FOREST CITY ENTERPRISES INC - 10-Q Quarterly Report

Terminal Tower
Suite 1100

50 Public Square
Cleveland, Ohio

(Address of principal executive offices)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarter Ended		July 31, 2002


Commission file number		1-4372

FOREST CITY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)


Ohio		34-0863886

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Registrant’s telephone number, including area code		216-621-6060

(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at August 26, 2002

Class A Common Stock, $.33 1/3 par value		35,468,753 shares

Class B Common Stock, $.33 1/3 par value		14,181,906 shares

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security-Holders
	Item 6. Exhibits and Reports on Form 8-K
CERTIFICATION
EX 10.25 Employment Agreement
EX 10.31 Employment Agreement
EX 10.32 Employment Agreement

FOREST CITY ENTERPRISES, INC.

Table of Contents


			Page No.

PART I. FINANCIAL INFORMATION

	Item 1. Financial Statements
		Forest City Enterprises, Inc. and Subsidiaries

		Consolidated Balance Sheets — July 31, 2002 (Unaudited) and January 31, 2002		3

		Consolidated Statements of Earnings (Unaudited) — Three Months and Six Months Ended July 31, 2002 and 2001		4

		Consolidated Statements of Comprehensive Income (Unaudited) — Six Months Ended July 31, 2002 and 2001		5

		Consolidated Statements of Shareholders’ Equity (Unaudited) — Six Months Ended July 31, 2002 and 2001		5

		Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended July 31, 2002 and 2001		6

		Notes to Consolidated Financial Statements (Unaudited)		7-20

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21-38

	Item 3. Quantitative and Qualitative Disclosures about Market Risk			39-41

	Item 4. Controls and Procedures			42

PART II. OTHER INFORMATION

	Item 1. Legal Proceedings			42

	Item 4. Submission of Matters to a Vote of Security-Holders			42

	Item 6. Exhibits and Reports on Form 8-K			43-48

Signatures				49

Section 302 Certifications				50-51

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets


			July 31, 2002			January 31, 2002

			(Unaudited)
			(in thousands)
Assets
Real Estate
	Completed rental properties		$	3,776,618		$	3,458,756
	Projects under development			466,999			461,204
	Land held for development or sale			32,536			24,193

		Real Estate, at cost		4,276,153			3,944,153
	Less accumulated depreciation			(581,452	)		(537,325	)

		Total Real Estate		3,694,701			3,406,828

Cash and equivalents				33,210			50,054
Restricted cash				110,937			113,073
Notes and accounts receivable, net				267,760			276,000
Inventories				38,587			39,247
Investments in and advances to real estate affiliates				426,272			394,303
Other assets				141,471			138,141

		Total Assets	$	4,712,938		$	4,417,646

Liabilities and Shareholders’ Equity
Liabilities
Mortgage debt, nonrecourse			$	2,803,017		$	2,620,598
Notes payable				66,655			64,554
Long-term credit facility				161,750			54,000
Senior and subordinated debt				220,400			220,400
Accounts payable and accrued expenses				470,467			499,722
Deferred income taxes				230,847			227,982

	Total Liabilities			3,953,136			3,687,256

Minority Interest				74,644			67,877

Commitments and Contingencies

Shareholders’ Equity
Preferred stock – convertible, without par value 5,000,000 shares authorized; no shares issued				–			–
Common stock – $.33 1/3 par value
	Class A, 96,000,000 shares authorized; 35,626,772 and 35,101,288 shares issued, 35,465,753 and 34,756,382 outstanding, respectively			11,876			11,700
	Class B, convertible, 36,000,000 shares authorized; 14,599,056 and 15,124,540 shares issued, 14,181,906 and 14,707,390 outstanding, respectively			4,866			5,042

				16,742			16,742
Additional paid-in capital				231,610			228,263
Retained earnings				450,294			432,939

				698,646			677,944
Less treasury stock, at cost; 161,019 Class A and 417,150 Class B shares and 344,906 Class A and 417,150 Class B shares, respectively				(4,496	)		(6,140	)
Accumulated other comprehensive loss				(8,992	)		(9,291	)

	Total Shareholders’ Equity			685,158			662,513

		Total Liabilities and Shareholders’ Equity	$	4,712,938		$	4,417,646

See notes to consolidated financial statements.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)


		Three Months Ended July 31,					Six Months Ended July 31,

		2002		2001			2002			2001

		(in thousands, except per share data)
Revenues
	Rental properties	$	206,004	$	180,334		$	384,478		$	340,320
	Lumber trading		23,337		36,016			49,600			61,929
	Equity in earnings of unconsolidated entities		10,564		13,913			20,758			19,697

			239,905		230,263			454,836			421,946

Expenses
	Operating expenses		144,006		134,030			271,755			242,729
	Interest expense		46,000		45,774			89,336			91,166
	Depreciation and amortization		28,148		24,040			55,184			47,147

			218,154		203,844			416,275			381,042

(Loss) gain on disposition of operating properties and other investments			–		(329	)		(116	)		1,263

Earnings before income taxes			21,751		26,090			38,445			42,167

Income tax expense
	Current		3,785		5,489			10,751			7,487
	Deferred		3,164		3,848			2,943			7,850

			6,949		9,337			13,694			15,337

Earnings before minority interest, extraordinary (loss) gain and cumulative effect of change in accounting principle			14,802		16,753			24,751			26,830

Minority interest			2,119		1,281			1,702			1,711

Earnings before extraordinary (loss) gain and cumulative effect of change in accounting principle			12,683		15,472			23,049			25,119

Extraordinary (loss) gain, net of tax			–		–			(230	)		637
Cumulative effect of change in accounting principle, net of tax			–		–			–			(1,202	)

Net earnings		$	12,683	$	15,472		$	22,819		$	24,554

Basic earnings per common share
	Earnings before extraordinary (loss) gain and cumulative effect of change in accounting principle	$	.26	$	.34		$	.47		$	.55
	Extraordinary (loss) gain, net of tax		–		–			(.01	)		.01
	Cumulative effect of change in accounting principle, net of tax		–		–			–			(.02	)

Net earnings		$	.26	$	.34		$	.46		$	.54

Diluted earnings per common share
	Earnings before extraordinary (loss) gain and cumulative effect of change in accounting principle	$	.25	$	.34		$	.46		$	.55
	Extraordinary (loss) gain, net of tax		–		–			(.01	)		.01
	Cumulative effect of change in accounting principle, net of tax		–		–			–			(.02	)

Net earnings		$	.25	$	.34		$	.45		$	.54

See notes to consolidated financial statements.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)


			Six Months Ended July 31,

			2002			2001

			(in thousands)
Net earnings			$	22,819		$	24,554

Other comprehensive income (loss), net of tax:
	Unrealized losses on investments in securities:
		Unrealized loss on securities		(627	)		(3,449	)
	Unrealized derivative gains (losses):
		Cumulative effect of change in accounting principle — transition adjustment of interest rate contracts, net of minority interest		–			(7,820	)
		Change in unrealized losses on interest rate contracts, net of minority interest		926			(633	)

Other comprehensive income (loss), net of tax				299			(11,902	)

Comprehensive income			$	23,118		$	12,652

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(Unaudited)


		Common Stock

		Class A				Class B						Additional						Treasury Stock						Accumulated Other
												Paid-In			Retained									Comprehensive
		Shares		Amount		Shares			Amount			Capital			Earnings			Shares			Amount			Income (Loss)			Total

		(in thousands)
Six Months Ended July 31, 2002
	Balances at January 31, 2002		35,101	$	11,700		15,125		$	5,042		$	228,263		$	432,939			762		$	(6,140	)	$	(9,291	)	$	662,513
	Net earnings															22,819												22,819
	Other comprehensive income, net of tax																								299			299
	Dividends $.11 per share															(5,464	)											(5,464	)
	Conversion of Class B to Class A shares		526		176		(526	)		(176	)																	—
	Income tax benefit from stock option exercises												1,412															1,412
	Exercise of stock options												1,389						(184	)		1,644						3,033
	Amortization of unearned compensation												546															546

	Balances at July 31, 2002		35,627	$	11,876		14,599		$	4,866		$	231,610		$	450,294			578		$	(4,496	)	$	(8,992	)	$	685,158

Six Months Ended July 31, 2001
	Balances at January 31, 2001, as adjusted for the three-for-two stock split effective November 14, 2001		30,543	$	10,181		15,783		$	5,261		$	108,863		$	338,792			1,230		$	(10,330	)	$	3,869		$	456,636
	Net earnings															24,554												24,554
	Other comprehensive loss, net of tax																								(11,902	)		(11,902	)
	Dividends $.0867 per share															(3,939	)											(3,939	)
	Conversion of Class B to Class A shares		334		111		(334	)		(111	)																	—
	Exercise of stock options												1,022						(278	)		2,492						3,514
	Restricted stock issued												(1,009	)					(113	)		1,009						—
	Amortization of unearned compensation												193															193

	Balances at July 31, 2001, as adjusted		30,877	$	10,292		15,449		$	5,150		$	109,069		$	359,407			839		$	(6,829	)	$	(8,033	)	$	469,056

See notes to consolidated financial statements.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)


			Six Months Ended July 31,

			2002			2001

			(in thousands)
Cash Flows from Operating Activities
	Rents and other revenues received		$	400,481		$	363,094
	Cash distributions from unconsolidated entities			9,559			18,292
	Proceeds from land sales			37,106			4,302
	Land development expenditures			(25,932	)		(16,492	)
	Operating expenditures			(277,497	)		(254,531	)
	Interest paid			(85,459	)		(90,369	)

		Net cash provided by operating activities		58,258			24,296

Cash Flows from Investing Activities
	Capital expenditures			(323,910	)		(143,081	)
	Proceeds from disposition of operating properties and other investments			–			2,693
	Changes in investments in and advances to real estate affiliates			(20,212	)		(21,103	)

		Net cash used in investing activities		(344,122	)		(161,491	)

Cash Flows from Financing Activities
	Increase in nonrecourse mortgage debt and long-term credit facility			415,565			249,079
	Principal payments on nonrecourse mortgage debt			(41,526	)		(173,612	)
	Payments on long-term credit facility			(84,250	)		–
	Increase in notes payable			11,807			35,829
	Payments on notes payable			(9,706	)		(12,561	)
	Change in restricted cash and unpaid checks			(20,513	)		108
	Payment of deferred financing costs			(5,501	)		(5,188	)
	Exercise of stock options			3,033			3,514
	Dividends paid to shareholders			(4,954	)		(3,618	)
	Increase in minority interest			5,065			10,776

		Net cash provided by financing activities		269,020			104,327

Net decrease in cash and equivalents				(16,844	)		(32,868	)
Cash and equivalents at beginning of period				50,054			64,265

Cash and equivalents at end of period			$	33,210		$	31,397

Reconciliation of Net Earnings to Cash Provided by Operating Activities
	Net Earnings		$	22,819		$	24,554
	Minority interest			1,702			1,711
	Depreciation			46,371			38,628
	Amortization			8,813			8,519
	Equity in earnings of unconsolidated entities			(20,758	)		(19,697	)
	Cash distributions from unconsolidated entities			9,559			18,292
	Deferred income taxes			2,669			7,063
	Loss (gain) on disposition of operating properties and other investments			116			(1,263	)
	Extraordinary loss (gain)			380			(1,054	)
	Cumulative effect of change in accounting principle			–			1,988
	Decrease (increase) in land included in projects under development			1,872			(19,872	)
	Decrease in land included in completed rental properties			220			–
	Increase in land held for development or sale			(8,343	)		(2,965	)
	Decrease (increase) in notes and accounts receivable			8,240			(25,985	)
	Decrease in inventories			660			1,342
	(Increase) decrease in other assets			(7,509	)		3,961
	Decrease in accounts payable and accrued expenses			(8,553	)		(10,926	)

		Net cash provided by operating activities	$	58,258		$	24,296

See notes to consolidated financial statements.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Standards

Accounting for Derivative Instruments and Hedging Activities

During the three and six months ended July 31, 2002, the Company recorded $15,000 and $185,000, respectively, as an increase of interest expense in the Consolidated Statements of Earnings, which represented the ineffective portion of its cash flow hedges. During the three and six months ended July 31, 2001 the Company recorded $1,297,000 and $618,000, respectively, as an increase of interest expense due to the ineffective portion of its cash flow hedges. The amount of hedge ineffectiveness relating to hedges designated and qualifying as fair value hedges was not material. The amount of net derivative losses reclassified into earnings from accumulated other comprehensive loss as a result of forecasted transactions that did not occur by the end of the originally specified time period or within an additional two-month period of time thereafter was $-0- and $680,000 for the three and six months ended July 31, 2002, respectively, and was negligible for the three and six months ended July 31, 2001. As of July 31, 2002, the Company expects that within the next twelve months it will reclassify amounts recorded in accumulated other comprehensive loss into earnings as interest expense associated with the effectiveness of cash flow hedges of approximately $3,494,000, net of tax.

At July 31 and January 31, 2002, London Interbank Offered Rate (LIBOR) interest rate caps and Treasury Options were reported at their fair value of $507,000 and $1,600,000, respectively, in the Consolidated Balance Sheets as other assets. The fair value of interest rate swap agreements at July 31 and January 31, 2002 was an unrealized loss of $4,656,000 and $5,300,000, respectively, and is included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

New Accounting Standards

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” which eliminates the requirement to report gains and losses from extinguishment of debt as extraordinary items unless they meet the criteria of Accounting Principles Board (APB) Opinion No. 30. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The new standard becomes effective for the Company for the year ending January 31, 2004. The Company currently records gain or loss from the early extinguishment of debt as an extraordinary item pursuant to the guidance in SFAS No. 4 “Reporting Gains and Losses from Extinguishment of Debt”. Upon adoption of SFAS No. 145, these gains and losses will be recorded as ordinary income or loss. The Company does not expect this pronouncement to have any other material impact on the Company’s financial position, results of operations or cash flows.

In July 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”. This statement requires the recognition of cost associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect this statement to have a material impact on the Company’s financial position, results of operations or cash flows.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation

The Company reports all financial information, unless otherwise noted, using the full consolidation method. A reconciliation of the Company’s financial statement presentation (full consolidation method) to its historical presentation (pro-rata consolidation method used prior to the year ended January 31, 2001) is as follows.

Consolidated Balance Sheet — July 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Assets

Real Estate

Completed rental properties

3,776,618

610,360

847,661

4,013,919

Projects under development

466,999

58,492

113,205

521,712

Land held for development or sale

32,536

–

39,453

71,989

Real Estate, at cost

4,276,153

668,852

1,000,319

4,607,620

Less accumulated depreciation

(581,452

)

(88,842

)

(190,820

)

(683,430

)

Total Real Estate

3,694,701

580,010

809,499

3,924,190

Cash and equivalents

33,210

8,412

29,779

54,577

Restricted cash

110,937

20,303

38,226

128,860

Notes and accounts receivable, net

267,760

24,959

8,973

251,774

Inventories

38,587

–

38,587

Investments in and advances to real estate affiliates

426,272

–

(28,940

)

397,332

Other assets

141,471

21,648

27,575

147,398

Total Assets

4,712,938

655,332

885,112

4,942,718

Liabilities and Shareholders’ Equity

Liabilities

Mortgage debt, nonrecourse

2,803,017

501,652

837,660

3,139,025

Notes payable

66,655

14,359

2,915

55,211

Long-term credit facility

161,750

–

161,750

Senior and subordinated debt

220,400

–

220,400

Accounts payable and accrued expenses

470,467

64,677

44,537

450,327

Deferred income taxes

230,847

–

230,847

Total Liabilities

3,953,136

580,688

885,112

4,257,560

Minority Interest

74,644

–

Total Shareholders’ Equity

685,158

–

685,158

Total Liabilities and Shareholders’ Equity

4,712,938

655,332

885,112

4,942,718

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings – Three Months Ended July 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Revenues

Rental properties

206,004

34,430

49,635

221,209

Lumber trading

23,337

–

23,337

Equity in earnings of unconsolidated entities

10,564

–

(5,375

)

5,189

239,905

34,430

44,260

249,735

Expenses

Operating expenses

144,006

19,123

26,226

151,109

Interest expense

46,000

8,514

11,901

49,387

Depreciation and amortization

28,148

4,674

6,133

29,607

218,154

32,311

44,260

230,103

Earnings before income taxes

21,751

2,119

–

19,632

Income tax expense

Current

3,785

–

3,785

Deferred

3,164

–

3,164

6,949

–

6,949

Earnings before minority interest

14,802

2,119

–

12,683

Minority interest

2,119

–

Net earnings

12,683

–

12,683

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings — Six Months Ended July 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Revenues

Rental properties

384,478

63,292

100,159

421,345

Lumber trading

49,600

–

49,600

Equity in earnings of unconsolidated entities

20,758

–

(11,317

)

9,441

454,836

63,292

88,842

480,386

Expenses

Operating expenses

271,755

35,670

53,199

289,284

Interest expense

89,336

16,824

23,536

96,048

Depreciation and amortization

55,184

9,096

12,107

58,195

416,275

61,590

88,842

443,527

Loss on disposition of operating properties and other investments

(116

)

–

(116

)

Earnings before income taxes

38,445

1,702

–

36,743

Income tax expense

Current

10,751

–

10,751

Deferred

2,943

–

2,943

13,694

–

13,694

Earnings before minority interest and extraordinary loss

24,751

1,702

–

23,049

Minority interest

1,702

–

Earnings before extraordinary loss

23,049

–

23,049

Extraordinary loss, net of tax

(230

)

–

(230

)

Net earnings

22,819

–

22,819

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings — Three Months Ended July 31, 2001


							Plus
							Unconsolidated
					Less Minority		Investments at			Pro-Rata
		Full Consolidation			Interest		Pro-Rata			Consolidation

		(in thousands)
Revenues
	Rental properties	$	180,334		$	32,005	$	46,159		$	194,488
	Lumber trading		36,016			–		–			36,016
	Equity in earnings of unconsolidated entities		13,913			–		(11,695	)		2,218

			230,263			32,005		34,464			232,722

Expenses
	Operating expenses		134,030			18,399		24,314			139,945
	Interest expense		45,774			8,101		10,178			47,851
	Depreciation and amortization		24,040			4,224		5,005			24,821

			203,844			30,724		39,497			212,617

(Loss) gain on disposition of operating properties and other investments			(329	)		–		5,033			4,704

Earnings before income taxes			26,090			1,281		–			24,809

Income tax expense
	Current		5,489			–		–			5,489
	Deferred		3,848			–		–			3,848

			9,337			–		–			9,337

Earnings before minority interest			16,753			1,281		–			15,472
Minority interest			1,281			1,281		–			–

Net earnings		$	15,472		$	–	$	–		$	15,472

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings — Six Months Ended July 31, 2001


							Plus
							Unconsolidated
					Less Minority		Investments at			Pro-Rata
		Full Consolidation			Interest		Pro-Rata			Consolidation

		(in thousands)
Revenues
	Rental properties	$	340,320		$	60,569	$	91,504		$	371,255
	Lumber trading		61,929			–		–			61,929
	Equity in earnings of unconsolidated entities		19,697			–		(13,909	)		5,788

			421,946			60,569		77,595			438,972

Expenses
	Operating expenses		242,729			32,688		49,988			260,029
	Interest expense		91,166			17,841		22,562			95,887
	Depreciation and amortization		47,147			8,329		10,078			48,896

			381,042			58,858		82,628			404,812

Gain on disposition of operating properties and other investments			1,263			–		5,033			6,296

Earnings before income taxes			42,167			1,711		–			40,456

Income tax expense
	Current		7,487			–		–			7,487
	Deferred		7,850			–		–			7,850

			15,337			–		–			15,337

Earnings before minority interest, extraordinary gain and cumulative effect of change in accounting principle			26,830			1,711		–			25,119
Minority interest			1,711			1,711		–			–

Earnings before extraordinary gain and cumulative effect of change in accounting principle			25,119			–		–			25,119
Extraordinary gain, net of tax			637			–		–			637
Cumulative effect of change in accounting principle, net of tax			(1,202	)		–		–			(1,202	)

Net earnings		$	24,554		$	–	$	–		$	24,554

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation (continued)

Consolidated Statement of Cash Flows — Six Months Ended July 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Cash Flows from Operating Activities

Rents and other revenues received

400,481

51,390

99,590

448,681

Cash distributions from unconsolidated entities

9,559

–

(9,559

)

–

Proceeds from land sales

37,106

2,669

5,599

40,036

Land development expenditures

(25,932

)

(1,381

)

(10,484

)

(35,035

)

Operating expenditures

(277,497

)

(22,891

)

(48,000

)

(302,606

)

Interest paid

(85,459

)

(15,655

)

(23,309

)

(93,113

)

Net cash provided by operating activities

58,258

14,132

13,837

57,963

Cash Flows from Investing Activities

Capital expenditures

(323,910

)

(19,415

)

(57,458

)

(361,953

)

Change in investments in and advances to real estate affiliates

(20,212

)

–

(2,628

)

(22,840

)

Net cash used in investing activities

(344,122

)

(19,415

)

(60,086

)

(384,793

)

Cash Flows from Financing Activities

Increase in nonrecourse mortgage debt and long-term credit facility

415,565

12,999

56,425

458,991

Principal payments on nonrecourse mortgage debt

(41,526

)

(6,566

)

(7,005

)

(41,965

)

Payments on long-term credit facility

(84,250

)

–

(84,250

)

Increase in notes payable

11,807

3,752

15,498

Payments on notes payable

(9,706

)

(500

)

(4,032

)

(13,238

)

Change in restricted cash and unpaid checks

(20,513

)

(2,114

)

(5,572

)

(23,971

)

Payment of deferred financing costs

(5,501

)

(280

)

(2,402

)

(7,623

)

Exercise of stock options

3,033

–

3,033

Dividends paid to shareholders

(4,954

)

–

(4,954

)

Increase in minority interest

5,065

–

Net cash provided by financing activities

269,020

8,665

41,166

301,521

Net (decrease) increase in cash and equivalents

(16,844

)

3,382

(5,083

)

(25,309

)

Cash and equivalents at beginning of year

50,054

5,030

34,862

79,886

Cash and equivalents at end of year

33,210

8,412

29,779

54,577

Reconciliation of Net Earnings to

Cash Provided by Operating Activities

Net Earnings

22,819

–

22,819

Minority interest

1,702

–

Depreciation

46,371

7,289

10,473

49,555

Amortization

8,813

1,807

1,634

8,640

Equity in earnings of unconsolidated entities

(20,758

)

–

11,317

(9,441

)

Cash distributions from unconsolidated entities

9,559

–

(9,559

)

–

Deferred income taxes

2,669

–

2,669

Loss on disposition of operating properties and other investments

116

–

116

Extraordinary loss

380

–

380

Decrease in land included in projects under development

1,872

222

2,006

3,656

Decrease in land included in completed rental properties

220

–

172

Increase in land held for development or sale

(8,343

)

–

(6,761

)

(15,104

)

Decrease (increase) in notes and accounts receivable

8,240

(7,160

)

5,069

20,469

Decrease in inventories

660

–

660

(Increase) decrease in other assets

(7,509

)

2,995

(701

)

(11,205

)

(Decrease) increase in accounts payable and accrued expenses

(8,553

)

7,229

359

(15,423

)

Net cash provided by operating activities

58,258

14,132

13,837

57,963

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

B. Financial Statement Presentation (continued)

Consolidated Statement of Cash Flows — Six Months Ended July 31, 2001


										Plus
										Unconsolidated
							Less Minority			Investments at			Pro-Rata
				Full Consolidation			Interest			Pro-Rata			Consolidation

				(in thousands)
Cash Flows from Operating Activities
		Rents and other revenues received		$	363,094		$	55,756		$	78,312		$	385,650
		Cash distributions from unconsolidated entities			18,292			–			(18,292	)		–
		Proceeds from land sales			4,302			–			13,299			17,601
		Land development expenditures			(16,492	)		(1,456	)		(9,336	)		(24,372	)
		Operating expenditures			(254,531	)		(32,746	)		(55,025	)		(276,810	)
		Interest paid			(90,369	)		(17,647	)		(22,795	)		(95,517	)

			Net cash provided by (used in) operating activities		24,296			3,907			(13,837	)		6,552

Cash Flows from Investing Activities
		Capital expenditures			(143,081	)		6,347			(59,816	)		(209,244	)
		Proceeds from disposition of operating properties and other investments			2,693			–			6,428			9,121
		Change in investments in and advances to real estate affiliates			(21,103	)		–			24,763			3,660

			Net cash (used in) provided by investing activities		(161,491	)		6,347			(28,625	)		(196,463	)

Cash Flows from Financing Activities
		Increase in nonrecourse mortgage debt and long-term credit facility			249,079			59,464			82,304			271,919
		Principal payments on nonrecourse mortgage debt			(173,612	)		(79,034	)		(15,050	)		(109,628	)
		Increase in notes payable			35,829			–			7,521			43,350
		Payments on notes payable			(12,561	)		–			(11,292	)		(23,853	)
		Change in restricted cash and unpaid checks			108			(3,166	)		(21,566	)		(18,292	)
		Payment of deferred financing costs			(5,188	)		218			(575	)		(5,981	)
		Exercise of stock options			3,514			–			–			3,514
		Dividends paid to shareholders			(3,618	)		–			–			(3,618	)
		Increase in minority interest			10,776			10,776			–			–

			Net cash provided by (used in) financing activities		104,327			(11,742	)		41,342			157,411

Net decrease in cash and equivalents					(32,868	)		(1,488	)		(1,120	)		(32,500	)
Cash and equivalents at beginning of period					64,265			8,653			26,351			81,963

Cash and equivalents at end of period				$	31,397		$	7,165		$	25,231		$	49,463

Reconciliation of Net Earnings to
	Cash Provided by (Used in) Operating Activities
		Net Earnings		$	24,554		$	–		$	–		$	24,554
		Minority interest			1,711			1,711			–			–
		Depreciation			38,628			6,285			8,798			41,141
		Amortization			8,519			2,044			1,280			7,755
		Equity in earnings of unconsolidated entities			(19,697	)		–			13,909			(5,788	)
		Cash distributions from unconsolidated entities			18,292			–			(18,292	)		–
		Deferred income taxes			7,063			–			–			7,063
		Gain on disposition of operating properties and other investments			(1,263	)		–			(5,033	)		(6,296	)
		Extraordinary gain			(1,054	)		–			–			(1,054	)
		Cumulative effect of change in accounting principle			1,988			–			–			1,988
		Increase in land included in projects under development			(19,872	)		(1,951	)		(294	)		(18,215	)
		Decrease in land included in completed rental properties			–			–			191			191
		Increase in land held for development or sale			(2,965	)		–			(3,568	)		(6,533	)
		Increase in notes and accounts receivable			(25,985	)		(2,872	)		(77	)		(23,190	)
		Decrease in inventories			1,342			–			–			1,342
		Decrease (increase) in other assets			3,961			1,814			(6,956	)		(4,809	)
		Decrease in accounts payable and accrued expenses			(10,926	)		(3,124	)		(3,795	)		(11,597	)

			Net cash provided by (used in) operating activities	$	24,296		$	3,907		$	(13,837	)	$	6,552

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

C. (Loss) Gain on Disposition of Operating Properties and Other Investments

During the six months ended July 31, 2002, the Company recorded a loss on other investments of $116,000, or $70,000 net of tax.

During the six months ended July 31, 2001, the Company recorded a net gain on disposition of operating properties and other investments totaling $1,263,000, or $764,000 net of tax. The Company recorded a gain on the disposition of Bowling Green Mall, located in Bowling Green, Kentucky, of $1,892,000 in a tax-deferred exchange, and a loss on other investments of $629,000.

D. Extraordinary (Loss) Gain

During the six months ended July 31, 2002, the Company recorded an extraordinary loss, net of tax, of $230,000 ($380,000 pre-tax) which represents the impact of early extinguishment of nonrecourse debt primarily related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania. During the six months ended July 31, 2001, the Company recorded an extraordinary gain, net of tax, of $637,000 ($1,054,000 pre-tax) which represents the impact of early extinguishment of nonrecourse debt related to Enclave, a residential property located in San Jose, California.

E. Dividends

The Board of Directors declared regular quarterly cash dividends on both Class A and Class B common shares as follows:

Date

Date of

Payment

Amount

Declared

Record

Date

Per Share

March 14, 2002

June 3, 2002

June 17, 2002

.05

June 11, 2002

September 3, 2002

September 17, 2002

.06

September 5, 2002

December 2, 2002

December 16, 2002

.06

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

F. Earnings per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (EPS) computations for “earnings before extraordinary (loss) gain and cumulative effect of change in accounting principle”.


		Earnings Before
		Extraordinary
		(Loss) Gain
		and Cumulative		Weighted
		Effect of Change in		Average Common		Per
		Accounting Principle		Shares Outstanding		Common
		(Numerator)		(Denominator)		Share

		(in thousands)
Three Months Ended

July 31, 2002:




	Basic EPS	$	12,683		49,620,200	$	0.26




	Effect of dilutive securities -stock options		—		599,245		(.01	)

	Diluted EPS	$	12,683		50,219,445	$	0.25

July 31, 2001:




	Basic EPS	$	15,472		45,370,352	$	0.34




	Effect of dilutive securities -stock options		—		659,210		—

	Diluted EPS	$	15,472		46,029,562	$	0.34

Six Months Ended

July 31, 2002:




	Basic EPS	$	23,049		49,565,727	$	0.47




	Effect of dilutive securities -stock options		—		644,282		(.01	)

	Diluted EPS	$	23,049		50,210,009	$	0.46

July 31, 2001:




	Basic EPS	$	25,119		45,263,231	$	0.55




	Effect of dilutive securities -stock options		—		629,328		—

	Diluted EPS	$	25,119		45,892,559	$	0.55

G. Reduction of Reserves on Notes Receivable

The Company, through its Residential Group, is the 1% general partner in 22 Federally Subsidized housing projects owned by syndicated partnerships. Upon formation of these partnerships approximately 20 years ago, the Company received interest-bearing notes receivable as consideration for development and other fee services. At their inception, these notes were fully reserved as the collection was doubtful based on the limited cash flows generated by the properties pursuant to their government subsidy contracts. Likewise, a reserve for the related accrued interest was established each year.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

G. Reduction of Reserves on Notes Receivable (continued)

During the prior fiscal year 17 of these properties completed a series of events that led to a reduction of a portion of these reserves. The Company continues to monitor these reserves in relation to events that could change expected future cash flows and, during the three months ended July 31, 2002, the Company reduced reserves of approximately $800,000 primarily representing a portion of the notes receivable and related interest at four of the properties bringing the total reduction of the reserves for the six months ended July 31, 2002 to $3,850,000. These amounts are included in revenues in the Consolidated Statements of Earnings for each applicable period. These properties completed a series of events making collection of these notes and related interest now appear probable based on expected future cash flows. These events include but are not limited to obtaining an appraisal of the properties and settlement with the limited partners to obtain their ownership share of these properties in exchange for the balance of the notes and related accrued interest.

During the three and six months ended July 31, 2002 the Company reduced approximately $690,000 of the reserve recorded against interest receivable from Millender Center, a mixed-use apartment, retail and hotel project located in downtown Detroit, Michigan. The reduction of this reserve was primarily the result of increased cash flow projections due to lower variable rate interest. The Company had previously reduced reserves of $10,775,000 in the year ended January 31, 2001, $500,000 in the year ended January 31, 2000 and $3,500,000 in the year ended January 31, 1999.

H. Reclassification

Certain items in the consolidated financial statements for 2001 have been reclassified to conform to the 2002 presentation.

I. Long-term Credit Facility

At July 31, 2002, the Company had $161,750,000 outstanding under its $350,000,000 long-term credit facility which became effective March 5, 2002. The credit facility includes a $100,000,000 term loan with an outstanding balance of $93,750,000 as of July 31, 2002 and a $250,000,000 revolving line of credit, both of which mature in March 2006 and allow for up to a combined amount of $40,000,000 in outstanding letters of credit or surety bonds ($29,168,000 and $ -0- outstanding at July 31, 2002, respectively). The outstanding balance of the prior revolving line of credit of $78,000,000 on March 5, 2002 was paid in full with the proceeds of the new term loan. Quarterly principal payments of $6,250,000 on the new term loan commenced July 1, 2002.

The long-term credit facility provides, among other things, for: 1) at the Company’s election, interest rates of 2.125% over LIBOR or 1/2% over the prime rate except for the last $50,000,000 of borrowings in the case of revolving loans which is based on 2.75% over LIBOR or 3/4% over the prime rate; 2) maintenance of debt service coverage ratios and specified levels of net worth and cash flow (as defined in the credit facility); and 3) restriction on dividend payments and stock repurchases.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

J. 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

			July 31,			January 31,			July 31,			January 31,
			2002			2002			2002			2002

						(in thousands)
Balance Sheet:




	Completed rental properties		$	2,337,595		$	2,235,274		$	847,661		$	775,878




	Projects under development			258,486			243,339			113,205			124,395




	Land held for development or sale			84,505			69,723			39,453			32,692




	Investment in and advances to real estate affiliates			–			–			89,512			78,435




	Accumulated depreciation			(476,615	)		(434,466	)		(190,820	)		(175,205	)




	Other assets			276,155			280,760			104,553			107,572

		Total Assets	$	2,480,126		$	2,394,630		$	1,003,564		$	943,767

	Mortgage debt, nonrecourse		$	2,211,130		$	2,117,979		$	837,660		$	788,240




	Advances from general partner			20,455			20,455			–			–




	Other liabilities			149,543			152,342			47,452			47,282




	Partners’ equity			98,998			103,854			118,452			108,245

		Total Liabilities and Partners’ Equity	$	2,480,126		$	2,394,630		$	1,003,564		$	943,767


			2002			2001			2002			2001

Three Months Ended July 31,
Operations:




	Revenues		$	121,335		$	117,881		$	49,635		$	46,159




	Equity in earnings of unconsolidated entities on a pro-rata basis			–			–			5,189			2,218




	Operating expenses			(63,251	)		(61,072	)		(26,227	)		(24,314	)




	Interest expense			(29,984	)		(29,741	)		(11,900	)		(10,178	)




	Depreciation and amortization			(16,141	)		(15,230	)		(6,133	)		(5,005	)




	Gain on disposition of operating properties and other investments			–			10,065			–			5,033

		Net Income	$	11,959		$	21,903		$	10,564		$	13,913


Six Months Ended July 31,
Operations:




	Revenues		$	247,949		$	235,689		$	100,159		$	91,504




	Equity in earnings of unconsolidated entities on a pro-rata basis			–			–			9,441			5,788




	Operating expenses			(128,872	)		(126,389	)		(53,199	)		(49,988	)




	Interest expense			(59,353	)		(61,582	)		(23,536	)		(22,562	)




	Depreciation and amortization			(32,046	)		(37,777	)		(12,107	)		(10,078	)




	Gain on disposition of operating properties and other investments			–			10,065			–			5,033




	Extraordinary (loss) gain			(400	)		1,110			(380	)		1,054

		Net Income	$	27,278		$	21,116		$	20,378		$	20,751

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

J. Investments in and Advances to Real Estate Affiliates (continued)

Following is a reconciliation of partners’ equity to the Company’s carrying value in the accompanying Consolidated Balance Sheets (in thousands):

July 31,

January 31,

2002

Partners’ equity, as above

98,998

103,854

Equity of other partners

1,001

16,064

Company’s investment in partnerships

97,997

87,790

Advances to partnerships, as above

20,455

20,455

Advances to other real estate affiliates

307,820

286,058

Investments in and Advances to Real Estate Affiliates

426,272

394,303

As is customary within the real estate industry, the Company invests in certain real estate projects through partnerships. The Company provides funding for certain of its partners’ equity contributions. The most significant partnership for which the Company provides funding relates to Forest City Ratner Companies, representing the Commercial Group’s New York City operations. The Company’s partner is the President and Chief Executive Officer of Forest City Ratner Companies and is the first cousin to four executive officers of the Company. At July 31, 2002 and January 31, 2002, amounts advanced for this partner were $93,518,000 and $81,970,000, respectively of the $307,820,000 and $286,058,000 presented above for “Advances to other real estate affiliates”. These advances entitle the Company to a preferred return payable from cash flows of each respective property.

K. Shelf Registration

The Company filed a shelf registration statement with the Securities and Exchange Commission (SEC) on May 1, 2002 and amended it on May 24, 2002. This shelf registration statement amends the registration statement previously filed with the SEC in December 1997. This registration statement is intended to provide Forest City flexibility to raise, from time to time, up to an aggregate of $842,000,000 from the offering of Class A common stock, preferred stock, depositary shares and a variety of debt securities, warrants and other securities.

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

L. Segment Information

The following tables summarize financial data for the Commercial, Residential, Land Development and Lumber Trading Groups and Corporate. All amounts, including footnotes, are presented in thousands.


					Three Months				Six Months
					Ended July 31,				Ended July 31,
	July 31,		January 31,
	2002		2002		2002		2001		2002		2001

	Identifiable Assets				Expenditures for Additions to Real Estate

Commercial Group	$	3,412,528	$	3,200,234	$	99,198	$	32,885	$	210,163	$	112,620




Residential Group		926,451		797,248		76,049		21,410		124,557		50,600




Land Development Group		180,168		174,170		3,025		17,119		11,743		24,849




Lumber Trading Group		141,143		171,353		405		148		688		254




Corporate		52,648		74,641		306		306		503		350

	$	4,712,938	$	4,417,646	$	178,983	$	71,868	$	347,654	$	188,673


	Three Months					Six Months				Three Months						Six Months
	Ended July 31,					Ended July 31,				Ended July 31,						Ended July 31,

	2002			2001		2002		2001		2002			2001			2002			2001

				Revenues									Interest Expense

Commercial Group	$	147,674		$	147,703	$	281,629	$	276,804	$	31,983		$	31,012		$	63,259		$	61,157




Residential Group		40,008			38,928		79,106		73,414		6,281			6,120			11,825			12,451




Land Development Group		28,667			7,550		44,032		9,636		345			66			409			215




Lumber Trading Group(1)		23,337			36,016		49,600		61,929		759			918			1,395			1,924




Corporate		219			66		469		163		6,632			7,658			12,448			15,419

	$	239,905		$	230,263	$	454,836	$	421,946	$	46,000		$	45,774		$	89,336		$	91,166


	Depreciation and Amortization Expense									Earnings Before Income Taxes (EBIT) (2)





Commercial Group	$	23,011		$	20,150	$	44,979	$	38,717	$	13,494		$	18,674		$	21,932		$	34,379




Residential Group		4,174			2,849		8,060		6,469		8,435			12,960			19,646			22,297




Land Development Group		(54	)		166		101		187		12,416			3,862			18,980			3,752




Lumber Trading Group		533			532		1,068		1,087		(1,105	)		3,138			81			4,189




Corporate		484			343		976		687		(11,489	)		(12,215	)		(22,078	)		(23,713	)




(Loss) gain on disposition of operating properties and other investments		–			–		–		–		–			(329	)		(116	)		1,263

	$	28,148		$	24,040	$	55,184	$	47,147	$	21,751		$	26,090		$	38,445		$	42,167


			Earnings Before Depreciation, Amortization
		and Deferred Taxes (EBDT)(3)

Commercial Group		$	32,277		$	31,764		$	59,385		$	59,527




Residential Group			13,120			10,607			28,515			23,087




Land Development Group			5,538			2,529			8,806			579




Lumber Trading Group			(723	)		1,966			(59	)		2,546




Corporate			(6,615	)		(9,857	)		(13,174	)		(15,326	)





	Consolidated EBDT		43,597			37,009			83,473			70,413




Reconciliation of EBDT to net earnings:




Depreciation and amortization — Real Estate Groups			(28,637	)		(23,978	)		(56,251	)		(47,247	)




Deferred taxes — Real Estate Groups			(2,719	)		(1,352	)		(5,234	)		(4,838	)




Straight-line rent adjustment			442			936			1,131			2,985




(Loss) gain on disposition of operating properties and other investments, net of tax			–			(185	)		(70	)		764




Gain on disposition reported on equity method, net of tax			–			3,042			–			3,042




Extraordinary (loss) gain, net of tax			–			–			(230	)		637




Cumulative effect of change in accounting principle, net of tax			–			–			–			(1,202	)

Net earnings		$	12,683		$	15,472		$	22,819		$	24,554

(1) The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the three months ended July 31, 2002 and 2001 were $648,653 and $818,707, respectively. Sales invoiced for the six months ended July 31, 2002 and 2001 were $1,337,549 and $1,384,675, respectively.

(2) See Consolidated Statements of Earnings for reconciliation of EBIT to net earnings.

(3) EBDT is defined as net earnings before extraordinary items, excluding the following items: 1) gain (loss) on disposition of operating properties and other investments (net of tax); ii) beginning in the year ended January 31, 2001, the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) noncash charges from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City, for depreciation, amortization and deferred income taxes; iv) provision for decline in real estate; and v) cumulative effect of change in accounting principle (net of tax).

The enclosed financial statements have been prepared on a basis consistent with accounting principles applied in the prior periods and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the periods presented. Results of operations for the six months ended July 31, 2002 are not necessarily indicative of results of operations which may be expected for the full year.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Forest City Enterprises, Inc. should be read in conjunction with the financial statements and the footnotes thereto contained in the January 31, 2002 annual report (“Form 10-K”).

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations

GENERAL

The Company principally engages in the development, acquisition, ownership and management of commercial and residential real estate throughout the United States. The Company consists of four strategic business units. The Commercial Group, the Company’s largest business unit, owns, develops, acquires and operates regional malls, specialty/urban retail centers, office buildings, hotels and mixed-use projects. New York City operations through the Company’s partnership with Forest City Ratner Companies are part of the Commercial Group. The Residential Group owns, develops, acquires, leases and manages residential rental property, including mature apartments in urban and suburban locations, adaptive re-use developments in urban locations and supported-living facilities. Real Estate Groups are the combined Commercial and Residential Groups. The Land Development Group acquires and sells both land and developed lots to residential, commercial and industrial customers. It also owns and develops land into master-planned communities and mixed-use projects. The Lumber Trading Group, a wholesaler, sells lumber to customers in all 50 states and Canadian provinces. The Company has more than $4.7 billion of assets in 20 states and Washington, D.C. The Company’s targeted markets include Boston, Denver, New York, California and Washington, D.C. Headquarters of the Company is in Cleveland, Ohio.

RESULTS OF OPERATIONS

The Company reports its results of operations by each of its four strategic business units as it believes it provides the most meaningful understanding of the Company’s financial performance.

The Company uses an additional measure, along with net earnings, to report its operating results. This measure, 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 (GAAP) 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 the three months ended July 31, 2002 grew by 17.8% to $43,597,000 from $37,009,000 for the three months ended July 31, 2001. For the six months ended July 31, 2002, EBDT increased by 18.5% to $83,473,000 from $70,413,000 for the six months ended July 31, 2001. The increase in EBDT is primarily attributable to 14 new projects opening or acquired during the six months ended July 31, 2002, 12 new projects opening in 2001 and increased land sales in the Land Development Group.

Net Operating Income from Real Estate Groups – 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. Under the full consolidation method which is in accordance with GAAP, NOI from the combined Commercial Group and Residential Group (“Real Estate Groups”) for the second quarter of 2002 was $93,154,000 compared to $95,889,000 for the second quarter of 2001, a 2.9% decrease. NOI for the Real Estate Groups under the full consolidation method for the six months ended July 31, 2002 was $180,842,000 compared to $182,732,000 for the six months ended July 31, 2001, a 1.0% decrease.

Management analyzes property NOI using the pro-rata consolidation method and publically discloses and discusses the Company’s performance using this method of consolidation to complement its GAAP disclosures. Under the pro-rata consolidation method NOI from the Real Estate Groups for the second quarter of 2002 was $89,918,000 compared to $87,033,000 for the second quarter of 2001, a 3.3% increase. NOI for the Real Estate Groups under pro-rata consolidation for the six months ended July 31, 2002 was $176,880,000 compared to $171,166,000 for the six months ended July 31, 2001, a 3.3% increase.

The information in the table entitled “Earnings before Depreciation, Amortization and Deferred Taxes” at the end of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. This table presents amounts for both full consolidation and pro-rata consolidation, providing a reconciliation of the difference between the two methods, as well as a reconciliation from EBDT to net earnings. Under the pro-rata consolidation method, the Company presents its partnership investments proportionate to its share of ownership for each line item of its consolidated financial statements. Under full consolidation, partnership assets and liabilities are reported as consolidated at 100 percent if deemed under the Company’s control, or on the equity method of accounting if the Company does not have control.

All amounts discussed in the narrative below are based on the full consolidation method unless otherwise noted.

Commercial Group

The following table presents the significant increases in revenue and operating expense reported by the Commercial Group for newly opened or acquired property for the three and six months ended July 31, 2002 compared to the same periods in the prior year (dollars in thousands):


							Three Months Ended				Six Months Ended

								July 31, 2002
			Quarter
			& Year						Operating				Operating
Property		Location	Opened		Sq. Ft.		Revenues		Expenses		Revenues		Expenses

Retail Centers:




Galleria at South Bay (a)		Redondo Beach, CA		Q3 - 2001		955,000	$	5,208	$	2,227	$	10,025	$	4,237




Queens Place		Queens, NY		Q3 - 2001		462,000		2,180		785		4,501		1,656




Mall at Robinson		Pittsburgh, PA		Q3 - 2001		856,000		798		N/A		1,454		N/A




Mall at Stonecrest		Atlanta, GA		Q3 - 2001		1,170,000		392		N/A		743		N/A




Station Square - Bessemer Court		Pittsburgh, PA		Q2 - 2002		59,000		108		54		168		57




Office Buildings:




65/80 Landsdowne		Cambridge, MA		Q3 - 2001		122,000		2,079		416		3,986		881




88 Sidney St		Cambridge, MA		Q2 - 2002		145,000		1,255		214		1,255		214

	*Total*						$	12,020	$	3,696	$	22,132	$	7,045

N/A – not applicable – property recorded under equity method of accounting.

(a) Acquired property

Revenues — Adjusted revenues in the second quarter of 2002 increased $737,000 or .5% over the same period of the prior year. This increase is primarily the result of opening of new properties as noted in the table above. Additionally, increases in revenues of $1,542,000 resulted from the impact of the expansion at the Sheraton Station Square Hotel. These increases in revenues were partially offset by the disposition in 2001 of Tucson Mall of $5,353,000, decreased commercial land sales of $1,198,000 and a decrease of $1,440,000 in the remainder of the Company’s hotel portfolio revenue due to a decrease in occupancy as a result of the overall decline in the travel industry. Revenues also decreased as a result of a retail lease termination fee collected in 2001 at Atlantic Center in Brooklyn, New York of $3,500,000 which did not recur in 2002 and a decrease in construction fees at Twelve MetroTech Center of $536,000 compared to the same period last year. The balance of the remaining decrease in revenue in the Commercial Group of approximately $800,000 was generally due to fluctuations in operations at mature properties.

Adjusted revenues increased $7,780,000 or 2.8% in the first half of 2002 over the first half of 2001. This increase is primarily the result of openings of new properties as noted in the table above. Additionally, increases in revenues of $2,331,000 resulted from the impact of the expansion at the Sheraton Station Square Hotel. These increases in revenues were partially offset by $10,699,000 by dispositions in 2001 of Tucson Mall and Bowling Green Mall, decreased commercial land sales of $208,000 and a decrease of $4,711,000 in the remainder of the Company’s hotel portfolio due to a decrease in occupancy as a result of the overall decline in the travel industry. A decline in construction fees at Twelve MetroTech Center resulted in an additional decrease in revenues of $2,418,000 compared to the same period in the prior year. The balance of the remaining increase in revenues in the Commercial Group of approximately $1,300,000 was generally due to fluctuations in operations at mature properties.

Operating and Interest Expenses - During the second quarter of 2002, operating expenses, excluding straight-line rent adjustments for the Commercial Group increased $242,000 or .3% over the same period in the prior year. The increase in operating expenses was attributable primarily to costs associated with the opening and acquisition of new properties as noted in the table above, greater operating costs of $1,060,000 due to the expansion at Sheraton Station Square Hotel and an increase of $3,525,000 in development project write-offs. These increases were partially offset by reduced expenses of $3,842,000 relating to the disposition in 2001 of Tucson Mall, decreased expenses of $1,669,000 in the remainder of the Company’s hotel portfolio due to decreases in occupancy as a result of the overall decline in the travel industry. Additionally, operating expenses were lower in 2002 due to nonrecurring costs in 2001 of $1,020,000 as a result of taking over theater operations at Columbia Park and $2,001,000 for lease buy-out costs in the retail portfolio. The balance of the change in operating expenses of approximately $500,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense increased during the second quarter of 2002 for the Commercial Group by $971,000 or 3.1% over the same period in the prior year. The increase is primarily attributable to the increase of interest expense related to higher debt levels from the openings and acquisitions of new properties.

During the first half of 2002, operating expenses, excluding straight-line rent adjustments for the Commercial Group increased $7,950,000 or 5.7% over the same period of the prior year. The increase in operating expenses was attributable primarily to costs associated with the openings of new properties as noted in the table above, greater operating costs of $2,879,000 at two hotels due to the impact of expansion at Sheraton Station Square Hotel and as a result of taking over the operation at the restaurant at Hilton Times Square Hotel,

increased costs of commercial land sales of $869,000 and increased development project write offs of $4,139,000. These increases were partially offset by $5,880,000 from dispositions in 2001 of Tucson Mall and Bowling Green Mall and decreased expenses of $2,358,000 in the remainder of the Company’s hotel portfolio due to decrease in occupancy as a result of the overall decline in the travel industry. Additionally, operating expenses were lower in 2002 due to nonrecurring costs in 2001 of $1,965,000 for lease buy-out costs in the retail portfolio. The balance of the change in operating expenses of approximately $3,200,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense increased during the first half of 2002 for the Commercial Group by $2,102,000 or 3.4% over the same period in the prior year. The increase is primarily attributable to the increase for interest expense related to higher debt levels from the openings and acquisitions of new properties.

Residential Group

The following table presents the significant increases (decreases) in revenues and operating expenses incurred by the Residential Group for newly opened or acquired properties for the three and six months ended July 31, 2002 compared to the same period in the prior year (dollars in thousands):


Openings/Acquisitions

								Three Months Ended					Six Months Ended

								July 31, 2002
				Quarter
				Opened/		No.					Operating					Operating
Property			Location	Acquired		of Units		Revenues			Expenses		Revenues			Expenses

		Consolidated




Landings of Brentwood(a)			Nashville, TN		Q2 - 2002		724	$	994		$	503	$	994		$	503




Cambridge Towers(a)			Detroit, MI		Q2 - 2002		250		419			117		419			117




Heritage			San Diego, CA		Q1 - 2002		230		181			208		208			383




Coraopolis Towers (a)			Coraopolis, PA		Q1 - 2002		200		385			198		385			198




Donora Towers (a)			Donora, PA		Q1 - 2002		103		193			109		193			109




Chancellor Park (a)			Philadelphia, PA		Q1 - 2002		135		1,037			1,258		2,021			2,348




Stony Brook Court(a)			Darien, CT		Q3 - 2001		86		1,032			621		2,068			1,225




Pine Cove			Bayshore, NY		Q3 - 2001		85		888			685		1,593			1,369




	Unconsolidated
Lofts at 1835 Arch			Philadelphia, PA		Q1 - 2001		191		453			N/A		595			N/A




Residences at University Park			Cambridge, MA		Q1 - 2002		135		(303	)		N/A		(362	)		N/A




Westwood Reserve (a)			Tampa, FL		Q1 - 2002		340		61			N/A		101			N/A




Parkwood Village (b)			Brunswick, OH		Q2 - 2001		204		(13	)		N/A		(9	)		N/A




St. Mary’s Villa (a)			Newark, NJ		Q2 - 2002		360		71			N/A		71			N/A

		*Total*						$	5,398		$	3,699	$	8,277		$	6,252

N/A – not applicable – property recorded under equity method of accounting.

(a) Acquired property

(b) Phased opening

The following table presents the significant decreases in revenues and operating expenses incurred by the Residential Group for disposed properties for the three and six months ended July 31, 2002 compared to the same period in the prior year (dollars in thousands):


Disposals

							Three Months Ended				Six Months Ended

									July 31, 2002

			Property		No.				Operating				Operating
Property		Location	Disposed		of Units		Revenues		Expenses		Revenues		Expenses

Palm Villas		Henderson, NV		Q3 - 2001		350	$	773	$	321	$	1,532	$	586




Whitehall Terrace		Kent, OH		Q3 - 2001		188		398		148		786		260




Oaks		Bryan, TX		Q3 - 2001		248		313		253		664		453




Peppertree		College Station, TX		Q3 - 2001		208		298		156		634		275

	*Total*						$	1,782	$	878	$	3,616	$	1,574

Revenues — Adjusted revenues for the Residential Group increased by $889,000, or 2.1% for the second quarter of 2002 over the same period in the prior year. Excluding the decrease in revenues of $5,013,000 from the non-recurring sale in 2001 of Chapel Hill Towers in Akron, Ohio accounted for on the equity method, revenues for the Residential Group increased by $5,902,000 or 14.2% for the second quarter of 2002 over the same period in the prior year. These increases were primarily the result of the acquisitions made and properties opened during fiscal 2002 and 2001 as noted in the first table above. Additionally, revenues increased as a result of the reversal of reserves for notes receivable and related accrued interest from syndications of approximately $1,490,000. These increases are offset by the dispositions of properties as noted in the second table above. The remaining increase in revenues of approximately $800,000 was generally due to an increase in service fees from the supported living portfolio and overall improved results of mature properties.

Adjusted revenues for the Residential Group increased by $5,658,000, or 7.2% for the first half of 2002, over the same period in the prior year. Excluding the decrease in revenues of $5,080,000 from the non-recurring sale in 2001 of Chapel Hill Towers accounted for on the equity method, revenues for the Residential Group increased by $10,738,000 or 13.7% for the first half of 2002, over the same period in the prior year. These increases were primarily the result of the acquisitions made and properties opened during fiscal 2002 and 2001 as noted in the first table above. Additionally, revenues increased as a result of the reversal of reserves for notes receivable and related accrued interest from syndications of approximately $4,540,000. Increases were also noted from the Company's investment in the Grand of $689,000, a 546-unit luxury high-rise community in North Bethesda, Maryland. These increases are offset by the dispositions of properties as noted in the second table above. The remaining increase in revenues of approximately $800,000 was generally due to an increase in service fees from the supported living portfolio and overall improved results of mature properties.

Operating and Interest Expenses — Operating expenses for the Residential Group increased $4,119,000 or 24.2% during the second quarter of 2002 compared to the same period in the prior year. These increases were primarily the result of the acquisitions made and properties opened during 2002 and 2001 as noted in the first table above. These increases were partially offset by decreases in expenses due to dispositions of properties as noted in the second table above. Operating expenses also increased due to the increase in 2002 of reserve for write-off of development projects of $1,000,000. The remaining increase of approximately $300,000 was generally due to increased operating costs of mature properties.

Interest expense for the Residential Group for the second quarter of 2002 increased by $161,000 or 2.6% over the same period in the prior year. The increase in interest expense is primarily the result of the acquisitions made and properties opened during 2002 and 2001 offset by property dispositions and lower variable interest rates.

Operating expenses for the Residential Group increased $7,378,000 or 22.9% during the first half of 2002 compared to the same period in the prior year. These increases were primarily the result of acquisitions made and properties opened during 2002 and 2001 as noted in the first table above. These increases were partially offset by decreases in expenses due to dispositions of properties as noted in the second table above. Operating expenses also increased due to the increase in 2002 of write-offs of development projects of $1,250,000. The remaining increase of $1,700,000 was generally due to increased operating costs of the supported living portfolio and mature properties as well as increased asset management and property management costs.

Interest expense for the Residential Group for the first half of 2002 decreased by $626,000 or 5.0% compared to the same period in the prior year. The decrease in interest expense is primarily the result of property dispositions and lower variable interest rates.

Land Development Group

Revenues - Sales of land and related gross margins vary from period to period depending on market conditions relating to the disposition of significant land holdings. Revenues for the Land Development Group increased by $21,117,000 in the second quarter of 2002 compared to the same period in the prior year. This increase is primarily the result of increases in land sales of $25,324,000. The sales increases at two major land development projects: Stapleton, in Denver, Colorado and Willowbrook in Twinsburg, Ohio, were combined with several smaller sales increases in projects in Cleveland, Ohio. These increases were offset by decreases of $3,908,000 at two development projects: Central Station in Chicago, Illinois and Westwood Lakes, in Tampa, Florida.

Revenues for the Land Development Group increased by $34,396,000 in the first half of 2002 compared to the same period in the prior year. This increase is primarily the result of increases in land sales of $36,564,000. The sales increases at two major land development projects: Stapleton, and Willowbrook, were combined with several smaller sales increases in projects in Cleveland, Ohio. These increases were offset by decreases of $3,908,000 at two development projects: Central Station, and Westwood Lakes.

Operating and Interest Expenses - The fluctuation in Land Development Group operating expenses primarily reflects costs associated with land sales volume in each period. Operating expenses increased by $12,521,000 in the second quarter of 2002 compared to the same period in the prior year. This increase is primarily due to increased combined expenses of $13,001,000 at two major land development projects: Stapleton and Willowbrook, combined with several smaller expense increases at projects in Cleveland, Ohio. These increases were offset by decreases of $3,908,000 at two development projects: Central Station and Westwood Lakes.

Operating expenses increased by $19,082,000 in the first half of 2002 compared to the same period in the prior year. This increase is primarily due to an increased combined expenses of $19,348,000 at two major land development projects: Stapleton and Willowbrook, combined with several smaller expense increases at projects in Cleveland, Ohio. These increases were offset by a decrease of $1,663,000 at Westwood Lakes.

Interest expense increased in the second quarter of 2002 compared to the same period in the prior year by $279,000. Interest expense decreased in the first half of 2002 compared to the same period in the prior year by $194,000. Interest expense varies from year to year depending on the level of interest-bearing debt within the Land Development Group.

Lumber Trading Group

Revenues - Revenues for the Lumber Trading Group decreased by $12,679,000 in the second quarter of 2002 compared to the same period in the prior year. Revenues for the Lumber Trading Group decreased by $12,329,000 in the first half of 2002 compared to the same period in the prior year. The decreases are primarily due to the Company’s greater than normal exposure to market fluctuations compounded by a decline in the market.

Operating and Interest Expenses - Operating expenses for the Lumber Trading Group decreased by $8,278,000 in the second quarter of 2002 compared to the same period in the prior year. Operating expenses for the Lumber Trading Group decreased by $7,692,000 in the first half of 2002 compared to the same period in the prior year. These decreases are primarily due to lower variable expense resulting from the decreased revenue explained above.

Interest expense for the Lumber Trading Group decreased by $159,000 in the second quarter of 2002 compared to the same period in the prior year, and decreased $529,000 in the first half of 2002 compared to the same period in the prior year. These decreases are primarily due a reduction in interest rates.

Corporate Activities

Revenues - Corporate Activities’ revenues increased $153,000 in the second quarter of 2002 and $306,000 in the first half of 2002 compared to the same periods in the prior year. 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 amounts of loans outstanding.

Operating and Interest Expenses — Operating expenses for Corporate Activities increased $454,000 in the second quarter of 2002 and $1,642,000 in the first half of 2002 compared to the same periods in the prior year. This increase represents an increase in general corporate expenses. Interest expense decreased $1,026,000 in the second quarter of 2002, and $2,971,000 in the first half of 2002 compared to the same periods in the prior year. Corporate Activities’ interest expense consists primarily of interest expense on the Company’s 8.50% Senior Notes and the portion of borrowings under the long-term credit facility that has not been allocated to a strategic business unit (see “Financial Condition and Liquidity”).

Other Transactions

(Loss) Gain on Disposition of Operating Properties and Other Investments - During the six months ended July 31, 2002, the Company recorded a loss on other investments of $116,000, or $70,000 net of estimated taxes. During the six months ended July 31, 2001, the Company recorded a net gain on disposition of operating properties and other investments totaling $1,263,000 or $764,000 net of estimated taxes. The Company recorded a gain on the disposition of Bowling Green Mall, located in Bowling Green, Kentucky, of $1,892,000 in a tax-deferred exchange, and a loss on other investments of $629,000.

Extraordinary (Loss) Gain - During the six months ended July 31, 2002, the Company recorded an extraordinary loss, net of tax, of $230,000 ($380,000 pre-tax) which represents the impact of early extinguishment of nonrecourse debt primarily related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania. During the six months ended July 31, 2001, the Company recorded an extraordinary gain, net of tax, of $637,000 ($1,054,000 pre-tax) which represents the impact of early extinguishment of nonrecourse debt related to Enclave, a residential property located in San Jose, California.

Cumulative Effect of Change in Accounting Principle — On February 1, 2001, the Company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 137 and SFAS No. 138, and at that time designated the derivative instruments in accordance with the requirements of the new standard. On February 1, 2001, the after-tax impact, net of minority interest, of the transition amounts of the derivative instruments resulted in a reduction of net income of approximately $1,200,000 and a reduction of other comprehensive income of approximately $7,800,000. The transition adjustments are presented as cumulative effect adjustments as described in Accounting Principles Board Opinion No. 20 “Accounting Changes” for the six months ended July 31, 2001.

Income Taxes – Income tax expense for the three months ended July 31, 2002 and 2001 totaled $6,949,000 and $9,337,000, respectively. Income tax expense for the six months ended July 31, 2002 and 2001 totaled $13,694,000 and $15,337,000, respectively. At January 31, 2002, the Company had a tax loss carryforward of $21,649,000 that will expire in the years ending January 31, 2011 through 2022, General Business Credit carryovers of $6,433,000 that will expire in the years ending January 31, 2004 through January 31, 2022 and an Alternative Minimum Tax credit carryforward of $29,960,000. The Company’s policy is to consider a variety of tax-saving strategies when evaluating its future tax position.

EBDT - Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) is defined as net earnings excluding the following items: i) gain (loss) on disposition of operating properties and other investments (net of tax); ii) beginning in the year ended January 31, 2001, the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) noncash charges from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., for depreciation, amortization and deferred income taxes; iv) provision for decline in real estate (net of tax); v) extraordinary items (net of tax); and vi) cumulative effect of change in accounting principle (net of tax). The Company excludes gain (loss) on the disposition of operating properties and other investments from EBDT because it develops and acquires properties for long-term investment, not short-term trading gains. As a result, the Company views dispositions of operating properties and other investments, other than commercial land and airrights or land held by the Land Development Group, as nonrecurring items. Extraordinary items are generally the result of early extinguishment and restructuring of nonrecourse debt obligations and are not considered to be a component of the Company’s operating results. The adjustment to recognize rental revenues and rental expenses on the straight-line method is excluded because it is management’s opinion that rental revenues and expenses should be recognized when due from the tenants or due to the landlord. The Company excludes depreciation and amortization expense related to real estate operations from EBDT because they are noncash items and the Company believes the values of its properties, in general, have appreciated, over time, in excess of their original cost. Deferred income taxes from real estate operations are excluded because they are noncash items. The provision for decline in real estate is excluded from EBDT because it is a noncash item that varies from year to year based on factors unrelated to the Company’s overall financial performance. The Company’s EBDT may not be directly comparable to similarly-titled measures reported by other companies.

FINANCIAL CONDITION AND LIQUIDITY

The Company believes that its sources of liquidity and capital are adequate to meet its funding obligations. The Company’s principal sources of funds are cash provided by operations, the revolving credit facility and refinancings of existing properties. The Company’s principal use of funds are the financing of development and acquisitions of real estate projects, capital expenditures for its existing portfolio, payments on nonrecourse mortgage debt on real estate and payments on the long term credit facility.

Long-Term Credit Facility — At July 31, 2002, the Company had $161,750,000 outstanding under its $350,000,000 long-term credit facility which became effective March 5, 2002. The credit facility includes a $100,000,000 term loan with an outstanding balance of $93,750,000 as of July 31, 2002 and a $250,000,000 revolving line of credit, both of which mature in March 2006 and allow for up to a combined amount of $40,000,000 in outstanding letters of credit or surety bonds ($29,168,000 in letters of credit and $-0- surety bonds outstanding at July 31, 2002, respectively). The outstanding balance of the prior revolving line of credit of $78,000,000 on March 5, 2002 was paid in full with the proceeds of the new term loan. Quarterly principal payments of $6,250,000 on the term loan commenced July 1, 2002.

The long-term credit facility provides, among other things, for: 1) at the Company’s election, interest rates of 2.125% over LIBOR or 1/2% over the prime rate except for the last $50,000,000 of borrowings in the case of revolving loans which is based on 2.75% over LIBOR of 3/4% over the prime rate; 2) maintenance of debt service coverage ratios and specified levels of net worth and cash flow (as defined in the credit facility); and 3) restriction on dividend payments and stock repurchases.

In order to mitigate the short-term variable interest rate risk on its long-term credit facilities, the Company has entered into a LIBOR interest rate swap and purchased LIBOR interest rate caps. The swap expires January 31, 2003, effectively fixes the LIBOR rate at 4.38% and has a notional amount of $75,000,000. The LIBOR interest rate caps have an average rate of 8.00% for 2002 and a notional amount of $56,945,000. LIBOR interest rate caps were purchased at an average rate of 5.50% at a notional amount of $75,651,000 covering the period February 1, 2003 through November 1, 2003.

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 Financings

The Company is actively working to extend the maturities and/or refinance the nonrecourse debt that is coming due in 2002 and 2003, generally pursuing long-term fixed-rate debt. During the six months ended July 31, 2002, the Company completed $506,569,000 in financings, including $71,950,000 in refinancings, $102,219,000 in acquisitions, $105,400,000 in extensions, and $227,000,000 for new development projects. The Company continues to seek long-term debt for those project loans, which mature within the next 12 months as well as for those projects, which will begin operation within the next 12 months, generally pursuing fixed rate loans.

Interest Rate Exposure

On July 31, 2002, the composition of nonrecourse mortgage debt was as follows:


		Amount		Rate (1)

		(dollars in thousands)
Fixed		$	1,880,366		7.33	%




Variable Taxable (2)			768,087		4.74	%




	Tax-Exempt		84,600		2.33	%




UDAG			69,964		2.07	%

		$	2,803,017		6.34	%

(1) Reflects weighted average interest rate including both the base index and the lender margin.

(2) Taxable variable rate debt of $768,087 is protected with LIBOR swaps and caps described below. These LIBOR-based hedges protect the debt currently outstanding as well as the anticipated increase in debt outstanding for projects under development or anticipated to be under development during the year ending January 31, 2003.

Debt related to projects under development at July 31, 2002 totals $113,294,000, out of a total commitment from lenders of $480,533,000. Of this outstanding debt, $79,863,000 is taxable variable-rate debt, $31,000,000 is tax-exempt variable-rate debt and $2,431,000 is fixed-rate debt. The Company generally borrows funds for development and construction projects with maturities of two to five years utilizing variable-rate financing.

To mitigate short-term variable interest rate risk, the Company has purchased London Interbank Offered Rate (LIBOR) interest rate hedges for its mortgage debt portfolio as follows:


	Caps					Swaps (1)

			Average					Average
Period Covered	Amount		Rate			Amount		Rate

(dollars in thousands)
08/01/02 - 02/01/03	$	605,482		7.64	%	$	442,021		3.12	%




02/01/03 - 02/01/04		824,396		6.60	%		79,320		2.51	%




02/01/04 - 02/01/05		168,400		8.00	%		10,703		3.80	%




02/01/05 - 02/01/06		133,900		8.00	%

(1) Swaps include long-term LIBOR contracts that have an average maturity greater than six months.

Upon opening and achieving stabilized operations, the Company generally pursues long-term fixed-rate financing. In order to protect against significant increases in long-term interest rates, the Company has purchased Treasury Options. The Company owns Treasury Options with a notional amount of $23,000,000 with a weighted average strike rate of approximately 200 basis points over the current 10-year Treasury rate at July 31, 2002 and thus have only limited value at this.

The Company generally does not hedge tax-exempt debt because, since 1990, the base rate of this type of financing has averaged 3.50% and has not exceeded 7.90%.

Including properties accounted for under the equity method, a 100 basis point increase in taxable interest rates would increase the pre-tax interest cost for the next 12 months of the Company’s taxable variable-rate debt by approximately $5,900,000 at July 31, 2002. This increase is net of the protection provided by the interest rate swaps and long-term LIBOR contracts in place as of July 31, 2002. Although

tax-exempt rates generally increase in an amount that is smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt rates would increase the pre-tax interest cost for the next 12 months of the Company’s tax-exempt variable-rate debt by approximately $3,600,000 at July 31, 2002.

Lumber Trading Group Liquidity

Lumber Trading Group is separately financed with two revolving lines of credit and an asset securitization facility.

At July 31, 2002, Lumber Trading Group’s two revolving lines of credit totaled $85,000,000, expiring July 2003. These credit lines are secured by the assets of the Lumber Trading Group and are used to finance its working capital needs. At July 31, 2002, $11,711,000 was outstanding under these revolving lines of credit.

Lumber Trading Group has renewed its previous agreement for three years, expiring in July 2005 under which it is selling an undivided interest in a pool of receivables up to a maximum of $102,000,000 to a large financial institution (the “Financial Institution”). The Company bears no risk regarding the collectability of the accounts receivable once sold, and cannot modify the pool of receivables. At July 31, 2002 and 2001, the Financial Institution held an interest of $55,000,000 and $50,000,000, respectively, in the pool of receivables. Sales of accounts receivable have averaged $55,000,000 and $52,000,000 per month during the six months ended July 31, 2002 and 2001, respectively.

To protect against risks associated with a the variable interest rates on current and future use of the asset securitization facility through which an undivided interest in a pool of receivables are sold, the Lumber Trading Group entered into an interest rate swap with a notional amount of $20,000,000. The swap fixes the LIBOR interest rate at 4.28% and is effective through January 31, 2005.

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

Net cash provided by operating activities was $58,258,000 for the first half of 2002 and $24,296,000 for the first half of 2001. The increase in net cash provided by operating activities is the result of an increase of $37,387,000 in rents and other revenues received, an increase of $32,804,000 in proceeds from land sales and a decrease of $4,910,000 in interest paid. This increase was partially offset by an increase of $22,966,000 in operating expenditures, an increase of $9,440,000 in land development expenditures and a decrease in cash distributions from operations of unconsolidated entities of $8,733,000.

Net cash used in investing activities was $344,122,000 for the first half of 2002 and $161,491,000 for the first half of 2001. Capital expenditures totaled $323,910,000 and $143,081,000 (including both recurring and investment capital expenditures) in the first half of 2002 and 2001, respectively. These capital expenditures were financed with cash provided from operating activities, approximately $236,000,000 and $146,000,000 in the first half of 2002 and 2001 respectively, in new nonrecourse mortgage indebtedness and cash on hand at the beginning of the year. During the first half of 2002, the Company invested $20,212,000 in investments in and advances to real estate affiliates primarily

related to development projects in New York City. During the first half of 2001, the Company collected $2,693,000 from the sale of Bowling Green Mall and invested $21,103,000 in investments in and advances to real estate affiliates primarily for Short Pump Town Center and development projects in New York City.

Net cash provided by financing activities totaled $269,020,000 in the first half of 2002 and $104,327,000 in the first half of 2001. The Company’s refinancing of mortgage indebtedness is discussed above in “Mortgage Financings” and borrowings under new mortgage indebtedness for acquisition and development activities is included in the preceding paragraph discussing net cash used in investing activities. Net cash used in financing activities for the first half of 2002 also reflected a net increase in notes payable of $2,101,000, a decrease in unpaid checks of $21,623,000, a decrease in restricted cash of $1,110,000, payment of deferred financing costs of $5,501,000, proceeds of $3,033,000 from the exercise of stock options, payment of $4,954,000 for dividends and an increase of $5,065,000 in minority interest.

Net cash used in financing activities for the first half of 2001 also reflected a net increase in notes payable of $23,268,000 primarily representing an advance of $20,000,000 from the sale of Tucson Mall, an increase in restricted cash of $4,164,000 primarily related to the Stapleton project, an increase in unpaid checks of $4,272,000, payment of deferred financing costs of $5,188,000, proceeds of $3,514,000 from the exercise of stock options, payment of $3,618,000 of dividends and an increase of $10,776,000 in minority interest.

SHELF REGISTRATION

INCREASED DIVIDENDS

The first 2002 quarterly dividend of $.05 per share on shares of both Class A and Class B Common Stock was declared on March 14, 2002 and was paid on June 17, 2002 to shareholders of record at the close of business on June 3, 2002. The second 2002 quarterly dividend of $.06 (representing a 20% increase over the previous quarter’s dividend) per share on shares of both Class A and Class B Common Stock was declared on June 11, 2002 and will be paid on September 17, 2002 to shareholders of record at the close of business on September 3, 2002. The third 2002 quarterly dividend of $.06 per share on shares of both Class A and Class B Common Stock was declared on September 5, 2002 and will be paid on December 16, 2002 to shareholders of record at the close of business on December 2, 2002.

LEGAL PROCEEDINGS

The Company, although not a named defendant, is providing a defense in a lawsuit relating to Emporium, a retail and office development project in San Francisco. The lawsuit is challenging our right to our entitlements under California environmental law. A verdict favorable to the Company was obtained in May 2001; however, an appeal was filed by the plaintiffs and is currently pending. A hearing date for the appeal has been scheduled for September 11, 2002. The Company is also involved in other claims and lawsuits incidental to its business, and management and legal counsel are of the opinion that these claims and lawsuits will not have a material adverse effect on the Company’s financial statements.

NEW ACCOUNTING STANDARDS

In July 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”. This statement requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect this statement to have a material impact on the Company’s financial position, results of operations or cash flows.

INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS

This Form 10-Q, 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, real estate development and investment risks, economic conditions in the Company’s target markets, reliance on major tenants, the impact of terrorist acts, the Company’s substantial leverage and the ability to obtain and service debt, guarantees under the Company’s credit facility, changes in interest rates, continued availability of tax-exempt government financing, the sustainability of substantial operations at the subsidiary level, significant geographic concentration, illiquidity of real estate investments, dependence on rental income from real property, conflicts of interest, competition, potential liability from syndicated properties, effects of uninsured loss, environmental liabilities, partnership risks, litigation risks, the rate revenue increases verses the rate of expense increases,

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. AND SUBSIDIARIES
Earnings Before Depreciation, Amortization and Deferred Taxes For the Three Months Ended July 31, 2002
(in thousands)


	Commercial Group 2002											Residential Group 2002

						Plus											Plus
				Less		Unconsolidated									Less		Unconsolidated
	Full			Minority		Investments at			Pro-Rata			Full			Minority		Investments at			Pro-Rata
	Consolidation			Interest		Pro-Rata			Consolidation			Consolidation			Interest		Pro-Rata			Consolidation

Revenues	$	147,674		$	30,908	$	24,962		$	141,728		$	40,008		$	1,838	$	16,958		$	55,128
Exclude straight-line rent adjustment		(2,764	)		—		—			(2,764	)		—			—		—			—
Add back equity method depreciation expense		3,692			—		(3,692	)		—			2,526			—		(2,407	)		119

Adjusted revenues		148,602			30,908		21,270			138,964			42,534			1,838		14,551			55,247
Operating expenses, including depreciation and amortization for non-Real Estate Groups		79,186			16,805		14,648			77,029			21,118			1,395		9,863			29,586
Exclude straight-line rent adjustment		(2,322	)		—		—			(2,322	)		—			—		—			—

Operating expenses excluding straight-line rent adjustment		76,864			16,805		14,648			74,707			21,118			1,395		9,863			29,586
Minority interest in earnings before depreciation and amortization		5,853			5,853		—			—			179			179		—			—
Interest expense		31,983			8,250		6,622			30,355			6,281			264		4,688			10,705
Income tax provision		1,625			—		—			1,625			1,836			—		—			1,836

		116,325			30,908		21,270			106,687			29,414			1,838		14,551			42,127

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	32,277		$	—	$	—		$	32,277		$	13,120		$	—	$	—		$	13,120


	Land Development Group 2002											Lumber Trading Group 2002

						Plus											Plus
				Less		Unconsolidated									Less		Unconsolidated
	Full			Minority		Investments at			Pro-Rata			Full			Minority		Investments at			Pro-Rata
	Consolidation			Interest		Pro-Rata			Consolidation			Consolidation			Interest		Pro-Rata			Consolidation

Revenues	$	28,667		$	1,684	$	2,340		$	29,323		$	23,337		$	—	$	—		$	23,337
Operating expenses, including depreciation and amortization for non-Real Estate Groups		15,999			924		1,749			16,824			23,682			—		—			23,682
Minority interest in earnings before depreciation and amortization		760			760		—			—			—			—		—			—
Interest expense		345			—		591			936			759			—		—			759
Income tax provision		6,025			—		—			6,025			(381	)		—		—			(381	)

		23,129			1,684		2,340			23,785			24,060			—		—			24,060

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	5,538		$	—	$	—		$	5,538		$	(723	)	$	—	$	—		$	(723	)


	Corporate Activities 2002											Total 2002

						Plus											Plus
				Less		Unconsolidated									Less		Unconsolidated
	Full			Minority		Investments at			Pro-Rata			Full			Minority		Investments at			Pro-Rata
	Consolidation			Interest		Pro-Rata			Consolidation			Consolidation			Interest		Pro-Rata			Consolidation

Revenues	$	219		$	—	$	—		$	219		$	239,905		$	34,430	$	44,260		$	249,735
Exclude straight-line rent adjustment		—			—		—			—			(2,764	)		—		—			(2,764	)
Add back equity method depreciation expense		—			—		—			—			6,218			—		(6,099	)		119

Adjusted revenues		219			—		—			219			243,359			34,430		38,161			247,090
Operating expenses, including depreciation and amortization for non-Real Estate Groups		5,077			—		—			5,077			145,062			19,124		26,260			152,198
Exclude straight-line rent adjustment		—			—		—			—			(2,322	)		—		—			(2,322	)

Operating expenses excluding straight-line rent adjustment		5,077			—		—			5,077			142,740			19,124		26,260			149,876
Minority interest in earnings before depreciation and amortization		—			—		—			—			6,792			6,792		—			—
Interest expense		6,632			—		—			6,632			46,000			8,514		11,901			49,387
Income tax (benefit) provision		(4,875	)		—		—			(4,875	)		4,230			—		—			4,230

		6,834			—		—			6,834			199,762			34,430		38,161			203,493

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(6,615	)	$	—	$	—		$	(6,615	)	$	43,597		$	—	$	—		$	43,597

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)												$	43,597		$	—	$	—		$	43,597
Depreciation and amortization — Real Estate Groups													(28,637	)		—		—			(28,637	)
Deferred taxes — Real Estate Groups													(2,719	)		—		—			(2,719	)
Straight-line rent adjustment													442			—		—			442

Net earnings												$	12,683		$	—	$	—		$	12,683

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Earnings Before Depreciation, Amortization and Deferred Taxes For the Six Months Ended July 31, 2002
(in thousands)


	Commercial Group 2002											Residential Group 2002

						Plus											Plus
				Less		Unconsolidated									Less		Unconsolidated
	Full			Minority		Investments at			Pro-Rata			Full			Minority		Investments at			Pro-Rata
	Consolidation			Interest		Pro-Rata			Consolidation			Consolidation			Interest		Pro-Rata			Consolidation

Revenues	$	281,629		$	56,916	$	50,405		$	275,118		$	79,106		$	3,603	$	33,105		$	108,608
Exclude straight-line rent adjustment		(4,592	)		—		—			(4,592	)		—			—		—			—
Add back equity method depreciation expense		7,371			—		(7,371	)		—			4,901			—		(4,663	)		238

Adjusted revenues		284,408			56,916		43,034			270,526			84,007			3,603		28,442			108,846
Operating expenses, including depreciation and amortization for non-Real Estate Groups		151,459			31,334		29,740			149,865			39,575			2,787		19,300			56,088
Exclude straight-line rent adjustment		(3,461	)		—		—			(3,461	)		—			—		—			—

Operating expenses excluding straight-line rent adjustment		147,998			31,334		29,740			146,404			39,575			2,787		19,300			56,088
Minority interest in earnings before depreciation and amortization		9,380			9,380		—			—			194			194		—			—
Interest expense		63,259			16,202		13,294			60,351			11,825			622		9,142			20,345
Income tax provision		4,386			—		—			4,386			3,898			—		—			3,898

		225,023			56,916		43,034			211,141			55,492			3,603		28,442			80,331

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	59,385		$	—	$	—		$	59,385		$	28,515		$	—	$	—		$	28,515


	Land Development Group 2002											Lumber Trading Group 2002

						Plus											Plus
				Less		Unconsolidated									Less		Unconsolidated
	Full			Minority		Investments at			Pro-Rata			Full			Minority		Investments at			Pro-Rata
	Consolidation			Interest		Pro-Rata			Consolidation			Consolidation			Interest		Pro-Rata			Consolidation

Revenues	$	44,032		$	2,773	$	5,332		$	46,591		$	49,600		$	—	$	—		$	49,600
Operating expenses, including depreciation and amortization for non-Real Estate Groups		24,607			1,549		4,232			27,290			48,124			—		—			48,124
Minority interest in earnings before depreciation and amortization		1,224			1,224		—			—			—			—		—			—
Interest expense		409			—		1,100			1,509			1,395			—		—			1,395
Income tax provision		8,986			—		—			8,986			140			—		—			140

		35,226			2,773		5,332			37,785			49,659			—		—			49,659

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	8,806		$	—	$	—		$	8,806		$	(59	)	$	—	$	—		$	(59	)


	Corporate Activities 2002											Total 2002

						Plus											Plus
				Less		Unconsolidated									Less		Unconsolidated
	Full			Minority		Investments at			Pro-Rata			Full			Minority		Investments at			Pro-Rata
	Consolidation			Interest		Pro-Rata			Consolidation			Consolidation			Interest		Pro-Rata			Consolidation

Revenues	$	469		$	—	$	—		$	469		$	454,836		$	63,292	$	88,842		$	480,386
Exclude straight-line rent adjustment		—			—		—			—			(4,592	)		—		—			(4,592	)
Add back equity method depreciation expense		—			—		—			—			12,272			—		(12,034	)		238

Adjusted revenues		469			—		—			469			462,516			63,292		76,808			476,032
Operating expenses, including depreciation and amortization for non-Real Estate Groups		10,099			—		—			10,099			273,864			35,670		53,272			291,466
Exclude straight-line rent adjustment		—			—		—			—			(3,461	)		—		—			(3,461	)

Operating expenses excluding straight-line rent adjustment		10,099			—		—			10,099			270,403			35,670		53,272			288,005
Minority interest in earnings before depreciation and amortization		—			—		—			—			10,798			10,798		—			—
Interest expense		12,448			—		—			12,448			89,336			16,824		23,536			96,048
Income tax (benefit) provision		(8,904	)		—		—			(8,904	)		8,506			—		—			8,506

		13,643			—		—			13,643			379,043			63,292		76,808			392,559

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(13,174	)	$	—	$	—		$	(13,174	)	$	83,473		$	—	$	—		$	83,473

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)												$	83,473		$	—	$	—		$	83,473
Depreciation and amortization — Real Estate Groups													(56,251	)		—		—			(56,251	)
Deferred taxes — Real Estate Groups													(5,234	)		—		—			(5,234	)
Straight-line rent adjustment													1,131			—		—			1,131
Loss on disposition of operating properties and other investments, net of tax													(70	)		—		—			(70	)
Extraordinary gain, net of tax													(230	)		—		—			(230	)

Net earnings												$	22,819		$	—	$	—		$	22,819

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Earnings Before Depreciation, Amortization and Deferred Taxes For the Three Months Ended July 31, 2001
(in thousands)


	Commercial Group 2001												Residential Group 2001

							Plus												Plus
				Less			Unconsolidated									Less			Unconsolidated
	Full			Minority			Investments at			Pro-Rata			Full			Minority			Investments at				Pro-Rata
	Consolidation			Interest			Pro-Rata			Consolidation			Consolidation			Interest			Pro-Rata				Consolidation

Revenues	$	147,703		$	30,521		$	18,573		$	135,755		$	38,928		$	1,393		$	10,984			$	48,519
Exclude straight-line rent adjustment		(2,179	)		—			—			(2,179	)		—			—			—				—
Add back equity method depreciation expense		2,341			—			(2,341	)		—			2,717			—			(2,610	)			107

Adjusted revenues		147,865			30,521			16,232			133,576			41,645			1,393			8,374				48,626
Operating expenses, including depreciation and amortization for non-Real Estate Groups		77,865			17,100			10,890			71,655			16,999			1,161			8,919				24,757
Exclude straight-line rent adjustment		(1,243	)		—			—			(1,243	)		—			—			—				—

Operating expenses excluding straight-line rent adjustment		76,622			17,100			10,890			70,412			16,999			1,161			8,919				24,757
Gain on disposition recorded on equity method		—			—			—			—			5,033			—			(5,033	)			—
Minority interest in earnings before depreciation and amortization		5,642			5,642			—			—			(90	)		(90	)		—				—
Interest expense		31,012			7,779			5,342			28,575			6,120			322			4,488				10,286
Income tax provision		2,825			—			—			2,825			2,976			—			—				2,976

		116,101			30,521			16,232			101,812			31,038			1,393			8,374				38,019

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	31,764		$	—		$	—		$	31,764		$	10,607		$	—		$	—			$	10,607


	Land Development Group 2001												Lumber Trading Group 2001

							Plus												Plus
				Less			Unconsolidated									Less			Unconsolidated
	Full			Minority			Investments at			Pro-Rata			Full			Minority			Investments at				Pro-Rata
	Consolidation			Interest			Pro-Rata			Consolidation			Consolidation			Interest			Pro-Rata			Consolidation

Revenues	$	7,550		$	91		$	4,907		$	12,366		$	36,016		$	—		$	—			$	36,016
Operating expenses, including depreciation and amortization for non-Real Estate Groups		3,478			138			4,559			7,899			31,960			—			—				31,960
Minority interest in earnings before depreciation and amortization		(47	)		(47	)		—			—			—			—			—				—
Interest expense		66			—			348			414			918			—			—				918
Income tax provision		1,524			—			—			1,524			1,172			—			—				1,172

		5,021			91			4,907			9,837			34,050			—			—				34,050

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	2,529		$	—		$	—		$	2,529		$	1,966		$	—		$	—			$	1,966


	Corporate Activities 2001												Total 2001

							Plus												Plus
				Less			Unconsolidated									Less			Unconsolidated
	Full			Minority			Investments at			Pro-Rata			Full			Minority			Investments at				Pro-Rata
	Consolidation			Interest			Pro-Rata			Consolidation			Consolidation			Interest			Pro-Rata			Consolidation

Revenues	$	66		$	—		$	—		$	66		$	230,263		$	32,005		$	34,464			$	232,722
Exclude straight-line rent adjustment		—			—			—			—			(2,179	)		—			—				(2,179	)
Add back equity method depreciation expense		—			—			—			—			5,058			—			(4,951	)			107

Adjusted revenues		66			—			—			66			233,142			32,005			29,513				230,650
Operating expenses, including depreciation and amortization for non-Real Estate Groups		4,623			—			—			4,623			134,925			18,399			24,368				140,894
Exclude straight-line rent adjustment		—			—			—			—			(1,243	)		—			—				(1,243	)

Operating expenses excluding straight-line rent adjustment		4,623			—			—			4,623			133,682			18,399			24,368				139,651
Gain on disposition recorded on equity method		—			—			—			—			5,033			—			(5,033	)			—
Minority interest in earnings before depreciation and amortization		—			—			—			—			5,505			5,505			—				—
Interest expense		7,658			—			—			7,658			45,774			8,101			10,178				47,851
Income tax (benefit) provision		(2,358	)		—			—			(2,358	)		6,139			—			—				6,139

		9,923			—			—			9,923			196,133			32,005			29,513				193,641

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(9,857	)	$	—		$	—		$	(9,857	)	$	37,009		$	—		$	—			$	37,009

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)													$	37,009		$	—		$	—			$	37,009
Depreciation and amortization — Real Estate Groups														(23,978	)		—			—				(23,978	)
Deferred taxes — Real Estate Groups														(1,352	)		—			—				(1,352	)
Straight-line rent adjustment														936			—			—				936
(Loss) gain on disposition of operating properties and other investments, net of tax														(185	)		—			3,042				2,857
Gain on disposition reported on equity method, net of tax														3,042			—			(3,042	)			—

Net earnings													$	15,472		$	—		$	—			$	15,472

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Earnings Before Depreciation, Amortization and Deferred Taxes For the Six Months Ended July 31, 2001
(in thousands)


		Commercial Group 2001												Residential Group 2001

								Plus												Plus
					Less			Unconsolidated									Less			Unconsolidated
		Full			Minority			Investments at			Pro-Rata			Full			Minority			Investments at			Pro-Rata
		Consolidation			Interest			Pro-Rata			Consolidation			Consolidation			Interest			Pro-Rata			Consolidation

Revenues		$	276,804		$	57,702		$	40,557		$	259,659		$	73,414		$	2,776		$	26,810		$	97,448
Exclude straight-line rent adjustment			(5,486	)		—			—			(5,486	)		—			—			—			—
Add back equity method depreciation expense			5,310			—			(5,310	)		—			4,935			—			(4,629	)		306

Adjusted revenues			276,628			57,702			35,247			254,173			78,349			2,776			22,181			97,754
Operating expenses, including depreciation and amortization for non-Real Estate Groups			142,549			30,410			22,884			135,023			32,197			2,140			18,182			48,239
Exclude straight-line rent adjustment			(2,501	)		—			—			(2,501	)		—			—			—			—

Operating expenses excluding straight-line rent adjustment			140,048			30,410			22,884			132,522			32,197			2,140			18,182			48,239
Gain on disposition recorded on equity method			—			—			—			—			5,033			—			(5,033	)		—
Minority interest in earnings before depreciation and amortization			10,105			10,105			—			—			(18	)		(18	)		—			—
Interest expense			61,157			17,187			12,363			56,333			12,451			654			9,032			20,829
Income tax provision			5,791			—			—			5,791			5,599			—			—			5,599

			217,101			57,702			35,247			194,646			55,262			2,776			22,181			74,667

Earnings before depreciation, amortization and deferred taxes (EBDT)		$	59,527		$	—		$	—		$	59,527		$	23,087		$	—		$	—		$	23,087


		Land Development Group 2001												Lumber Trading Group 2001

								Plus												Plus
					Less			Unconsolidated									Less			Unconsolidated
		Full			Minority			Investments at			Pro-Rata			Full			Minority			Investments at			Pro-Rata
		Consolidation			Interest			Pro-Rata			Consolidation			Consolidation			Interest			Pro-Rata			Consolidation

Revenues		$	9,636		$	91		$	10,228		$	19,773		$	61,929		$	—		$	—		$	61,929
Operating expenses, including depreciation and amortization for non-Real Estate Groups			5,525			138			9,061			14,448			55,816			—			—			55,816
Minority interest in earnings before depreciation and amortization			(47	)		(47	)		—			—			—			—			—			—
Interest expense			215			—			1,167			1,382			1,924			—			—			1,924
Income tax provision			3,364			—			—			3,364			1,643			—			—			1,643

			9,057			91			10,228			19,194			59,383			—			—			59,383

Earnings before depreciation, amortization and deferred taxes (EBDT)		$	579		$	—		$	—		$	579		$	2,546		$	—		$	—		$	2,546


		Corporate Activities 2001												Total 2001

								Plus												Plus
					Less			Unconsolidated									Less			Unconsolidated
		Full			Minority			Investments at			Pro-Rata			Full			Minority			Investments at			Pro-Rata
		Consolidation			Interest			Pro-Rata			Consolidation			Consolidation			Interest			Pro-Rata			Consolidation

Revenues		$	163		$	—		$	—		$	163		$	421,946		$	60,569		$	77,595		$	438,972
Exclude straight-line rent adjustment			—			—			—			—			(5,486	)		—			—			(5,486	)
Add back equity method depreciation expense			—			—			—			—			10,245			—			(9,939	)		306

Adjusted revenues			163			—			—			163			426,705			60,569			67,656			433,792
Operating expenses, including depreciation and amortization for non-Real Estate Groups			8,457			—			—			8,457			244,544			32,688			50,127			261,983
Exclude straight-line rent adjustment			—			—			—			—			(2,501	)		—			—			(2,501	)

Operating expenses excluding straight-line rent adjustment			8,457			—			—			8,457			242,043			32,688			50,127			259,482
Gain on disposition recorded on equity method			—			—			—			—			5,033			—			(5,033	)		—
Minority interest in earnings before depreciation and amortization			—			—			—			—			10,040			10,040			—			—
Interest expense			15,419			—			—			15,419			91,166			17,841			22,562			95,887
Income tax provision (benefit)			(8,387	)		—			—			(8,387	)		8,010			—			—			8,010

			15,489			—			—			15,489			356,292			60,569			67,656			363,379

Earnings before depreciation, amortization and deferred taxes (EBDT)		$	(15,326	)	$	—		$	—		$	(15,326	)	$	70,413		$	—		$	—		$	70,413

Reconciliation to net earnings:
	Earnings before depreciation, amortization and deferred taxes (EBDT)													$	70,413		$	—		$	—		$	70,413
	Depreciation and amortization — Real Estate Groups														(47,247	)		—			—			(47,247	)
	Deferred taxes — Real Estate Groups														(4,838	)		—			—			(4,838	)
	Straight-line rent adjustment														2,985			—			—			2,985
	Gain on disposition of operating properties and other investments, net of tax														764			—			3,042			3,806
	Gain on disposition reported on equity method, net of tax														3,042			—			(3,042	)		—
	Extraordinary gain, net of tax														637			—			—			637
	Cumulative effect of change in accounting principle, net of tax														(1,202	)		—			—			(1,202	)

	Net earnings													$	24,554		$	—		$	—		$	24,554

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure is interest rate risk. At July 31, 2002, the Company had $1,014,437,000 of variable-rate debt outstanding. This is inclusive of the $161,750,000 outstanding under its long-term credit facility. Additionally, when the Company’s fixed-rate debt matures, it is subject to interest rate risk.

To mitigate short-term variable interest rate risk, the Company has purchased London Interbank Offered Rate (LIBOR) interest rate caps as follows.


	Caps					Swaps(1)

Coverage	Amount		Average Rate			Amount		Average Rate

			(dollars in thousands)
08/01/02 - 02/01/03	$	662,427		7.67	%	$	517,021		3.30	%




02/01/03 - 02/01/04		900,047		6.51	%		79,320		2.51	%




02/01/04 - 02/01/05		168,400		8.00	%		10,703		3.80	%




02/01/05 - 02/01/06		133,900		8.00	%

(1)

Swaps include long-term LIBOR contracts that have an average maturity greater than six months.

Upon opening and achieving stabilized operations, the Company generally pursues long-term fixed-rate financing. In order to protect against significant increases in long-term interest rates, the Company has purchased Treasury Options. The Company owns Treasury Options with a notional amount of $23,000,000 with a weighted average strike rate of approximately 200 basis points over the current 10-year Treasury and thus the Options have only limited value remaining at this time.

Based upon SEC requirements on assessing the value of debt instruments, the Company estimates the fair value by discounting future cash payments at interest rates that approximate the current market. Based on these parameters, the carrying amount of the Company’s total fixed-rate debt at July 31 and January 31, 2002 was $2,170,730,000 and $2,107,077,000, respectively, compared to an estimated fair value at July 31 and January 31, 2002 of $2,173,683,000 and $2,077,142,000, respectively. The Company estimates that a 100 basis point decrease in market interest rates would change the fair value of this fixed-rate debt to a liability of approximately $2,296,891,000 and $2,196,736,000 at July 31 and January 31, 2002, respectively.

The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At July 31 and January 31, 2002, LIBOR interest rate caps and Treasury Options were reported at their fair value of approximately $507,000 and $1,600,000, respectively, in the Consolidated Balance Sheet as Other Assets. The fair value of interest rate swap agreements at July 31 and January 31 , 2002 is an unrealized loss of $4,656,000 and $5,300,000, respectively, and is included in the Consolidated Balance Sheet as Other Liabilities.

The following tables provide information about the Company’s financial instruments that are sensitive to changes in interest rates.


July 31, 2002
								Expected Maturity Date

																				Total			Fair Market
																				Outstanding			Value
Long-Term Debt		2002			2003			2004			2005			2006			Thereafter			7/31/02			7/31/02

								(dollars in thousands)
Fixed




	Fixed rate debt	$	20,328		$	61,488		$	49,253		$	133,929		$	394,322		$	1,221,046		$	1,880,366		$	1,914,708




	Weighted average interest rate		7.45	%		7.26	%		7.28	%		7.37	%		6.66	%		7.54	%		7.33	%




	UDAG		110			2,833			415			10,929			8,106			47,571			69,964			44,432




	Weighted average interest rate		0.02	%		3.52	%		0.61	%		3.87	%		0.03	%		1.93	%		2.07	%




	Senior & Subordinated Debt (1)		–			–			–			–			–			220,400			220,400			214,543




	Weighted average interest rate																	8.48	%		8.48	%

Total Fixed Rate Debt			20,438			64,321			49,668			144,858			402,428			1,489,017			2,170,730			2,173,683

Variable:




	Variable rate debt		209,780			362,455			92,092			1,187			1,283			101,290			768,087			768,087




	Weighted average interest rate																				4.74	%




	Tax Exempt		45,000			660			7,940			–			–			31,000			84,600			84,600




	Weighted average interest rate																				2.33	%




	Credit Facility (1)		12,500			25,000			25,000			25,000			74,250			–			161,750			161,750




	Weighted average interest rate																				5.18	%

Total Variable Rate Debt			267,280			388,115			125,032			26,187			75,533			132,290			1,014,437			1,014,437

Total Long-Term Debt		$	287,718		$	452,436		$	174,700		$	171,045		$	477,961		$	1,621,307		$	3,185,167		$	3,188,120

(1) Represents recourse debt.


July 31, 2001
								Expected Maturity Date

																				Total			Fair Market
																				Outstanding			Value
Long-Term Debt		2001			2002			2003			2004			2005			Thereafter			7/31/01			7/31/01

								(dollars in thousands)
Fixed




	Fixed rate debt	$	302,666		$	61,846		$	71,091		$	33,523		$	107,456		$	1,148,491		$	1,725,073		$	1,728,684




	Weighted average interest rate		7.89	%		7.64	%		7.84	%		7.39	%		7.24	%		7.45	%		7.54	%




	UDAG		41			102			291			497			11,031			56,602			68,564			37,649




	Weighted average interest rate		6.98	%		6.01	%		3.17	%		1.85	%		3.90	%		1.15	%		1.62	%




	Senior & Subordinated Debt (1)		–			–			–			–			–			220,400			220,400			216,020




	Weighted average interest rate																	8.48	%		8.48	%

Total Fixed Rate Debt			302,707			61,948			71,382			34,020			118,487			1,425,493			2,014,037			1,982,353

Variable:




	Variable rate debt		128,686			132,635			274,760			46,959			–			69,000			652,040			652,040




	Weighted average interest rate																				6.57	%




	Tax Exempt		9,750			44,400			–			–			–			–			54,150			54,150




	Weighted average interest rate																				4.02	%




	Credit Facility (1)		–			–			204,000			–			–			–			204,000			204,000




	Weighted average interest rate																				6.27	%

Total Variable Rate Debt			138,436			177,035			478,760			46,959			–			69,000			910,190			910,190

Total Long-Term Debt		$	441,143		$	238,983		$	550,142		$	80,979		$	118,487		$	1,494,493		$	2,924,227		$	2,892,543

(1) Represents recourse debt.

Item 4. Controls and Procedures

(a) Not applicable.

(b) There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to management’s evaluation.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security-Holders

Reported in the Company’s Quarterly Report on Form 10-Q for the period ended April 30, 2002.

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits


Exhibit
Number		Description of Document

3.1	- -	Amended Articles of Incorporation adopted as of October 11, 1983, incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended October 31, 1983 (File No. 1-4372).

3.2	- -	Code of Regulations as amended June 14, 1994, incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended January 31, 1997 (File No.1-4372).

3.3	- -	Certificate of Amendment by Shareholders to the Articles of Incorporation of Forest City Enterprises, Inc. dated June 24, 1997, incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-3 (Registration No. 333-41437).

3.4	- -	Certificate of Amendment by Shareholders to the Articles of Incorporation of Forest City Enterprises, Inc. dated June 16, 1998, incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (Registration No. 333-61925).

4.1	- -	Form of Senior Subordinated Indenture between the Company and National City Bank, as Trustee thereunder, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (Registration No. 333-22695).

4.2	- -	Form of Junior Subordinated Indenture between the Company and National City Bank, as Trustee thereunder, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (Registration No. 333-22695).

4.3	- -	Form of Senior Indenture between the Company and The Bank of New York, as Trustee thereunder, incorporated by reference to Exhibit 4.22 to the Company’s Registration Statement on Form S-3 (Registration No. 333-41437).

10.1	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Deborah Ratner Salzberg and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, dated June 26, 1996, incorporated by reference to Exhibit 10.19 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.2	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Brian J. Ratner and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, dated June 26, 1996, incorporated by reference to Exhibit 10.20 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).


Exhibit
Number		Description of Document

10.3	- -	Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Brian J. Ratner and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, effective June 26, 1996, incorporated by reference to Exhibit 10.21 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.4	- -	Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Deborah Ratner Salzberg and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, effective June 26, 1996, incorporated by reference to Exhibit 10.22 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.5	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Charles Ratner 1992 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the lives of Charles Ratner and Ilana Horowitz (Ratner), dated November 2, 1996, incorporated by reference to Exhibit 10.23 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.6	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.24 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.7	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildren’s Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.25 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.8	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildren’s Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).


Exhibit
Number		Description of Document

10.9	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildren’s Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.27 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.10	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildren’s Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.28 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.11	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.12	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.30 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.13	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996, incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.14	- -	Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between James Ratner and Albert Ratner, Trustees under the Charles Ratner 1992 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the lives of Charles Ratner and Ilana Ratner, effective November 2, 1996, incorporated by reference to Exhibit 10.32 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).


Exhibit
Number		Description of Document

10.15	- -	Supplemental Unfunded Deferred Compensation Plan for Executives, incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.16	- -	1994 Stock Option Plan, including forms of Incentive Stock Option Agreement and Nonqualified Stock Option Agreement, incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.17	- -	First Amendment to the 1994 Stock Option Plan dated as of June 9, 1998, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (Registration No. 333-61925).

10.18	- -	First Amendment to the forms of Incentive Stock Option Agreement and Nonqualified Stock Option Agreement, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 (Registration No.333-61925).

10.19	- -	Amended and Restated form of Stock Option Agreement, effective as of July 16, 1998, incorporated by reference to Exhibit 10.38 to the Company’s Form 10-Q for the quarter ended October 31, 1998 (File No. 1-4372).

10.20	- -	Dividend Reinvestment and Stock Purchase Plan, incorporated by reference to Exhibit 10.42 to the Company’s Form 10-K for the year ended January 31, 1999 (File No. 1-4372).

10.21	- -	Deferred Compensation Plan for Executives, effective as of January 1, 1999, incorporated by reference to Exhibit 10.43 to the Company’s Form 10-K for the year ended January 31, 1999 (File No. 1-4372).

10.22	- -	Deferred Compensation Plan for Nonemployee Directors, effective as of January 1, 1999, incorporated by reference to Exhibit 10.44 to the Company’s Form 10-K for the year ended January 31, 1999 (File No. 1-4372).

10.23	- -	First Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective October 1, 1999, incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 (Registration No. 333-38912).

10.24	- -	Second Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective March 10, 2000, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (Registration No. 333-38912).


Exhibit
Number		Description of Document

*10.25	-	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and Charles A. Ratner.

10.28	- -	Employment Agreement entered into on May 31, 1999, effective January 1, 1999, by the Company and Albert B. Ratner, incorporated by reference to Exhibit 10.47 to the Company’s Form 10-Q for the quarter ended July 31, 1999 (File No. 1-4372).

10.29	- -	First Amendment to Employment Agreement effective as of February 28, 2000 between Forest City Enterprises, Inc. and Albert B. Ratner, incorporated by reference to Exhibit 10.45 to the Company’s Form 10-K for the year ended January 31, 2000 (File No. 1-4372).

10.30	- -	Employment Agreement entered into on May 31, 1999, effective January 1, 1999, by the Company and Samuel H. Miller, incorporated by reference to Exhibit 10.48 to the Company’s Form 10-Q for the quarter ended July 31, 1999 (File No. 1-4372).

*10.31	-	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and James A. Ratner.

*10.32	-	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and Ronald A. Ratner.

10.33	- -	Deferred Compensation Agreement between Forest City Enterprises, Inc. and Thomas G. Smith dated December 27, 1995, incorporated by reference to Exhibit 10.33 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

10.34	- -	Employment Agreement (re death benefits) entered into on May 31, 1999, by the Company and Thomas G. Smith dated December 27, 1995, incorporated by reference to Exhibit 10.49 to the Company’s Form 10-Q for the quarter ended October 31, 1999 (File No. 1-4372).

10.35	- -	Summary of Forest City Enterprises, Inc. Management Incentive Plan as adopted in 1997, incorporated by reference to Exhibit 10.51 to the Company’s Form 10-Q for the quarter ended July 31, 2001 (File No. 1-4372).

10.36	- -	Summary of Forest City Enterprises, Inc. Long-Term Performance Plan as adopted in 2000, incorporated by reference to Exhibit 10.52 to the Company’s Form 10-Q for the quarter ended July 31, 2001 (File No. 1-4372).


Exhibit
Number		Description of Document

10.37	- -	Credit Agreement, dated as of March 5, 2002, by and among Forest City Rental Properties Corporation, the banks named therein, KeyBank National Association, as administrative agent, and National City Bank, as syndication agent, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, dated March 5, 2002 (File No. 1-4372).

10.38	- -	Guaranty of Payment of Debt, dated as of March 5, 2002, by and among Forest City Enterprises, Inc., the banks named therein, KeyBank National Association, as administrative agent, and National City Bank, as syndication agent, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, dated March 5, 2002 (File No 1-4372).

* - filed herewith

(b) Reports on Form 8-K.

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FOREST CITY ENTERPRISES, INC.
		(Registrant)

Date September 11, 2002		/s/ THOMAS G. SMITH

		Thomas G. Smith,
		Executive Vice President
		and Chief Financial Officer
		(Principle Financial Officer)

Date September 11, 2002		/s/ LINDA M. KANE

		Linda M. Kane, Senior Vice President
		and Corporate Controller
		(Principle Accounting Officer)

CERTIFICATION

I, Charles A. Ratner, certify that:

(1) I have reviewed this quarterly report for July 31, 2002 on Form 10-Q of Forest City Enterprises, Inc. (the “Company”);

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report.


Date: September 11, 2002		/s/ Charles A. Ratner

		Name: Charles A. Ratner
		Title: President and
		Chief Executive Officer

CERTIFICATION

I, Thomas G. Smith, certify that:


Date: September 11, 2002		/s/ Thomas G. Smith

		Name: Thomas G. Smith
		Title: Executive Vice President,
		Chief Financial Officer, and Secretary

EXHIBIT INDEX


Exhibit
Number		Description of Document


*10.25	- -	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and Charles A. Ratner.

*10.31	- -	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and James A. Ratner.





*10.32	- -	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and Ronald A. Ratner.






*		- filed herewith

(1)		The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the three months ended July 31, 2002 and 2001 were $648,653 and $818,707, respectively. Sales invoiced for the six months ended July 31, 2002 and 2001 were $1,337,549 and $1,384,675, respectively.




(2)		See Consolidated Statements of Earnings for reconciliation of EBIT to net earnings.




(3)		EBDT is defined as net earnings before extraordinary items, excluding the following items: 1) gain (loss) on disposition of operating properties and other investments (net of tax); ii) beginning in the year ended January 31, 2001, the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) noncash charges from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City, for depreciation, amortization and deferred income taxes; iv) provision for decline in real estate; and v) cumulative effect of change in accounting principle (net of tax).

(1)		Reflects weighted average interest rate including both the base index and the lender margin.




(2)		Taxable variable rate debt of $768,087 is protected with LIBOR swaps and caps described below. These LIBOR-based hedges protect the debt currently outstanding as well as the anticipated increase in debt outstanding for projects under development or anticipated to be under development during the year ending January 31, 2003.


(a)		Not applicable.
(b)		There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to management’s evaluation.

(1)		I have reviewed this quarterly report for July 31, 2002 on Form 10-Q of Forest City Enterprises, Inc. (the “Company”);

(2)		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

(3)		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report.