FOREST CITY ENTERPRISES INC - 10-Q Quarterly Report

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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 October 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.)

Terminal Tower 50 Public Square
Suite 1100 Cleveland, Ohio

44113

(Address of principal executive offices)

Zip Code

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 December 2, 2002

Class A Common Stock, $.33 1/3 par value		35,520,067 shares

Class B Common Stock, $.33 1/3 par value		14,130,592 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

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 — October 31, 2002
(Unaudited) and January 31, 2002

Consolidated Statements of Earnings
(Unaudited) — Three Months and Nine Months
Ended October 31, 2002 and 2001

Consolidated Statements of Comprehensive Income
(Unaudited) — Nine Months
Ended October 31, 2002 and 2001

Consolidated Statements of Shareholders’ Equity
(Unaudited) — Nine Months Ended
October 31, 2002 and 2001

Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended October 31, 2002 and 2001

Notes to Consolidated Financial Statements (Unaudited)

7 - 22

Item 2.

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

23 - 42

Item 3.

Quantitative and Qualitative Disclosures about
Market Risk

43 - 45

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

47 - 52

Signatures

Section 302 Certifications

54 - 55

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets


			October 31, 2002			January 31, 2002

			(Unaudited)
			*(in thousands)*
Assets
Real Estate
	Completed rental properties		$	3,837,061		$	3,458,756
	Projects under development			518,495			461,204
	Land held for development or sale			35,357			24,193

		Total Real Estate		4,390,913			3,944,153
	Less accumulated depreciation			(606,798	)		(537,325	)

		Real Estate, net		3,784,115			3,406,828

Cash and equivalents				41,651			50,054
Restricted cash				144,633			113,073
Notes and accounts receivable, net				265,613			276,000
Inventories				32,728			39,247
Investments in and advances to real estate affiliates				494,802			394,303
Other assets				136,236			138,141

		Total Assets	$	4,899,778		$	4,417,646

Liabilities and Shareholders’ Equity
Liabilities
Mortgage debt, nonrecourse			$	2,924,509		$	2,620,598
Notes payable				59,167			64,554
Long-term credit facility				194,500			54,000
Senior and subordinated debt				220,400			220,400
Accounts payable and accrued expenses				492,857			499,722
Deferred income taxes				241,680			227,982

	Total Liabilities			4,133,113			3,687,256

Minority interest				75,435			67,877





Commitments and Contingencies

Shareholders’ Equity
Preferred stock — 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; 35,644,041 and 35,101,288 shares issued, 35,486,022 and 34,756,382 outstanding, respectively			11,881			11,700
	Class B, convertible, 36,000,000 shares authorized; 14,581,787 and 15,124,540 shares issued, 14,164,637 and 14,707,390 outstanding, respectively			4,861			5,042

				16,742			16,742
Additional paid-in capital				231,808			228,263
Retained earnings				456,258			432,939

				704,808			677,944
Less treasury stock, at cost; 158,019 Class A and 417,150 Class B shares and 344,906 Class A and 417,150 Class B shares, respectively				(4,469	)		(6,140	)
Accumulated other comprehensive loss				(9,109	)		(9,291	)

	Total Shareholders’ Equity			691,230			662,513

		Total Liabilities and Shareholders’ Equity	$	4,899,778		$	4,417,646

See notes to consolidated financial statements.

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


			Three Months Ended October 31,						Nine Months Ended October 31,

			2002			2001			2002			2001

			(Unaudited)
			(in thousands, except per share data)
Revenues
		Rental properties	$	199,484		$	195,608		$	583,962		$	535,928
		Lumber trading		23,296			27,034			72,896			88,963
		Equity in earnings of unconsolidated entities		10,735			10,019			31,493			29,716

				233,515			232,661			688,351			654,607

Expenses
		Operating expenses		143,714			139,027			415,469			381,756
		Interest expense		40,900			44,023			130,236			135,189
		Provision for decline in real estate		957			7,452			957			7,452
		Depreciation and amortization		31,723			24,271			86,907			71,418

				217,294			214,773			633,569			595,815

Gain (loss) on disposition of operating properties and other investments				—			89,961			(116	)		91,224

Earnings before income taxes				16,221			107,849			54,666			150,016

Income tax expense (benefit)
		Current		(4,044	)		3,596			6,707			11,083
		Deferred		11,053			40,864			13,996			48,714

				7,009			44,460			20,703			59,797

	Earnings before minority interest, extraordinary loss and cumulative effect of change in accounting principle			9,212			63,389			33,963			90,219

Minority interest				(57	)		3,209			(1,759	)		1,498

Earnings before extraordinary loss and cumulative effect of change in accounting principle				9,155			66,598			32,204			91,717

Extraordinary loss, net of tax				(214	)		(870	)		(444	)		(233	)
Cumulative effect of change in accounting principle, net of tax				—			—			—			(1,202	)

Net earnings			$	8,941		$	65,728		$	31,760		$	90,282

Basic earnings per common share
		Earnings before extraordinary loss and cumulative effect of change in accounting principle	$	.18		$	1.42		$	.65		$	2.01
		Extraordinary loss, net of tax		—			(.02	)		(.01	)		(.01	)
		Cumulative effect of change in accounting principle, net of tax		—			—			—			(.03	)

Net earnings			$	.18		$	1.40		$	.64		$	1.97

Diluted earnings per common share
		Earnings before extraordinary loss and cumulative effect of change in accounting principle	$	.18		$	1.40		$	.64		$	1.98
		Extraordinary loss, net of tax		—			(.02	)		(.01	)		(.01	)
		Cumulative effect of change in accounting principle, net of tax		—			—			—			(.03	)

Net earnings			$	.18		$	1.38		$	.63		$	1.94

See notes to consolidated financial statements.

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


			Nine Months Ended October 31,

			2002			2001

			(Unaudited)
			(in thousands)
Net earnings			$	31,760		$	90,282

Other comprehensive income (loss), net of tax:
	Unrealized gains (losses) on investments in securities:
		Unrealized loss on securities		(512	)		(4,096	)
		Reclassification adjustment for loss included in net earnings		—			799
	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 gains and losses on interest rate contracts, net of minority interest		694			(4,783	)

Other comprehensive income (loss), net of tax				182			(15,900	)

Comprehensive income			$	31,942		$	74,382

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


					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

			(Unaudited)
			(in thousands)
Nine Months Ended October 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																31,760													31,760
	Other comprehensive income, net of tax																									182				182
	Dividends $.17 per share																(8,441	)												(8,441	)
	Conversion of Class B to Class A shares			543		181		(543	)		(181	)																		—
	Income tax benefit from stock option exercises													1,412																1,412
	Exercise of stock options													1,418						(187	)		1,671							3,089
	Amortization of unearned compensation													715																715

	Balances at October 31, 2002			35,644	$	11,881		14,582		$	4,861		$	231,808		$	456,258			575		$	(4,469	)	$	(9,109	)		$	691,230


Nine Months Ended October 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															90,282													90,282
		Other comprehensive loss, net of tax																								(15,900	)			(15,900	)
		Dividends $.1367 per share															(6,411	)												(6,411	)
		Issuance of 3,900,000 Class A common shares in equity offering		3,900		1,300								116,585																117,885
		Conversion of Class B to Class A shares		334		111		(334	)		(111	)																		—
		Exercise of stock options												1,151						(308	)		2,758							3,909
		Restricted stock issued												(1,009	)					(113	)		1,009							—
		Amortization of unearned compensation												362																362
		Cash in lieu of fractional shares from three-for-two stock split												(3	)															(3	)

		Balances at October 31, 2001		34,777	$	11,592		15,449		$	5,150		$	225,949		$	422,663			809		$	(6,563	)	$	(12,031	)		$	646,760

See notes to consolidated financial statements.

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


			Nine Months Ended October 31,

			2002			2001

			(Unaudited) (in thousands)
Cash Flows from Operating Activities
	Rents and other revenues received		$	617,019		$	538,509
	Cash distributions from unconsolidated entities			13,705			23,816
	Proceeds from land sales			46,958			13,896
	Land development expenditures			(28,232	)		(21,346	)
	Operating expenditures			(398,344	)		(377,389	)
	Interest paid			(128,873	)		(132,887	)

		Net cash provided by operating activities		122,233			44,599

Cash Flows from Investing Activities
	Capital expenditures			(433,997	)		(303,785	)
	Proceeds from disposition of operating properties and other investments			—			190,011
	Changes in investments in and advances to real estate affiliates			(69,822	)		(31,919	)

		Net cash used in investing activities		(503,819	)		(145,693	)

Cash Flows from Financing Activities
	Increase in nonrecourse mortgage debt and long-term credit facility			565,829			402,574
	Principal payments on nonrecourse mortgage debt			(58,284	)		(293,157	)
	Payments on long-term credit facility			(90,500	)		(104,000	)
	Increase in notes payable			15,355			39,244
	Payments on notes payable			(20,785	)		(33,530	)
	Change in restricted cash and book overdrafts			(31,490	)		(3,642	)
	Payment of deferred financing costs			(7,897	)		(10,600	)
	Exercise of stock options			3,089			3,909
	Sale of common stock, net			—			117,885
	Dividends paid to shareholders			(7,933	)		(5,741	)
	Increase in minority interest			5,799			14,586

		Net cash provided by financing activities		373,183			127,528

Net (decrease) increase in cash and equivalents				(8,403	)		26,434
Cash and equivalents at beginning of period				50,054			64,265

Cash and equivalents at end of period			$	41,651		$	90,699

Reconciliation of Net Earnings to Cash Provided by Operating Activities

	Net Earnings		$	31,760		$	90,282
	Minority interest			1,759			(1,498	)
	Depreciation			72,728			59,081
	Amortization			14,179			12,337
	Equity in earnings of unconsolidated entities			(31,493	)		(29,716	)
	Cash distributions from unconsolidated entities			13,705			23,816
	Deferred income taxes			13,578			47,927
	Loss (gain) on disposition of operating properties and other investments			116			(91,224	)
	Provision for decline in real estate			957			7,452
	Extraordinary loss			735			386
	Cumulative effect of change in accounting principle			—			1,988
	Decrease (increase) in land included in projects under development			3,638			(21,229	)
	Decrease in land included in completed rental properties			341			—
	Increase in land held for development or sale			(11,164	)		(708	)
	Decrease (increase) in notes and accounts receivable			10,396			(58,982	)
	Decrease in inventories			6,519			7,803
	(Increase) decrease in other assets			(11,566	)		12,839
	Increase (decrease) in accounts payable and accrued expenses			6,045			(15,955	)

		Net cash provided by operating activities	$	122,233		$	44,599

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 nine months ended October 31, 2002 the Company recorded $19,000 and $204,000, respectively as an increase of interest expense in the Consolidated Statements of Earnings, which represented the total ineffectiveness of all cash flow hedges. During the three and nine months ended October 31, 2001 the Company recorded $-0- and $600,000, respectively as an increase of interest expense. 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 $58,000 and $738,000 for the three and nine months ended October 31, 2002, respectively, and was negligible for the three and nine months ended October 31, 2001. As of October 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 $2,282,000 net of tax.

At October 31 and January 31, 2002, London Interbank Offering Rate (LIBOR) interest rate caps and Treasury Options were reported at their fair value of $358,000 and $1,600,000, respectively, in the Consolidated Balance Sheets as Other Assets. The fair value of interest rate swap agreements at October 31 and January 31, 2002 is an unrealized loss of $4,659,000 and $5,300,000, respectively, and 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.

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

A. Accounting Standards (continued)

New Accounting Standards (continued)

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.

In December 2002 the FASB issued Interpretation (FIN) No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This Interpretation elaborates on the disclosures to be made by the Company in its interim and annual financial statements about obligations under certain guarantees. The Interpretation also requires the Company to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The accounting requirements of this Interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of this Interpretation are effective for financial statements for interim or annual periods ending after December 15, 2002. The Company currently does not record the impact of guarantees at inception. Upon adoption of FIN No. 45, the Company will record a liability for guarantees issued after December 31, 2002 with the related offset dependent upon the facts and circumstances of the guarantees issued.

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 — October 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Assets

Real Estate

Completed rental properties

3,837,061

627,725

868,720

4,078,056

Projects under development

518,495

65,078

130,984

584,401

Land held for development or sale

35,357

—

45,884

81,241

Total Real Estate

4,390,913

692,803

1,045,588

4,743,698

Less accumulated depreciation

(606,798

)

(92,323

)

(195,424

)

(709,899

)

Real Estate, net

3,784,115

600,480

850,164

4,033,799

Cash and equivalents

41,651

9,323

28,916

61,244

Restricted cash

144,633

23,707

34,602

155,528

Notes and accounts receivable, net

265,613

23,271

8,580

250,922

Inventories

32,728

—

32,728

Investments in and advances to real estate affiliates

494,802

—

(56,934

)

437,868

Other assets

136,236

21,924

28,689

143,001

Total Assets

4,899,778

678,705

894,017

5,115,090

Liabilities and Shareholders’ Equity

Liabilities

Mortgage debt, nonrecourse

2,924,509

517,525

843,295

3,250,279

Notes payable

59,167

14,063

5,227

50,331

Long-term credit facility

194,500

—

194,500

Senior and subordinated debt

220,400

—

220,400

Accounts payable and accrued expenses

492,857

71,682

45,495

466,670

Deferred income taxes

241,680

—

241,680

Total Liabilities

4,133,113

603,270

894,017

4,423,860

Minority interest

75,435

—

Total Shareholders’ Equity

691,230

—

691,230

Total Liabilities and Shareholders’ Equity

4,899,778

678,705

894,017

5,115,090

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

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings-Three Months Ended October 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Revenues

Rental properties

199,484

34,757

57,973

222,700

Lumber trading

23,296

—

23,296

Equity in earnings of unconsolidated entities

10,735

—

(4,473

)

6,262

233,515

34,757

53,500

252,258

Expenses

Operating expenses

143,714

21,591

30,600

152,723

Interest expense

40,900

8,600

16,746

49,046

Provision for decline in real estate

957

—

957

Depreciation and amortization

31,723

4,509

6,154

33,368

217,294

34,700

53,500

236,094

Earnings before income taxes

16,221

—

16,164

Income tax expense (benefit)

Current

(4,044

)

—

(4,044

)

Deferred

11,053

—

11,053

7,009

—

7,009

Earnings before minority interest and extraordinary loss

9,212

—

9,155

Minority interest

(57

)

(57

)

—

Earnings before extraordinary loss

9,155

—

9,155

Extraordinary loss, net of tax

(214

)

—

(214

)

Net earnings

8,941

—

8,941

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

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings-Nine Months Ended October 31, 2002

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Revenues

Rental properties

583,962

98,049

158,132

644,045

Lumber trading

72,896

—

72,896

Equity in earnings of unconsolidated entities

31,493

—

(15,790

)

15,703

688,351

98,049

142,342

732,644

Expenses

Operating expenses

415,469

57,261

83,799

442,007

Interest expense

130,236

25,424

40,282

145,094

Provision for decline in real estate

957

—

957

Depreciation and amortization

86,907

13,605

18,261

91,563

633,569

96,290

142,342

679,621

Loss on disposition of operating properties and other investments

(116

)

—

(116

)

Earnings before income taxes

54,666

1,759

—

52,907

Income tax expense

Current

6,707

—

6,707

Deferred

13,996

—

13,996

20,703

—

20,703

Earnings before minority interest and extraordinary loss

33,963

1,759

—

32,204

Minority interest

(1,759

)

(1,759

)

—

Earnings before extraordinary loss

32,204

—

32,204

Extraordinary loss, net of tax

(444

)

—

(444

)

Net earnings

31,760

—

31,760

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

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings-Three Months Ended October 31, 2001


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

					(in thousands)
Revenues
	Rental properties	$	195,608		$	29,252		$	51,909		$	218,265
	Lumber trading		27,034			—			—			27,034
	Equity in earnings of unconsolidated entities		10,019			—			(6,686	)		3,333

			232,661			29,252			45,223			248,632

Expenses
	Operating expenses		139,027			18,062			30,619			151,584
	Interest expense		44,023			8,733			11,295			46,585
	Provision for decline in real estate		7,452			1,574			—			5,878
	Depreciation and amortization		24,271			4,092			3,957			24,136

			214,773			32,461			45,871			228,183

Gain on disposition of operating properties and other investments			89,961			—			648			90,609

Earnings (loss) before income taxes			107,849			(3,209	)		—			111,058

Income tax expense
	Current		3,596			—			—			3,596
	Deferred		40,864			—			—			40,864

			44,460			—			—			44,460

Earnings (loss) before minority interest and extraordinary loss			63,389			(3,209	)		—			66,598

Minority interest			3,209			3,209			—			—

Earnings before extraordinary loss			66,598			—			—			66,598

Extraordinary loss, net of tax			(870	)		—			—			(870	)

Net earnings		$	65,728		$	—		$	—		$	65,728

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

B. Financial Statement Presentation (continued)

Consolidated Statement of Earnings-Nine Months Ended October 31, 2001


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

		(in thousands)
Revenues
	Rental properties	$	535,928		$	89,821		$	143,413		$	589,520
	Lumber trading		88,963			—			—			88,963
	Equity in earnings of unconsolidated entities		29,716			—			(20,595	)		9,121

			654,607			89,821			122,818			687,604

Expenses
	Operating expenses		381,756			50,750			80,607			411,613
	Interest expense		135,189			26,574			33,857			142,472
	Provision for decline in real estate		7,452			1,574			—			5,878
	Depreciation and amortization		71,418			12,421			14,035			73,032

			595,815			91,319			128,499			632,995

Gain on disposition of operating properties and other investments			91,224			—			5,681			96,905

Earnings (loss) before income taxes			150,016			(1,498	)		—			151,514

Income tax expense
	Current		11,083			—			—			11,083
	Deferred		48,714			—			—			48,714

			59,797			—			—			59,797

Earnings (loss) before minority interest, extraordinary loss and cumulative effect of change in accounting principle			90,219			(1,498	)		—			91,717

Minority interest			1,498			1,498			—			—

Earnings before extraordinary loss and cumulative effect of change in accounting principle			91,717			—			—			91,717

Extraordinary loss, net of tax			(233	)		—			—			(233	)

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

Net earnings		$	90,282		$	—		$	—		$	90,282

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

B. Financial Statement Presentation (continued)

Consolidated Statement of Cash Flows-Nine Months Ended October 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		$	617,019		$	88,017		$	150,992		$	679,994




	Cash distributions from unconsolidated entities			13,705			—			(13,705	)		—




	Proceeds from land sales			46,958			3,498			12,650			56,110




	Land development expenditures			(28,232	)		(1,532	)		(21,318	)		(48,018	)




	Operating expenditures			(398,344	)		(42,276	)		(71,058	)		(427,126	)




	Interest paid			(128,873	)		(23,757	)		(39,348	)		(144,464	)

		Net cash provided by operating activities		122,233			23,950			18,213			116,496

Cash Flows from Investing Activities




	Capital expenditures			(433,997	)		(43,463	)		(97,262	)		(487,796	)




	Change in investments in and advances to real estate affiliates			(69,822	)		—			20,051			(49,771	)

		Net cash used in investing activities		(503,819	)		(43,463	)		(77,211	)		(537,567	)

Cash Flows from Financing Activities




	Increase in nonrecourse mortgage debt and long-term credit facility			565,829			32,077			65,545			599,297




	Principal payments on nonrecourse mortgage debt			(58,284	)		(9,771	)		(10,490	)		(59,003	)




	Payments on long-term credit facility			(90,500	)		—			—			(90,500	)




	Increase in notes payable			15,355			83			6,569			21,841




	Payments on notes payable			(20,785	)		(818	)		(4,536	)		(24,503	)




	Change in restricted cash and book overdrafts			(31,490	)		(2,221	)		(205	)		(29,474	)




	Payment of deferred financing costs			(7,897	)		(1,343	)		(3,831	)		(10,385	)




	Exercise of stock options			3,089			—			—			3,089




	Dividends paid to shareholders			(7,933	)		—			—			(7,933	)




	Increase in minority interest			5,799			5,799			—			—

		Net cash provided by financing activities		373,183			23,806			53,052			402,429

Net (decrease) increase in cash and equivalents				(8,403	)		4,293			(5,946	)		(18,642	)




Cash and equivalents at beginning of period				50,054			5,030			34,862			79,886

Cash and equivalents at end of period			$	41,651		$	9,323		$	28,916		$	61,244

Reconciliation of Net Earnings to




	Cash Provided by Operating Activities




	Net Earnings		$	31,760		$	—		$	—		$	31,760




	Minority interest			1,759			1,759			—			—




	Depreciation			72,728			10,900			15,671			77,499




	Amortization			14,179			2,705			2,590			14,064




	Equity in earnings of unconsolidated entities			(31,493	)		—			15,790			(15,703	)




	Cash distributions from unconsolidated entities			13,705			—			(13,705	)		—




	Deferred income taxes			13,578			—			—			13,578




	Loss on disposition of operating properties and other investments			116			—			—			116




	Provision for decline in real estate			957			—			—			957




	Extraordinary loss			735			—			—			735




	Decrease in land included in projects under development			3,638			162			2,379			5,855




	Decrease in land included in completed rental properties			341			75			—			266




	Increase in land held for development or sale			(11,164	)		—			(13,192	)		(24,356	)




	Decrease (increase) in notes and accounts receivable			10,396			(5,472	)		5,462			21,330




	Decrease in inventories			6,519			—			—			6,519




	Increase in other assets			(11,566	)		(413	)		(3,082	)		(14,235	)




	Increase (decrease) in accounts payable and accrued expenses			6,045			14,234			6,300			(1,889)

		Net cash provided by operating activities	$	122,233		$	23,950		$	18,213		$	116,496

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

B. Financial Statement Presentation (continued)

Consolidated Statement of Cash Flows-Nine Months Ended October 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		$	538,509		$	80,486		$	124,499		$	582,522
	Cash distributions from unconsolidated entities			23,816			—			(23,816	)		—
	Proceeds from land sales			13,896			719			23,876			37,053
	Land development expenditures			(21,346	)		(1,395	)		(16,388	)		(36,339	)
	Operating expenditures			(377,389	)		(44,057	)		(74,275	)		(407,607	)
	Interest paid			(132,887	)		(26,791	)		(33,434	)		(139,530	)

		Net cash provided by operating activities		44,599			8,962			462			36,099

Cash Flows from Investing Activities
	Capital expenditures			(303,785	)		(140	)		(94,366	)		(398,011	)
	Proceeds from disposition of operating properties and other investments			190,011			—			7,791			197,802
	Change in investments in and advances to real estate affiliates			(31,919	)		—			20,849			(11,070	)

		Net cash used in investing activities		(145,693	)		(140	)		(65,726	)		(211,279	)

Cash Flows from Financing Activities
	Increase in nonrecourse mortgage debt and long-term credit facility			402,574			62,045			147,889			488,418
	Principal payments on nonrecourse mortgage debt			(293,157	)		(81,911	)		(54,898	)		(266,144	)
	Payments on long-term credit facility			(104,000	)		—			—			(104,000	)
	Increase in notes payable			39,244			170			8,285			47,359
	Payments on notes payable			(33,530	)		(1	)		(12,898	)		(46,427	)
	Change in restricted cash and book overdrafts			(3,642	)		(3,389	)		(16,212	)		(16,465	)
	Payment of deferred financing costs			(10,600	)		(811	)		(906	)		(10,695	)
	Exercise of stock options			3,909			—			—			3,909
	Sale of common stock, net			117,885			—			—			117,885
	Dividends paid to shareholders			(5,741	)		—			—			(5,741	)
	Increase in minority interest			14,586			14,586			—			—

		Net cash provided by (used in) financing activities		127,528			(9,311	)		71,260			208,099

Net increase (decrease) in cash and equivalents				26,434			(489	)		5,996			32,919
Cash and equivalents at beginning of period				64,265			8,653			26,351			81,963

Cash and equivalents at end of period			$	90,699		$	8,164		$	32,347		$	114,882

Reconciliation of Net Earnings to Cash Provided by Operating Activities
Net Earnings			$	90,282		$	—		$	—		$	90,282
	Minority interest			(1,498	)		(1,498	)		—			—
	Depreciation			59,081			9,483			12,112			61,710
	Amortization			12,337			2,938			1,923			11,322
	Equity in earnings of unconsolidated entities			(29,716	)		—			20,595			(9,121	)
	Cash distributions from unconsolidated entities			23,816			—			(23,816	)		—
	Deferred income taxes			47,927			—			—			47,927
	Gain on disposition of operating properties and other investments			(91,224	)		—			(5,681	)		(96,905	)
	Provision for decline in real estate			7,452			1,574			—			5,878
	Extraordinary loss			386			—			—			386
	Cumulative effect of change in accounting principle			1,988			—			—			1,988
	(Increase) decrease in land included in projects under development			(21,229	)		(2,130	)		3,022			(16,077	)
	Decrease in land included in completed rental properties			—			—			191			191
	Increase in land held for development or sale			(708	)		—			(5,890	)		(6,598	)
	(Increase) decrease in notes and accounts receivable			(58,982	)		(5,620	)		4,763			(48,599	)
	Decrease in inventories			7,803			—			—			7,803
	Decrease (increase) in other assets			12,839			1,924			(6,931	)		3,984
	(Decrease) increase in accounts payable and accrued expenses			(15,955	)		2,291			174			(18,072	)

		Net cash provided by operating activities	$	44,599		$	8,962		$	462		$	36,099

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


C.		Provision for Decline in Real Estate




		During the three and nine months ended October 31, 2002, the Company recorded a Provision for Decline in Real Estate totaling $957,000, or $579,000 net of estimated taxes, representing the adjustment to fair market value of land held by the Residential Group.

		During the three and nine months ended October 31, 2001 the Company recorded a Provision for Decline in Real Estate totaling $7,452,000, or $5,127,000 net of estimated taxes, representing the adjustment to fair market value of land held by the Commercial and Residential Groups.

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




		During the nine months ended October 31, 2002, the Company recorded a loss on other investments of $116,000, or $70,000 net of estimated taxes.

		During the three and nine months ended October 31, 2001, the Company recorded gains on the disposition of operating properties and other investments totaling $89,961,000 ($54,357,000 net of estimated taxes) and $91,224,000 ($55,121,000 net of estimated taxes), respectively. The Company recorded gains on the disposition of two shopping centers, Bowling Green Mall, located in Bowling Green, Kentucky, of $1,892,000 and Tucson Mall, located in Tucson, Arizona, of $86,096,000, both structured as tax-deferred exchanges. The Company also recognized gains on the disposition of three apartment communities, all structured as tax-deferred exchanges: Whitehall Terrace located in Kent, Ohio, for $1,105,000, Peppertree, located in College Station, Texas, for $1,682,000, and Palm Villas, located in Henderson, Nevada, for $7,259,000. A loss of $1,010,000 was recognized on the sale of The Oaks, an apartment community located in Bryan, Texas. The Company also recognized a loss from the sale of available-for-sale equity securities of $1,321,000 and a loss on other investments totaling $4,479,000.

E.		Extraordinary Loss




		During the three and nine months ended October 31, 2002, the Company recorded an extraordinary loss, net of tax, of $214,000($355,000 pre-tax) and $444,000 ($735,000 pre-tax), respectively, representing the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. The Company recorded extraordinary losses related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania, Autumn Ridge and Cambridge Towers, residential properties located in Michigan and Regency Towers, a residential property located in Jackson, New Jersey.

		During the three and nine months ended October 31, 2001, the Company recorded an extraordinary loss, net of tax, of $870,000 ($1,440,000 pre-tax) and $233,000 ($386,000 pre-tax), respectively, representing the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. The Company recorded an extraordinary gain, net of tax, of $637,000 ($1,054,000 pre-tax) related to Enclave, a residential property located in San Jose, California, and an extraordinary loss, net of tax, of $870,000 ($1,440,000 pre-tax) related to Mount Vernon, a residential property located in Alexandria, Virginia.

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


F.		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

December 6, 2002

March 3, 2003

March 17, 2003

.06


G.		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 items and cumulative effect of change in accounting principle”.


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

		(in thousands)
Three Months Ended




October 31, 2002:




	Basic EPS	$	9,155		49,650,529	$	0.18




	Effect of dilutive securities -stock options		—		502,356		—

	Diluted EPS	$	9,155		50,152,885	$	0.18

October 31, 2001:




	Basic EPS	$	66,598		46,958,012	$	1.42




	Effect of dilutive securities -stock options		—		618,500		(.02	)

	Diluted EPS	$	66,598		47,576,512	$	1.40

Nine Months Ended




October 31, 2002:




	Basic EPS	$	32,204		49,594,305	$	0.65




	Effect of dilutive securities -stock options		—		598,641		(.01	)

	Diluted EPS	$	32,204		50,192,946	$	0.64

October 31, 2001:




	Basic EPS	$	91,717		45,834,365	$	2.01




	Effect of dilutive securities -stock options		—		626,829		(.03	)

	Diluted EPS	$	91,717		46,461,194	$	1.98

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


H.		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 from which, upon formation 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.





		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 first of these was the modification or expiration of the Government contracts that now allow for market rate apartment rentals, which provide a significant increase in expected future cash flows. This, in turn, increased the appraised values of these properties. As a result, the Company determined that the collection of a portion of these notes receivable and related accrued interest is now probable. The Company continues to monitor these reserves in relation to events that could change expected future cash flows and, during the three months ended October 31, 2002, the Company reduced reserves of approximately $319,000 primarily representing a portion of the notes receivable and related interest at two of the properties bringing the total reduction of the reserves for the nine months ended October 31, 2002 to $4,174,000. These amounts are included in revenues in the Consolidated Statement 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 nine months ended October 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.

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


I.		Reclassification




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





J.		Long-term Credit Facility




		At October 31, 2002, the Company had $194,500,000 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 $87,500,000 as of October 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 ($26,068,000 in letters of credit outstanding and $-0- surety bonds at October 31, 2002). The outstanding borrowings on 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 facilities provide, among other things, for: 1) at the Company’s election, interest rates of 2.125% over LIBOR or 1/2% over the prime rate except for the last $50,000,000 of borrowings in the case of the 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.





		In order to mitigate the short-term variable interest rate risk on its long-term credit facility, the Company has entered into LIBOR interest rate swaps and purchased LIBOR interest rate caps. One swap expires January 31, 2003 and effectively fixes the LIBOR rate at 4.38% for a notional amount of $75,000,000. Additional swaps are in effect through January 31, 2004 which effectively fix the LIBOR rate at 1.78% for a notional amount of $56,250,000 beginning February 1, 2003, and effectively fix the LIBOR rate at 1.77% for a notional amount of $75,000,000 (purchased in November 2002) beginning December 1, 2002. The LIBOR interest rate caps have an average rate of 7.50% for 2002 and a notional amount of $47,400,000. LIBOR interest rate caps for 2003 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. LIBOR interest rate caps for 2004 were purchased at an average rate of 5.00% at a notional amount of $108,431,000 covering the period February 1, 2004 through August 1, 2004.

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


K.		Investments in and Advances to Real Estate Affiliates




		Included in Investments in and Advances to Real Estate Affiliates are unconsolidated investments in entities which the Company does not control and which are 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 (100%)						Pro-Rata Share

			October 31,			January 31,			October 31,			January 31,
			2002			2002			2002			2002

			(in thousands)
Balance Sheet:




	Completed rental properties		$	2,378,001		$	2,235,274		$	868,720		$	775,878




	Projects under development			299,274			243,339			130,984			124,395




	Land held for development or sale			96,679			69,723			45,884			32,692




	Investments in and advances to real estate affiliates — syndicated residential partnerships⁽¹⁾			—			—			92,124			78,435




	Accumulated depreciation			(490,385	)		(434,466	)		(195,424	)		(175,205	)




	Other assets			271,815			280,760			100,787			107,572

		Total Assets	$	2,555,384		$	2,394,630		$	1,043,075		$	943,767

	Mortgage debt, nonrecourse		$	2,222,515		$	2,117,979		$	843,295		$	788,240




	Advances from general partner			20,455			20,455			—			—




	Other liabilities			157,843			152,342			50,722			47,282




	Partners’ equity			154,571			103,854			149,058			108,245

		Total Liabilities and Partners’ Equity	$	2,555,384		$	2,394,630		$	1,043,075		$	943,767


Three Months Ended October 31,				2002			2001			2002			2001

Operations:




	Revenues		$	143,634		$	130,673		$	57,973		$	51,909




	Equity in earnings of unconsolidated entities on a pro-rata basis			—			—			6,262			3,333




	Operating expenses			(76,213	)		(74,674	)		(30,600	)		(30,619	)




	Interest expense			(38,898	)		(29,063	)		(16,746	)		(11,295	)




	Depreciation and amortization			(16,507	)		(11,647	)		(6,154	)		(3,957	)




	Gain on disposition of operating properties and other investments			—			2,327			—			648

		Net earnings (pre-tax)	$	12,016		$	17,616		$	10,735		$	10,019


Nine Months Ended October 31,





Operations:




	Revenues		$	391,583		$	366,362		$	158,132		$	143,413




	Equity in earnings of unconsolidated entities on a pro-rata basis			—			—			15,703			9,121




	Operating expenses			(205,085	)		(201,063	)		(83,799	)		(80,607	)




	Interest expense			(98,251	)		(90,645	)		(40,282	)		(33,857	)




	Depreciation and amortization			(48,553	)		(49,424	)		(18,261	)		(14,035	)




	Gain on disposition of operating properties and other investments			—			12,392			—			5,681




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

		Net earnings (pre-tax)	$	39,294		$	38,732		$	31,113		$	30,770

(1) The Company is a general partner in several syndicated residential partnerships which are accounted for on the equity method under both full consolidation and pro-rata consolidation. Summarized Balance Sheet information at the Company's economic share is as follows:

October 31,
2002 January 31,
2002

Total Assets $ 538,544 $ 526,231

Total Liabilities $ 446,420 $ 447,796

Partners’ Equity $ 92,124 $ 78,435

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


K.		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):


	October 31,		January 31,
	2002		2002

Partners’ equity, as above	$	154,571	$	103,854




Equity of other partners		25,968		16,064





Company’s investment in partnerships		128,603		87,790




Advances to partnerships, as above		20,455		20,455




Advances to other real estate affiliates		345,744		286,058





Investments in and Advances to Real Estate Affiliates	$	494,802	$	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 October 31, 2002 and January 31, 2002, amounts advanced for real estate projects on behalf of this partner were $98,158,000 and $81,970,000, respectively, of the $345,744,000 and $286,058,000 presented above for “Advances to other real estate affiliates”. These advances entitle the Company to a preferred return on and of the outstanding balances, which are payable from cash flows of each respective property.

L.		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)

M. 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						Nine Months
										Ended October 31,						Ended October 31,
						October 31,		January 31,
						2002		2002		2002			2001			2002			2001

										Expenditures for
						Identifiable Assets				Additions to Real Estate






Commercial Group						$	3,543,350	$	3,200,234	$	101,396		$	176,708		$	311,559		$	289,328




Residential Group							973,618		797,248		22,228			3,352			146,785			53,952




Land Development Group							194,364		174,170		4,337			5,265			16,080			30,114




Lumber Trading Group							136,078		171,353		293			293			981			547




Corporate							52,368		74,641		290			504			793			854

						$	4,899,778	$	4,417,646	$	128,544		$	186,122		$	476,198		$	374,795


		Three Months				Nine Months				Three Months						Nine Months
		Ended October 31,				Ended October 31,				Ended October 31,						Ended October 31,

		2002		2001		2002		2001		2002			2001			2002			2001

		Revenues								Interest Expense






Commercial Group		$	154,625	$	139,745	$	436,254	$	416,549	$	26,594		$	30,066		$	89,853		$	91,223




Residential Group			40,015		47,530		119,121		120,944		6,498			5,545			18,323			17,996




Land Development Group			15,194		18,310		59,226		27,946		398			545			807			760




Lumber Trading Group⁽¹⁾			23,296		27,034		72,896		88,963		649			660			2,044			2,584




Corporate			385		42		854		205		6,761			7,207			19,209			22,626

		$	233,515	$	232,661	$	688,351	$	654,607	$	40,900		$	44,023		$	130,236		$	135,189


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






Commercial Group		$	24,284	$	19,145	$	69,263	$	57,862	$	17,499		$	9,821		$	39,431		$	44,200




Residential Group			6,218		4,079		14,278		10,548		6,507			16,484			26,153			38,781




Land Development Group			46		180		147		367		7,954			9,794			26,934			13,546




Lumber Trading Group			536		512		1,604		1,599		(487	)		843			(406	)		5,032




Corporate			639		355		1,615		1,042		(14,295	)		(11,602	)		(36,373	)		(35,315	)




Gain (loss) on disposition of operating properties and other investments			—		—		—		—		—			89,961			(116	)		91,224




Provision for decline in real estate			—		—		—		—		(957	)		(7,452	)		(957	)		(7,452	)

		$	31,723	$	24,271	$	86,907	$	71,418	$	16,221		$	107,849		$	54,666		$	150,016








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

Commercial Group										$	44,006		$	24,780		$	103,391		$	84,307




Residential Group											17,556			21,497			46,071			44,584




Land Development Group											1,783			5,732			10,589			6,311




Lumber Trading Group											(372	)		152			(431	)		2,698




Corporate											(12,466	)		(8,898	)		(25,640	)		(24,224	)

	Consolidated EBDT										50,507			43,263			133,980			113,676

Reconciliation of EBDT to net earnings:

Depreciation and amortization — Real Estate Groups											(32,256	)		(23,292	)		(88,507	)		(70,539	)




Deferred taxes — Real Estate Groups											(10,386	)		(6,278	)		(15,620	)		(11,116	)




Straight-line rent adjustment											1,869			1,709			3,000			4,694




Provision for decline in real estate, net of tax											(579	)		(5,127	)		(579	)		(5,127	)




Minority interest in provision for decline in real estate											—			1,574			—			1,574




Gain (loss) on disposition of operating properties and other investments, net of tax											—			54,357			(70	)		55,121




Gain on disposition reported on equity method, net of tax											—			392			—			3,434




Extraordinary loss, net of tax											(214	)		(870	)		(444	)		(233	)




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

Net earnings										$	8,941		$	65,728		$	31,760		$	90,282

(1)		The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the three months ended October 31, 2002 and 2001 were $614,410 and $653,557, respectively. Sales invoiced for the nine months ended October 31, 2002 and 2001 were $1,951,959 and $2,038,232, 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: 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, 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 nine months ended October 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 middle-market apartments in urban and suburban locations, adaptive re-use developments in urban locations and supported-living facilities. Real Estate Groups are the combined Commercial and Residential Groups. The Land Development Group acquires and sells both land and developed lots to residential, commercial and industrial customers. It also owns and develops land into master-planned communities and mixed-use projects. The Lumber Trading Group, a wholesaler, sells lumber to customers in all 50 states and Canadian provinces. The company has more than $4.8 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 October 31, 2002 grew by 16.7% to $50,507,000 from $43,263,000. For the nine months ended October 31, 2002, EBDT increased by 17.9% to $133,980,000 from $113,676,000. The increase in EBDT is primarily attributable to 23 new projects during the nine months ended October 31, 2002 and 12 new projects 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 third quarter of 2002 was $91,976,000 compared to $87,464,000 for the third quarter of 2001, a 5.2% increase. NOI for the Real Estate Groups under the full consolidation method for the nine months ended October 31, 2002 was $272,818,000 compared to $270,196,000 for the nine months ended October 31, 2001, a 1.0% increase.

Management analyzes property NOI using the pro-rata consolidation method and publicly discloses and discusses the Company’s performance using this method of consolidation to compliment its GAAP disclosures. Under the pro-rata consolidation method, NOI from the Real Estate Groups for the third quarter of 2002 was $95,287,000 compared to $86,585,000 for the third quarter of 2001, a 10.1% increase. NOI for the Real Estate Groups for the nine months ended October 31, 2002 was $272,167,000 compared to $257,751,000 for the nine months ended October 31, 2001, a 5.6% 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 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 nine months ended October 31, 2002 compared to the same periods in the prior year (dollars in thousands):


								Change From Prior Year Period
								Three Months Ended					Nine Months Ended

								October 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	$	4,617		$	2,495	$	14,642		$	6,732
Queens Place			Queens, NY		Q3 - 2001		462,000		1,978			725		6,479			2,381
Mall at Robinson			Pittsburgh, PA		Q3 - 2001		858,000		207	*		N/A		1,710	*		N/A
Mall at Stonecrest			Atlanta, GA		Q3 - 2001		1,209,000		1,657	*		N/A		1,550	*		N/A
Station Square - Bessemer Court			Pittsburgh, PA		Q2 - 2002		59,000		312			113		569			203
Quebec Square			Denver, CO		Q2 - 2002		675,000		217			46		217			46
Woodbridge Crossing			Woodbridge, NJ		Q3 - 2002		284,000		742			465		742			465
Harlem Center			Manhattan, NY		Q3 - 2002		126,000		283			57		283			57
Promenade in Temecula
	Expansion		Temecula, CA		Q3 - 2002		249,000		505			264		460			364
Galleria at Sunset Expansion			Henderson, NV		Q3 - 2002		117,000		158	*		N/A		292	*		N/A

Office Buildings:
65/80 Landsdowne			Cambridge, MA		Q3 - 2001		122,000		494			177		4,508			1,029
88 Sidney St			Cambridge, MA		Q2 - 2002		145,000		1,909			138		3,164			352
35 Landsdowne			Cambridge, MA		Q2 - 2002		202,000		2,432			231		2,432			231

		*Total*						$	15,511		$	4,711	$	37,048		$	11,860

* Revenues represent the change from prior year of the Company’s share of net earnings.
N/A — not applicable — property recorded under equity method of accounting.
(a) Acquired property

Revenues — Adjusted revenues in the third quarter of 2002 increased $15,564,000 or 11.2% over the same period of the prior year. This increase is primarily the result of $15,511,000 from acquisitions made and the opening of new properties as noted in the table above. Additionally, increases in net revenue resulted from the impact of the expansion at the Sheraton Station Square Hotel in Pittsburgh, Pennsylvania of $697,000, an increase of $4,841,000 in the Company’s remaining hotel portfolio due to a partial recovery of the travel industry from the prior year and an increase in construction fees at Twelve MetroTech Center in Brooklyn, New York of $2,229,000. These increases in revenues were partially offset by decreased commercial land sales of $1,275,000, a decrease of $4,100,000 from the nonrecurring sale in 2001 of a participating interest in a regional mall and a decrease due to a payment of past due rentals from a former tenant of $918,000 received in 2001 at Hunting Park in Philadelphia, Pennsylvania. The balance of the change in revenue in the Commercial Group, a decrease, of approximately $1,400,000 was generally due to fluctuations in mature properties.

Adjusted revenues increased $23,344,000 or 5.6% in the nine months ended October 31, 2002 compared to the same period in the prior year. This increase is primarily the result of $37,048,000 from acquisitions made and the opening of new properties as noted in the table above. Additionally, increases in revenues resulted from the impact of the expansion at the Sheraton Station Square Hotel of $3,028,000 and an increase in construction fees at Twelve MetroTech Center of $4,658,000. These increases in revenues were partially offset by $11,531,000 due to property dispositions in 2001 of Tucson Mall and Bowling Green Mall, a decrease due to a payment of past due rentals from a former tenant of $918,000 received in 2001 at Hunting Park, decreased commercial land sales of $2,077,000, a decrease of $4,100,000 from the nonrecurring sale in 2001 of a participating interest in a regional mall and as a result of a retail lease termination fee in 2001 of $3,500,000. The balance of the increase in revenue in the Commercial Group of approximately $700,000 was generally due to fluctuations in operations in mature properties.

Operating and Interest Expenses — During the third quarter of 2002, operating expenses excluding straight-line rent adjustments for the Commercial Group increased $5,580,000 or 7.0% over the same period in the prior year. The increase in operating expenses was attributable primarily to costs associated with acquisitions made and new properties opened of $4,711,000 as noted in the table above. Additional increases resulted from greater operating costs of $4,123,000 at three hotels due to the impact of expansion at Sheraton Station Square Hotel, the result of taking over the operation at the restaurant at Hilton Times Square Hotel and Embassy Suites Hotel, both in Manhattan, New York and as a result of the Embassy Suites Hotel being operational for the entire third quarter of 2002. Additionally, expenses increased in 2002 due to an accrual for the expected settlement of $1,834,000 to the prior manager and related obligations of the restaurant operations at the Company’s two New York hotels. Increased expenses were also noted in the remainder of the Company’s hotel portfolio compared to the same period last year of $809,000 due to increased occupancy rates and $2,191,000 from a nonrecurring participation payment associated with the ground lease at the Richards Building located in University Park at MIT in Cambridge, Massachusetts. These increases were partially offset by decreased abandoned development project write offs of $7,156,000, decreased expenses on commercial land sales of $335,000 and a $600,000 decrease due to fluctuation in operating costs at mature properties.

Interest expense decreased during the third quarter of 2002 for the Commercial Group by $3,472,000 or 11.5% from the same period in the prior year. The decrease is primarily attributable to the decline in interest rates in 2002.

During the nine months ended October 31, 2002, operating expenses, excluding straight-line rent adjustments for the Commercial Group increased $13,530,000 or 6.2% over the same period of the prior year. The increase in operating expenses was attributable primarily to costs associated with the acquisitions made and properties opened of $11,860,000 as noted in the table above, greater operating costs of $4,927,000 at three 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 and Embassy Suites Hotel as well as an accrual for an expected settlement of $1,834,000 to the prior manager and related obligations of the restaurant operations at the Company’s two New York hotels. Increased expenses of $602,000 were also noted in the remainder of the Company’s hotel portfolio compared to the same period last year due to increased occupancy rates. Additionally, costs increased for commercial land sales of $546,000 and $2,191,000 from a nonrecurring participation payment associated with the ground lease at the Richards Building located in University Park at MIT in Cambridge, Massachusetts. These increases were partially offset by a decrease of $6,905,000 as a result of property dispositions in 2001 of Tucson Mall and Bowling Green Mall and a decrease in abandoned development project write offs of $3,017,000. Additionally, operating expenses were lower in 2002 due to the nonrecurring costs in 2001 of $1,965,000 for lease buy-out costs in the retail portfolio. The balance of the increase in operating expenses of approximately $3,500,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense decreased during the nine months ended October 31, 2002 for the Commercial Group by $1,370,000 or 1.5% from the same period in the prior year. The decrease is primarily attributable to the decline in interest rates during 2002.

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 nine months ended October 31, 2002 compared to the same periods in the prior year (dollars in thousands):

Openings/Acquisitions


							Change From Prior Year Period
							Three Months Ended								Nine Months Ended

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

	Consolidated
Douglas Towers^(a)		Pikeville, KY		Q3 - 2002		151	$	104		$	44	$	104			$	44
Landings of Brentwood^(a)		Nashville, TN		Q2 - 2002		724		1,617			795		2,611				1,297
Autumn Ridge^(a)		Sterling Hts., MI		Q2 - 2002		251		577			283		577				283
Kent Towers^(a)		Kent, OH		Q2 - 2002		101		168			115		168				115
Cambridge Towers^(a)		Detroit, MI		Q2 - 2002		250		714			287		1,132				404
Heritage		San Diego, CA		Q1 - 2002		230		434			370		643				753
Coraopolis Towers^(a)		Coraopolis, PA		Q1 - 2002		200		395			221		781				419
Donora Towers^(a)		Donora, PA		Q1 - 2002		103		195			110		388				219
Chancellor Park^(a)		Philadelphia, PA		Q1 - 2002		135		1,046			1,098		3,066				3,446
Stony Brook Court^(a)		Darien, CT		Q3 - 2001		86		423			112		2,491				1,337
Pine Cove		Bayshore, NY		Q3 - 2001		85		1,047			658		2,640				2,027

	Unconsolidated*
Newport Landing^(b)		Coventry, OH		Q3 - 2002		336		(26	)		N/A		(39	)			N/A
Eaton Ridge^(b)		Sagamore Hills, OH		Q3 - 2002		260		24			N/A		63				N/A
St. Mary’s Villa^(a)		Newark, NJ		Q2 - 2002		360		35			N/A		121				N/A
Residences at University Park		Cambridge, MA		Q1 - 2002		135		(230	)		N/A		(373	)			N/A
Westwood Reserve^(a)		Tampa, FL		Q1 - 2002		340		105			N/A		321				N/A
Willow Court		Forest Hills, NY		Q3 - 2001		84		(191	)		N/A		(556	)			N/A
Parkwood Village^(b)		Brunswick, OH		Q2 - 2001		204		108			N/A		141				N/A
Lofts at 1835 Arch		Philadelphia, PA		Q1 - 2001		191		571			N/A		1,166				N/A

	*Total*						$	7,116		$	4,093	$	15,445			$	10,344

* Revenues represent the change from prior year of the Company’s share of net earnings (loss).
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 nine months ended October 31, 2002 compared to the same periods in the prior year (dollars in thousands):

Disposals


							Change From Prior Year Period
							Three Months Ended				Nine Months Ended

							October 31, 2002

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

Palm Villas		Henderson, NV		Q3 - 2001		350	$	456	$	309	$	1,987	$	895
Whitehall Terrace		Kent, OH		Q3 - 2001		188		29		87		815		347
Oaks		Bryan, TX		Q3 - 2001		248		245		233		909		686
Peppertree		College Station, TX		Q3 - 2001		208		215		200		848		475

	*Total*						$	945	$	829	$	4,559	$	2,403

Revenues — Revenues for the Residential Group decreased by $6,101,000, or 12.5% for the third quarter of 2002 over the same period in the prior year. These decreases were primarily the result of a decrease in the reversal of reserves for notes receivable and related accrued interest from syndications of $11,372,000. Additionally, revenues decreased by $543,000 from nonrecurring land sales and $945,000 from dispositions as noted in the second table above. Decreases also occurred from investment earnings of $348,000 in 101 San Fernando, a newly-constructed 323-unit community in lease-up in San Jose, California and $575,000 for Enclave, a 637-unit community in San Jose, California resulting from the over supply of rental property in the San Jose market. These decreases are partially offset by $7,116,000 from the acquisitions made and properties opened during fiscal 2001 and 2002 as noted in the first table above. Increases also occurred from earnings of $331,000 for Classic Residence by Hyatt, a newly-constructed 310-unit assisted living community in lease-up in Yonkers, New York accounted for on the equity method.

Revenues for the Residential Group decreased by $443,000, or .3% for the nine months ended October 31, 2002, over the same period in the prior year. These decreases were primarily the result of a decrease in the reversal of reserves for notes receivable and related accrued interest from syndications of approximately $7,003,000. Additionally, a decrease in revenues of $5,110,000 occurred from the nonrecurring gain on disposition in 2001 of Chapel Hill Towers in Akron, Ohio accounted for on the equity method. Revenues also decreased by $1,035,000 from nonrecurring land sales and $4,559,000 from dispositions as noted in the second table above. Decreases also occurred from investment earnings of $514,000 in 101 San Fernando, and $1,823,000 for Enclave, resulting from the over supply of rental property in the San Jose market. These decreases were partially offset by $15,445,000 from the acquisitions made and properties opened during fiscal 2001 and 2002 as noted in the first table above. Additionally, revenues increased from investment earnings from equity method investments of $680,000 in Grand, a 546-unit luxury high rise community in North Bethesda, Maryland, $408,000 in Lenox Club, a 385-unit luxury high rise community in Arlington, Virginia, $371,000 in Lenox Park, a 406-unit luxury high rise community in Silver Springs, Maryland, $667,000 in Drake, a newly rehabilitated 280-unit community under lease up in Philadelphia, Pennsylvania and $289,000 in Queenswood, a 296-unit community in Corona, New York. Increases also occurred from earnings of $930,000 for Classic Residence by Hyatt accounted for on the equity method and an increase in revenues of $835,000 primarily from increased supported living service fees and overall improved results of mature properties.

Operating and Interest Expenses — Operating expenses for the Residential Group decreased $629,000 or 2.9% during the third quarter of 2002 compared to the same period in the prior year. These decreases were primarily the result of decreases in abandoned development project write-offs in 2002 from 2001 of $2,739,000 and decreases in expenses of $829,000 due to dispositions of properties as noted in the second table above. Operating expenses also decreased by $355,000 at Colony Woods, a 396-unit community in Bellevue, Washington. Also occurring were decreases of $346,000 in expenses primarily associated with supported living service fee income and a $408,000 decrease in development expenses. The remaining decrease of approximately $45,000 was generally due to decreased operating costs of mature properties. These decreases are partially offset by $4,093,000 from the acquisitions made and properties opened during 2002 and 2001 as noted in the first table above.

Interest expense for the Residential Group for the third quarter of 2002 increased by $953,000 or 17.2% during the third quarter of 2002, 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 the dispositions of properties and lower variable interest rates.

Operating expenses for the Residential Group increased $6,749,000 or 12.6% during the nine months ended October 31, 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 totaling $10,344,000 as noted in the first table above. Additionally, expenses primarily associated with supported living service fee income increased by $444,000. The remaining increase of approximately $1,104,000 was generally due to increased operating costs of mature properties. These increases were partially offset by decreases in expenses of $2,403,000 due to dispositions of properties as noted in the second table above. Also occurring were decreases in 2002 from 2001 of abandoned development project write-offs of $2,740,000.

Interest expense for the Residential Group for the nine months ended October 31, 2002 increased by $327,000 or 1.8% compared to 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 the dispositions of properties 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 decreased by $3,116,000 in the third quarter of 2002 compared to the same period in the prior year. This decrease is primarily the result of decreases in land sales of $9,456,000 at four major land development projects: Central Station in Chicago, Illinois, Chestnut Lakes in Elyria, Ohio, Westwood Lakes in Tampa, Florida and Avalon in North Ridgeville, Ohio and several smaller sales decreases in projects in Cleveland, Ohio. The Westwood Lakes and Avalon properties have completely sold out. These decreases were partially offset by sales increases of $6,340,000 at four major land development projects: Stapleton in Denver, Colorado, Canterberry Crossing in Parker, Colorado, Silver Canyon in Henderson, Nevada and Waterbury in North Ridgeville, Ohio and several smaller sales increases in projects in Cleveland, Ohio.

Revenues for the Land Development Group increased by $31,280,000 in the nine months ended October 31, 2002 compared to the same period in the prior year. This increase is primarily the result of increases in land sales of $44,169,000 at four major land development projects: Stapleton, Canterberry Crossing, Waterbury and Willowbrook in Twinsburg, Ohio were combined with several smaller sales increases in projects in Cleveland, Ohio. These increases were partially offset by decreases of $14,384,000 at four major land development projects: Central Station, Chestnut Lakes, Westwood Lakes and Avalon combined with several smaller sales decreases. In addition, revenues increased by $1,495,000 as a result of the sale of land options at Paseo Del Este in El Paso, Texas.

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 decreased by $1,020,000 in the third quarter of 2002 compared to the same period in the prior year. This decrease is primarily due to decreases of $3,994,000 primarily at two land development projects Chestnut Lakes and Avalon along with several smaller expense decreases at various land development projects. These decreases were offset by increased combined expenses of $2,974,000 at Stapleton combined with several smaller expense increases at various land development projects.

Operating expenses increased by $18,062,000 in the nine months ended October 31, 2002 compared to the same period in the prior year. This increase is primarily due to increased combined expenses of $23,316,000 at three major land development projects: Stapleton, Willowbrook and Waterbury along with several smaller expense increases at various land development projects. These increases were offset by decreases of $5,254,000 primarily at three land development projects Chestnut Lakes, Westwood Lakes and Avalon along with several smaller expense decreases at various land development projects.

Interest expense decreased in the third quarter of 2002 compared to the same period in the prior year by $147,000. Interest expense increased in the nine months ended October 31, 2002 compared to the same period in the prior year by $47,000. 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 $3,738,000 in the third quarter of 2002 compared to the same period in the prior year. Revenues for the Lumber Trading Group decreased by $16,067,000 for the nine months ended October 31, 2002 compared to the same period in the prior year. The decreases are primarily due to an extreme downward movement of commodity lumber prices from early in the current fiscal year and continuing into the current quarter. The downward movement is the result of an extreme oversupply situation.

Operating and Interest Expenses — Operating expenses for the Lumber Trading Group decreased by $2,398,000 in the third quarter of 2002 compared to the same period in the prior year. Operating expenses for the Lumber Trading Group decreased by $10,090,000 in the nine months ended October 31, 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 decreased by $11,000 in the third quarter of 2002 compared to the same period in the prior year, and decreased $540,000 in the nine months ended October 31, 2002 compared to the same period in the prior year. These decreases are primarily due to a reduction in interest rates.

Corporate Activities

Revenues — Corporate Activities’ revenues increased $343,000 in the third quarter of 2002, and $649,000 for the nine months ended October 31, 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 $3,482,000 in the third quarter of 2002 and $5,124,000 for the nine months ended October 31, 2002 compared to the same periods in the prior year. This increase represents an increase in general corporate expenses. Interest expense decreased $446,000 in the third quarter of 2002, and $3,417,000 in the nine months ended October 31, 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

Gain (Loss) on Disposition of Operating Properties and Other Investments — During the nine months ended October 31, 2002, the Company recorded a loss on other investments of $116,000, or $70,000 net of estimated taxes.

During the three and nine months ended October 31, 2001, the Company recorded gains on the disposition of operating properties and other investments totaling $89,961,000 ($54,357,000 net of estimated taxes) and $91,224,000 ($55,121,000 net of estimated taxes), respectively. The Company recorded gains on the disposition of two shopping centers, Bowling Green Mall, located in Bowling Green, Kentucky, of $1,892,000 and Tucson Mall, located in Tucson, Arizona, of $86,096,000, both structure as tax-deferred exchanges. The Company also recognized gains on the disposition of three apartment communities, all structured as tax-deferred exchanges: Whitehall Terrace located in Kent, Ohio, for $1,105,000, Peppertree, located in College Station, Texas, for $1,682,000, and Palm Villas, located in Henderson, Nevada, for $7,259,000. A loss of $1,010,000 was recognized on the sale of The Oaks, an apartment community located in Bryan, Texas. The Company also recognized a loss from the sale of available-for-sale equity securities of $1,321,000 and a loss on other investments totaling $4,479,000.

Extraordinary Loss — During the three and nine months ended October 31, 2002, the Company recorded an extraordinary loss, net of tax, of $214,000($355,000 pre-tax) and $444,000 ($735,000 pre-tax), respectively, representing the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. The Company recorded extraordinary losses related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania, Autumn Ridge and Cambridge Towers, residential properties located in Michigan and Regency Towers, a residential property located in Jackson, New Jersey.

During the three and nine months ended October 31, 2001, the Company recorded an extraordinary loss, net of tax, of $870,000 ($1,440,000 pre-tax) and $233,000 ($386,000 pre-tax), respectively, representing the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. The Company recorded an extraordinary gain, net of tax, of $637,000 ($1,054,000 pre-tax) related to Enclave, a residential property located in San Jose, California, and an extraordinary loss, net of tax, of $870,000 ($1,440,000 pre-tax) related to Mount Vernon, a residential property located in Alexandria, Virginia.

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 nine months ended October 31, 2001.

Income Taxes — Income tax expense for the three months ended October 31, 2002 and 2001 totaled $7,009,000 and $44,460,000, respectively. Income tax expense for the nine months ended October 31, 2002 and 2001 totaled $20,703,000 and $59,797,000, respectively. Income tax expense for 2002 is less than 2001 due to pre-tax gains on nonrecurring property dispositions in 2001. At January 31, 2002, the Company had a tax loss carryforward of $50,552,000 that will expire in the years ending January 31, 2011 through 2022 and General Business Credits carryovers of $6,121,000 that will expire in the years ending January 31, 2004 through 2022 and an Alternative Minimum Tax credit carryforward of $28,732,000. The Company’s policy is to consider a variety of tax-planning 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 and dispositions of mature 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 October 31, 2002, the Company had $194,500,000 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 $87,500,000 as of October 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

($26,068,000 in letters of credit outstanding and $-0- surety bonds at October 31, 2002). The outstanding borrowings on 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 facilities provide, among other things, for: 1) at the Company’s election, interest rates of 2.125% over LIBOR or 1/2% over the prime rate except for the last $50,000,000 of borrowings in the case of the 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.

In order to mitigate the short-term variable interest rate risk on its long-term credit facilities, the Company has entered into LIBOR interest rate swaps and purchased LIBOR interest rate caps. One swap expires January 31, 2003 and effectively fixes the LIBOR rate at 4.38% for a notional amount of $75,000,000. Additional swaps in effect through January 31, 2004 which effectively fix the LIBOR rate at 1.78% for a notional amount of $56,250,000 beginning February 1, 2003, and effectively fix the LIBOR rate at 1.77% for a notional amount of $75,000,000 (purchased in November 2002) beginning December 1, 2002. The LIBOR interest rate caps have an average rate of 7.50% for 2002 and a notional amount of $47,400,000. LIBOR interest rate caps for 2003 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. LIBOR interest rate caps for 2004 were purchased at an average rate of 5.00% at a notional amount of $108,431,000 covering the period February 1, 2004 through August 1, 2004.

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 on identifying financing sources for both our nonrecourse debt that is coming due in 2002 and 2003 as well as new projects that will have mortgage needs. During the nine months ended October 31, 2002, the Company completed $632,941,000 in financings, including $137,571,000 in refinancings, $89,787,000 in acquisitions, $129,183,000 in extensions, and $276,400,000 for new development projects. For maturing debt, 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. For construction loans, the Company generally pursues floating rate financings with maturities ranging from two to five years.

Interest Rate Exposure

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


		Amount		Rate (1)

		(in thousands)
Fixed		$	1,921,980		7.26	%
Variable
	Taxable ⁽²⁾		825,893		4.70	%
	Tax-Exempt		105,600		2.95	%
UDAG			71,036		2.10	%

		$	2,924,509		6.25	%

(1) Reflects weighted average interest rate including both the base index and the lender margin.
(2) Taxable variable rate debt of $825,893 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 October 31, 2002 totals $171,761,000, out of a total commitment from lenders of $456,108,000. Of this outstanding debt, $119,761,000 is taxable variable-rate debt and $52,000,000 is tax-exempt variable-rate debt.

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)
11/01/02 - 02/01/03	$	614,968		7.40	%	$	456,351		2.99	%
02/01/03 - 02/01/04		824,396		6.60	%		202,579		2.74	%
02/01/04 - 02/01/05		262,822		6.92	%		70,573		4.26	%
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.

In order to protect against significant increases in long-term interest rates, the Company executes Treasury type products. The Company owns a Treasury Lock at the 10-year Treasury with a notional amount of $16,222,000 with a strike rate of 4.10% that expires on December 30, 2002. This Treasury Lock was executed in December 2002.

The Company generally does not hedge tax-exempt debt because, since 1990, the base rate of this type of financing has averaged 3.40% 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 annual pre-tax interest cost for the next 12 months of the Company’s taxable variable-rate debt by approximately $4,900,000 at October 31, 2002. This increase is net of the protection provided by the interest rate swaps and long-term LIBOR contracts in place as of October 31, 2002. Although tax-exempt rates generally increase in an amount that is smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt rates would increase the annual pre-tax interest cost for the next 12 months of the Company’s tax-exempt variable-rate debt by approximately $3,800,000 at October 31, 2002.

Lumber Trading Group Liquidity

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

At October 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 October 31, 2002, $2,064,000 was outstanding under these revolving lines of credit.

Lumber Trading Group has renewed its previous asset securitization 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 October 31, 2002 and 2001, the Financial Institution held an interest of $43,000,000 and $35,000,000, respectively, in the pool of receivables. Sales of accounts receivable have averaged $53,000,000 and $48,000,000 per month during the nine months ended October 31, 2002 and 2001, respectively.

To protect against risks associated with the variable interest rates on current and future borrowings on the liquidity banking agreement supporting the facility through which the pools of receivables are sold, the Lumber Trading Group entered into 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 December 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 $122,233,000 for the nine months ended October 31, 2002, and $44,599,000 for the nine months ended October 31, 2001. The increase in net cash provided by operating activities is the result of an increase of $78,510,000 in rents and other revenues received, an increase of $33,062,000 in proceeds from land sales and a decrease of $4,014,000 in interest paid. These increases were partially offset by an increase of $20,955,000 in operating expenditures, an increase of $6,886,000 in land development expenditures and a decrease in cash distributions from operations of unconsolidated entities of $10,111,000.

Net cash used in investing activities was $503,819,000 for the nine months ended October 31, 2002 and $145,693,000 for the nine months ended October 31, 2001. Capital expenditures totaled $433,997,000 and $303,785,000 (including both recurring and investment capital expenditures) in the nine months ended October 31, 2002 and 2001, respectively. These capital expenditures were financed with cash provided from operating activities, approximately $288,000,000 and $58,000,000 in new nonrecourse mortgage indebtedness incurred in the nine months ended October 31, 2002 and 2001 respectively, net borrowings under the long-term credit facility, cash on hand at the beginning of the year and, in 2001, net proceeds of $117,885,000 from the sale of common stock through a public offering of which $104,000,000 was used to repay borrowings on the long-term credit facility. During the nine months ended October 31, 2002, the Company invested $69,822,000 in investments in and

advances to real estate affiliates primarily related to the following development projects: Short Pump Town Center in Richmond, Virginia (a total of $28,851,000, half of which represents the Company's equity method investment for its 50% interest, and the other half an advance on behalf of the Company's partner), $23,111,000 in various projects in New York City, $3,625,000 for the acquisition of a 50% interest in Westwood Reserve apartments located in Tampa, Florida and $5,568,000 of equity invested in a 40% interest in Stone Gate at Bellefair, an assisted living project under construction in Ryebrook, NY. During the nine months ended October 31, 2001, the Company collected $190,011,000 from the sale of two retail properties, Bowling Green Mall and Tucson Mall, and four apartment projects, Whitehall Terrace, Peppertree, Palm Villas and The Oaks, all of which were partially used to reduce total mortgage debt by $111,952,000 (see “Mortgage Financings”). Additionally, the Company invested $31,919,000 in investments in and advances to real estate affiliates primarily related to New York City area urban retail development ($14,191,000) and four commercial retail centers: Mall at Stonecrest in Atlanta, Georgia ($1,896,000), Mall at Robinson in Pittsburgh, Pennsylvania ($949,000), Short Pump Town Center ($7,258,000) and Showcase in Las Vegas, Nevada ($1,992,000).

Net cash provided by financing activities totaled $373,183,000 for the nine months ended October 31, 2002 and $127,528,000 for the nine months ended October 31, 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 nine months ended October 31, 2002 also reflected a repayment of borrowings under the long-term credit facility of $90,500,000 from the proceeds of the new $100,000,000 term loan, a net decrease in notes payable of $5,430,000, a decrease in book overdrafts of $26,859,000, an increase in restricted cash of $4,631,000, payment of deferred financing costs of $7,897,000, proceeds of $3,089,000 from the exercise of stock options, payment of $7,933,000 for dividends and an increase of $5,799,000 in minority interest. Net cash provided by financing activities for the nine months ended October 31, 2001 also reflected a repayment of borrowings under the long-term credit facility of $104,000,000 from the proceeds of the sale of common stock, a net increase in notes payable of $5,714,000 primarily relating to an increase in net borrowings under the Lumber Trading Group’s lines of credit, an increase in restricted cash of $13,611,000 primarily related to the Stapleton project, an increase in book overdrafts of $9,969,000, payment of deferred financing costs of $10,600,000, proceeds of $3,909,000 from the exercise of stock options, payment of $5,741,000 of dividends and an increase of $14,586,000 in minority interest.

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.

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 per share, representing a 20% increase over the previous quarter’s dividend on shares of both Class A and Class B Common Stock was paid on September 17, 2002 to shareholders of record at the close of business on September 3, 2002. The third and fourth 2002 quarterly dividend of $.06 per share on shares of

both Class A and Class B Common Stock were declared on September 5, 2002 and December 6, 2002, respectively, and will be paid on December 16, 2002 and March 17, 2003, respectively, to shareholders of record at the close of business on December 2, 2002 and March 3, 2003, respectively.

LEGAL PROCEEDINGS

The Company is involved in various 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. The Company, although not a named defendant, was providing a defense in a lawsuit relating to Emporium, a retail and office development project in San Francisco. The lawsuit challenged our right to our entitlements under California environmental law. A verdict favorable to the Company was obtained in May 2001, an appeal was filed by the plaintiffs and was denied on September 30, 2002. A petition for rehearing was filed by the plaintiffs and was denied on October 28, 2002. The plaintiffs have filed a petition for review by the California Supreme Court. The Company is expecting this request will be denied and the litigation dismissed.

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.

In December 2002 the FASB issued Interpretation (FIN) No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This Interpretation elaborates on the disclosures to be made by the Company in its interim and annual financial statements about obligations under certain guarantees. The Interpretation also requires the Company to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The accounting requirements of this Interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of this Interpretation are effective for financial statements for interim or annual periods ending after December 15, 2002. The Company currently does not record the impact of guarantees at inception. Upon adoption of FIN No. 45, the Company will record a liability for guarantees issued after December 31, 2002 with the related offset dependent upon the facts and circumstances of the guarantees issued.

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 invesments, dependence on rental income from real property, conflicts of interest, competition, potential liability from syndicated properties, effects of uninsured loss, environmental liabilities, parnership risks, litigation risks, the rate revenue increases versus 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 Third Quarter Ended October 31, 2002
(in thousands)


	Commercial Group 2002

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

Revenues	$	154,625		$	32,022	$	27,137		$	149,740
Exclude straight-line rent adjustment		(3,232	)		—		—			(3,232	)
Add back equity method depreciation expense		3,497			—		(3,497	)		—

Adjusted revenues		154,890			32,022		23,640			146,508
Operating expenses, including depreciation and amortization for non-Real Estate Groups		86,247			19,645		14,275			80,877
Exclude straight-line rent adjustment		(1,363	)		—		—			(1,363	)

Operating expenses excluding straight-line rent adjustment		84,884			19,645		14,275			79,514
Minority interest in earnings before depreciation and amortization		4,157			4,157		—			—
Interest expense		26,594			8,220		9,365			27,739
Income tax (benefit) provision		(4,751	)		—		—			(4,751	)

		110,884			32,022		23,640			102,502

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	44,006		$	—	$	—		$	44,006

[Additional columns below]

[Continued from above table, first column(s) repeated]

Residential Group 2002

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 40,015 $ 1,841 $ 20,089 $ 58,263

Exclude straight-line rent adjustment
— — — —

Add back equity method depreciation expense
2,747 — (2,623 ) 124

Adjusted revenues
42,762 1,841 17,466 58,387

Operating expenses, including depreciation and amortization for non-Real Estate Groups
20,792 1,367 10,669 30,094

Exclude straight-line rent adjustment
— — — —

Operating expenses excluding straight-line rent adjustment
20,792 1,367 10,669 30,094

Minority interest in earnings before depreciation and amortization
94 94 — —

Interest expense
6,498 380 6,797 12,915

Income tax (benefit) provision
(2,178 ) — — (2,178 )

25,206 1,841 17,466 40,831

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 17,556 $ — $ — $ 17,556


	Land Development Group 2002

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

Revenues	$	15,194	$	894	$	6,274	$	20,574
Operating expenses, including depreciation and amortization for non-Real Estate Groups		6,823		579		5,690		11,934
Minority interest in earnings before depreciation and amortization		315		315		—		—
Interest expense		398		—		584		982
Income tax provision (benefit)		5,875		—		—		5,875

		13,411		894		6,274		18,791

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	1,783	$	—	$	—	$	1,783

[Additional columns below]

[Continued from above table, first column(s) repeated]

Lumber Trading Group 2002

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 23,296 $ — $ — $ 23,296

Operating expenses, including depreciation and amortization for non-Real Estate Groups
23,134 — — 23,134

Minority interest in earnings before depreciation and amortization
— — — —

Interest expense
649 — — 649

Income tax provision (benefit)
(115 ) — — (115 )

23,668 — — 23,668

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ (372 ) $ — $ — $ (372 )


	Corporate Activities 2002

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

Revenues	$	385		$	—	$	—	$	385
Exclude straight-line rent adjustment		—			—		—		—
Add back equity method depreciation expense		—			—		—		—

Adjusted revenues		385			—		—		385
Operating expenses, including depreciation and amortization for non-Real Estate Groups		7,919			—		—		7,919
Exclude straight-line rent adjustment		—			—		—		—

Operating expenses excluding straight-line rent adjustment		7,919			—		—		7,919
Minority interest in earnings before depreciation and amortization		—			—		—		—
Interest expense		6,761			—		—		6,761
Income tax (benefit) provision		(1,829	)		—		—		(1,829	)

		12,851			—		—		12,851

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(12,466	)	$	—	$	—	$	(12,466	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

Total 2002

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 233,515 $ 34,757 $ 53,500 $ 252,258

Exclude straight-line rent adjustment
(3,232 ) — — (3,232 )

Add back equity method depreciation expense
6,244 — (6,120 ) 124

Adjusted revenues
236,527 34,757 47,380 249,150

Operating expenses, including depreciation and amortization for non-Real Estate Groups
144,915 21,591 30,634 153,958

Exclude straight-line rent adjustment
(1,363 ) — — (1,363 )

Operating expenses excluding straight-line rent adjustment
143,552 21,591 30,634 152,595

Minority interest in earnings before depreciation and amortization
4,566 4,566 — —

Interest expense
40,900 8,600 16,746 49,046

Income tax (benefit) provision
(2,998 ) — — (2,998 )

186,020 34,757 47,380 198,643

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 50,507 $ — $ — $ 50,507

Reconciliation to net earnings:

Earnings before depreciation, amortization
and deferred taxes (EBDT)
$ 50,507 $ — $ — $ 50,507

Depreciation and amortization — Real Estate Groups
(32,256 ) — — (32,256 )

Deferred taxes — Real Estate Groups
(10,386 ) — — (10,386 )

Straight-line rent adjustment
1,869 — — 1,869

Provision for decline in real estate, net of tax
(579 ) — — (579 )

Extraordinary loss, net of tax
(214 ) — — (214 )

Net earnings
$ 8,941 $ — $ — $ 8,941

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Earnings before depreciation, Amortization and Deferred Taxes for the Nine Months Ended October 31, 2002
(in thousands)


	Commercial Group 2002

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

Revenues	$	436,254		$	88,938	$	77,542		$	424,858
Exclude straight-line rent adjustment		(7,824	)		—		—			(7,824	)
Add back equity method depreciation expense		10,868			—		(10,868	)		—

Adjusted revenues		439,298			88,938		66,674			417,034
Operating expenses, including depreciation and amortization for non-Real Estate Groups		237,706			50,979		44,015			230,742
Exclude straight-line rent adjustment		(4,824	)		—		—			(4,824	)

Operating expenses excluding straight-line rent adjustment		232,882			50,979		44,015			225,918
Minority interest in earnings before depreciation and amortization		13,537			13,537		—			—
Interest expense		89,853			24,422		22,659			88,090
Income tax (benefit) provision		(365	)		—		—			(365	)

		335,907			88,938		66,674			313,643

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	103,391		$	—	$	—		$	103,391

[Additional columns below]

[Continued from above table, first column(s) repeated]

Residential Group 2002

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 119,121 $ 5,444 $ 53,194 $ 166,871

Exclude straight-line rent adjustment
— — — —

Add back equity method depreciation expense
7,648 — (7,286 ) 362

Adjusted revenues
126,769 5,444 45,908 167,233

Operating expenses, including depreciation and amortization for non-Real Estate Groups
60,367 4,154 29,969 86,182

Exclude straight-line rent adjustment
— — — —

Operating expenses excluding straight-line rent adjustment
60,367 4,154 29,969 86,182

Minority interest in earnings before depreciation and amortization
288 288 — —

Interest expense
18,323 1,002 15,939 33,260

Income tax (benefit) provision
1,720 — — 1,720

80,698 5,444 45,908 121,162

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 46,071 $ — $ — $ 46,071


	Land Development Group 2002

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

Revenues	$	59,226	$	3,667	$	11,606	$	67,165
Operating expenses, including depreciation and amortization for non-Real Estate Groups		31,430		2,128		9,922		39,224
Minority interest in earnings before depreciation and amortization		1,539		1,539		—		—
Interest expense		807		—		1,684		2,491
Income tax provision		14,861		—		—		14,861

		48,637		3,667		11,606		56,576

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	10,589	$	—	$	—	$	10,589

[Additional columns below]

[Continued from above table, first column(s) repeated]

Lumber Trading Group 2002

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 72,896 $ — $ — $ 72,896

Operating expenses, including depreciation and amortization for non-Real Estate Groups
71,258 — — 71,258

Minority interest in earnings before depreciation and amortization
— — — —

Interest expense
2,044 — — 2,044

Income tax provision
25 — — 25

73,327 — — 73,327

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ (431 ) $ — $ — $ (431 )


	Corporate Activities 2002

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

Revenues	$	854			$	—	$	—	$	854
Exclude straight-line rent adjustment		—				—		—		—
Add back equity method depreciation expense		—				—		—		—
Adjusted revenues		854				—		—		854

Operating expenses, including depreciation and amortization for non-Real Estate Groups		18,018				—		—		18,018
Exclude straight-line rent adjustment		—				—		—		—

Operating expenses excluding straight-line rent adjustment		18,018				—		—		18,018
Minority interest in earnings before depreciation and amortization		—				—		—		—
Interest expense		19,209				—		—		19,209
Income tax (benefit) provision		(10,733	)			—		—		(10,733	)

		26,494				—		—		26,494

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(25,640	)		$	—	$	—	$	(25,640	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

Total 2002

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 688,351 $ 98,049 $ 142,342 $ 732,644

Exclude straight-line rent adjustment
(7,824 ) — — (7,824 )

Add back equity method depreciation expense
18,516 — (18,154 ) 362

Adjusted revenues
699,043 98,049 124,188 725,182

Operating expenses, including depreciation and amortization for non-Real Estate Groups
418,779 57,261 83,906 445,424

Exclude straight-line rent adjustment
(4,824 ) — — (4,824 )

Operating expenses excluding straight-line rent adjustment
413,955 57,261 83,906 440,600

Minority interest in earnings before depreciation and amortization
15,364 15,364 — —

Interest expense
130,236 25,424 40,282 145,094

Income tax (benefit) provision
5,508 — — 5,508

565,063 98,049 124,188 591,202

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 133,980 $ — $ — $ 133,980

Reconciliation to net earnings:

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 133,980 $ — $ — $ 133,980

Depreciation and amortization — Real Estate Groups
(88,507 ) — — (88,507 )

Deferred taxes — Real Estate Groups
(15,620 ) — — (15,620 )

Straight-line rent adjustment
3,000 — — 3,000

Provision for decline in real estate, net of tax
(579 ) — — (579 )

Loss on disposition of operating properties and other investments, net of tax
(70 ) — — (70 )

Extraordinary loss, net of tax
(444 ) — — (444 )

Net earnings
$ 31,760 $ — $ — $ 31,760

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Earnings Before Depreciation, Amortization and Deferred Taxes for the Third Quarter Ended October 31, 2001
(in thousands)


	Commercial Group 2001

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

Revenues	$	139,745			$	27,000	$	25,327		$	138,072
Exclude straight-line rent adjustment		(3,120	)			—		—			(3,120	)
Add back equity method depreciation expense		2,701				—		(2,701	)		—

Adjusted revenues		139,326				27,000		22,626			134,952
Operating expenses, including depreciation and amortization for non-Real Estate Groups		80,715				16,423		17,163			81,455
Exclude straight-line rent adjustment		(1,411	)			—		—			(1,411	)

Operating expenses excluding straight-line rent adjustment		79,304				16,423		17,163			80,044
Gain on disposition recorded on equity method		674				—		(674	)		—
Minority interest in earnings before depreciation and amortization		2,185				2,185		—			—
Interest expense		30,066				8,392		6,137			27,811
Income tax provision		2,317				—		—			2,317

		114,546				27,000		22,626			110,172

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	24,780			$	—	$	—		$	24,780

[Additional columns below]

[Continued from above table, first column(s) repeated]

Residential Group 2001

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 47,530 $ 1,583 $ 14,063 $ 60,010

Exclude straight-line rent adjustment
— — — —

Add back equity method depreciation expense
1,333 — (1,206 ) 127

Adjusted revenues
48,863 1,583 12,857 60,137

Operating expenses, including depreciation and amortization for non-Real Estate Groups
21,421 1,279 8,318 28,460

Exclude straight-line rent adjustment
— — — —

Operating expenses excluding straight-line rent adjustment
21,421 1,279 8,318 28,460

Gain on disposition recorded on equity method
(26 ) — 26 —

Minority interest in earnings before depreciation and amortization
(37 ) (37 ) — —

Interest expense
5,545 341 4,513 9,717

Income tax provision
463 — — 463

27,366 1,583 12,857 38,640

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 21,497 $ — $ — $ 21,497


	Land Development Group 2001

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

Revenues	$	18,310	$	669	$	5,833	$	23,474
Operating expenses, including depreciation and amortization for non-Real Estate Groups		7,843		360		5,188		12,671
Minority interest in earnings before depreciation and amortization		309		309		—		—
Interest expense		545		—		645		1,190
Income tax provision		3,881		—		—		3,881

		12,578		669		5,833		17,742

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	5,732	$	—	$	—	$	5,732

[Additional columns below]

[Continued from above table, first column(s) repeated]

Lumber Trading Group 2001

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 27,034 $ — $ — $ 27,034

Operating expenses, including depreciation and amortization for non-Real Estate Groups
25,532 — — 25,532

Minority interest in earnings before depreciation and amortization
— — — —

Interest expense
660 — — 660

Income tax provision
690 — — 690

26,882 — — 26,882

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 152 $ — $ — $ 152


	Corporate Activities 2001

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

Revenues	$	42		$	—	$	—	$	42
Exclude straight-line rent adjustment		—			—		—		—
Add back equity method depreciation expense		—			—		—		—

Adjusted revenues		42			—		—		42
Operating expenses, including depreciation and amortization for non-Real Estate Groups		4,437			—		—		4,437
Exclude straight-line rent adjustment		—			—		—		—

Operating expenses excluding straight-line rent adjustment		4,437			—		—		4,437
Gain on disposition recorded on equity method		—			—		—		—
Minority interest in earnings before depreciation and amortization		—			—		—		—
Interest expense		7,207			—		—		7,207
Income tax (benefit) provision		(2,704	)		—		—		(2,704	)

		8,940			—		—		8,940

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(8,898	)	$	—	$	—	$	(8,898	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

Total 2001

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 232,661 $ 29,252 $ 45,223 $ 248,632

Exclude straight-line rent adjustment
(3,120 ) — — (3,120 )

Add back equity method depreciation expense
4,034 — (3,907 ) 127

Adjusted revenues
233,575 29,252 41,316 245,639

Operating expenses, including depreciation and amortization for non-Real Estate Groups
139,948 18,062 30,669 152,555

Exclude straight-line rent adjustment
(1,411 ) — — (1,411 )

Operating expenses excluding straight-line rent adjustment
138,537 18,062 30,669 151,144

Gain on disposition recorded on equity method
648 — (648 ) —

Minority interest in earnings before depreciation and amortization
2,457 2,457 — —

Interest expense
44,023 8,733 11,295 46,585

Income tax (benefit) provision
4,647 — — 4,647

190,312 29,252 41,316 202,376

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 43,263 $ — $ — $ 43,263

Reconciliation to net earnings:

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 43,263 $ — $ — $ 43,263

Depreciation and amortization — Real Estate Groups
(23,292 ) — — (23,292 )

Deferred taxes — Real Estate Groups
(6,278 ) — — (6,278 )

Straight-line rent adjustment
1,709 — — 1,709

Provision for decline in real estate, net of tax
(5,127 ) (1,574 ) — (3,553 )

Minority interest in provision for decline in real estate
1,574 1,574 — —

Gain on disposition of operating properties and other investments, net of tax
54,357 — 392 54,749

Gain on disposition reported on equity method, net of tax
392 — (392 ) —

Extraordinary loss, net of tax
(870 ) — — (870 )

Net earnings
$ 65,728 $ — $ — $ 65,728

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


	Commercial Group 2001

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

Revenues	$	416,549		$	84,702	$	65,884		$	397,731
Exclude straight-line rent adjustment		(8,606	)		—		—			(8,606	)
Add back equity method depreciation expense		8,011			—		(8,011	)		—

Adjusted revenues		415,954			84,702		57,873			389,125
Operating expenses, including depreciation and amortization for non-Real Estate Groups		223,264			46,833		40,047			216,478
Exclude straight-line rent adjustment		(3,912	)		—		—			(3,912	)

Operating expenses excluding straight-line rent adjustment		219,352			46,833		40,047			212,566
Gain on disposition recorded on equity method		674			—		(674	)		—
Minority interest in earnings before depreciation and amortization		12,290			12,290		—			—
Interest expense		91,223			25,579		18,500			84,144
Income tax provision		8,108			—		—			8,108

		331,647			84,702		57,873			304,818

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	84,307		$	—	$	—		$	84,307

[Additional columns below]

[Continued from above table, first column(s) repeated]

Residential Group 2001

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 120,944 $ 4,359 $ 40,873 $ 157,458

Exclude straight-line rent adjustment
— — — —

Add back equity method depreciation expense
6,268 — (5,835 ) 433

Adjusted revenues
127,212 4,359 35,038 157,891

Operating expenses, including depreciation and amortization for non-Real Estate Groups
53,618 3,419 26,500 76,699

Exclude straight-line rent adjustment
— — — —

Operating expenses excluding straight-line rent adjustment
53,618 3,419 26,500 76,699

Gain on disposition recorded on equity method
5,007 — (5,007 ) —

Minority interest in earnings before depreciation and amortization
(55 ) (55 ) — —

Interest expense
17,996 995 13,545 30,546

Income tax provision
6,062 — — 6,062

82,628 4,359 35,038 113,307

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 44,584 $ — $ — $ 44,584


	Land Development Group 2001

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

Revenues	$	27,946	$	760	$	16,061	$	43,247
Operating expenses, including depreciation and amortization for non-Real Estate Groups		13,368		498		14,249		27,119
Minority interest in earnings before depreciation and amortization		262		262		—		—
Interest expense		760		—		1,812		2,572
Income tax provision		7,245		—		—		7,245

		21,635		760		16,061		36,936

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	6,311	$	—	$	—	$	6,311

[Additional columns below]

[Continued from above table, first column(s) repeated]

Lumber Trading Group 2001

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 88,963 $ — $ — $ 88,963

Operating expenses, including depreciation and amortization for non-Real Estate Groups
81,348 — — 81,348

Minority interest in earnings before depreciation and amortization
— — — —

Interest expense
2,584 — — 2,584

Income tax provision
2,333 — — 2,333

86,265 — — 86,265

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 2,698 $ — $ — $ 2,698


	Corporate Activities 2001

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

Revenues	$	205		$	—	$	—	$	205
Exclude straight-line rent adjustment		—			—		—		—
Add back equity method depreciation expense		—			—		—		—

Adjusted revenues		205			—		—		205
Operating expenses, including depreciation and amortization for non-Real Estate Groups		12,894			—		—		12,894
Exclude straight-line rent adjustment		—			—		—		—

Operating expenses excluding straight-line rent adjustment		12,894			—		—		12,894
Gain on disposition recorded on equity method		—			—		—		—
Minority interest in earnings before depreciation and amortization		—			—		—		—
Interest expense		22,626			—		—		22,626
Income tax (benefit) provision		(11,091	)		—		—		(11,091	)

		24,429			—		—		24,429

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(24,224	)	$	—	$	—	$	(24,224	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

Total 2001

Plus

Less Unconsolidated

Full Minority Investments at Pro-Rata

Consolidation Interest Pro-Rata Consolidation

Revenues
$ 654,607 $ 89,821 $ 122,818 $ 687,604

Exclude straight-line rent adjustment
(8,606 ) — — (8,606 )

Add back equity method depreciation expense
14,279 — (13,846 ) 433

Adjusted revenues
660,280 89,821 108,972 679,431

Operating expenses, including depreciation and amortization for non-Real Estate Groups
384,492 50,750 80,796 414,538

Exclude straight-line rent adjustment
(3,912 ) — — (3,912 )

Operating expenses excluding straight-line rent adjustment
380,580 50,750 80,796 410,626

Gain on disposition recorded on equity method
5,681 — (5,681 ) —

Minority interest in earnings before depreciation and amortization
12,497 12,497 — —

Interest expense
135,189 26,574 33,857 142,472

Income tax (benefit) provision
12,657 — — 12,657

546,604 89,821 108,972 565,755

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 113,676 $ — $ — $ 113,676

Reconciliation to net earnings:

   Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 113,676 $ — $ — $ 113,676

   Depreciation and amortization — Real Estate Groups
(70,539 ) — — (70,539 )

   Deferred taxes — Real Estate Groups
(11,116 ) — — (11,116 )

   Straight-line rent adjustment
4,694 — — 4,694

   Provision for decline in real estate, net of tax
(5,127 ) (1,574 ) — (3,553 )

   Minority interest in provision for decline in real estate
1,574 1,574 — —

   Gain on disposition of operating properties and other investments, net of tax
55,121 — 3,434 58,555

   Gain on disposition reported on equity method, net of tax
3,434 — (3,434 ) —

   Extraordinary loss, net of tax
(233 ) — — (233 )

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



   Net earnings
$ 90,282 $ — $ — $ 90,282

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure is interest rate risk. At October 31, 2002, the Company had $1,125,993,000 of variable-rate debt outstanding. This is inclusive of the $194,500,000 outstanding under its long-term credit facility. Upon opening and achieving stabilized operations, the Company generally pursues long-term, fixed-rate non-recourse financing for its rental properties. Additionally, when the properties’ fixed-rate debt matures, the maturing amounts are 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 and swaps as follows.


	Caps					Swaps (1)

Coverage	Amount		Average Rate			Amount			Average Rate

	(dollars in thousands)
11/01/02 - 02/01/03	$	662,368		7.41	%	$	531,351			3.18	%
02/01/03 - 02/01/04		900,047		6.51	%		333,829	⁽²⁾		2.36	%
02/01/04 - 02/01/05		371,253		6.36	%		70,573			4.26	%
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.
(2)		A swap in the amount of $75,000 was entered into November 2002.

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 October 31 and January 31, 2002 was $2,213,416,000 and $2,107,077,000, respectively, compared to an estimated fair value at October 31 and January 31, 2002 of $2,267,165,000 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 $2,395,223,000 and $2,196,736,000 at October 31 and January 31, 2002, respectively.

The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At October 31 and January 31, 2002, LIBOR interest rate caps and Treasury Options were reported at their fair value of approximately $358,000 and $1,600,000, respectively, in the Consolidated Balance Sheet as Other Assets. The fair value of interest rate swap agreements at October 31 and January 31, 2002 is an unrealized loss of $4,659,000 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.

October 31, 2002


									Expected Maturity Date

Long-Term Debt		2002			2003			2004			2005			2006			Thereafter

								*(dollars in thousands)*
Fixed:




	Fixed rate debt	$	11,226		$	61,075		$	49,188		$	124,934		$	396,794		$	1,278,763




	Weighted average interest rate		7.60	%		7.19	%		7.18	%		7.27	%		6.65	%		7.45	%





	UDAG		88			3,927			415			10,929			8,106			47,571




	Weighted average interest rate		0.03	%		3.65	%		0.61	%		3.87	%		0.03	%		1.93	%





	Senior & Subordinated Debt⁽¹⁾		—			—			—			—			—			220,400




	Weighted average interest rate																	8.48	%

Total Fixed Rate Debt			11,314			65,002			49,603			135,863			404,900			1,546,734

Variable:




	Variable rate debt		172,707			402,225			148,913			2,318			2,531			97,199




	Weighted average interest rate





	Tax Exempt		16,600			29,060			7,940			21,000			—			31,000




	Weighted average interest rate





	Credit Facility⁽¹⁾		6,250			25,000			25,000			25,000			113,250			—
	Weighted average interest rate

Total Variable Rate Debt			195,557			456,285			181,853			48,318			115,781			128,199

Total Long-Term Debt		$	206,871		$	521,287		$	231,456		$	184,181		$	520,681		$	1,674,933


				Total			Fair Market
				Outstanding			Value
				10/31/02			10/31/02


Fixed:




	Fixed rate debt	$	1,921,980		$	2,003,211




	Weighted average interest rate		7.26	%





	UDAG		71,036			48,266




	Weighted average interest rate		2.10	%





	Senior & Subordinated Debt⁽¹⁾		220,400			215,688




	Weighted average interest rate		8.48	%

Total Fixed Rate Debt			2,213,416			2,267,165

Variable:




	Variable rate debt		825,893			825,893




	Weighted average interest rate		4.70	%





	Tax Exempt		105,600			105,600




	Weighted average interest rate		2.95	%





	Credit Facility⁽¹⁾		194,500			194,500




	Weighted average interest rate		4.99	%

Total Variable Rate Debt			1,125,993			1,125,993

Total Long-Term Debt		$	3,339,409		$	3,393,158

(1) Represents recourse debt.

October 31, 2001


							Expected Maturity Date

Long-Term Debt		2001			2002			2003			2004			2005			Thereafter

								*(dollars in thousands)*
Fixed:




	Fixed rate debt	$	8,410		$	62,641		$	47,812		$	34,815		$	109,246		$	1,288,046




	Weighted average interest rate		7.74	%		7.66	%		7.38	%		7.44	%		7.27	%		7.50	%





	UDAG		43			241			763			508			11,042			56,197




	Weighted average interest rate		3.44	%		2.55	%		2.51	%		1.81	%		3.90	%		1.27	%





	Senior & Subordinated Debt⁽¹⁾		—			—			—			—			—			220,400




	Weighted average interest rate																	8.48	%

Total Fixed Rate Debt			8,453			62,882			48,575			35,323			120,288			1,564,643

Variable:




	Variable rate debt		272,246			185,747			275,495			21,462			320			96,031




	Weighted average interest rate





	Tax Exempt		9,750			44,400			—			—			—			—




	Weighted average interest rate





	Credit Facility⁽¹⁾		—			—			110,000			—			—			—
	Weighted average interest rate

Total Variable Rate Debt			281,996			230,147			385,495			21,462			320			96,031

Total Long-Term Debt		$	290,449		$	293,029		$	434,070		$	56,785		$	120,608		$	1,660,674


	Total			Fair Market
	Outstanding			Value
	10/31/01			10/31/01

Fixed:




Fixed rate debt	$	1,550,970		$	1,595,380




Weighted average interest rate		7.48	%





UDAG		68,794			40,682




Weighted average interest rate		1.71	%





Senior & Subordinated Debt⁽¹⁾		220,400			213,580




Weighted average interest rate		8.48	%

Total Fixed Rate Debt		1,840,164			1,849,642

Variable:




Variable rate debt		851,301			851,301




Weighted average interest rate		5.46	%





Tax Exempt		54,150			54,150




Weighted average interest rate		3.37	%





Credit Facility⁽¹⁾		110,000			110,000




Weighted average interest rate		6.34	%

Total Variable Rate Debt		1,015,451			1,015,451

Total Long-Term Debt	$	2,855,615		$	2,865,093

(1) Represents recourse debt.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on their evaluation, as of a date within 90 days prior to the date of the filing of this Form 10-Q, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) and 15(d)-14(c) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), the principal executive officer and principal financial officer of the Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal controls. Subsequent to the date of their evaluation, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various 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. The Company, although not a named defendant, was providing a defense in a lawsuit relating to Emporium, a retail and office development project in San Francisco. The lawsuit challenged our right to our entitlements under California environmental law. A verdict favorable to the Company was obtained in May 2001, an appeal was filed by the plaintiffs and was denied on September 30, 2002. A petition for rehearing was filed by the plaintiffs and was denied in October 28, 2002. The plaintiffs have filed a petition for review by the California Supreme Court. The Company is expecting this request will be denied and the litigation dismissed.

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

None.

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, incorporated by reference to Exhibit 10.25 to the Company’s Form 10-Q for the quarter ended July 31, 2002 (File No. 1-4372).

	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, incorporated by reference to Exhibit 10.31 to the Company’s Form 10-Q for the quarter ended July 31, 2002 (File No. 1-4372).

	10.32	-	Employment Agreement entered into on August 28, 2002, effective February 3, 2002, by the Company and Ronald A. Ratner, incorporated by reference to Exhibit 10.32 to the Company’s Form 10-Q for the quarter ended July 31, 2002 (File No. 1-4372).

	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).


Exhibit
Number			Description of Document

	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).

	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).

(b)

Reports on Form 8-K.

On September 11, 2002, the Company filed Form 8-K dated September 11, 2002 to report that in connection with the filing of Form 10-Q for the quarter ended July 31, 2002, the Chief Executive Officer and the Chief Financial Officer of the Company furnished certifications to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 December 12, 2002		/S/ THOMAS G. SMITH Thomas G. Smith Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)

Date December 12, 2002		/S/ LINDA M. KANE Linda M. Kane Senior Vice President and Corporate Controller (Principal Accounting Officer)

CERTIFICATION

I, Charles A. Ratner, certify that:

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

(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 issuer as of, and for, the periods presented in this quarterly report; and

(4) The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the issuer and have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the issuer’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and

(5) The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation, to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls; and

(6) The issuer’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: December 12, 2002

		/S/ CHARLES A. RATNER Name: Charles A. Ratner Title: President and Chief Executive Officer

CERTIFICATION

I, Thomas G. Smith, certify that:


Date:	December 12, 2002

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

	A.		Accounting Standards

			Accounting for Derivative Instruments and Hedging Activities

			During the three and nine months ended October 31, 2002 the Company recorded $19,000 and $204,000, respectively as an increase of interest expense in the Consolidated Statements of Earnings, which represented the total ineffectiveness of all cash flow hedges. During the three and nine months ended October 31, 2001 the Company recorded $-0- and $600,000, respectively as an increase of interest expense. 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 $58,000 and $738,000 for the three and nine months ended October 31, 2002, respectively, and was negligible for the three and nine months ended October 31, 2001. As of October 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 $2,282,000 net of tax.

			At October 31 and January 31, 2002, London Interbank Offering Rate (LIBOR) interest rate caps and Treasury Options were reported at their fair value of $358,000 and $1,600,000, respectively, in the Consolidated Balance Sheets as Other Assets. The fair value of interest rate swap agreements at October 31 and January 31, 2002 is an unrealized loss of $4,659,000 and $5,300,000, respectively, and included in Accounts Payable and Accrued Expenses in the Consolidated Balance Sheets.

			New Accounting Standards

	A.		Accounting Standards (continued)

			New Accounting Standards (continued)

			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.

			In December 2002 the FASB issued Interpretation (FIN) No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This Interpretation elaborates on the disclosures to be made by the Company in its interim and annual financial statements about obligations under certain guarantees. The Interpretation also requires the Company to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The accounting requirements of this Interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of this Interpretation are effective for financial statements for interim or annual periods ending after December 15, 2002. The Company currently does not record the impact of guarantees at inception. Upon adoption of FIN No. 45, the Company will record a liability for guarantees issued after December 31, 2002 with the related offset dependent upon the facts and circumstances of the guarantees issued.


(1)	The Company is a general partner in several syndicated residential partnerships which are accounted for on the equity method under both full consolidation and pro-rata consolidation. Summarized Balance Sheet information at the Company's economic share is as follows:


	October 31, 2002		January 31, 2002

Total Assets	$	538,544	$	526,231
Total Liabilities	$	446,420	$	447,796
Partners’ Equity	$	92,124	$	78,435

M.		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.


	Residential Group 2002

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

Revenues	$	40,015		$	1,841	$	20,089		$	58,263
Exclude straight-line rent adjustment		—			—		—			—
Add back equity method depreciation expense		2,747			—		(2,623	)		124

Adjusted revenues		42,762			1,841		17,466			58,387
Operating expenses, including depreciation and amortization for non-Real Estate Groups		20,792			1,367		10,669			30,094
Exclude straight-line rent adjustment		—			—		—			—

Operating expenses excluding straight-line rent adjustment		20,792			1,367		10,669			30,094
Minority interest in earnings before depreciation and amortization		94			94		—			—
Interest expense		6,498			380		6,797			12,915
Income tax (benefit) provision		(2,178	)		—		—			(2,178	)

		25,206			1,841		17,466			40,831

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	17,556		$	—	$	—		$	17,556


	Lumber Trading Group 2002

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

Revenues	$	23,296		$	—	$	—	$	23,296
Operating expenses, including depreciation and amortization for non-Real Estate Groups		23,134			—		—		23,134
Minority interest in earnings before depreciation and amortization		—			—		—		—
Interest expense		649			—		—		649
Income tax provision (benefit)		(115	)		—		—		(115	)

		23,668			—		—		23,668

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(372	)	$	—	$	—	$	(372	)


		Total 2002

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

Revenues		$	233,515		$	34,757		$	53,500			$	252,258
Exclude straight-line rent adjustment			(3,232	)		—			—				(3,232	)
Add back equity method depreciation expense			6,244			—			(6,120	)			124

Adjusted revenues			236,527			34,757			47,380				249,150
Operating expenses, including depreciation and amortization for non-Real Estate Groups			144,915			21,591			30,634				153,958
Exclude straight-line rent adjustment			(1,363	)		—			—				(1,363	)

Operating expenses excluding straight-line rent adjustment			143,552			21,591			30,634				152,595
Minority interest in earnings before depreciation and amortization			4,566			4,566			—				—
Interest expense			40,900			8,600			16,746				49,046
Income tax (benefit) provision			(2,998	)		—			—				(2,998	)

			186,020			34,757			47,380				198,643

Earnings before depreciation, amortization and deferred taxes (EBDT)		$	50,507		$	—		$	—			$	50,507

Reconciliation to net earnings:
	Earnings before depreciation, amortization and deferred taxes (EBDT)	$	50,507		$	—		$	—			$	50,507
	Depreciation and amortization — Real Estate Groups		(32,256	)		—			—				(32,256	)
	Deferred taxes — Real Estate Groups		(10,386	)		—			—				(10,386	)
	Straight-line rent adjustment		1,869			—			—				1,869
	Provision for decline in real estate, net of tax		(579	)		—			—				(579	)
	Extraordinary loss, net of tax		(214	)		—			—				(214	)

	Net earnings	$	8,941		$	—		$	—			$	8,941


	Residential Group 2001

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

Revenues	$	47,530		$	1,583		$	14,063		$	60,010
Exclude straight-line rent adjustment		—			—			—			—
Add back equity method depreciation expense		1,333			—			(1,206	)		127

Adjusted revenues		48,863			1,583			12,857			60,137
Operating expenses, including depreciation and amortization for non-Real Estate Groups		21,421			1,279			8,318			28,460
Exclude straight-line rent adjustment		—			—			—			—

Operating expenses excluding straight-line rent adjustment		21,421			1,279			8,318			28,460
Gain on disposition recorded on equity method		(26	)		—			26			—
Minority interest in earnings before depreciation and amortization		(37	)		(37	)		—			—
Interest expense		5,545			341			4,513			9,717
Income tax provision		463			—			—			463

		27,366			1,583			12,857			38,640

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	21,497		$	—		$	—		$	21,497


	Lumber Trading Group 2001

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

Revenues	$	27,034	$	—	$	—	$	27,034
Operating expenses, including depreciation and amortization for non-Real Estate Groups		25,532		—		—		25,532
Minority interest in earnings before depreciation and amortization		—		—		—		—
Interest expense		660		—		—		660
Income tax provision		690		—		—		690

		26,882		—		—		26,882

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	152	$	—	$	—	$	152


		Total 2001

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

Revenues		$	232,661		$	29,252		$	45,223		$	248,632
Exclude straight-line rent adjustment			(3,120	)		—			—			(3,120	)
Add back equity method depreciation expense			4,034			—			(3,907	)		127

Adjusted revenues			233,575			29,252			41,316			245,639
Operating expenses, including depreciation and amortization for non-Real Estate Groups			139,948			18,062			30,669			152,555
Exclude straight-line rent adjustment			(1,411	)		—			—			(1,411	)

Operating expenses excluding straight-line rent adjustment			138,537			18,062			30,669			151,144
Gain on disposition recorded on equity method			648			—			(648	)		—
Minority interest in earnings before depreciation and amortization			2,457			2,457			—			—
Interest expense			44,023			8,733			11,295			46,585
Income tax (benefit) provision			4,647			—			—			4,647

			190,312			29,252			41,316			202,376

Earnings before depreciation, amortization and deferred taxes (EBDT)		$	43,263		$	—		$	—		$	43,263

Reconciliation to net earnings:
	Earnings before depreciation, amortization and deferred taxes (EBDT)	$	43,263		$	—		$	—		$	43,263
	Depreciation and amortization — Real Estate Groups		(23,292	)		—			—			(23,292	)
	Deferred taxes — Real Estate Groups		(6,278	)		—			—			(6,278	)
	Straight-line rent adjustment		1,709			—			—			1,709
	Provision for decline in real estate, net of tax		(5,127	)		(1,574	)		—			(3,553	)
	Minority interest in provision for decline in real estate		1,574			1,574			—			—
	Gain on disposition of operating properties and other investments, net of tax		54,357			—			392			54,749
	Gain on disposition reported on equity method, net of tax		392			—			(392	)		—
	Extraordinary loss, net of tax		(870	)		—			—			(870	)

	Net earnings	$	65,728		$	—		$	—		$	65,728

(a)		Evaluation of disclosure controls and procedures. Based on their evaluation, as of a date within 90 days prior to the date of the filing of this Form 10-Q, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) and 15(d)-14(c) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), the principal executive officer and principal financial officer of the Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

(b)		Changes in internal controls. Subsequent to the date of their evaluation, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses.

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

(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 issuer as of, and for, the periods presented in this quarterly report; and

(4)		The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the issuer and have:

	(a)		designed such disclosure controls and procedures to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	(b)		evaluated the effectiveness of the issuer’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	(c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and

	(a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls; and

	(b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls; and