 489,568 Loss on disposition recorded on equity method .. (411) -- 411 -- Minority interest in earnings before depreciation and amortization ................. 14,861 14,861 -- -- Interest expense ............................... 139,866 22,029 41,882 159,719 Income tax provision (benefit) ................. 11,145 -- -- 11,145 --------------------------------------------------------- 584,732 68,244 143,944 660,432 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 132,639 $ -- $ -- $ 132,639 ========================================================= RECONCILIATION TO NET EARNINGS: Earnings before depreciation, amortization and deferred taxes (EBDT) .................... $ 132,639 $ -- $ -- $ 132,639 Depreciation and amortization - Real Estate Groups ................................ (84,586) -- -- (84,586) Deferred taxes - Real Estate Groups ............ (12,453) -- -- (12,453) Provision for decline in real estate, net of tax ................................... (3,060) -- -- (3,060) Gain on disposition of properties and other investments, net of tax ...................... 11,139 2,738 (411) 7,990 Minority interest in gain on disposition ....... (2,738) (2,738) -- -- Loss on disposition reported on equity method .. (411) -- 411 -- Extraordinary gain, net of tax ................. 272 -- -- 272 --------------------------------------------------------- NET EARNINGS ................................... $ 40,802 $ -- $ -- $ 40,802 =========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 72 48 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forest City Enterprises, Inc. and Subsidiaries Summary of Earnings Before Depreciation, Amortization and Deferred Taxes - Year Ended January 31, 1999
COMMERCIAL GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 364,576 $ 58,395 $ 67,925 $ 374,106 Add back equity method depreciation expense .... 10,233 -- (10,233) -- --------------------------------------------------------- Adjusted revenues .............................. 374,809 58,395 57,692 374,106 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 179,145 26,014 42,833 195,964 Gain on disposition recorded on equity method .. 11,025 -- (11,025) -- Minority interest in earnings before depreciation and amortization ................. 12,365 12,365 -- -- Interest expense ............................... 85,423 20,016 25,884 91,291 Income tax provision ........................... 441 -- -- 441 --------------------------------------------------------- 288,399 58,395 57,692 287,696 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 86,410 $ -- $ -- $ 86,410 ========================================================= RESIDENTIAL GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 95,966 $ 4,245 $ 47,282 $ 139,003 Add back equity method depreciation expense .... 6,272 -- (6,272) -- --------------------------------------------------------- Adjusted revenues .............................. 102,238 4,245 41,010 139,003 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 43,069 2,773 25,952 66,248 Gain on disposition recorded on equity method .. -- -- -- -- Minority interest in earnings before depreciation and amortization ................. 192 192 -- -- Interest expense ............................... 13,564 1,280 15,058 27,342 Income tax provision ........................... 6,799 -- -- 6,799 --------------------------------------------------------- 63,624 4,245 41,010 100,389 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 38,614 $ -- $ -- $ 38,614 =========================================================
LAND GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 24,387 $ -- $ 34,382 $ 58,769 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 11,864 -- 28,670 40,534 Interest expense ............................... 1,102 -- 5,712 6,814 Income tax provision ........................... 618 -- -- 618 --------------------------------------------------------- 13,584 -- 34,382 47,966 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 10,803 $ -- $ -- $ 10,803 ========================================================= LUMBER TRADING GROUP --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 123,325 $ -- $ -- $ 123,325 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 111,998 -- -- 111,998 Interest expense ............................... 5,262 -- -- 5,262 Income tax provision ........................... 2,838 -- -- 2,838 --------------------------------------------------------- 120,098 -- -- 120,098 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 3,227 $ -- $ -- $ 3,227 =========================================================
CORPORATE ACTIVITIES --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 1,446 $ -- $ -- $ 1,446 Add back equity method depreciation expense .... -- -- -- -- --------------------------------------------------------- Adjusted revenues .............................. 1,446 -- -- 1,446 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 12,766 -- -- 12,766 Gain on disposition recorded on equity method .. -- -- -- -- Minority interest in earnings before depreciation and amortization ................. -- -- -- -- Interest expense ............................... 19,251 -- -- 19,251 Income tax provision (benefit) ................. (9,371) -- -- (9,371) --------------------------------------------------------- 22,646 -- -- 22,646 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ (21,200) $ -- $ -- $ (21,200) ========================================================= TOTAL --------------------------------------------------------- Plus Less Unconsolidated Full Minority Investments at Pro-Rata Consolidation Interest Pro-Rata Consolidation ----------------------------------------------------------------------------------------------------------- Revenues ....................................... $ 609,700 $ 62,640 $ 149,589 $ 696,649 Add back equity method depreciation expense .... 16,505 -- (16,505) -- --------------------------------------------------------- Adjusted revenues .............................. 626,205 62,640 133,084 696,649 Operating expenses, including depreciation and amortization for non-Real Estate Groups ... 358,842 28,787 97,455 427,510 Gain on disposition recorded on equity method .. 11,025 -- (11,025) -- Minority interest in earnings before depreciation and amortization ................. 12,557 12,557 -- -- Interest expense ............................... 124,602 21,296 46,654 149,960 Income tax provision (benefit) ................. 1,325 -- -- 1,325 --------------------------------------------------------- 508,351 62,640 133,084 578,795 --------------------------------------------------------- EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT) ..................... $ 117,854 $ -- $ -- $ 117,854 ========================================================= RECONCILIATION TO NET EARNINGS: Earnings before depreciation, amortization and deferred taxes (EBDT) .................... $ 117,854 $ -- $ -- $ 117,854 Depreciation and amortization - Real Estate Groups ................................ (83,655) -- -- (83,655) Deferred taxes - Real Estate Groups ............ (14,236) -- -- (14,236) Gain on disposition of properties and other investments, net of tax ................ 7,419 -- 11,025 18,444 Gain on disposition reported on equity method ................................ 11,025 -- (11,025) -- Extraordinary gain, net of tax ................. 16,343 -- -- 16,343 --------------------------------------------------------- NET EARNINGS ................................... $ 54,750 $ -- $ -- $ 54,750 =========================================================
FOREST CITY ENTERPRISES INC. - 2000 ANNUAL REPORT 73